Background and disclosure policy
As a consequence of the widespread deterioration in the markets for securitised and structured financial assets, and consequent disruption to the global financial system since mid-2007, it remains difficult to observe prices for structured credit risk, including prime tranches of such risk, as the markets for these assets remain illiquid. The resulting constraint on the ability of financial institutions to access wholesale markets to fund such assets added additional downward pressure on asset prices. As a consequence, many financial institutions recorded considerable reductions in the fair values of their asset-backed securities ('ABS's) and leveraged structured transactions, most significantly for US sub-prime and Alt-A mortgage-backed securities and collateralised debt obligations referencing these securities, but in other asset classes too.
In light of continued illiquidity and the risk to capital from further write-downs, in the first half of 2009 many financial institutions continued to reduce leveraged exposures, build liquidity and raise additional capital. Volatility in financial markets remained in the first half of 2009, resulting in wider transaction spreads, and markets for securitised and structured financial assets continued to be constrained.
The pace of deterioration in the fair value of assets supported by sub-prime and Alt-A mortgages experienced in 2008 reduced in the first half of 2009. Spreads widened only modestly on Alt-A assets and sub-prime assets. The primary market for all but US government-sponsored issues remained weak.
A further constraint on liquidity within the market for securitised assets emerged as rating agencies changed their rating methodologies precipitating widespread downgrades and fear of further downgrades across all tranches of securitised paper. This accentuated illiquidity as the Basel II framework ties capital requirements to ratings without reference to expected loss.
This section contains disclosures about the effect of the ongoing market turmoil on HSBC's securitisation activities and other structured products. HSBC's principal exposures to the US and the UK mortgage markets take the form of credit risk from direct loans and advances to customers which were originated to be held to maturity or refinancing, details of which are provided on page 146.
Financial instruments which were most affected by the market turmoil include exposures to direct lending held at fair value through profit or loss and ABSs, including mortgage-backed securities ('MBS's) and collateralised debt obligations ('CDO's), and exposures to and contingent claims on monoline insurers ('monolines') in respect of structured credit activities and leveraged finance transactions which were originated to be distributed.
In accordance with HSBC's policy to provide meaningful disclosures that help investors and other stakeholders understand the Group's performance, financial position and changes thereto, the information provided in this section goes beyond the minimum levels required by accounting standards, statutory and regulatory requirements and listing rules.
In the specific context of facilitating an understanding of the ongoing market turmoil in markets for securitised and structured assets, HSBC has considered the recommendations relating to disclosure contained within the reports issued by the Financial Stability Forum on 'Enhancing market and institutional resilience', the Committee of European Banking Supervisors on 'Banks' transparency on activities and products affected by the recent market turmoil' and the International Accounting Standards Board Expert Advisory Panel on 'Measuring and disclosing the fair value of financial instruments in markets that are no longer active'. In addition, HSBC has considered feedback from investors, regulators and other stakeholders on the disclosures that investors would find most useful.
The specific topics covered in respect of HSBC's securitisation activities and exposure to structured products are as follows:
overview of exposure;
business model;
risk management;
accounting policies;
nature and extent of HSBC's exposures;
fair values of financial instruments; and
special purpose entities.
Overview of exposure
At 30 June 2009, the aggregate carrying amount of HSBC's exposure to ABSs, trading loans held for securitisation and exposure to leveraged finance transactions was US$78 billion (31 December 2008: US$91 billion), summarised as follows:
Overall exposure
|
At 30 June 2009 |
|
At 31 December 2008 |
||||
|
Carrying amount |
|
Including sub-prime |
|
Carrying amount |
|
Including |
|
US$bn |
|
US$bn |
|
US$bn |
|
US$bn |
|
|
|
|
|
|
|
|
ABSs |
69 |
|
11 |
|
81 |
|
12 |
- fair value through profit or loss |
11 |
|
1 |
|
14 |
|
1 |
- available for sale1 |
47 |
|
8 |
|
56 |
|
9 |
- held to maturity1 |
3 |
|
- |
|
3 |
|
- |
- loans and receivables |
8 |
|
2 |
|
8 |
|
2 |
- |
|
|
|
|
|
|
|
Loans at fair value through profit or loss |
3 |
|
2 |
|
4 |
|
3 |
- |
|
|
|
|
|
|
|
Leveraged finance loans |
|
|
|
|
|
|
|
- loans and receivables |
6 |
|
- |
|
6 |
|
- |
|
|
|
|
|
|
|
|
|
78 |
|
13 |
|
91 |
|
15 |
1 Total includes holdings of ABSs issued by Freddie Mac and Fannie Mae.
Reconciliation of movement in carrying amount of ABSs
|
Half-year to 30 June 2009 |
|
US$bn |
|
|
Balance at 1 January 2009 |
81.0 |
Net ABS sales (principally of US Government agency and sponsored enterprises) |
(6.0) |
Principal amortisation of available-for-sale ABSs, repayment at par |
(3.5) |
Net movement on fair values of available-for-sale ABSs |
0.4 |
Net sales (principal amortisation and write-downs of ABSs classified as trading) |
(2.8) |
Exchange differences and other movements |
(0.1) |
|
|
Balance at 30 June 2009 |
69.0 |
The majority of these exposures arise in the Global Banking and Markets business segment.
Of the total carrying amount of ABSs, US$12.9 billion (31 December 2008: US$14.6 billion) are held through vehicles discussed on page 100, where significant first loss protection is provided by external investors on a fully collateralised basis. This includes US$3.3 billion (31 December 2008: US$3.5 billion) in respect of sub-prime and AltߛA residential mortgage exposure.
HSBC's holdings of available-for-sale ABSs fell by US$9.2 billion to US$47.1 billion. The associated AFS reserve deficit improved by US$1.2 billion to US$17.5 billion.
Reclassification of financial assets
In October 2008, the IASB issued amendments to IAS 39 'Financial Instruments: Recognition and Measurement' and IFRS 7 'Financial Instruments: Disclosures' which permitted an entity to reclassify non-derivative financial assets out of the held-for-trading category as described in the accounting policies on page 346 of the Annual Report and Accounts 2008.
During the second half of 2008, HSBC reclassified financial assets from the held-for-trading category to the loans and receivables and available-for-sale classifications. The amount reclassified reflected the fair value of the financial assets at the date of reclassification. Further details of the reclassifications and the transition rules are included on pages 145 to 146 of the Annual Report and Accounts 2008.
The amendment to IAS 39 was restricted to situations where the transferring entity had the intention and ability to hold the transferred position for the foreseeable future, in the case of transfers to the loans and receivable category. Transfers to the available-for-sale category were undertaken when the transferring entity no longer intended to sell the transferred position in the near term.
The Group did not undertake any reclassifications during the first half of 2009.
Reclassifications of financial assets
|
At 30 June 2009 |
|
At 31 December 2008 |
||||
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
Reclassification to loans and receivables |
|
|
|
|
|
|
|
ABSs |
7,827 |
|
5,266 |
|
7,991 |
|
6,139 |
Trading loans - commercial mortgage loans |
605 |
|
551 |
|
587 |
|
557 |
Leveraged finance and syndicated loans |
5,720 |
|
4,758 |
|
5,670 |
|
4,239 |
|
|
|
|
|
|
|
|
|
14,152 |
|
10,575 |
|
14,248 |
|
10,935 |
Reclassification to available for sale |
|
|
|
|
|
|
|
Corporate debt and other securities |
2,156 |
|
2,156 |
|
2,401 |
|
2,401 |
|
|
|
|
|
|
|
|
|
16,308 |
|
12,731 |
|
16,649 |
|
13,336 |
If these reclassifications had not been made, the Group's profit before tax in the first half of 2009 would have been reduced by US$0.3 billion from US$5.0 billion to US$4.7 billion (second half of 2008: a reduction of US$3.5 billion from US$9.3 billion to US$5.8 billion). The reduction in profit before tax is attributable to an increase in the North American segment of US$0.2 billion and a reduction of US$0.5 billion in the European segment (second half of 2008: reductions of US$0.9 billion and US$2.6 billion, respectively).
The following table shows the fair value gains and losses, income and expense recognised in the income statement both before and after the date of reclassification:
Fair value gains and losses, income and expense
|
Effect on income statement |
|
Effect on income statement |
||||||||
|
Income and expense recorded in the income statement1
|
|
Assuming ification2
|
|
Net effect |
|
Income and expense recorded in the income statement1
|
|
Assuming ification2
|
|
Net effect |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
Financial assets reclassified to |
|
|
|
|
|
|
|
|
|
|
|
ABSs |
243 |
|
(466) |
|
709 |
|
303 |
|
(1,549) |
|
1,852 |
Trading loans - commercial |
15 |
|
(8) |
|
23 |
|
17 |
|
(13) |
|
30 |
Leveraged finance and syndicated loans |
210 |
|
679 |
|
(469) |
|
192 |
|
(1,239) |
|
1,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
468 |
|
205 |
|
263 |
|
512 |
|
(2,801) |
|
3,313 |
Financial assets reclassified to available for sale |
|
|
|
|
|
|
|
|
|
|
|
Corporate debt and other securities |
36 |
|
38 |
|
(2) |
|
22 |
|
(202) |
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
504 |
|
243 |
|
261 |
|
534 |
|
(3,003) |
|
3,537 |
1 Income and expense recorded in the income statement represents the accrual of the effective interest rate and, for the first half of 2009, also includes US$160 million in respect of impairment (second half of 2008: US$26 million).
