HSBC 2010 Annual Report Download - page 350

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
34 – Subordinated liabilities
348
1 Approximately 25% of the 6.676% senior subordinated notes 2021 is held by HSBC Holdings.
2 See ‘Step-up perpetual preferred securities’ below, note (a) ‘Guaranteed by HSBC Holdings’.
3 See ‘Step-up perpetual preferred securities’ below, note (b) ‘Guaranteed by HSBC Bank’.
4 On 15 February 2011, HSBC gave notice to holders of its €800m callable subordinated floating rate notes 2016 and its €600m 4.25%
callable subordinated notes 2016 that it will call and redeem the notes at par on 29 March 2011 and 18 March 2011, respectively.
5 The distributions on the trust preferred securities change in November 2015 to three-month dollar LIBOR plus 1.926%.
6 The interest rate on the 4.75% callable subordinated notes 2020 changes in September 2015 to three-month sterling LIBOR plus
0.82%.
7 The interest margin on the callable subordinated floating rate notes 2020 increases by 0.5% from September 2015.
8 The interest rate on the callable subordinated variable coupon notes 2017 is fixed at 5.75% until June 2012. Thereafter, the rate per
annum is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.70%.
9 The interest rate on the 5.00% callable subordinated notes 2023 changes in March 2018 to become the rate per annum which is the
sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.80%.
10 The interest rate on the 5.375% callable subordinated step-up notes 2030 changes in November 2025 to three-month sterling LIBOR
plus 1.50%.
11 The interest margin on the US$450m callable subordinated floating rate notes 2016 increases by 0.5% from July 2011.
12 The interest margin on the callable subordinated floating rate notes 2017 increases by 0.5% from July 2012.
13 The interest margin on the callable subordinated floating rate notes 2016 increases by 0.5% from May 2011.
14 In June 2010, HSBC redeemed its 9.547% non-cumulative step-up preferred securities, series 1 at par.
Footnotes 4 to 13 relate to notes that are repayable at the option of the borrower on the date of the change of the interest rate, and at
subsequent interest rate reset dates and interest payment dates in some cases, subject to prior notification to the Financial Services
Authority and, where relevant, the consent of the local banking regulator.
Step-up perpetual preferred securities
(a) Guaranteed by HSBC Holdings
The six issues of non-cumulative step-up perpetual preferred securities (footnote 2) were made by Jersey limited
partnerships and are guaranteed, on a subordinated basis, by HSBC Holdings. The proceeds of the issues were
on-lent to HSBC Holdings by the limited partnerships by issue of subordinated notes. The preferred securities
qualify as tier 1 hybrid capital for HSBC. The preferred securities, together with the guarantee, are intended to
provide investors with rights to income and capital distributions and distributions upon liquidation of HSBC
Holdings that are equivalent to the rights that they would have had if they had purchased non-cumulative
perpetual preference shares of HSBC Holdings.
The preferred securities are perpetual, but redeemable in 2014, 2013, 2016, 2030, 2012 and 2015, respectively,
at the option of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up
and become floating rate or, for the sterling issue, for each successive five-year period the sum of the then five-
year benchmark UK gilt plus a margin. There are limitations on the payment of distributions if prohibited under
UK banking regulations or other requirements, if a payment would cause a breach of HSBC’s capital adequacy
requirements, or if HSBC Holdings has insufficient distributable reserves (as defined).
HSBC Holdings has covenanted that if it is prevented under certain circumstances from paying distributions on
the preferred securities in full, it will not pay dividends or other distributions in respect of its ordinary shares, or
effect repurchase or redemption of its ordinary shares, until after a distribution has been paid in full.
If (i) HSBC’s total capital ratio falls below the regulatory minimum ratio required, or (ii) the Directors expect
that, in view of the deteriorating financial condition of HSBC Holdings, the former will occur in the near term,
then the preferred securities will be substituted by preference shares of HSBC Holdings having economic terms
which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.
(b) Guaranteed by HSBC Bank
The two issues of non-cumulative step-up perpetual preferred securities (footnote 3) were made by Jersey limited
partnerships and are guaranteed, on a subordinated basis, by HSBC Bank. The proceeds of the issues were on-
lent to HSBC Bank by the limited partnerships by issue of subordinated notes. The preferred securities qualify as
tier 1 hybrid capital for HSBC and for HSBC Bank on a solo and consolidated basis and, together with the
guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon
liquidation of HSBC Bank that are equivalent to the rights they would have had if they had purchased non-
cumulative perpetual preference shares of HSBC Bank.
The two issues of preferred securities are perpetual, but redeemable in 2031 and 2020, respectively, at the option
of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become
floating rate. The same limitations on the payment of distributions apply to HSBC Bank as to HSBC Holdings,