HSBC 2009 Annual Report Download - page 191

189
Securitisations
HSBC uses SPEs to securitise customer loans and
advances that it has originated, mainly in order to
diversify its sources of funding for asset origination
and for capital efficiency purposes. In such cases, the
loans and advances are transferred by HSBC to the
SPEs for cash, and the SPEs issue debt securities
to investors to fund the cash purchases. Credit
enhancements to the underlying assets may be used
to obtain investment grade ratings on the senior debt
issued by the SPEs. HSBC has also established
securitisation programmes in the US and Germany
where loans originated by third parties are
securitised. Most of these vehicles are not
consolidated by HSBC as it is not exposed to the
majority of risks and rewards of ownership in the
SPEs. In 2009, demand for the securitised products
remained low.
In addition, HSBC uses SPEs to mitigate the
capital absorbed by some of the customer loans and
advances it has originated. Credit derivatives are
used to transfer the credit risk associated with such
customer loans and advances to an SPE, using
securitisations commonly known as synthetic
securitisations. These SPEs are consolidated when
HSBC is exposed to the majority of risks and
rewards of ownership.
Total assets of HSBC’s securitisations which are on-
balance sheet, by balance sheet classification
At 31 December
2009 2008
US$bn US$bn
Trading assets ............................ 0.9 1.3
Loans and advances to customers 35.4 50.8
Other assets ................................ 1.4 1.1
Derivatives ................................. 1.2 1.4
38.9 54.6
These assets include US$0.9 billion (2008:
US$1.3 billion) of exposure to US sub-prime
mortgages.
Total assets of HSBC’s securitisations which are
off-balance sheet
2009 2008
US$bn US$bn
HSBC originated assets .............. 0.6 0.6
Non-HSBC originated assets:
– term securitisation
programmes ......................... 10.5 13.5
11.1 14.1
HSBC’s financial investments in off-balance
sheet securitisations at 31 December 2009 amounted
to US$0.1 billion (2008: US$0.2 billion). These
assets include assets which are classified as
available-for-sale securities and measured at fair
value, and have been securitised by HSBC under
arrangements by which HSBC retains a continuing
involvement in them. Further details are provided in
Note 20 on the Financial Statements.
HSBC’s maximum exposure
The maximum exposure is the aggregate of any
holdings of notes issued by these vehicles and the
reserve account positions intended to provide credit
support under certain pre-defined circumstances to
senior note holders. HSBC is not obligated to
provide further funding. At 31 December 2009,
HSBC’s maximum exposure to consolidated and
unconsolidated securitisations amounted to
US$8.0 billion (2008: US$8.0 billion).
Other
HSBC also establishes SPEs in the normal course
of business for a number of purposes, for example,
structured credit transactions for customers to
provide finance to public and private sector
infrastructure projects, and for asset and structured
finance (‘ASF’) transactions.
Structured credit transactions
HSBC provides structured credit transactions to
third-party professional and institutional investors
who wish to obtain exposure, sometimes on a
leveraged basis, to a reference portfolio of debt
instruments. In such structures, the investor receives
returns referenced to the underlying portfolio by
purchasing notes issued by the SPEs. HSBC enters
into contracts with the SPEs, generally in the form of
derivatives, in order to pass the required risks and
rewards of the reference portfolios to the SPEs.
HSBC’s risk in relation to the derivative contracts
with the SPEs is managed within HSBC’s trading
market risk framework (see ‘Market risk’ on
page 250).
In certain transactions HSBC is exposed to risk
often referred to as gap risk. Gap risk typically arises
in transactions where the aggregate potential claims
against the SPE by HSBC pursuant to one or more
derivatives could be greater than the value of the
collateral held by the SPE and securing such
derivatives. HSBC often mitigates such gap risk by
incorporating in the SPE transaction features which