2 Effect on the income statement during the period had the reclassification not occurred.
Financial effect of market turmoil
As described in 'Background and disclosure policy' on page 96, the dislocation of financial markets which developed in the second half of 2007 continued throughout 2008 and into 2009. For the last three half-year periods, the write-downs incurred by the Group on ABSs, trading loans held for securitisation, leveraged finance transactions and the movement in fair values on available-for-sale ABSs taken to equity, plus impairment losses on specific exposures to banks, are summarised in the following table:
The Group's write-downs as a consequence of market turmoil were US$1.3 billion for the half-year to 30 June 2009, down from US$4.0 billion for the half-year to 30 June 2008.
Financial effect of market turmoil
Half-year to |
|||||
|
30 June 2009 |
|
30 June 2008 |
|
31 December 2008 |
|
US$bn |
|
US$bn |
US$bn |
US$bn |
|
|
|
|
|
|
Write-downs taken to income statement |
(1.3) |
|
(4.0) |
|
(2.3) |
Net movement on available-for-sale reserve on ABSs in the period |
1.2 |
|
(6.1) |
|
(10.4) |
Closing balance of available-for-sale reserve relating to ABSs |
(17.5) |
|
(8.3) |
|
(18.7) |
Virtually all of these effects were recorded in Global Banking and Markets. No further impairment losses were recognised on the collapse of financial institutions during the half-year to 30 June 2009 (second half of 2008: US$209 million, of which the collapse of Icelandic banks accounted for US$126 million).
Further analyses of the write-downs taken to the income statement by Global Banking and Markets and the net carrying amounts of the positions that generated these write-downs, are shown in the following table:
Global Banking and Markets write-downs taken to the income statement and carrying amounts
|
Write-downs during half-year to |
|
Carrying amount at |
||||||||
|
30 June |
|
30 June |
|
31 December 2008 |
|
30 June 2009 |
|
30 June 2008 |
|
31 December 2008 |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
Sub-prime mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
- loan securitisation |
156 |
|
301 |
|
292 |
|
943 |
|
1,565 |
|
1,213 |
- credit trading |
83 |
|
665 |
|
150 |
|
303 |
|
1,377 |
|
428 |
Other ABSs |
103 |
|
1,327 |
|
486 |
|
1,376 |
|
8,923 |
|
2,201 |
Impairments on reclassified assets1 |
160 |
|
- |
|
26 |
|
16,308 |
|
- |
|
16,649 |
Derivative transactions with monolines |
|
|
|
|
|
|
|
|
|
|
|
- investment grade counterparts |
25 |
|
598 |
|
130 |
|
1,593 |
|
1,206 |
|
2,089 |
- non-investment grade counterparts |
241 |
|
608 |
|
370 |
|
510 |
|
78 |
|
352 |
Leveraged finance loans2
|
(11) |
|
278 |
|
- |
|
285 |
|
7,375 |
|
271 |
Other credit related items |
5 |
|
99 |
|
95 |
|
116 |
|
321 |
|
186 |
Available-for-sale impairments and |
564 |
|
55 |
|
655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,326 |
|
3,931 |
|
2,204 |
|
|
|
|
|
|
1 Included in the write-downs during the half-year to 31 December 2008 is US$26 million relating to reclassified leveraged finance exposures, which had previously been presented under leveraged finance loans.
2 The carrying amount includes funded loans plus the net exposure to unfunded leveraged finance commitments, held within fair value through the profit or loss.
Global Banking and Markets asset-backed securities classified as available for sale
HSBC's principal holdings of ABSs classified as available for sale are held within the Global Banking and Markets' business through SPEs which have the benefit of external investor first loss protection, and through positions held directly and by Solitaire Funding Limited ('Solitaire') where HSBC has first loss risk.
The table below summarises these Global Banking and Markets' exposures to ABSs which are held on an available-for-sale basis.
Global Banking and Markets available-for-sale ABSs exposure
|
At 30 June 2009 |
|
At 31 December 2008 |
||||||||
|
Directly held1 |
|
SPEs |
|
Total |
|
Directly held1 |
|
SPEs |
|
Total |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
|
|
Total carrying amount of net principal exposure |
30,631 |
|
12,898 |
|
43,529 |
|
35,736 |
|
14,610 |
|
50,346 |
- which includes sub-prime/Alt-A exposure |
4,585 |
|
3,280 |
|
7,865 |
|
5,155 |
|
3,516 |
|
8,671 |
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale reserves |
(10,824) |
|
(6,587) |
|
(17,411) |
|
(11,498) |
|
(7,204) |
|
(18,702) |
- relating to sub-prime/Alt-A exposure |
(5,001) |
|
(3,515) |
|
(8,516) |
|
(5,920) |
|
(3,573) |
|
(9,493) |
|
Half-year to |
|
Half-year to |
|
Half-year to |
||||||||||||
|
30 June 2009 |
|
30 June 2008 |
|
31 December 2008 |
||||||||||||
|
Directly held1 US$m |
|
SPEs US$m |
|
Total US$m |
|
Directly held1 US$m |
|
SPEs US$m |
|
Total US$m |
|
Directly held1 US$m |
|
SPEs US$m |
|
Total US$m |
Impairment charge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- borne by HSBC |
539 |
|
- |
|
539 |
|
55 |
|
- |
|
55 |
|
224 |
|
- |
|
224 |
- allocated to capital note |
- |
|
646 |
|
646 |
|
- |
|
134 |
|
134 |
|
- |
|
159 |
|
159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment charge |
539 |
|
646 |
|
1,185 |
|
55 |
|
134 |
|
189 |
|
224 |
|
159 |
|
383 |
1 'Directly held' includes both assets held by Solitaire where HSBC provides first loss protection and those assets held directly by the Group.
Securities investment conduits (special purpose entities)
In the table above, the total carrying amount of ABSs in respect of SPEs represent holdings in which significant first loss protection is provided through capital notes issued by the securities investment conduits ('SIC's), excluding Solitaire.
At each reporting date, an assessment is made of whether there is any objective evidence of impairment in the value of available-for-sale ABSs. Impairment charges incurred on assets held by these SPEs are offset by a credit to the impairment line for the amount of the loss allocated to capital note holders.
The economic first loss protection remaining at 30 June 2009 amounted to US$2.2 billion (30 June 2008: US$2.4 billion; 31 December 2008: US$2.2 billion).
On an IFRSs accounting basis, the carrying value of the liability for the capital notes at 30 June 2009 amounted to US$0.6 billion (30 June 2008: US$1.2 billion; 31 December 2008: US$0.9 billion). The impairment charge recognised during the first half of 2009 amounted to US$646 million (first half of 2008: US$134 million; second half of 2008: US$159 million).
At 30 June 2009, the available-for-sale reserve in respect of securities held by the SICs was a deficit of US$7.7 billion (30 June 2008: US$3.3 billion; 31 December 2008: US$7.9 billion). Of this, US$6.6 billion related to ABSs (30 June 2008: US$3.1 billion; 31 December 2008: US$7.2 billion).
Impairments recognised during the first half of 2009 from assets held directly or within Solitaire, in recognition of the first loss protection of US$1.2 billion provided by HSBC through credit enhancement, were US$539 million (first half of 2008: US$55 million; second half of 2008: US$224 million), based on a notional principal value of securities which were impaired of US$721 million (first half of 2008: US$88 million; second half of 2008: US$482 million). The level of impairment recognised in comparison with the deficit in the available-for-sale reserve is a reflection of the credit quality and seniority of the assets held.
Sub-prime and Alt-A residential mortgage-backed securities
Management's current assessment of the holdings of available-for-sale ABSs with the most sensitivity to possible future impairment is focused on sub-prime and Alt-A residential mortgage-backed securities ('MBS's).
Excluding holdings in the SPEs discussed above, available-for-sale holdings in these categories within Global Banking and Markets amounted to US$4.6 billion at 30 June 2009 (30 June 2008: US$9.4 billion; 31 December 2008: US$5.2 billion). During the period ended 30 June 2009, the movement in fair values of these securities taken to equity was an increase of US$0.9 billion (first half of 2008: reduction of US$2.5 billion; second half of 2008: reduction of US$2.3 billion). The deficit in the available-for-sale fair value reserve at 30 June 2009 in relation to these securities was US$5.0 billion (30 June 2008: US$3.6 billion; 31 December 2008: US$5.9 billion).
