HSBC 2015 Annual Report Download - page 428

Notes on the Financial Statements (continued)
30 – Subordinated liabilities / 31 – Maturity analysis
HSBC HOLDINGS PLC
426
These preferred securities, together with the guarantee, are intended to provide investors with economic rights equivalent to
the rights that they would have had if they had purchased non-cumulative perpetual preference shares of the relevant issuer.
There are limitations on the payment of distributions if such payments are 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 or HSBC Bank
have insufficient distributable reserves (as defined).
HSBC Holdings and HSBC Bank have individually covenanted that if prevented under certain circumstances from paying
distributions on the preferred securities in full, they will not pay dividends or other distributions in respect of their ordinary
shares, or effect repurchases or redemptions of their ordinary shares, until the distribution on the preferred securities has
been paid in full.
With respect to preferred securities guaranteed by HSBC Holdings, if (i) HSBC’s total capital ratio falls below the regulatory
minimum ratio required or (ii) the Directors expect, in view of the deteriorating financial condition of HSBC Holdings, that
(i) will occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Holdings which
have economic terms which are in all material respects equivalent to those of the preferred securities and the guarantee taken
together.
With respect to preferred securities guaranteed by HSBC Bank, if (i) any of the two issues of preferred securities are
outstanding in April 2049 or November 2048, respectively, or (ii) the total capital ratio of HSBC Bank on a solo and consolidated
basis falls below the regulatory minimum ratio required or (iii) in view of the deteriorating financial condition of HSBC Bank,
the Directors expect (ii) to occur in the near term, then the preferred securities will be substituted by preference shares of
HSBC Bank having economic terms which are in all material respects equivalent to those of the preferred securities and the
guarantee taken together.
Tier 2 capital securities
These capital securities are included within HSBC’s regulatory capital base as tier 2 capital under CRD IV by virtue of the
application of grandfathering provisions (with the exception of identified HSBC Holding securities which are compliant with
CRD IV end point rules). Tier 2 capital securities are either perpetual subordinated securities or dated securities on which there
is an obligation to pay coupons. In accordance with CRD IV, the capital contribution of all tier 2 securities is amortised for
regulatory purposes in their final five years before maturity.
31 Maturity analysis of assets, liabilities and off-balance sheet commitments
The table on page 427 provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by
residual contractual maturity at the balance sheet date. Asset and liability balances are included in the maturity analysis as
follows:
• except for reverse repos, repos and debt securities in issue, trading assets and liabilities (including trading derivatives) are
included in the ‘Due not more than 1 month’ time bucket, and not by contractual maturity because trading balances are
typically held for short periods of time;
• financial assets and liabilities with no contractual maturity (such as equity securities) are included in the ‘Due over 5 years’
time bucket. Undated or perpetual instruments are classified based on the contractual notice period which the
counterparty of the instrument is entitled to give. Where there is no contractual notice period, undated or perpetual
contracts are included in the ‘Due over 5 years’ time bucket;
• non-financial assets and liabilities with no contractual maturity (such as property, plant and equipment, goodwill and
intangible assets, current and deferred tax assets and liabilities and retirement benefit liabilities) are included in the ‘Due
over 5 years’ time bucket;
• financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the
contractual maturity of the underlying instruments and not on the basis of the disposal transaction; and
• liabilities under insurance contracts are included in the ‘Due over 5 years’ time bucket. Liabilities under investment
contracts are classified in accordance with their contractual maturity. Undated investment contracts are classified based on
the contractual notice period investors are entitled to give. Where there is no contractual notice period, undated contracts
are included in the ‘Due over 5 years’ time bucket.
Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.