HSBC 2003 Annual Report Download - page 361

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The following table presents the carrying value and fair value for those financial instruments whose fair
value is derived using these various estimation techniques:
2003 2002
Carrying
value
Fair
value
Carrying
value
Fair
value
US$m US$m US$m US$m
Assets
Loans and advances to banks and customers .......... 622,325 624,969 447,840 449,968
Debt securities – non-trading ................................. 130,922 132,594 107,900 109,897
Equity shares – non-trading ................................... 5,304 6,217 4,207 4,757
Other participating interests ................................... 690 764 651 747
Liabilities
Deposits by banks and customer accounts ............. 643,558 643,611 548,371 548,302
Debt securities in issue ........................................... 127,555 128,359 34,965 35,297
Subordinated liabilities .......................................... 25,462 26,889 18,371 19,613
Non-equity minority interests ................................. 4,604 4,600 4,431 4,420
The fair value of derivative financial instruments is the same as their carrying value under US GAAP.
(p) Earnings per share
Basic earnings per share under US GAAP, SFAS 128 ‘Earnings per share’ , is calculated by dividing net income
of US$7,231 million (2002: US$4,900 million; 2001: US$4,911 million) by the weighted average number of
ordinary shares in issue in 2003 of 10,429 million (2002: 9,339 million; 2001: 9,237 million).
Diluted earnings per share under US GAAP is calculated by dividing net income, which requires no adjustment
for the effects of dilutive ordinary potential shares, by the weighted average number of shares outstanding plus
the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential
ordinary shares in 2003 of 10,547 million (2002: 9,436 million; 2001: 9,336 million).
(q) Variable interest entities
Application of FIN 46
In January 2003, the FASB issued FIN 46. FIN 46R, a modified version of FIN 46, was issued in December
2003. FIN 46R addresses certain implementation issues that arose under FIN 46 and changes some of the
criteria used to determine whether HSBC is the primary beneficiary of an entity. HSBC has applied FIN 46R to
its assessment of certain entities where the impact of the modifications in FIN 46R is known. However, HSBC
is still assessing the impact of FIN 46R on other entities, and will fully adopt FIN 46R in 2004. FIN 46 requires
consolidation of VIEs in which HSBC is the primary beneficiary and disclosures in respect of all other VIEs in
which HSBC has a significant variable interest.
HSBC fully implemented FIN 46 or FIN 46R for VIEs created or acquired after 31 January 2003 but
implemented the transitional provisions of FIN 46 and FIN 46R for VIEs existing at that date. To comply with
the transitional provisions of FIN 46 and FIN 46R, HSBC has evaluated its structures existing at 31 December
2003 to determine whether it is reasonably likely that HSBC would be required to consolidate or disclose
information about each VIE’ s nature, purpose, size and activities, together with HSBC’ s maximum exposure to
loss. HSBC is also required to disclose the anticipated effect of full adoption of FIN 46R on its financial
statements.
Nature, purpose and activities of VIEs with which HSBC is involved
HSBC makes limited use of VIE structures in its business and principally engages in these transactions to
facilitate client needs. HSBC also uses VIE structures in some instances to obtain funding for its operations, or
for investment purposes. The use by HSBC of a VIE structure in a business transaction is thus commercially
driven. Utilisation of a VIE occurs after careful consideration has been given to the most appropriate structure