During the first half of 2009, the credit ratings on a proportion of ABSs held directly by HSBC, Solitaire and the SICs were downgraded. In particular, Moody's Investor Services downgraded the ratings on substantially all the Group's holdings of US AltߛA residential MBSs issued during 2006 and 2007.
As discussed on page 212, when assessing available-for-sale ABSs for objective evidence of impairment at the reporting date, HSBC considers all available evidence including the performance of the underlying collateral. A downgrade of a security's credit rating is not, of itself, evidence of impairment. Consequently, Moody's action has no direct impact on the measurement of impairment losses. The impairment losses recognised on these securities at 30 June 2009 are set out on page 99.
Stress analysis
HSBC's regular impairment assessment uses an industry standard model with inputs which are corroborated using observable market data where available. At 31 December 2008, management performed a stress test on the available-for-sale ABS positions, based on the fair value of the positions at that date. The outcome of the stress test was particularly sensitive to expected loss and prepayment rates for Alt-A securities and the loss of credit protection from certain monolines on US Home Equity Lines of Credit ('HELoC's). The results of the stress test showed that, by applying different inputs to those currently observed, a further potential impairment charge to the income statement could arise over the next three years of US$2 billion to US$2.5 billion. However, management believed that the loss which would be realised in cash terms would be considerably lower than the impairment charge above and potentially cost US$0.6 billion to US$0.8 billion over the next four years. At 30 June 2009, management reperformed the stress test on the available-for-sale ABS position and the outcome of this test, taking into account the impairment charges in 2009, was consistent with the exercise at 31 December 2008.
Business model
Asset-backed securities and leveraged finance
HSBC is or has been involved in the following activities in these areas:
purchasing US mortgage loans with the intention of structuring and placing securitisations into the market;
trading in ABSs, including MBSs, in secondary markets;
holding MBSs and other ABSs in balance sheet management activities, with the intention of earning net interest income over the life of the securities;
holding MBSs and other ABSs as part of investment portfolios, including the structured investment vehicles ('SIV's), SICs and money market funds described under 'Special purpose entities' below, with the intention of earning net interest income and management fees;
MBSs or other ABSs held in the trading portfolio hedged through credit derivative protection, typically purchased from monolines, with the intention of earning the spread differential over the life of the instruments; and
leveraged finance: originating loans for the purposes of syndicating or selling them down in order to generate a trading profit and holding them in order to earn interest margin over their lives.
Historically, these activities have not been a significant part of Global Banking and Markets' business, and Global Banking and Markets is not reliant on them for any material aspect of its business operations or profitability.
The purchase and securitisation of US mortgage loans and the secondary trading of US MBSs was conducted in HSBC's US MBSs business. This business was discontinued in 2007.
Special purpose entities
HSBC enters into certain transactions with customers in the ordinary course of business which involve the establishment of SPEs to facilitate customer transactions. SPEs are used in HSBC's business in order to provide structured investment opportunities for customers, facilitate the raising of funding for customers' business activities, or diversify HSBC's sources of funding and/or improve capital efficiency.
The use of SPEs is not a significant part of HSBC's activities and HSBC is not reliant on the use of SPEs for any material part of its business operations or profitability. Detailed disclosures of HSBC's sponsored SPEs are provided on page 124.
Risk management
The effect of the ongoing market turmoil on HSBC's risk exposures, the way in which HSBC has managed risk exposures in this context and any changes made in HSBC's risk management policies and procedures in response to the market conditions are described in the following sections:
Liquidity risk - 'The impact of market turmoil on the Group's liquidity risk position' (see page 172).
Market risk - 'The impact of market turmoil on market risk' (see page 174).
Credit Risk - 'Credit exposure' (see page 138).
Accounting policies
HSBC's accounting policies regarding the classification and valuation of financial instruments are described in the accounting policies on pages 344 to 359 of the Annual Report and Accounts 2008, and the use of assumptions and estimation in respect of the valuation of financial instruments is described on page 63 of the Annual Report and Accounts 2008.
Nature and extent of HSBC's exposures
This section contains information on HSBC's exposures to the following:
direct lending held at fair value through profit or loss;
ABSs including MBSs and CDOs;
monolines;
credit derivative product companies ('CDPC's); and
leveraged finance transactions.
MBSs are securities that represent interests in a group of mortgages. Investors in these securities have the right to cash received from future mortgage payments (interest and/or principal). Where an MBS references mortgages with different risk profiles, the MBS is classified according to the highest risk class. Consequently, an MBS with both sub-prime and AltߛA exposures is classified as sub-prime.
CDOs are securities in which ABSs and/or certain other related assets have been purchased and securitised by a third-party, or securities which pay a return which is referenced to those assets. CDOs may feature exposure to sub-prime mortgage assets through the underlying assets. As there is often uncertainty surrounding the nature of the underlying collateral supporting CDOs, all CDOs supported by residential mortgage-related assets, irrespective of the level of sub-prime assets, are classified as sub-prime.
HSBC's holdings of ABSs and CDOs, and its direct lending positions, include the following categories of collateral and lending activity:
sub-prime: loans to customers who have limited credit histories, modest incomes, high debt-to-income ratios or have experienced credit problems caused by occasional delinquencies, prior charge-offs, bankruptcy or other credit-related actions. For US mortgages, US credit scores are primarily used to determine whether a loan is sub-prime. US home equity lines of credit are classified as sub-prime. For non-US mortgages, management judgement is used to identify loans of similar risk characteristics to sub-prime, for example, UK non-conforming mortgages (see below);
US Home Equity Lines of Credit: a form of revolving credit facility provided to customers, which is supported by a first or second lien charge over residential property. Global Banking and Markets' holdings of HELoCs are classified as US sub-prime residential mortgage assets;
US Alt-A: loans classified as Alt-A are regarded as lower risk than sub-prime, but they share higher risk characteristics than lending under normal criteria. US credit scores, as well as the level of mortgage documentation held (such as proof of income), are considered when determining whether an Alt-A classification is appropriate. Non-agency mortgages in the US are classified as Alt-A if they do not meet the criteria for classification as sub-prime. These are mortgages not eligible to be sold to the major US Government agency, Ginnie Mae (Government National Mortgage Association), and government sponsored enterprises in the mortgage market, Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation);
US Government agency and US Government sponsored enterprises mortgage-related assets: securities that are guaranteed by US Government agencies, such as Ginnie Mae, or are guaranteed by US Government sponsored entities, including Fannie Mae and Freddie Mac;
UK non-conforming mortgage-related assets: UK mortgages that do not meet normal lending criteria. This includes instances where the normal level of documentation has not been provided (for example, in the case of self-certification of income), or where increased risk factors, such as poor credit history, result in lending at a rate that is higher than the normal lending rate. UK non-conforming mortgages are treated as sub-prime exposures; and
other mortgage-related assets: residential mortgage-related assets that do not meet any of the classifications described above. Prime residential mortgage-related assets are included in this category.
HSBC's exposure to non-residential mortgage-related ABSs and direct lending includes:
commercial property mortgage-related assets: MBSs with collateral other than residential mortgage-related assets;
leveraged finance-related assets: securities with collateral relating to leveraged finance loans;
student loan-related assets: securities with collateral relating to student loans; and
other assets: securities with other receivable-related collateral.
Included in the tables below are ABSs which are held through SPEs that are consolidated by HSBC. Although HSBC consolidates these assets in full, the risks arising from the assets are mitigated to the extent of third-party investment in notes issued by those SPEs. For a description of HSBC's holdings of and arrangements with SPEs, see page 124.
The exposure detailed below includes long positions where risk is mitigated by specific credit derivatives with monolines and other financial institutions. These positions comprise:
residential MBSs with a carrying amount of US$0.9 billion (31 December 2008: US$0.9 billion);
residential MBS CDOs with a carrying amount of US$16 million (31 December 2008: US$39 million); and
ABSs other than residential MBSs and MBS CDOs with a carrying amount of US$8.3 billion (31 December 2008: US$9.8 billion).
In the tables on pages 105 to 110, carrying amounts and gains and losses are given for securities except those where risk is mitigated through specific credit derivatives with monolines. The counterparty credit risk arising from the derivative transactions undertaken with monolines is covered in the monoline exposure analysis on page 111.
