HSBC 2008 Annual Report Download - page 242

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Liquidity and funding > HSBC Holdings // Market risk > Sensitivity / VAR
240
HSBC Holdings
(Audited)
HSBC Holdings’ primary sources of cash are interest
and capital receipts from its subsidiaries, which it
deploys in short-term bank deposits. HSBC
Holdings’ primary uses of cash are investments in
subsidiaries, interest payments to debt holders and
dividend payments to shareholders. On an ongoing
basis, HSBC Holdings replenishes its liquid
resources through the receipt of interest on, and
repayment of, intra-group loans, from dividends paid
by subsidiaries and from interest earned on its own
liquid funds.
HSBC Holdings is also subject to contingent
liquidity risk by virtue of loan commitments and
guarantees given. Such commitments are only
provided after due consideration of HSBC Holdings’
ability to finance these commitments and the
likelihood of the need arising.
HSBC Holdings actively manages the cash
flows from its subsidiaries to optimise the amount of
cash held at the holding company level, and expects
to continue doing so in the future. The ability of its
subsidiaries to pay dividends or advance monies to
HSBC Holdings depends on, among other things,
their respective regulatory capital requirements,
statutory reserves, and financial and operating
performance. The wide range of HSBC’s activities
means that HSBC Holdings is not dependent on a
single source of profits to fund its dividend payments
to shareholders. HSBC Holdings believes that, with
its accumulated liquid assets, planned dividends and
interest from subsidiaries it will be able to meet
anticipated cash obligations. Also, during 2008
HSBC Holdings continued to have full access to
capital markets at market rates and issued
US$8.8 billion of capital instruments (2007:
US$4.4 billion).
Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities
(Audited)
On
demand
Due
within 3
months
Due
between
3 and 12
months
Due
between
1 and 5
years
Due
after 5
years
US$m US$m US$m US$m US$m
At 31 December 2008
Amounts owed to HSBC undertakings ................... – 133 539 3,590 –
Financial liabilities designated at fair value ............ – 587 1,762 5,977 25,571
Derivatives ............................................................... 1,324 – – – –
Subordinated liabilities ............................................ – 235 706 3,764 32,214
Other financial liabilities ......................................... – 1,805 – – –
1,324 2,760 3,007 13,331 57,785
Loan commitments .................................................. 3,241 – – – –
4,565 2,760 3,007 13,331 57,785
At 31 December 2007
Amounts owed to HSBC undertakings ................... – 109 1,801 1,192 –
Financial liabilities designated at fair value ............ – 258 776 8,152 28,639
Derivatives ............................................................... 44 – – – –
Subordinated liabilities ............................................ – 160 482 2,568 23,069
Other financial liabilities ......................................... – 1,398 – – –
44 1,925 3,059 11,912 51,708
Loan commitments .................................................. 3,638 – – – –
3,682 1,925 3,059 11,912 51,708
The balances in the above table will not agree
directly with the balances in the balance sheet of
HSBC Holdings as the table incorporates, on an
undiscounted basis, all cash flows relating to
principal and all future coupon payments (except for
trading derivatives).
Also, loan commitments are generally not
recognised on the balance sheet. Trading derivatives
are included in the ‘On demand’ time bucket, and not
by contractual maturity, because trading derivatives
are typically held for short periods of time. The
undiscounted cash flows on hedging derivative
liabilities are classified according to their contractual
maturity.