Annual Financial Report - 34

RNS Number : 4149J

HSBC Holdings PLC

30 March 2010

 



Change in operating assets

	HSBC						HSBC Holdings
	2009		2008		2007		2009		2008
	US$m		US$m		US$m		US$m		US$m
Change in loans to HSBC undertakings ...............	-		-		-		(11,408)		3,129
Change in prepayments and accrued income .......	3,198		4,178		(5,069)		(44)		166
Change in net trading securities and net derivatives ........................................................................	15,388		(23,293)		(4,972)		352		(16)
Change in loans and advances to banks ...............	(30,354)		22,596		(8,922)		-		-
Change in loans and advances to customers ........	6,149		7,279		(131,886)		-		-
Change in financial assets designated at fair value ........................................................................	(8,911)		12,757		(13,360)		2		(12)
Change in other assets ........................................	(6,273)		(5,394)		(12,329)		21		(4)
	(20,803)		18,123		(176,538)		(11,077)		3,263

Change in operating liabilities

	HSBC						HSBC Holdings
	2009		2008		2007		2009		2008
	US$m		US$m		US$m		US$m		US$m
Change in accruals and deferred income ..............	(2,258)		(6,169)		5,119		131		138
Change in deposits by banks ...............................	(5,216)		(3,038)		32,594		-		-
Change in customer accounts ..............................	41,983		32,372		199,806		-		-
Change in debt securities in issue .........................	(32,797)		(67,152)		(12,489)		21		-
Change in financial liabilities designated at fair value	7,430		(15,352)		12,304		2,411		(2,299)
Change in other liabilities ...................................	5,503		(4,074)		12,761		(523)		126
	14,645		(63,413)		250,095		2,040		(2,035)

Cash and cash equivalents

	HSBC						HSBC Holdings
	2009		2008		2007		2009		2008
	US$m		US$m		US$m		US$m		US$m
Cash at bank with HSBC undertakings .................	-		-		-		224		443
Cash and balances at central banks ......................	60,655		52,396		21,765		-		-
Items in the course of collection from other banks ........................................................................	6,395		6,003		9,777		-		-
Loans and advances to banks of one month or less ........................................................................	160,673		165,066		232,320		-		-
Treasury bills, other bills and certificates of deposit less than three months ....................................	28,777		62,639		41,819		-		-
Less: items in the course of transmission to other banks .....................................................	(5,734)		(7,232)		(8,672)		-		-
Total cash and cash equivalents ..........................	250,766		278,872		297,009		224		443

Interest and dividends

	HSBC						HSBC Holdings
	2009		2008		2007		2009		2008
	US$m		US$m		US$m		US$m		US$m
Interest paid .......................................................	(29,030)		(60,342)		(63,626)		(2,513)		(2,525)
Interest received .................................................	74,062		107,019		103,393		1,560		1,619
Dividends received ..............................................	1,023		1,876		1,833		7,488		10,779

39   Contingent liabilities, contractual commitments and guarantees

	HSBC				HSBC Holdings
	2009		2008		2009		2008
	US$m		US$m		US$m		US$m
Guarantees and contingent liabilities
Guarantees and irrevocable letters of credit pledged as collateral security ...................................................	73,385		72,895		35,073		47,341
Other contingent liabilities .........................................	174		259		-		-
	73,559		73,154		35,073		47,341
Commitments
Documentary credits and short-term trade-related transactions ............................................................	9,066		9,789		-		-
Forward asset purchases and forward forward deposits placed .....................................................................	192		197		-		-
Undrawn formal standby facilities, credit lines and other commitments to lend ..............................................	548,792		594,036		3,240		3,241
	558,050		604,022		3,240		3,241

The above table discloses the nominal principal amounts of commitments excluding capital commitments, which are separately disclosed below, guarantees and other contingent liabilities; mainly credit-related instruments including both financial and non-financial guarantees and commitments to extend credit. Contingent liabilities arising from litigation against the Group are disclosed in Note 42. Nominal principal amounts represent the amounts at risk should contracts be fully drawn upon and clients default. The amount of the loan commitments shown above reflects, where relevant, the expected level of take-up of pre-approved loan offers made by mailshots to personal customers. As a significant portion of guarantees and commitments is expected to expire without being drawn upon, the total of the nominal principal amounts is not representative of future liquidity requirements.