Carrying amount of HSBC's consolidated holdings of ABSs, and direct lending held at fair value through profit or loss
|
Trading |
|
Available for sale |
|
Held to maturity |
Designated |
|
Loans and receivables |
|
Total |
Of which held through consolidated SPEs |
||
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
At 30 June 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime residential |
2,498 |
|
2,876 |
|
- |
|
- |
|
732 |
|
6,106 |
|
3,156 |
Direct lending |
1,923 |
|
- |
|
- |
|
- |
|
- |
|
1,923 |
|
864 |
MBSs and MBS CDOs1 |
575 |
|
2,876 |
|
- |
|
- |
|
732 |
|
4,183 |
|
2,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Alt-A residential |
371 |
|
5,057 |
|
190 |
|
- |
|
953 |
|
6,571 |
|
3,356 |
Direct lending |
207 |
|
- |
|
- |
|
- |
|
- |
|
207 |
|
- |
MBSs1 |
164 |
|
5,057 |
|
190 |
|
- |
|
953 |
|
6,364 |
|
3,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government agency and sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
102 |
|
14,074 |
|
2,388 |
|
- |
|
- |
|
16,564 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other residential mortgage- |
1,274 |
|
4,175 |
|
- |
|
25 |
|
1,262 |
|
6,736 |
|
2,801 |
Direct lending |
498 |
|
- |
|
- |
|
- |
|
- |
|
498 |
|
- |
MBSs1 |
776 |
|
4,175 |
|
- |
|
25 |
|
1,262 |
|
6,238 |
|
2,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs and MBS CDOs1 |
390 |
|
6,575 |
|
- |
|
227 |
|
2,126 |
|
9,318 |
|
4,815 |
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
252 |
|
4,690 |
|
- |
|
- |
|
563 |
|
5,505 |
|
3,825 |
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
203 |
|
5,136 |
|
- |
|
- |
|
141 |
|
5,480 |
|
4,334 |
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
2,409 |
|
4,468 |
|
- |
|
6,346 |
|
2,092 |
|
15,315 |
|
2,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,499 |
|
47,051 |
|
2,578 |
|
6,598 |
|
7,869 |
|
71,595 |
|
25,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-prime residential |
3,372 |
|
3,741 |
|
- |
|
1 |
|
453 |
|
7,567 |
|
4,230 |
Direct lending |
2,789 |
|
- |
|
- |
|
- |
|
- |
|
2,789 |
|
1,300 |
MBSs and MBS CDOs1 |
583 |
|
3,741 |
|
- |
|
1 |
|
453 |
|
4,778 |
|
2,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Alt-A residential |
618 |
|
5,829 |
|
185 |
|
- |
|
1,056 |
|
7,688 |
|
3,831 |
Direct lending |
246 |
|
- |
|
- |
|
- |
|
- |
|
246 |
|
- |
MBSs1 |
372 |
|
5,829 |
|
185 |
|
- |
|
1,056 |
|
7,442 |
|
3,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government agency and sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
1,127 |
|
20,312 |
|
2,412 |
|
51 |
|
- |
|
23,902 |
|
441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other residential mortgage- |
1,633 |
|
4,272 |
|
- |
|
31 |
|
1,413 |
|
7,349 |
|
2,822 |
Direct lending |
677 |
|
- |
|
- |
|
- |
|
- |
|
677 |
|
- |
MBSs1 |
956 |
|
4,272 |
|
- |
|
31 |
|
1,413 |
|
6,672 |
|
2,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property mortgage-related assets15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs and MBS CDOs1 |
589 |
|
6,802 |
|
- |
|
86 |
|
2,124 |
|
9,601 |
|
4,985 |
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
784 |
|
4,489 |
|
- |
|
- |
|
204 |
|
5,477 |
|
3,667 |
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
214 |
|
4,809 |
|
- |
|
3 |
|
81 |
|
5,107 |
|
4,028 |
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
3,068 |
|
5,957 |
|
- |
|
6,371 |
|
2,660 |
|
18,056 |
|
3,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,405 |
|
56,211 |
|
2,597 |
|
6,543 |
|
7,991 |
|
84,747 |
|
27,945 |
For footnotes, see page 113.
The above table excludes leveraged finance transactions, which are shown separately on page 112.
HSBC's consolidated holdings of US ABSs, and direct lending held at fair value through profit or loss
|
Half-year to 30 June 2009 |
|
At 30 June 2009 |
||||||||||||
Unrealised gains and (losses)3 |
|
Realised gains and (losses)4 |
Fair value movements through equity5 |
Impair- ment |
Impair- ment6 |
|
Gross principal7 |
|
CDS protection8 |
|
Net principal exposure9 |
|
Carrying amount10 |
||
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
US sub-prime residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
(154) |
|
11 |
|
- |
|
- |
|
2,253 |
|
- |
|
2,253 |
|
1,923 |
MBSs1 |
(142) |
|
(7) |
|
499 |
|
(459) |
|
6,315 |
|
436 |
|
5,879 |
|
2,388 |
- high grade2 |
(18) |
|
(2) |
|
262 |
|
- |
|
1,710 |
|
392 |
|
1,318 |
|
861 |
- rated C to A |
(124) |
|
(5) |
|
237 |
|
(459) |
|
4,557 |
|
44 |
|
4,513 |
|
1,524 |
- not publicly rated |
- |
|
- |
|
- |
|
- |
|
48 |
|
- |
|
48 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS CDOs1 |
- |
|
- |
|
(6) |
|
(2) |
|
369 |
|
35 |
|
334 |
|
9 |
- high grade2 |
- |
|
- |
|
- |
|
- |
|
18 |
|
17 |
|
1 |
|
- |
- rated C to A |
- |
|
- |
|
(6) |
|
(2) |
|
351 |
|
18 |
|
333 |
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(296) |
|
4 |
|
493 |
|
(461) |
|
8,937 |
|
471 |
|
8,466 |
|
4,320 |
US Alt-A residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
- |
|
- |
|
- |
|
- |
|
231 |
|
- |
|
231 |
|
207 |
MBSs1 |
(41) |
|
- |
|
1,119 |
|
(631) |
|
15,195 |
|
303 |
|
14,892 |
|
6,228 |
- high grade2 |
(9) |
|
1 |
|
3,276 |
|
54 |
|
2,521 |
|
142 |
|
2,379 |
|
1,754 |
- rated C to A |
(32) |
|
(1) |
|
(2,157) |
|
(685) |
|
12,663 |
|
161 |
|
12,502 |
|
4,463 |
- not publicly rated |
- |
|
- |
|
- |
|
- |
|
11 |
|
- |
|
11 |
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41) |
|
- |
|
1,119 |
|
(631) |
|
15,426 |
|
303 |
|
15,123 |
|
6,435 |
US Government agency and sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- high grade2 |
8 |
|
236 |
|
(56) |
|
- |
|
16,460 |
|
- |
|
16,460 |
|
16,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other US residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
(41) |
|
104 |
|
- |
|
- |
|
526 |
|
- |
|
526 |
|
498 |
MBSs1 |
(42) |
|
- |
|
(35) |
|
- |
|
874 |
|
- |
|
874 |
|
484 |
- high grade2 |
(27) |
|
- |
|
(35) |
|
- |
|
685 |
|
- |
|
685 |
|
379 |
- rated C to A |
(15) |
|
- |
|
- |
|
- |
|
189 |
|
- |
|
189 |
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83) |
|
104 |
|
(35) |
|
- |
|
1,400 |
|
- |
|
1,400 |
|
982 |
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS and MBS CDOs1 |
(18) |
|
7 |
|
209 |
|
- |
|
6,295 |
|
359 |
|
5,936 |
|
3,888 |
- high grade2 |
(18) |
|
7 |
|
269 |
|
- |
|
6,069 |
|
359 |
|
5,710 |
|
3,787 |
- rated C to A |
- |
|
- |
|
(60) |
|
- |
|
226 |
|
- |
|
226 |
|
101 |
- not publicly rated |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
(7) |
|
- |
|
165 |
|
- |
|
5,377 |
|
758 |
|
4,619 |
|
3,592 |
- high grade2 |
(7) |
|
- |
|
163 |
|
- |
|
4,873 |
|
271 |
|
4,602 |
|
3,577 |
- rated C to A |
- |
|
- |
|
2 |
|
- |
|
504 |
|
487 |
|
17 |
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
(3) |
|
(1) |
|
553 |
|
- |
|
7,397 |
|
- |
|
7,397 |
|
5,308 |
- high grade2 |
(1) |
|
- |
|
427 |
|
- |
|
6,890 |
|
- |
|
6,890 |
|
5,201 |
- rated C to A |
(2) |
|
(1) |
|
126 |
|
- |
|
507 |
|
- |
|
507 |
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS and ABS CDOs1 |
(131) |
|
(1) |
|
71 |
|
(33) |
|
6,268 |
|
988 |
|
5,280 |
|
3,308 |
- high grade2 |
(30) |
|
1 |
|
593 |
|
- |
|
2,488 |
|
817 |
|
1,671 |
|
1,395 |
- rated C to A |
(101) |
|
(2) |
|
(432) |
|
(33) |
|
3,199 |
|
171 |
|
3,028 |
|
1,337 |
- not publicly rated |
- |
|
- |
|
(90) |
|
- |
|
581 |
|
- |
|
581 |
|
576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(571) |
|
349 |
|
2,519 |
|
(1,125) |
|
67,560 |
|
2,879 |
|
64,681 |
|
44,397 |
HSBC's consolidated holdings of US ABSs, and direct lending held at fair value through profit or loss (continued)
|
