HSBC 2012 Annual Report Download - page 191

189
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Of the non-high grade assets held of US$3.1bn
(2011: US$2.7bn), US$1.4bn (2011: US$1.2bn)
related to US-originated assets.
There was an increase in market prices for sub-
prime assets during the course of 2012. Write-backs
of US$44m on assets were recognised in 2012
(2011: impairments of US$42m). Of the above
write-backs, there were US$67m of write-backs
(2011: US$5m of write-backs) in the SICs, of which
US$27m (2011: US$5m) were attributed to capital
noteholders.
US Alt-A residential mortgage-related assets
In respect of US Alt-A securities, there were write-
backs of US$19m (2011: impairments of US$687m).
Despite the overall write-backs, impairments of
US$190m (2011: US$344m) occurred in the SICs,
of which US$32m (2011: US$318m) was borne by
the capital noteholders.
At 31 December 2012, 5% (US$0.2bn) of these
assets were rated AA or AAA (2011: 9%
(US$0.4bn)).
Commercial property mortgage-related assets
Of our total of US$8.6bn (2011: US$9.5bn)
of commercial property mortgage-related assets,
US$4.1bn related to US-originated assets (2011:
US$4.9bn). Spreads tightened on both US and non-
US commercial property mortgage-related assets
during 2012. Impairments of US$125m were
recognised in 2012 (2011: US$36m).
Transactions with monoline insurers
(Audited)
HSBC’s exposure to derivative transactions
entered into directly with monolines
Our principal exposure to monolines is through
a number of OTC derivative transactions, mainly
CDSs. We entered into these CDSs primarily to
purchase credit protection against securities held
at the time within the trading portfolio.
During 2012, our overall credit exposure to
monolines decreased, primarily as a result of the
tightening of credit spreads which reduced the fair
value of the derivatives. The table below sets out the
fair value, essentially the replacement cost, of the
remaining derivative transactions at 31 December
2012, and hence the amount at risk if the CDS
protection purchased were to be wholly ineffective
because, for example, the monoline insurer was
unable to meet its obligations. In order to further
analyse that risk, the value of protection purchased
is shown subdivided between those monolines
that were rated by S&P at ‘BBB- or above’ at
31 December 2012, and those that were ‘below
BBB–’ (BBB– is the S&P cut-off for an investment
grade classification). The ‘Credit valuation
adjustment’ column indicates the valuation
adjustment taken against the net exposures, and
reflects our best estimate of the likely loss of
value on purchased protection arising from the
deterioration in creditworthiness of the monolines.
These valuation adjustments, which reflect a
measure of the irrecoverability of the protection
purchased, have been charged to the income
statement.
HSBC’s exposure to derivative transactions entered into directly with monoline insurers
(Audited)
Notional
amount
Net exposure
before credit
valuation
adjustment33
Credit
valuation
adjustment34
Net exposure
after credit
valuation
adjustment
US$m US$m US$m US$m
At 31 December 2012
Derivative transactions with monoline counterparties
Monoline – investment grade (BBB– or above) .............. 4,191 606 (121) 485
Monoline – sub-investment grade (below BBB–) ........... 957 303 (158) 145
5,148 909 (279) 630
At 31 December 2011
Derivative transactions with monoline counterparties
Monoline – investment grade (BBB– or above) .............. 4,936 873 (87) 786
Monoline – sub-investment grade (below BBB–) ........... 1,552 370 (217) 153
6,488 1,243 (304) 939
For footnotes, see page 249.