Guarantees

HSBC provides guarantees and similar undertakings on behalf of both third-party customers and other entities within the HSBC Group. These guarantees are generally provided in the normal course of HSBC's banking business. The principal types of guarantees provided, and the maximum potential amount of future payments which HSBC could be required to make at 31 December 2009, were as follows:

	At 31 December 2009				At 31 December 2008
	Guarantees in favour of third parties		Guarantees by HSBC Holdings in favour of other HSBC Group entities		Guarantees in favour of third parties		Guarantees by HSBC Holdings in favour of other HSBC Group entities
	US$m		US$m		US$m		US$m
Guarantee type
Financial guarantees and similar contracts1 .....................	23,558		35,073		20,879		47,341
Standby letters of credit that are financial guarantee contracts2	10,712		-		11,171		-
Other direct credit substitutes3 ........................................	4,676		-		4,613		-
Performance bonds4 .......................................................	14,468		-		15,304		-
Bid bonds4 ......................................................................	728		-		627		-
Standby letters of credit related to particular transactions4 ....................................................................................	4,944		-		4,791		-
Other transaction-related guarantees4 .............................	13,577		-		15,028		-
Other items ....................................................................	722		-		482		-
	73,385		35,073		72,895		47,341

1  Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Similar contracts are contracts that provide protection against credit risk on a specified exposure but do not meet the definition of financial guarantees. The amounts in the above table are nominal principal amounts.

2  Standby letters of credit which are financial guarantee contracts are irrevocable obligations on the part of HSBC to pay third parties when customers fail to make payments when due.

3  Other direct credit substitutes include re-insurance letters of credit and trade-related letters of credit issued without provision for the issuing entity to retain title to the underlying shipment.

4  Performance bonds, bid bonds, standby letters of credit and other transaction-related guarantees are undertakings by which the obligation on HSBC to make payment depends on the outcome of a future event.

The amounts disclosed in the above table reflect HSBC's maximum exposure under a large number of individual guarantee undertakings. The risks and exposures arising from guarantees are captured and managed in accordance with HSBC's overall credit risk management policies and procedures. Approximately half of the above guarantees have a term of less than one year. Guarantees with terms of more than one year are subject to HSBC's annual credit review process.

Financial Services Compensation Scheme

The UK Financial Services Compensation Scheme ('FSCS') has provided compensation to consumers following the collapse of a number of deposit takers such as Bradford & Bingley plc, Heritable Bank plc, Kaupthing Singer & Friedlander Limited, Landsbanki 'Icesave', London Scottish Bank plc and Dunfermline Building Society. The compensation paid out to consumers is currently funded through loans from the Bank of England and HM Treasury. HSBC Bank plc ('the bank') could be liable to pay a proportion of the outstanding borrowings that the FSCS has borrowed from HM Treasury which at 30 September 2009 stood at US$32 billion. The bank is also obligated to pay its share of forecast management expenses based on the bank's market share of deposits protected under the FSCS. The bank expensed US$212 million at 31 December 2009 in respect of the share of forecast management expense, including interest costs, for the 2008/9, 2009/10 and 2010/11 levy years. The fee in respect of the 2008/9 levy year was paid during the second half of 2009.

At 31 December 2009, the bank accrued US$182 million in respect of the 2009/10 and 2010/11 levy years, based on the bank's estimated share of total market protected deposits at 31 December 2008 and 2009, respectively.

At 31 December 2008, the bank had accrued US$125 million in respect of the 2008/9 and 2009/10 levy years, based on the bank's estimated share of total market protected deposits at 31 December 2007 and 2008, respectively.

However, the ultimate FSCS levy to the industry as a result of the 2008 collapses cannot currently be estimated reliably as it is dependent on various uncertain factors including the potential recoveries of assets by the FSCS and changes in the interest rate, the level of protected deposits and the population of FSCS members at the time.

Sales of Payment Protection Insurance

On 1 July 2008 the Financial Ombudsman Service ('FOS') wrote to the FSA to draw to its attention under the 'Wider Implications' process the issues arising from past payment protection insurance ('PPI') sales. The FOS considered that there was evidence of widespread and regular failure on the part of many firms to comply with the FSA's rules and insurance law in the sale of PPI and that, in the circumstances, simply allowing consumers individually to bring complaints was not the right way to tackle what it regarded as a systemic problem. The FOS therefore called upon the FSA to frame and implement an appropriate regulatory solution which would ensure that firms took appropriate and proportionate remedial action.