Half-year to 30 June 2008 |
|
At 30 June 2008 |
||||||||||||
Unrealised gains and (losses)3 |
|
Realised gains and (losses)4 |
Fair value movements through equity5 |
Impair- ment |
Impair- ment6 |
|
Gross principal7 |
|
CDS protection8 |
|
Net principal exposure9 |
|
Carrying amount10 |
||
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
US sub-prime residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
(234) |
|
(8) |
|
- |
|
- |
|
4,199 |
|
- |
|
4,199 |
|
3,534 |
MBSs1 |
(621) |
|
6 |
|
(903) |
|
(29) |
|
8,239 |
|
601 |
|
7,638 |
|
5,283 |
- high grade2 |
(228) |
|
7 |
|
(518) |
|
(29) |
|
5,930 |
|
571 |
|
5,359 |
|
4,142 |
- rated C to A |
(333) |
|
- |
|
(385) |
|
- |
|
2,292 |
|
30 |
|
2,262 |
|
1,118 |
- not publicly rated |
(60) |
|
(1) |
|
- |
|
- |
|
17 |
|
- |
|
17 |
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS CDOs1 |
(123) |
|
- |
|
(32) |
|
(21) |
|
1,200 |
|
569 |
|
631 |
|
152 |
- high grade2 |
(8) |
|
- |
|
(32) |
|
- |
|
230 |
|
50 |
|
180 |
|
97 |
- rated C to A |
(115) |
|
- |
|
- |
|
(21) |
|
970 |
|
519 |
|
451 |
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(978) |
|
(2) |
|
(935) |
|
(50) |
|
13,638 |
|
1,170 |
|
12,468 |
|
8,969 |
US Alt-A residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
- |
|
- |
|
- |
|
- |
|
329 |
|
- |
|
329 |
|
325 |
MBSs1 |
(368) |
|
(59) |
|
(3,243) |
|
(5) |
|
17,548 |
|
204 |
|
17,344 |
|
11,349 |
- high grade2 |
(340) |
|
(49) |
|
(3,115) |
|
(5) |
|
16,898 |
|
204 |
|
16,694 |
|
10,969 |
- rated C to A |
(29) |
|
(9) |
|
(100) |
|
- |
|
533 |
|
- |
|
533 |
|
299 |
- not publicly rated |
1 |
|
(1) |
|
(28) |
|
- |
|
117 |
|
- |
|
117 |
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(368) |
|
(59) |
|
(3,243) |
|
(5) |
|
17,877 |
|
204 |
|
17,673 |
|
11,674 |
US Government agency and sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- high grade2 |
(52) |
|
40 |
|
(145) |
|
- |
|
25,301 |
|
- |
|
25,301 |
|
24,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other US residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
(26) |
|
34 |
|
- |
|
- |
|
312 |
|
- |
|
312 |
|
298 |
MBSs1 |
(107) |
|
(123) |
|
(4) |
|
- |
|
889 |
|
195 |
|
694 |
|
555 |
- high grade2 |
(105) |
|
(123) |
|
(4) |
|
- |
|
864 |
|
187 |
|
677 |
|
546 |
- rated C to A |
(2) |
|
- |
|
- |
|
- |
|
25 |
|
8 |
|
17 |
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133) |
|
(89) |
|
(4) |
|
- |
|
1,201 |
|
195 |
|
1,006 |
|
853 |
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS and MBS CDOs1 |
(69) |
|
- |
|
(295) |
|
- |
|
5,838 |
|
415 |
|
5,423 |
|
4,943 |
- high grade2 |
(55) |
|
- |
|
(290) |
|
- |
|
5,554 |
|
415 |
|
5,139 |
|
4,682 |
- rated C to A |
- |
|
- |
|
(5) |
|
- |
|
64 |
|
- |
|
64 |
|
55 |
- not publicly rated |
(14) |
|
- |
|
- |
|
- |
|
220 |
|
- |
|
220 |
|
206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- high grade2 |
(4) |
|
- |
|
(227) |
|
- |
|
5,153 |
|
577 |
|
4,576 |
|
4,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
(64) |
|
- |
|
(507) |
|
- |
|
7,412 |
|
- |
|
7,412 |
|
6,437 |
- high grade2 |
(44) |
|
- |
|
(437) |
|
- |
|
7,202 |
|
- |
|
7,202 |
|
6,343 |
- rated C to A |
(20) |
|
- |
|
(70) |
|
- |
|
210 |
|
- |
|
210 |
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS and ABS CDOs1 |
(186) |
|
(3) |
|
(27) |
|
- |
|
9,057 |
|
2,941 |
|
6,116 |
|
4,956 |
- high grade2 |
(111) |
|
(2) |
|
6 |
|
- |
|
6,345 |
|
2,433 |
|
3,912 |
|
3,086 |
- rated C to A |
(62) |
|
(1) |
|
(56) |
|
- |
|
1,874 |
|
508 |
|
1,366 |
|
1,076 |
- not publicly rated |
(13) |
|
- |
|
23 |
|
- |
|
838 |
|
- |
|
838 |
|
794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(1,854) |
|
(113) |
|
(5,383) |
|
(55) |
|
85,477 |
|
5,502 |
|
79,975 |
|
66,989 |
|
Half-year to 31 December 2008 |
|
At 31 December 2008 |
||||||||||||
Unrealised gains and (losses)3 |
|
Realised gains and (losses)4 |
Fair value movements through equity5 |
Impair- ment |
Impair- ment6 |
|
Gross principal7 |
|
CDS protection8 |
|
Net principal exposure9 |
|
Carrying amount10 |
||
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
US sub-prime residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
(260) |
|
15 |
|
- |
|
- |
|
3,653 |
|
- |
|
3,653 |
|
2,789 |
MBSs1 |
(163) |
|
(5) |
|
(675) |
|
29 |
|
6,845 |
|
794 |
|
6,051 |
|
3,044 |
- high grade2 |
(15) |
|
(1) |
|
228 |
|
29 |
|
2,903 |
|
507 |
|
2,396 |
|
1,634 |
- rated C to A |
(111) |
|
(4) |
|
(903) |
|
- |
|
3,913 |
|
287 |
|
3,626 |
|
1,399 |
- not publicly rated |
(37) |
|
- |
|
- |
|
- |
|
29 |
|
- |
|
29 |
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS CDOs1 |
13 |
|
- |
|
(23) |
|
(29) |
|
1,042 |
|
234 |
|
808 |
|
61 |
- high grade2 |
8 |
|
- |
|
(46) |
|
- |
|
172 |
|
27 |
|
145 |
|
45 |
- rated C to A |
5 |
|
- |
|
23 |
|
(29) |
|
870 |
|
207 |
|
663 |
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(410) |
|
10 |
|
(698) |
|
- |
|
11,540 |
|
1,028 |
|
10,512 |
|
5,894 |
US Alt-A residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
(11) |
|
- |
|
- |
|
- |
|
264 |
|
- |
|
264 |
|
246 |
MBSs1 |
(369) |
|
68 |
|
(3,173) |
|
(505) |
|
16,860 |
|
436 |
|
16,424 |
|
7,174 |
- high grade2 |
(106) |
|
66 |
|
103 |
|
(77) |
|
9,804 |
|
317 |
|
9,487 |
|
4,869 |
- rated C to A |
(263) |
|
2 |
|
(3,304) |
|
(428) |
|
7,041 |
|
119 |
|
6,922 |
|
2,293 |
- not publicly rated |
- |
|
- |
|
28 |
|
- |
|
15 |
|
- |
|
15 |
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(380) |
|
68 |
|
(3,173) |
|
(505) |
|
17,124 |
|
436 |
|
16,688 |
|
7,420 |
US Government agency and sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- high grade2 |
1 |
|
- |
|
537 |
|
- |
|
23,470 |
|
- |
|
23,470 |
|
23,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other US residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct lending |
49 |
|
(43) |
|
- |
|
- |
|
691 |
|
- |
|
691 |
|
677 |
MBSs1,15 |
42 |
|
86 |
|
37 |
|
- |
|
739 |
|
284 |
|
455 |
|
357 |
- high grade2 |
42 |
|
86 |
|
37 |
|
- |
|
659 |
|
262 |
|
397 |
|
317 |
- rated C to A |
- |
|
- |
|
- |
|
- |
|
80 |
|
22 |
|
58 |
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91 |
|
43 |
|
37 |
|
- |
|
1,430 |
|
284 |
|
1,146 |
|
1,034 |
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS and MBS CDOs1,15 |
12 |
|
(19) |
|
(1,414) |
|
- |
|
6,097 |
|
553 |
|
5,544 |
|
3,439 |
- high grade2 |
(2) |
|
(18) |
|
(1,406) |
|
- |
|
5,958 |
|
553 |
|
5,405 |
|
3,316 |
- rated C to A |
- |
|
(1) |
|
(8) |
|
- |
|
108 |
|
- |
|
108 |
|
94 |
- not publicly rated |
14 |
|
- |
|
- |
|
- |
|
31 |
|
- |
|
31 |
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
(11) |
|
- |
|
(773) |
|
- |
|
5,212 |
|
551 |
|
4,661 |
|
3,390 |
- high grade2 |
(11) |
|
- |
|
(769) |
|
- |
|
5,193 |
|
551 |
|
4,642 |
|
3,375 |
- rated C to A |
- |
|
- |
|
(4) |
|
- |
|
19 |
|
- |
|
19 |
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
1 |
|
(4) |
|
(1,452) |
|
- |
|
7,610 |
|
279 |
|
7,331 |
|
4,908 |
- high grade2 |
(3) |
|
(4) |
|
(1,212) |
|
- |
|
6,888 |
|
279 |
|
6,609 |
|
4,523 |
- rated C to A |
4 |
|
- |
|
(240) |
|
- |
|
722 |
|
- |
|
722 |
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS and ABS CDOs1 |
(61) |
|
(87) |
|
(780) |
|
(33) |
|
7,885 |
|
1,539 |
|
6,346 |
|
4,277 |
- high grade2 |
(42) |
|
(69) |
|
(595) |
|
- |
|
5,216 |
|
1,370 |
|
3,846 |
|
2,725 |
- rated C to A |
(32) |
|
(18) |
|
(162) |
|
(13) |
|
1,916 |
|
169 |
|
1,747 |
|
805 |
- not publicly rated |
13 |
|
- |
|
(23) |
|
(20) |
|
753 |
|
- |
|
753 |
|
747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(757) |
|
11 |
|
(7,716) |
|
(538) |
|
80,368 |
|
4,670 |
|
75,698 |
|
54,264 |
For footnotes, see page 113.
