HSBC 2007 Annual Report Download - page 364

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Notes 3, 4 and 5
362
3 Net income from financial instruments designated at fair value
Net income from financial instruments designated at fair value includes:
• all gains and losses from changes in the fair value of financial assets and liabilities designated at fair value,
including liabilities under investment contracts;
• all gains and losses from changes in the fair value of derivatives that are managed in conjunction with financial
assets and liabilities designated at fair value; and
• interest income, interest expense and dividend income in respect of:
– financial assets and liabilities designated at fair value; and
– derivatives managed in conjunction with the above,
except for interest arising on HSBC’s issued debt securities, together with the interest element of derivatives
managed in conjunction with them, which are recognised in ‘Interest expense’.
2007 2006 2005
US$m US$m US$m
Net income/(expense) arising on:
– financial assets held to meet liabilities under insurance and
investment contracts ....................................................................................... 2,056 1,552 1,760
– other financial assets designated at fair value ................................................ 581 217 90
– derivatives managed in conjunction with financial assets designated
at fair value ..................................................................................................... (18) 57 17
2,619 1,826 1,867
– liabilities to customers under investment contracts ....................................... (940) (1,008) (1,126)
– HSBC’s issued debt securities1 ...................................................................... 336 (277) 1,795
– derivatives managed in conjunction with HSBC’s issued debt securities ..... 2,476 242 (1,392)
– other financial liabilities designated at fair value .......................................... (395) (125) (112)
– derivatives managed in conjunction with other financial liabilities
designated at fair value ................................................................................... (13) (1) 2
1,464 (1,169) (833)
Net income from financial instruments designated at fair value ........................ 4,083 657 1,034
1 Gains and losses from changes in the fair value of HSBC’s issued debt securities may arise from changes in HSBC’s own credit spread.
In 2007 HSBC recognised a US$3,055 million gain on changes in the fair value of these instruments arising from changes in HSBC’s
own credit spread (2006: loss US$388 million).
4 Gains from dilution of interests in associates
During 2007, certain HSBC associates issued new shares. HSBC did not subscribe for any of the shares issued under
these offers and, as a result, its interests in the associates’ equity decreased. The assets of each associate substantially
increased as a result of the new share issues and, as a consequence, the transactions resulted in an increase in HSBC’s
share of the associates’ underlying net assets, notwithstanding the reduction in the Group’s proportionate ownership
interests. This increase represents gains from dilution of the Group’s interests in the associates, and is presented in the
income statement.
Year ended 31 December 2007
Gains arising
from dilution
of HSBC’s
interests
HSBC’s
interests after
issue of
new shares
HSBC’s
interests before
issue of
new shares
US$m % %
Associates
Industrial Bank1 ........................................................................................... 187 12.78 15.98
Ping An Insurance ....................................................................................... 485 16.78 19.90
Bank of Communications2 .......................................................................... 404 18.60 19.90
Financiera Independencia S.A. de C.V. ...................................................... 11 18.68 19.90
Vietnam Technological and Commercial Joint Stock Bank ....................... 5 14.44 15.00
Gains arising from dilution of interests in associates ..................................... 1,092
1 Investment held through Hang Seng Bank, a 62.14 per cent owned subsidiary of HSBC. The dilution gains therefore include a minority
interest of US$71 million.
2 Subsequent to the dilution of its interests in Bank of Communications, HSBC increased its holding from 18.60 per cent to 19.01 per cent
at 31 December 2007 (Note 21).