On 29 September 2009, the FSA published a Consultation Paper ('CP (09/23)') setting out proposals, and draft Rules and Guidance, on how firms should assess PPI complaints and, where they up-held such complaints, calculate redress. At the same time, it also published an open letter to eight trade associations, including the British Bankers Association, setting out what it considered to be common failings by firms in sales of PPI. When announcing the publication of CP (09/23), the FSA also reported that it had obtained agreement from firms representing 40 per cent of the market for face to face single premium PPI sales to review all such sales since July 2007. No HSBC subsidiary or associate was included in that group of firms.

The Consultation Paper anticipated new FSA rules and guidance covering how firms should deal with PPI complaints with effect from the beginning of 2010. However, the FSA subsequently announced that, owing to the large number of responses it had received to the Consultation Paper, this date would be deferred to give it sufficient opportunity to fully consider those responses.

On 2 February 2010, the FSA stated that the course of action it will take in relation to PPI remains under consideration and that no final decision on the matter has yet been taken. The precise form and content of the FSA's final rules and guidance in relation to PPI complaint handling therefore remains unclear at this stage. In the circumstances, it is not possible for HSBC to determine what impact, if any, the FSA's proposals will eventually have.

In December 2007, HSBC decided to cease selling PPI (but not short-term income protection products) under its HSBC, first direct and M&S Money brands. A phased withdrawal was completed across these brands and channels in 2008. HFC Bank Limited ('HFC') ceased selling single premium PPI in 2008 and sales of regular premium PPI will reduce as HFC exits its remaining retail relationships.

Commitments

In addition to the commitments disclosed on page 463, at 31 December 2009, HSBC had US$1,359 million (2008: US$1,541 million) of capital commitments contracted but not provided for and US$227 million (2008: US$267 million) of capital commitments authorised but not contracted for.

Associates

HSBC's share of associates' contingent liabilities amounted to US$19,770 million at 31 December 2009 (2008: US$17,943 million). No matters arose where HSBC was severally liable.

40   Lease commitments

Finance lease commitments

HSBC leases land and buildings (including branches) and equipment from third parties under finance lease arrangements to support its operations.

	2009						2008
	Total future    minimum     payments		Future        interest        charges		Present value  of finance lease commitments		Total future       minimum       payments		Future          interest          charges		Present value     of finance lease commitments
	US$m		US$m		US$m		US$m		US$m		US$m
Lease commitments:
- no later than one year ....	103		(29)		74		55		(28)		27
- later than one year and no later than five years .......	249		(116)		133		188		(130)		58
- later than five years .......	619		(182)		437		736		(258)		478
	971		(327)		644		979		(416)		563

At 31 December 2009, future minimum sublease payments of US$512 million (2008: US$458 million) are expected to be received under non-cancellable subleases at the balance sheet date.

Operating lease commitments

At 31 December 2009, HSBC was obligated under a number of non-cancellable operating leases for properties, plant and equipment on which the future minimum lease payments extend over a number of years.

	2009				2008
	Land and buildings		Equipment		Land and buildings		Equipment
	US$m		US$m		US$m		US$m
Future minimum lease payments under non-cancellable operating leases:
- no later than one year ............................................	846		11		757		9
- later than one year and no later than five years ......	2,253		11		1,791		9
- later than five years ................................................	2,534		-		1,573		-
	5,633		22		4,121		18

In 2009, US$1,100 million (2008: US$861 million; 2007: US$849 million) was charged to 'General and administrative expenses' in respect of lease and sublease agreements, of which US$833 million (2008: US$635 million; 2007: US$838 million) related to minimum lease payments, US$16 million (2008: US$22 million; 2007: US$8 million) to contingent rents, and US$251 million (2008: US$204 million; 2007: US$3 million) to sublease payments.

The contingent rent represents escalation payments made to landlords for operating, tax and other escalation expenses.

Finance lease receivables

HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and general plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for

further terms. Lessees may participate in any sales proceeds achieved. Lease rentals arising during the lease terms will either be fixed in quantum or be varied to reflect changes in, for example, tax or interest rates. Rentals are calculated to recover the cost of assets less their residual value, and earn finance income.