HSBC's consolidated holdings of ABSs, and direct lending held at fair value through profit or loss, other than those supported by US-originated assets
|
Half-year to 30 June 2009 |
|
At 30 June 2009 |
||||||||||||
Unrealised gains and (losses)3 |
|
Realised gains and (losses)4 |
Fair value movements through equity5 |
Impair- ment |
Impair- ment6 |
|
Gross principal7 |
|
CDS protection8 |
|
Net principal exposure9 |
|
Carrying amount10 |
||
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
UK non-conforming residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
(1) |
|
- |
|
(92) |
|
(60) |
|
1,602 |
|
- |
|
1,602 |
|
1,074 |
- high grade2 |
- |
|
- |
|
(100) |
|
- |
|
1,386 |
|
- |
|
1,386 |
|
971 |
- rated C to A |
(1) |
|
- |
|
8 |
|
(60) |
|
216 |
|
- |
|
216 |
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other UK residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
(7) |
|
(5) |
|
100 |
|
- |
|
5,217 |
|
- |
|
5,217 |
|
4,031 |
- high grade2 |
(7) |
|
(6) |
|
123 |
|
- |
|
4,873 |
|
- |
|
4,873 |
|
3,822 |
- rated C to A |
- |
|
1 |
|
(23) |
|
- |
|
339 |
|
- |
|
339 |
|
207 |
- not publicly rated |
- |
|
- |
|
- |
|
- |
|
5 |
|
- |
|
5 |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-US and non-UK sub-prime residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
1 |
|
- |
|
- |
|
- |
|
84 |
|
- |
|
84 |
|
72 |
- high grade2 |
2 |
|
- |
|
- |
|
- |
|
46 |
|
- |
|
46 |
|
42 |
- rated C to A |
(1) |
|
- |
|
- |
|
- |
|
38 |
|
- |
|
38 |
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS CDOs1 |
- |
|
- |
|
(4) |
|
- |
|
25 |
|
- |
|
25 |
|
17 |
- high grade2 |
- |
|
- |
|
(4) |
|
- |
|
23 |
|
- |
|
23 |
|
15 |
- not publicly rated |
- |
|
- |
|
- |
|
- |
|
2 |
|
- |
|
2 |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
- |
|
(4) |
|
- |
|
109 |
|
- |
|
109 |
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-US and non-UK residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
6 |
|
1 |
|
(18) |
|
(5) |
|
1,878 |
|
- |
|
1,878 |
|
1,597 |
- high grade2 |
17 |
|
1 |
|
(13) |
|
- |
|
1,751 |
|
- |
|
1,751 |
|
1,507 |
- rated C to A |
(1) |
|
- |
|
- |
|
- |
|
52 |
|
- |
|
52 |
|
46 |
- not publicly rated |
(10) |
|
- |
|
(5) |
|
(5) |
|
75 |
|
- |
|
75 |
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS and MBS CDOs1 |
(74) |
|
6 |
|
(744) |
|
- |
|
7,560 |
|
- |
|
7,560 |
|
5,223 |
- high grade2 |
(46) |
|
5 |
|
(599) |
|
- |
|
6,649 |
|
- |
|
6,649 |
|
4,650 |
- rated C to A |
(28) |
|
2 |
|
(148) |
|
- |
|
893 |
|
- |
|
893 |
|
568 |
- not publicly rated |
- |
|
(1) |
|
3 |
|
- |
|
18 |
|
- |
|
18 |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
6 |
|
- |
|
(25) |
|
- |
|
1,995 |
|
- |
|
1,995 |
|
1,483 |
- high grade2 |
6 |
|
- |
|
(10) |
|
- |
|
1,882 |
|
- |
|
1,882 |
|
1,386 |
- rated C to A |
- |
|
- |
|
(15) |
|
- |
|
113 |
|
- |
|
113 |
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS and ABS CDOs1 |
(22) |
|
(3) |
|
41 |
|
- |
|
13,940 |
|
8,629 |
|
5,311 |
|
4,485 |
- high grade2 |
20 |
|
(3) |
|
(6) |
|
- |
|
5,601 |
|
2,362 |
|
3,239 |
|
2,855 |
- rated C to A |
(30) |
|
- |
|
47 |
|
- |
|
2,069 |
|
124 |
|
1,945 |
|
1,565 |
- not publicly rated |
(12) |
|
- |
|
- |
|
- |
|
6,270 |
|
6,143 |
|
127 |
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(91) |
|
(1) |
|
(742) |
|
(65) |
|
32,301 |
|
8,629 |
|
23,672 |
|
17,982 |
|
Half-year to 30 June 2008 |
|
At 30 June 2008 |
||||||||||||
Unrealised gains and (losses)3 |
|
Realised gains and (losses)4 |
Fair value movements through equity5 |
Impair- ment |
Impair- ment6 |
|
Gross principal7 |
|
CDS protection8 |
|
Net principal exposure9 |
|
Carrying amount10 |
||
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
UK non-conforming residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
(20) |
|
10 |
|
(92) |
|
- |
|
2,851 |
|
- |
|
2,851 |
|
2,625 |
- high grade2 |
(12) |
|
10 |
|
(88) |
|
- |
|
2,793 |
|
- |
|
2,793 |
|
2,585 |
- rated C to A |
(8) |
|
- |
|
(4) |
|
- |
|
52 |
|
- |
|
52 |
|
36 |
- not publicly rated |
- |
|
- |
|
- |
|
- |
|
6 |
|
- |
|
6 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other UK residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
(39) |
|
- |
|
(99) |
|
- |
|
5,494 |
|
- |
|
5,494 |
|
5,128 |
- high grade2 |
(23) |
|
- |
|
(98) |
|
- |
|
5,126 |
|
- |
|
5,126 |
|
4,803 |
- rated C to A |
(16) |
|
- |
|
(1) |
|
- |
|
359 |
|
- |
|
359 |
|
316 |
- not publicly rated |
- |
|
- |
|
- |
|
- |
|
9 |
|
- |
|
9 |
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-US and non-UK sub-prime residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
(15) |
|
6 |
|
(2) |
|
- |
|
885 |
|
- |
|
885 |
|
587 |
- high grade2 |
(7) |
|
6 |
|
(2) |
|
- |
|
820 |
|
- |
|
820 |
|
534 |
- not publicly rated |
(8) |
|
- |
|
- |
|
- |
|
65 |
|
- |
|
65 |
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS CDOs1 |
(3) |
|
- |
|
(3) |
|
- |
|
35 |
|
- |
|
35 |
|
32 |
- high grade2 |
(3) |
|
- |
|
(3) |
|
- |
|
32 |
|
- |
|
32 |
|
29 |
- not publicly rated |
- |
|
- |
|
- |
|
- |
|
3 |
|
- |
|
3 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18) |
|
6 |
|
(5) |
|
- |
|
920 |
|
- |
|
920 |
|
619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-US and non-UK residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
(72) |
|
(7) |
|
(13) |
|
- |
|
3,076 |
|
54 |
|
3,022 |
|
2,844 |
- high grade2 |
(57) |
|
(7) |
|
(13) |
|
- |
|
2,635 |
|
10 |
|
2,625 |
|
2,491 |
- rated C to A |
(12) |
|
- |
|
- |
|
- |
|
339 |
|
44 |
|
295 |
|
256 |
- not publicly rated |
(3) |
|
- |
|
- |
|
- |
|
102 |
|
- |
|
102 |
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS and MBS CDOs1 |
(104) |
|
- |
|
(293) |
|
- |
|
9,183 |
|
74 |
|
9,109 |
|
8,393 |
- high grade2 |
(36) |
|
- |
|
(285) |
|
- |
|
7,828 |
|
70 |
|
7,758 |
|
7,200 |
- rated C to A |
(23) |
|
- |
|
(2) |
|
- |
|
402 |
|
4 |
|
398 |
|
323 |
- not publicly rated |
(45) |
|
- |
|
(6) |
|
- |
|
953 |
|
- |
|
953 |
|
870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
