HSBC 2012 Annual Report Download - page 147

145
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
However, as there is no intention to settle these
balances on a net basis under normal circumstances,
they do not qualify for net presentation for
accounting purposes.
Financial investments
Maximum exposure to financial investments
increased by 6% compared with the end of 2011.
This largely reflected the deployment of surplus
liquidity into available-for-sale investments, notably
treasury bills in Hong Kong and highly-rated debt
securities in North America.
Trading assets
In 2012, our exposure to trading assets rose by 19%
reflecting increased client activity compared with the
subdued levels seen in 2011. This resulted in higher
reverse repo balances in Europe and North America,
and higher securities borrowing balances in Rest of
Asia-Pacific and Europe, which vary in line with
levels of trading activity.
Cash and balances at central banks
The Group’s maximum exposure to cash and
balances at central banks increased by 9%, driven
by redeployment of excess liquidity in Europe and
Hong Kong to central banks. This reflected the
Group’s risk appetite coupled with growth in
customer deposit balances. In North America, we
reduced balances at the US Federal Reserve as
surplus liquidity was redeployed into highly-rated
financial investments.
Derivatives
Our maximum exposure to derivatives increased
slightly, primarily reflecting a rise in the fair value
of interest rate derivative contracts in Europe and,
to a lesser extent, in the US due to downward
movements in yield curves in major currencies.
This was partly offset by a decrease in the fair value
of credit derivative contracts, primarily in Europe
and the US, as credit spreads tightened. Nearly half
of all trades are exchange traded or otherwise settled
centrally, the majority of these being interest rate
derivatives.
The derivative offset amount in the table on
page 146 relates to exposures where the counterparty
has an offsetting derivative exposure with HSBC, a
master netting arrangement is in place and the credit
risk exposure is managed on a net basis, or the
position is specifically collateralised, normally in
the form of cash. At 31 December 2012, the total
amount of such offsets was US$311bn (2011:
US$306bn), of which US$270bn (2011: US$272bn)
were offsets under a master netting arrangement,
US$39bn (2011: US$33bn) was collateral received
in cash and US$1.8bn (2011: US$0.7bn) was other
collateral. These amounts do not qualify for net
presentation for accounting purposes as settlement
is not intended to be made on a net basis.
Other credit risk mitigants
While not disclosed as offset in the maximum
exposure to credit risk table on page 146, other
arrangements including short positions in securities
and financial assets held as part of linked insurance/
investment contracts where the risk is predominately
borne by the policyholder, reduce our maximum
exposure to credit risk. In addition, we hold
collateral in respect of individual loans and advances
(see page 163).
Loans and other credit-related commitments
Loans and other credit-related commitments remain
well diversified across geographical regions. For
more details, see page 146.
Counterparty analysis of notional contract amounts of derivatives by product type
(Unaudited)
Traded over the counter
Traded on
recognised
exchanges
Settled by
central
counterparties
Not settled
by central
counterparties Total
US$m US$m US$m US$m
At 31 December 2012
HSBC
Foreign exchange .......................................................................... 27,869 11,156 4,413,532 4,452,557
Interest rate ................................................................................... 837,604 12,316,673 8,459,665 21,613,942
Equity ............................................................................................ 225,452 − 270,216 495,668
Credit ............................................................................................ − 73,281 828,226 901,507
Commodity and other ................................................................... 19,006 − 61,213 80,219
1,109,931 12,401,110 14,032,852 27,543,893
The purpose for which HSBC uses derivatives is set out in Note 19 on the Financial Statements.