	2009						2008
	Total future minimum payments		Unearned finance income		Present value		Total future minimum payments		Unearned finance income		Present value
	US$m		US$m		US$m		US$m		US$m		US$m
Lease receivables:
- no later than one year .	2,874		(328)		2,546		3,013		(389)		2,624
- later than one year and no later than five years	9,525		(1,061)		8,464		8,783		(1,186)		7,597
- later than five years .....	6,902		(1,737)		5,165		8,114		(2,334)		5,780
	19,301		(3,126)		16,175		19,910		(3,909)		16,001

At 31 December 2009, unguaranteed residual values of US$230 million (2008: US$197 million) had been accrued, and the accumulated allowance for uncollectible minimum lease payments receivable amounted to US$21 million (2008: US$21 million).

During the year, no contingent rents were received (2008: US$10 million) and recognised in the income statement.

Operating lease receivables

HSBC leases a variety of different assets to third parties under operating lease arrangements, including transport assets (such as rolling stock), property and general plant and machinery.

	2009				2008
	Land and buildings		Equipment		Land and buildings		Equipment
	US$m		US$m		US$m		US$m
Future minimum lease payments under non-cancellable operating leases:
-. no later than one year ............................................	37		857		37		678
-. later than one year and no later than five years ......	21		917		31		625
-. later than five years ................................................	23		447		21		110
	81		2,221		89		1,413

At 31 December 2009, future minimum sublease payments of US$21 million (2008: nil) are expected to be received under non-cancellable subleases at the balance sheet date.

41   Rights issue

On 2 March 2009, HSBC Holdings announced its proposal to raise £12.5 billion (US$17.8 billion), net of expenses, by way of a fully underwritten rights issue. Under the proposal, HSBC offered its shareholders the opportunity to acquire 5 new ordinary shares for every 12 ordinary shares at a price of 254 pence per new ordinary share. For shareholders on the Hong Kong and Bermuda Overseas Branch Registers this offer was expressed in Hong Kong dollars and US dollars, respectively, fixed at published exchange rates on 27 February 2009. The proposal was subject to authorisation by the shareholders which was obtained at a general meeting held on 19 March 2009. The offer period commenced on 20 March 2009 and closed for acceptance on 3 April 2009. Dealing in the new shares began on 6 April 2009.

For details of called-up share capital and other equity instruments see Note 37.

Merger reserve

As part of the arrangement for the rights issue, HSBC Holdings entered into a share-for-share exchange with Chinnery Limited, thereby availing itself of Statutory Share Premium Relief under Section 612 of the Companies Act 2006. The nominal value of the new shares issued was credited to share capital and the remaining consideration was credited to the merger reserve and translated into US dollars at the foreign exchange rate on that date.

Share options and share awards

The Remuneration Committee agreed to make adjustments to all unexercised share options and share awards under HSBC's various share plans and share schemes as a consequence of the rights issue. The adjustments were based on the theoretical ex-rights price, which was considered to be the most appropriate methodology to reflect the rights issue. The adjustments under certain share plans and share schemes have been approved by the relevant tax authorities, where necessary.

42   Litigation

Unauthorised overdraft charges in the UK

On 27 July 2007, the UK Office of Fair Trading ('OFT') issued High Court legal proceedings against a number of UK financial institutions, including HSBC Bank, to determine the legal status and enforceability of certain of the charges applied to their personal customers in relation to unauthorised overdrafts (the 'charges'). Pending the resolution of the proceedings, the Financial Services Authority ('FSA') granted firms (including HSBC Bank) a waiver enabling them to place relevant complaints about the charges on hold and the County Courts stayed all individual customer claims.

In a judgement given on 25 November 2009, the Supreme Court unanimously allowed the financial institutions' appeal against the Court of Appeal ruling given on 26 February 2009 and held that, provided the relevant charges were in plain and intelligible language, the amount of those charges could not be assessed for fairness under the regulations by either the OFT or the Courts. This is because the charges are part of the price the customer pays for the package of banking services he or she receives in exchange, and hence an assessment of their amount is outside the scope of the regulations.

While the Supreme Court left open the possibility that the terms could be challenged on some other basis, HSBC Bank does not believe that any other realistic basis for challenge exists.