(5) |
|
- |
|
(59) |
|
- |
|
2,766 |
|
949 |
|
1,817 |
|
1,704 |
- high grade2 |
(1) |
|
- |
|
(59) |
|
- |
|
2,355 |
|
617 |
|
1,738 |
|
1,632 |
- not publicly rated |
(4) |
|
- |
|
- |
|
- |
|
411 |
|
332 |
|
79 |
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- high grade2 |
- |
|
- |
|
- |
|
- |
|
4 |
|
- |
|
4 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS and ABS CDOs1 |
(148) |
|
(2) |
|
(131) |
|
- |
|
17,024 |
|
9,368 |
|
7,656 |
|
6,846 |
- high grade2 |
(99) |
|
(1) |
|
(206) |
|
- |
|
7,345 |
|
1,709 |
|
5,636 |
|
4,927 |
- rated C to A |
(29) |
|
- |
|
(73) |
|
- |
|
1,920 |
|
802 |
|
1,118 |
|
1,050 |
- not publicly rated |
(20) |
|
(1) |
|
148 |
|
- |
|
7,759 |
|
6,857 |
|
902 |
|
869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(406) |
|
7 |
|
(692) |
|
- |
|
41,318 |
|
10,445 |
|
30,873 |
|
28,163 |
HSBC's consolidated holdings of ABSs, and direct lending held at fair value through profit or loss, other than those supported by US-originated assets (continued)
|
Half-year to 31 December 2008 |
|
At 31 December 2008 |
||||||||||||
Unrealised gains and (losses)3 |
|
Realised gains and (losses)4 |
Fair value movements through equity5 |
Impair- ment |
Impair- ment6 |
|
Gross principal7 |
|
CDS protection8 |
|
Net principal exposure9 |
|
Carrying amount10 |
||
|
US$m |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
UK non-conforming residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
17 |
|
(10) |
|
(202) |
|
- |
|
1,425 |
|
- |
|
1,425 |
|
1,100 |
- high grade2 |
11 |
|
(10) |
|
(180) |
|
- |
|
1,349 |
|
- |
|
1,349 |
|
1,051 |
- rated C to A |
6 |
|
- |
|
(22) |
|
- |
|
76 |
|
- |
|
76 |
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other UK residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
(8) |
|
(8) |
|
(610) |
|
- |
|
5,781 |
|
- |
|
5,781 |
|
4,568 |
- high grade2 |
(4) |
|
(10) |
|
(596) |
|
- |
|
5,289 |
|
- |
|
5,289 |
|
4,185 |
- rated C to A |
(4) |
|
2 |
|
(14) |
|
- |
|
488 |
|
- |
|
488 |
|
382 |
- not publicly rated |
- |
|
- |
|
- |
|
- |
|
4 |
|
- |
|
4 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-US and non-UK sub-prime residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1 |
15 |
|
(6) |
|
2 |
|
(8) |
|
47 |
|
- |
|
47 |
|
39 |
- high grade2 |
7 |
|
(6) |
|
2 |
|
(8) |
|
46 |
|
- |
|
46 |
|
38 |
- rated C to A |
- |
|
- |
|
- |
|
- |
|
1 |
|
- |
|
1 |
|
1 |
- not publicly rated |
8 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS CDOs1 |
(12) |
|
- |
|
- |
|
- |
|
53 |
|
- |
|
53 |
|
26 |
- high grade2 |
(11) |
|
- |
|
- |
|
- |
|
40 |
|
- |
|
40 |
|
23 |
- rated C to A |
(1) |
|
- |
|
- |
|
- |
|
11 |
|
- |
|
11 |
|
1 |
- not publicly rated |
- |
|
- |
|
- |
|
- |
|
2 |
|
- |
|
2 |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
(6) |
|
2 |
|
(8) |
|
100 |
|
- |
|
100 |
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-US and non-UK residential mortgage-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBSs1,15 |
6 |
|
(20) |
|
(49) |
|
- |
|
1,871 |
|
- |
|
1,871 |
|
1,586 |
- high grade2 |
(2) |
|
(21) |
|
(49) |
|
- |
|
1,644 |
|
- |
|
1,644 |
|
1,413 |
- rated C to A |
6 |
|
- |
|
- |
|
- |
|
149 |
|
- |
|
149 |
|
127 |
- not publicly rated |
2 |
|
1 |
|
- |
|
- |
|
78 |
|
- |
|
78 |
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS and MBS CDOs1,15 |
(131) |
|
(8) |
|
(741) |
|
- |
|
7,427 |
|
- |
|
7,427 |
|
5,793 |
- high grade2 |
(138) |
|
(20) |
|
(728) |
|
- |
|
7,133 |
|
- |
|
7,133 |
|
5,609 |
- rated C to A |
(38) |
|
12 |
|
(16) |
|
- |
|
268 |
|
- |
|
268 |
|
170 |
- not publicly rated |
45 |
|
- |
|
3 |
|
- |
|
26 |
|
- |
|
26 |
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leveraged finance-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
1 |
|
1 |
|
(247) |
|
- |
|
2,180 |
|
385 |
|
1,795 |
|
1,391 |
- high grade2 |
(3) |
|
1 |
|
(247) |
|
- |
|
2,180 |
|
385 |
|
1,795 |
|
1,391 |
- not publicly rated |
4 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Student loan-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABSs and ABS CDOs1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- high grade2 |
- |
|
- |
|
- |
|
- |
|
98 |
|
- |
|
98 |
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS and ABS CDOs1 |
(71) |
|
(15) |
|
(523) |
|
(51) |
|
13,227 |
|
6,955 |
|
6,272 |
|
5,185 |
- high grade2 |
(77) |
|
(9) |
|
62 |
|
- |
|
6,130 |
|
1,679 |
|
4,451 |
|
3,806 |
- rated C to A |
(14) |
|
(7) |
|
(437) |
|
- |
|
1,676 |
|
174 |
|
1,502 |
|
1,097 |
- not publicly rated |
20 |
|
1 |
|
(148) |
|
(51) |
|
5,421 |
|
5,102 |
|
319 |
|
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
(183) |
|
(66) |
|
(2,370) |
|
(59) |
|
32,109 |
|
7,340 |
|
24,769 |
|
19,743 |
For footnotes, see page 113.
The following table shows the vintages of the collateral assets supporting HSBC's holdings of US sub-prime and Alt-A MBSs. Market prices for these instruments generally incorporate higher discounts for later vintages. The majority of HSBC's holdings of US sub-prime MBSs are originated pre-2007; holdings of US Alt-A MBSs are more evenly distributed between pre-2007 and 2007 vintages.
Vintages of US sub-prime and Alt-A mortgage-backed securities
|
Gross principal7 |
|
Gross principal7 |
||||
|
30 June |
|
31 December 2008 |
|
30 June |
|
31 December 2008 |
|
US$m |
|
US$m |
|
US$m |
|
US$m |
Mortgage vintage |
|
|
|
|
|
|
|
Pre-2006 |
1,571 |
|
2,012 |
|
2,237 |
|
2,695 |
2006 |
3,262 |
|
4,287 |
|
7,076 |
|
7,712 |
2007 |
1,851 |
|
1,588 |
|
5,882 |
|
6,453 |
|
|
|
|
|
|
|
|
|
6,684 |
|
7,887 |
|
15,195 |
|
16,860 |
For footnote, see page 113.
Transactions with monoline insurers
HSBC's exposure to derivative transactions entered into directly with monoline insurers
HSBC's principal exposure to monolines is through a number of over-the-counter ('OTC') derivative transactions, mainly credit default swaps ('CDS's). HSBC entered into these CDSs primarily to purchase credit protection against securities held within the trading portfolio.
