HSBC 2015 Annual Report Download - page 447

HSBC HOLDINGS PLC
445
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
HSBC managed funds
HSBC establishes and manages money market funds and non-money market investment funds to provide customers with
investment opportunities. Further information on funds under management is provided on page 96.
HSBC, as fund manager, may be entitled to receive management and performance fees based on the assets under
management. HSBC may also retain units in these funds.
Non-HSBC managed funds
HSBC purchases and holds units of third-party managed funds in order to facilitate both business and customer needs. In
addition, HSBC enters into derivative contracts to facilitate risk management solutions for non-HSBC managed funds. Note 16
provides information on derivatives entered into by HSBC.
Other
HSBC has established structured entities in the normal course of business, such as structured credit transactions for customers,
to provide finance to public and private sector infrastructure projects, and for asset and structured finance transactions.
HSBC sponsored structured entities
Accounting policy
HSBC is considered to sponsor another entity if, in addition to ongoing involvement with the entity, it had a key role in establishing that
entity or in bringing together the relevant counterparties so that the transaction which is the purpose of the entity could occur. HSBC is
generally not considered a sponsor if the only involvement with the entity is merely administrative in nature.
The amount of assets transferred to and income received from such sponsored entities during 2015 and 2014 was not
significant.
40 Legal proceedings and regulatory matters
HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business
operations. Apart from the matters described below, HSBC considers that none of these matters are material. The recognition
of provisions is determined in accordance with the accounting policies set out in Note 29. While the outcome of legal
proceedings and regulatory matters is inherently uncertain, management believes that, based on the information available to
it, appropriate provisions have been made in respect of these matters as at 31 December 2015 (see Note 29). Where an
individual provision is material, the fact that a provision has been made is stated and quantified, except to the extent doing so
would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is
not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a
class of contingent liabilities.
Securities litigation
As a result of an August 2002 restatement of previously reported consolidated financial statements and other corporate
events, including the 2002 settlement with 46 states and the District of Columbia relating to real estate lending practices,
Household International, Inc. (‘Household International’) and certain former officers were named as defendants in a class
action lawsuit, Jaffe v. Household International, Inc., et al., filed in August 2002 in the US District Court for the Northern District
of Illinois (the ‘Illinois District Court’). The complaint asserted claims under the US Securities Exchange Act and alleged that the
defendants knowingly or recklessly made false and misleading statements of material fact relating to Household International’s
Consumer Lending operations, including collections, sales and lending practices, some of which ultimately led to the 2002 state
settlement agreement, and facts relating to accounting practices evidenced by the financial restatement. Ultimately, a class
was certified on behalf of all persons who acquired and disposed of Household International common stock between July 1999
and October 2002.
A jury trial concluded in April 2009, which was decided partly in favour of the plaintiffs. Various legal challenges to the verdict
were raised in post-trial briefing.
In December 2011, following the submission of claim forms by class members, the court-appointed claims administrator
reported to the Illinois District Court that the total number of claims that generated an allowed loss was 45,921, and that the
aggregate amount of those claims was approximately $2.2bn. The Illinois District Court directed further proceedings before a
court-appointed Special Master to address certain issues and objections regarding the remaining claims.
In October 2013, the Illinois District Court entered a partial final judgement against the defendants in the amount of
approximately $2.5bn (including pre-judgement interest). The defendants appealed that partial final judgement.
In addition to the partial judgement that has been entered, there are also approximately $625m in remaining claims, prior to
the imposition of pre-judgement interest, that are still subject to objections that have not yet been ruled upon by the Illinois
District Court.