On 22 December 2009, the OFT announced that, following detailed consideration of the Supreme Court judgement, and discussions with consumer groups, campaigners, banks, the Government, the FSA and the Financial Ombudsman Service, it would not be continuing the investigation it began in March 2007 into the fairness of unauthorised overdraft charges as, were the investigation to continue, it would have a very limited scope and low prospects of success. The OFT also decided not to investigate the charges using certain other enforcement tools. Its initial assessment was that there were not good grounds for concluding that a collective challenge alleging breach of such other provisions generally would have good prospects of success. The OFT also confirmed that it would address its ongoing concerns about the operation of the market for personal current accounts, by discussing the issues with banks, consumer groups and other organisations, with the aim of reporting on progress by the end of March 2010.

The Supreme Court judgement means that the legal proceedings between the OFT and the banks relating to unauthorised overdraft charges are concluded. Accordingly, the FSA confirmed on 25 November 2009 the waiver enabling firms to place relevant charges complaints on hold had therefore lapsed. Normal complaint handling rules therefore applied.

Bernard L. Madoff Investment Securities LLC

On 11 December 2008, Bernard L. Madoff ('Madoff') was arrested and charged in the United States District Court for the Southern District of New York with one count of securities fraud. That same day, the US Securities and Exchange Commission ('SEC') filed securities fraud charges against Madoff and his firm Bernard L. Madoff Investment Securities LLC ('Madoff Securities'), a broker dealer and investment adviser registered with the SEC. The criminal complaint and SEC complaint each alleged that Madoff had informed senior Madoff Securities employees, in substance, that his investment advisory business was a fraud. On 15 December 2008, on the application of the Securities Investor Protection Corporation, the United States District Court for the Southern District of New York appointed a trustee for the liquidation of the business of Madoff Securities, and removed the liquidation proceeding to the United States Bankruptcy Court for the Southern District of New York. The Madoff Securities trustee has begun processing claims filed by investors allegedly damaged by the Madoff fraud. On 9 February 2009, on Madoff's consent, the United States District Court for the Southern District of New York entered a partial judgement in the SEC action, permanently enjoining Madoff from violating certain antifraud provisions of the US securities laws, ordering Madoff to pay disgorgement, prejudgement interest and a civil penalty in amounts to be determined at a later time, and continuing certain other relief previously imposed, including a freeze on Madoff's assets. On 12 March 2009, Madoff pleaded guilty to 11 felony charges, including securities fraud, investment adviser fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury, false filings with the SEC and theft from an employee benefit plan. On 29 June 2009, Madoff was sentenced to 150 years in prison. The relevant US authorities are continuing their investigations into the fraud, and have brought charges against others, including several Madoff Securities employees as well as its external auditor. Some details of the fraud have come to light as a result of these and other investigations and proceedings; however, significant uncertainty remains as to the facts of the fraud and the total amount of assets that will ultimately be available for distribution by the Madoff Securities trustee.

Various non-US HSBC companies provide custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities, as at 30 November 2008, the aggregate net asset value of these funds (which would include principal amounts invested and unrealised gains) was US$8.4 billion. Proceedings concerning Madoff and Madoff Securities have been issued by different plaintiffs (including funds, fund investors, and the Madoff Securities trustee) in various jurisdictions against numerous defendants and HSBC expects further proceedings may be brought. Various HSBC companies have been named as defendants in suits in the US, Ireland, Luxembourg, and other jurisdictions. All of the cases where HSBC companies are named as a defendant are at an early stage. HSBC considers that it has good defences to these claims and will continue to defend them vigorously. HSBC is unable reliably to estimate the liability, if any, that might arise as a result of such claims.

Various HSBC companies have also received requests for information from various regulatory and law enforcement authorities, and from the Madoff Securities trustee, in connection with the fraud by Madoff. HSBC companies are co-operating with these requests for information.

Other litigation

These actions apart, HSBC is party to legal actions in a number of jurisdictions including the UK, Hong Kong and the US arising out of its normal business operations. HSBC considers that none of the actions is material, and none is expected to result in a significant adverse effect on the financial position of HSBC, either individually or in the aggregate. Management believes that adequate provisions have been made in respect of the litigation arising out of its normal business operations. HSBC has not disclosed any contingent liability associated with these legal actions because it is not practical to do so.

43    Related party transactions

Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans for HSBC employees, Key Management Personnel, close family members of Key Management Personnel and entities which are controlled, jointly controlled or significantly influenced, or for which significant voting power is held, by Key Management Personnel or their close family members.

Key Management Personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of HSBC Holdings, being the Directors and Group Managing Directors of HSBC Holdings.

