HSBC 2012 Annual Report Download - page 154

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > Personal lending / Wholesale lending
152
Valuation of foreclosed properties in the US
We obtain real estate by foreclosing on the collateral pledged
as security for residential mortgages. Prior to foreclosure,
carrying amounts of the loans in excess of fair value less costs
to sell are written down to the discounted cash flows expected
to be recovered, including from the sale of the property.
Broker price opinions are obtained and updated every 180 days
and real estate price trends are reviewed quarterly to reflect
any improvement or additional deterioration. Our methodology
is regularly validated by comparing the discounted cash flows
expected to be recovered based on current market conditions
(including estimated cash flows from the sale of the property)
to the updated broker price opinion, adjusted for the estimated
historical difference between interior and exterior appraisals.
The fair values of foreclosed properties are initially determined
based on broker price opinions. Within 90 days of foreclosure,
a more detailed property valuation is performed reflecting
information obtained from a physical interior inspection of
the property and additional allowances or write-downs are
recorded as appropriate. Updates to the valuation are
performed no less than once every 45 days until the property
is sold, with declines or increases recognised through changes
to allowances.
Credit cards
In the first half of 2012 we completed the sale
of our US Card and Retail Services business,
transferring general and private label credit card
lending balances to the purchaser. The residual
balances in the US at 31 December 2012 were
related to HSBC Bank USA’s credit card
programme.
Personal non-credit card lending
Personal non-credit card lending balances and two
months and over delinquent balances in the US fell,
largely due to the reclassification of non-real estate
personal loan balances to ‘Assets held for sale’ and
portfolio run-off, as this business is closed to new
advances.
Trends in two months and over contractual delinquency in the US
(Unaudited)
At 31 December
2012 2011 2010
US$m US$m US$m
In personal lending in the US
First lien residential mortgages .................................................................................. 8,926 9,065 8,632
Consumer and Mortgage Lending .......................................................................... 7,629 7,922 7,618
Other mortgage lending .......................................................................................... 1,297 1,143 1,014
Second lien residential mortgages .............................................................................. 477 674 847
Consumer and Mortgage Lending .......................................................................... 350 501 668
Other mortgage lending .......................................................................................... 127 173 179
Credit card .................................................................................................................. 27 714 957
Private label ................................................................................................................ – 316 404
Personal non-credit card ............................................................................................. 335 513 811
Total ............................................................................................................................ 9,765 11,282 11,651
% % %
As a percentage of the relevant loans and receivables balances
First lien residential mortgages .................................................................................. 18.1 17.1 15.0
Second lien residential mortgages .............................................................................. 8.0 8.5 9.1
Credit card .................................................................................................................. 3.3 3.8 4.7
Private label ................................................................................................................ – 2.5 3.0
Personal non-credit card ............................................................................................. 7.4 8.3 9.5
Total ............................................................................................................................ 16.1 11.4 10.7
Wholesale lending
(Unaudited)
Wholesale lending covers the range of credit
facilities granted to sovereign borrowers, banks,
non-bank financial institutions, corporate entities
and commercial borrowers. Our wholesale portfolios
are well diversified across geographical and industry
sectors, with certain exposures subject to specific
portfolio controls.