HSBC 2010 Annual Report Download - page 360

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
41 – Contingent liabilities, contractual commitments and guarantees / 42 – Lease commitments
358
41 Contingent liabilities, contractual commitments and guarantees
HSBC HSBC Holdings
2010 2009 2010 2009
US$m US$m US$m US$m
Guarantees and contingent liabilities
Guarantees and irrevocable letters of credit pledged as
collateral security ..................................................................... 71,157 73,385 46,988 35,073
Other contingent liabilities ........................................................... 166 174 – –
71,323 73,559 46,988 35,073
Commitments
Documentary credits and short-term trade-related transactions ... 12,051 9,066 – –
Forward asset purchases and forward forward deposits placed ... 30 192 – –
Undrawn formal standby facilities, credit lines and other
commitments to lend ................................................................ 590,432 548,792 2,720 3,240
602,513 558,050 2,720 3,240
The above table discloses the nominal principal amounts of commitments excluding capital commitments, which are
separately disclosed below, guarantees and other contingent liabilities; mainly credit-related instruments including
both financial and non-financial guarantees and commitments to extend credit. Contingent liabilities arising from
legal proceedings and regulatory matters against the Group are disclosed in Note 44. Nominal principal amounts
represent the amounts at risk should contracts be fully drawn upon and clients default. The amount of the loan
commitments shown above reflects, where relevant, the expected level of take-up of pre-approved loan offers made
by mailshots to personal customers. As a significant portion of guarantees and commitments is expected to expire
without being drawn upon, the total of the nominal principal amounts is not representative of future liquidity
requirements.
Guarantees
HSBC provides guarantees and similar undertakings on behalf of both third-party customers and other entities within
the HSBC Group. These guarantees are generally provided in the normal course of HSBC’s banking business. The
principal types of guarantees provided, and the maximum potential amount of future payments which HSBC could be
required to make at 31 December 2010, were as follows:
At 31 December 2010 At 31 December 2009
Guarantees in
favour of
third parties
Guarantees
by HSBC
Holdings
in favour of
other HSBC
Group entities
Guarantees
in favour of
third parties
Guarantees
by HSBC
Holdings
in favour of
other HSBC
Group entities
US$m US$m US$m US$m
Guarantee type
Guarantees of indebtedness including financial guarantees1
and guarantees of a capital nature ............................................. 21,175 46,988 23,558 35,073
Standby letters of credit that are financial guarantees ................. 8,033 – 10,712 –
Other direct credit substitutes2 ...................................................... 6,555 – 4,676 –
Performance bonds3 ...................................................................... 15,367 – 14,468 –
Bid bonds3 ..................................................................................... 927 – 728 –
Standby letters of credit related to particular transactions3 .......... 6,263 – 4,944 –
Other transaction-related guarantees3 ........................................... 12,746 – 13,577 –
Other items .................................................................................... 91 – 722 –
71,157 46,988 73,385 35,073
1 Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred
because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.
2 Other direct credit substitutes include re-insurance letters of credit and trade-related letters of credit issued without provision for the
issuing entity to retain title to the underlying shipment.
3 Performance bonds, bid bonds, standby letters of credit and other transaction-related guarantees are undertakings by which the
obligation on HSBC to make payment depends on the outcome of a future event.