During the first half of 2009, the notional value of contracts with monolines and HSBC's overall credit exposure to monolines decreased as certain transactions were commuted and others matured. The table below sets out the fair value, essentially the replacement cost, of the derivative transactions at 30 June 2009, 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 illustrate that risk, the value of protection purchased is shown subdivided between those monolines that were rated by Standard & Poor's ('S&P') at 'BBB or above' at 30 June 2009, and those that were 'below BBB' ('BBB' is the S&P cut-off for an investment grade classification). As a result of the downgrade of a significant monoline during the first half of 2009, exposure to monolines rated 'below BBB' at 30 June 2009 increased from the position as at 31 December 2008. The 'Credit risk adjustment' column indicates the valuation adjustment (the provision) taken against the net exposures, and reflects the assessed 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
|
Notional amount |
Net exposure before credit risk adjustment11 |
|
Credit risk adjustment12 |
Net exposure after credit risk adjustment |
||
|
US$m |
|
US$m |
|
US$m |
|
US$m |
At 30 June 2009 |
|
|
|
|
|
|
|
Derivative transactions with monoline counterparties |
|
|
|
|
|
|
|
Monoline - BBB or above |
7,259 |
|
2,308 |
|
(715) |
|
1,593 |
Monoline - below BBB |
3,683 |
|
1,357 |
|
(847) |
|
510 |
|
|
|
|
|
|
|
|
|
10,942 |
|
3,665 |
|
(1,562) |
|
2,103 |
|
|
|
|
|
|
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
Derivative transactions with monoline counterparties |
|
|
|
|
|
|
|
Monoline - BBB or above |
9,627 |
|
2,829 |
|
(740) |
|
2,089 |
Monoline - below BBB |
2,731 |
|
1,104 |
|
(752) |
|
352 |
|
|
|
|
|
|
|
|
|
12,358 |
|
3,933 |
|
(1,492) |
|
2,441 |
For footnotes, see page 113.
The above table can be analysed as follows. HSBC has derivative transactions referenced to underlying securities with a nominal value of US$10.9 billion (31 December 2008: US$12.4 billion), whose value at 30 June 2009 indicated a potential claim against the protection purchased from the monolines of some US$3.7 billion (31 December 2008: US$3.9 billion). On the basis of a credit assessment of the standing of the monolines, a provision of US$1.6 billion has been taken (31 December 2008: US$1.5 billion), leaving US$2.1 billion exposed (31 December 2008: US$2.4 billion), of which US$1.6 billion is recoverable from monolines rated investment grade at 30 June 2009 (31 December 2008: US$2.1 billion). The provisions taken imply in aggregate that 69 cents in the dollar will be recoverable from investment grade monolines and 38 cents in the dollar from non-investment grade monolines (31 December 2008: 74 cents and 32 cents, respectively).
HSBC's exposure to direct lending and irrevocable commitments to lend to monoline insurers
HSBC has outstanding liquidity facilities totalling US$2 million to monolines, of which US$2 million was drawn at 30 June 2009 (31 December 2008: US$47 million, US$2 million drawn).
HSBC's exposure to debt securities which benefit from guarantees provided by monoline insurers
Within both the trading and available-for-sale portfolios, HSBC holds bonds that are 'wrapped' with a credit enhancement from a monoline. As the bonds are traded explicitly with the benefit of this enhancement, any deterioration in the credit profile of the monoline is reflected in market prices and, therefore, in the carrying amount of these securities at 30 June 2009. For wrapped bonds held in the trading portfolio, the mark-to-market movement has been reflected through the income statement. For wrapped bonds held in the available-for-sale portfolio, the mark-to-market movement is reflected in equity unless there is objective evidence of impairment, in which case the impairment loss is reflected in the income statement. No wrapped bonds were included in the reclassification of financial assets described on page 97.
HSBC's exposure to Credit Derivative Product Companies
CDPCs are independent companies that specialise in selling credit default protection on corporate exposures. The focus on the credit worthiness of CDPCs continued during the first half of 2009, despite a reduction in the credit spread of corporates. At 30 June 2009, HSBC had purchased from CDPCs credit protection with a notional value of US$6.2 billion (31 December 2008: US$6.4 billion) which had a fair value (essentially, replacement cost) of US$0.7 billion (31 December 2008: US$1.2 billion), against which a credit risk adjustment (a provision) of US$0.2 billion was held (31 December 2008: US$0.2 billion). At 30 June 2009, 80 per cent of exposure was to CDPCs with investment grade ratings (31 December 2008: 100 per cent).
Leveraged finance transactions
Leveraged finance transactions include sub-investment grade acquisition or event-driven financing.
The following tables show HSBC's exposure to leveraged finance transactions arising from primary transactions and the movement in that leveraged finance exposure in the year. HSBC's additional exposure to leveraged finance loans through holdings of ABSs from its trading and investment activities is shown in the table on page 104.
HSBC's exposure to leveraged finance transactions
|
Funded exposures13 |
|
Unfunded exposures14 |
|
Total exposures |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
At 30 June 2009 |
|
|
|
|
|
Europe |
3,747 |
|
455 |
|
4,202 |
Rest of Asia-Pacific |
13 |
|
73 |
|
86 |
North America |
1,833 |
|
173 |
|
2,006 |
|
|
|
|
|
|
|
5,593 |
|
701 |
|
6,294 |
|
|
|
|
|
|
Held within: |
|
|
|
|
|
- loans and receivables |
5,589 |
|
420 |
|
6,009 |
- fair value through the profit or loss |
4 |
|
281 |
|
285 |
|
|
|
|
|
|
|
Funded exposures13 |
|
Unfunded exposures14 |
|
Total exposures |
|
US$m |
|
US$m |
|
US$m |
At 31 December 2008 |
|
|
|
|
|
Europe |
3,554 |
|
480 |
|
4,034 |
Rest of Asia-Pacific |
25 |
|
12 |
|
37 |
North America |
1,825 |
|
258 |
|
2,083 |
|
|
|
|
|
|
|
5,404 |
|
750 |
|
6,154 |
Held within: |
|
|
|
|
|
- loans and receivables |
5,401 |
|
482 |
|
5,883 |
- fair value through the profit or loss |
3 |
|
268 |
|
271 |
For footnotes, see below.
Movement in leveraged finance exposures
|
Funded exposures13 |
|
Unfunded exposures14 |
|
Total exposures |
|
US$m |
|
US$m |
|
US$m |
|
|
|
|
|
|
At 1 January 2009 |
5,404 |
|
750 |
|
6,154 |
Additions |
- |
|
50 |
|
50 |
Fundings |
11 |
|
(11) |
|
- |
Sales, repayments and other movements |
144 |
|
(103) |
|
41 |
Write-ups |
34 |
|
15 |
|
49 |
|
|
|
|
|
|
At 30 June 2009 |
5,593 |
|
701 |
|
6,294 |
For footnotes, see below.
The movement in leveraged finance exposures during the first half of 2009 primarily relates to the appreciation of sterling against the US dollar. Leveraged finance commitments held by HSBC were US$6.7 billion at 30 June 2009 (31 December 2008: US$6.6 billion), of which US$6.0 billion (31 December 2008: US$5.8 billion) was funded.
As a result of the reclassification of certain leveraged finance loans from held-for-trading to loans and receivables, net gains of US$0.6 billion (second half of 2008: net losses of US$1.3 billion) were not taken to the income statement for the half-year to 30 June 2009.
At 30 June 2009, HSBC's principal exposures were to companies in two sectors: US$3.7 billion to data processing (31 December 2008: US$3.6 billion) and US$1.9 billion to communications and infrastructure (31 December 2008: US$1.7 billion). During the period, 98 per cent of the total write-up was against exposures in these two sectors (31 December 2008: 99 per cent).
Footnotes to 'Nature and extent of HSBC's exposures'
1 Mortgage-backed securities ('MBS's), asset-backed securities ('ABS's) and collateralised debt obligations ('CDO's).
2 High grade assets rated AA or AAA.
3 Unrealised gains and losses on the net principal exposure (footnote 9) recognised in the income statement as a result of changes in the fair value of the asset, adjusted for the cumulative amount of transfers to realised gains and losses as a result of the disposal of assets.
4 Realised gains and losses on the net principal exposure (footnote 9) recognised in the income statement as a result of the disposal of assets.
5 Fair value gains and losses on the net principal exposure (footnote 9) recognised in equity as a result of the changes in the fair value of available-for-sale assets, adjusted for transfers from the available-for-sale reserve to the income statement as a result of impairment, adjusted for transfers to realised gains and losses following the disposal of assets and adjusted for transfer between ratings categories.
6 Impairment losses recognised in the income statement in respect of the net principal exposure (footnote 9) of available-for-sale and held-to-maturity assets.
7 The gross principal is the redemption amount on maturity or, in the case of an amortising instrument, the sum of the future redemption amounts through the residual life of the security.
8 A CDS is a credit default swap. CDS gross protection is the gross principal of the underlying instrument that is protected by CDSs.
9 Net principal exposure is the gross principal amount of assets that are not protected by CDSs. It includes assets that benefit from monoline protection, except where this protection is purchased with a CDS.
10 Carrying amount of the net principal exposure.
11 Net exposure after legal netting and any other relevant credit mitigation prior to deduction of the credit risk adjustment.
12 Cumulative fair value adjustment recorded against OTC derivative exposures to counterparties to reflect their creditworthiness.
13 Funded exposure represents the loan amount advanced to the customer, net of fair value movements and fees held on deposit.
14 Unfunded exposures represent the contractually committed loan facility amount not yet drawn down by the customer, net of fair value movements and fees held on deposit.
15 During 2009, for disclosure purposes, certain other residential MBSs were reclassified to commercial property mortgage-related assets. Comparatives have been restated accordingly.