Compensation of Key Management Personnel

	HSBC
	2009		2008		2007
	US$m		US$m		U$m
Short-term employee benefits ....................................................................	22		31		62
Post-employment benefits .........................................................................	3		5		4
Termination benefits .................................................................................	-		-		9
Share-based payments ................................................................................	27		16		40
	52		52		115

Transactions, arrangements and agreements involving related parties

Particulars of advances (loans and quasi-loans), credits and guarantees entered into by subsidiaries of HSBC Holdings during 2009 with Directors, disclosed pursuant to section 413 of the Companies Act 2006, are shown below:

	At 31 December
	2009		20081
	US$000		US$000
Advances and credits ..............................................................................................................	5,352		2,051
Guarantees .............................................................................................................................	-		-

1  Comparative figures for 2008 represents loans, quasi-loans, transactions, arrangements and agreements disclosed pursuant to section 232 of the Companies Act 1985. The number of Directors with such facilities during 2008 was 19.

Particulars of transactions with related parties, disclosed pursuant to the requirements of IAS 24, are shown below. The disclosure of the year-end balance and the highest amounts outstanding during the year in the table below is considered to be the most meaningful information to represent the amount of the transactions and the amount of outstanding balances during the year.

	2009				2008
	Balance at 31 December		Highest         amounts    outstanding    during year		Balance at    31 December		Highest           amounts       outstanding       during year
	US$000		US$000		US$000		US$000
Key Management Personnel1
Advances and credits ......................................................	736,112		1,406,877		217,383		475,048
Guarantees ......................................................................	31,785		34,048		25,249		42,178

1  Includes Key Management Personnel, close family members of Key Management Personnel and entities which are controlled, jointly controlled or significantly influenced, or for which significant voting power is held, by Key Management Personnel or their close family members.

Some of the transactions were connected transactions, as defined by the Rules Governing The Listing of Securities on The Stock Exchange of Hong Kong Limited but were exempt from any disclosure requirements under the provisions of those Rules.

The above transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of repayment or present other unfavourable features.

Shareholdings, options and other securities of Key Management Personnel

	At 31 December
	2009                   (000s)		2008                   (000s)
Number of options held over HSBC Holdings ordinary shares under employee share plans .....	1,033		943
Number of HSBC Holdings ordinary shares held beneficially and non-beneficially ..................	19,567		16,733
Number of HSBC Holdings preference shares held beneficially and non-beneficially ...............	8		8
Number of HSBC Holdings 8.125% Perpetual Subordinated Capital Securities held beneficially and non-beneficially ........................................................................................	25		21
	20,633		17,705

Transactions with other related parties of HSBC

Associates and joint ventures

The Group provides certain banking and financial services to associates and joint ventures, including loans, overdrafts, interest and non-interest bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in Note 21. Transactions and balances during the year with associates and joint ventures were as follows:

	2009				2008
	Highest           balance during          the year1		Balance at 31 December1		Highest   balance during            the year1		Balance at    31 December1
	US$m		US$m		US$m		US$m
Amounts due from joint ventures:
- unsubordinated .........................................................	423		378		424		343
Amounts due from associates:
- subordinated .............................................................	17		17		59		59
- unsubordinated .........................................................	1,343		1,239		1,060		280
	1,783		1,634		1,543		682
Amounts due to joint ventures ........................................	130		129		66		64
Amounts due to associates ..............................................	1,494		136		735		293
	1,624		265		801		357

1  The disclosure of the year-end balance and the highest balance during the year is considered the most meaningful information to represent transactions during the year.

The above outstanding balances arose from the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.

Post-employment benefit plans

At 31 December 2009, US$4.2 billion (2008: US$3.5 billion) of HSBC post-employment benefit plan assets were under management by HSBC companies. Fees of US$15 million (2008: US$26 million) were earned by HSBC companies for these management services provided to its post-employment benefit plans. HSBC's post-employment benefit plans had placed deposits of US$929 million (2008: US$430 million) with its banking subsidiaries, on which interest payable to the schemes amounted to US$3 million (2008: US$55 million). The above outstanding balances arose from the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.

In the first half of 2009, a gain of US$499 million was recognised by HSBC following a restructuring of the basis of delivery of death in service and ill health early retirement benefits to certain UK employees. These benefits were provided by the HSBC Bank (UK) Pension Scheme but will now be provided outside the scheme.

