HSBC 2008 Annual Report Download - page 362

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Notes 3, 4 and 5
360
3 Net income from financial instruments designated at fair value
Net income from financial instruments designated at fair value includes:
• all gains and losses from changes in the fair value of financial assets and liabilities designated at fair value,
including liabilities under investment contracts;
• all gains and losses from changes in the fair value of derivatives that are managed in conjunction with financial
assets and liabilities designated at fair value; and
• interest income, interest expense and dividend income in respect of:
– financial assets and liabilities designated at fair value; and
– derivatives managed in conjunction with the above,
except for interest arising from HSBC’s issued debt securities and derivatives managed in conjunction with those
debt securities, which is recognised in ‘Interest expense’.
2008 2007 2006
US$m US$m US$m
Net income/(expense) arising on:
– financial assets held to meet liabilities under insurance and
investment contracts ....................................................................................... (5,064) 2,056 1,552
– other financial assets designated at fair value ................................................ 1,738 581 217
– derivatives managed in conjunction with financial assets
designated at fair value ................................................................................... 77 (18) 57
(3,249) 2,619 1,826
– liabilities to customers under investment contracts ....................................... 1,751 (940) (1,008)
– HSBC’s long-term debt issued and related derivatives ................................. 6,679 2,812 (35)
– changes in own credit spread on long-term debt ....................................... 6,570 3,055 (388)
– derivatives managed in conjunction with HSBC’s issued debt securities 4,413 2,476 242
– other changes in fair value ......................................................................... (4,304) (2,719) 111
– other financial liabilities designated at fair value .......................................... (1,368) (395) (125)
– derivatives managed in conjunction with other financial liabilities designated
at fair value ..................................................................................................... 39 (13) (1)
7,101 1,464 (1,169)
Net income from financial instruments designated at fair value ........................ 3,852 4,083 657
4 Gains arising from dilution of interests in associates
Gains arising
from dilution
of HSBC’s
interests
HSBC’s
interests after
issue of
new shares
HSBC’s
interests before
issue of
new shares
US$m % %
2007
Industrial Bank1 ............................................................................................... 187 12.78 15.98
Ping An Insurance ........................................................................................... 485 16.78 19.90
Bank of Communications2 ............................................................................... 404 18.60 19.90
Financiera Independencia S.A. de C.V. .......................................................... 11 18.68 19.90
Vietnam Technological and Commercial Joint Stock Bank ........................... 5 14.44 15.00
Gains arising from dilution of interests in associates ..................................... 1,092
1 Investment held through Hang Seng Bank, a 62.14 per cent owned subsidiary of HSBC. The dilution gains therefore include a minority
interest of US$71 million.
2 Subsequent to the dilution of its interests in Bank of Communications, HSBC increased its holding from 18.60 per cent to 19.01 per cent
at 31 December 2007 (Note 21).
In 2007, certain HSBC associates issued new shares. HSBC did not subscribe and, as a result, its interests in the
associates’ equity decreased. The assets of each associate substantially increased as a result of the new share issue
and, as a consequence, HSBC’s share of the associates’ underlying net assets increased notwithstanding the reduction
in the Group’s proportionate ownership interests. This increase is a gain arising from the dilution of the Group’s
interests in the associates, and is presented in the income statement.