HSBC Bank (UK) Pension Scheme entered into swap transactions with HSBC as part of the management of the inflation and interest rate sensitivity of its liabilities. At 31 December 2009, the gross notional value of the swaps was US$23.7 billion (2008: US$17.7 billion), the swaps had a positive fair value of US$1.0 billion (2008: positive fair value of US$1.8 billion) to the scheme and HSBC had delivered collateral of US$2.8 billion (2008: US$2.4 billion) to the scheme in respect of these swaps, on which HSBC earned interest amounting to US$7 million (2008: US$59 million). All swaps were executed at prevailing market rates and within standard market bid/offer spreads.

In order to satisfy diversification requirements, there are special collateral provisions for the swap transactions between HSBC and the scheme. The collateral agreement stipulates that the scheme never posts collateral to HSBC. Collateral is posted to the scheme by HSBC at an amount that provides the Trustee with a high level of confidence that would be sufficient to replace the swaps in the event of default by HSBC Bank plc. With the exception of the special collateral arrangements detailed above, all other aspects of the swap transactions between HSBC and the scheme are on substantially the same terms as comparable transactions with third-party counterparties.

HSBC International Staff Retirements Benefits Scheme entered into swap transactions with HSBC to manage the inflation and interest rate sensitivity of the liabilities and selected assets. At 31 December 2009, the gross notional value of the swaps was US$1.8 billion (2008: US$1.5 billion), and the swaps had a net positive fair value of US$27 million to the scheme (2008: US$388 million). 

The special contributions of US$160 million in respect of the HSBC International Staff Retirement Benefits Scheme which were made to fund the deficit shown in the actuarial valuation report as at 31 December 2008 included a contribution in specie of US$69 million in the form of asset-backed securities previously held within the Group.

HSBC Holdings

Details of HSBC Holdings' principal subsidiaries are shown in Note 24. Transactions and balances during the year with subsidiaries were as follows:

	2009				2008
	Highest           balance during          the year1		Balance at 31 December1		Highest   balance during           the year1		Balance at    31 December1
Subsidiaries	US$m		US$m		US$m		US$m
Assets
Cash at bank ...................................................................	443		224		443		443
Derivatives .....................................................................	3,682		2,981		3,682		3,682
Loans and advances ........................................................	26,156		23,212		17,242		11,804
Financial investments .....................................................	2,629		2,455		2,844		2,629
Investments in subsidiaries ..............................................	90,914		86,247		86,233		81,993
Total related party assets ...............................................	123,824		115,119		110,444		100,551
Liabilities
Amounts owed to HSBC undertakings .............................	5,669		3,711		4,042		4,042
Derivatives .....................................................................	1,324		362		1,324		1,324
Subordinated liabilities:
- at amortised cost .....................................................	3,907		3,907		4,168		3,795
- designated at fair value .............................................	4,360		4,360		4,186		3,067
Total related party liabilities ..........................................	15,260		12,340		13,720		12,228
Guarantees ......................................................................	47,341		35,073		56,733		47,341
Commitments ................................................................	3,241		3,240		3,638		3,241

1 The disclosure of the year-end balance and the highest balance during the year is considered the most meaningful information to represent transactions during the year. The above outstanding balances arose in the ordinary course of business and are on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties, with the exception of US$529 million (2008: US$476 million) in respect of loans from HSBC subsidiaries to HSBC Holdings made at an agreed zero per cent interest rate.

Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group company. HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their behalf. Disclosure in relation to the scheme is made in Note 8 to the accounts.

44   Events after the balance sheet date

A fourth interim dividend for 2009 of US$0.10 per ordinary share (US$1,741 million) (2008: US$0.10 per ordinary share, US$1,210 million) was declared by the Directors after 31 December 2009.

On 14 January 2010, the US Government announced its intention to propose a Financial Crisis Responsibility Fee for a period of at least ten years to be applied to financial institutions with more than US$50 billion of consolidated assets. It is not possible to assess the financial impact of this proposal until final legislation has been enacted.

On 31 January 2010, HSBC Bank Canada which was part of the sub-group headed by HSBC North America Holdings Inc. was transferred to HSBC Overseas Holdings (UK) Limited ('HOHU') as part of an internal reorganisation. The transfer was effected by HSBC Holdings subscribing for one new share in HOHU for a cash consideration of US$6,093 million.

These accounts were approved by the Board of Directors on 1 March 2010 and authorised for issue.

 

END

 

 

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