HSBC 2007 Annual Report Download - page 408

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Notes 20 and 21
406
20 Securitisations and other structured transactions
HSBC enters into transactions in the normal course of business by which it transfers recognised financial assets
directly to third parties or to SPEs. These transfers may give rise to the full or partial derecognition of the financial
assets concerned.
– Full derecognition occurs when HSBC transfers its contractual right to receive cash flows from the financial
assets, or retains the right but assumes an obligation to pass on the cash flows from the asset, and transfers
substantially all the risks and rewards of ownership. The risks include credit, interest rate, currency, prepayment
and other price risks.
– Partial derecognition occurs when HSBC sells or otherwise transfers financial assets in such a way that some but
not substantially all of the risks and rewards of ownership are transferred but control is retained. These financial
assets are recognised on the balance sheet to the extent of HSBC’s continuing involvement.
The majority of financial assets that do not qualify for derecognition are (i) debt securities held by counterparties as
collateral under repurchase agreements or (ii) equity securities lent under securities lending agreements. The
following table analyses the carrying amount of financial assets that did not qualify for derecognition and their
associated financial liabilities:
2007 2006
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
US$m US$m US$m US$m
Nature of transaction
Repurchase agreements ................................................ 126,534 126,111 67,558 66,127
Securities lending agreements ...................................... 24,087 23,304 12,908 12,469
150,621 149,415 80,466 78,596
A small proportion of financial assets that do not qualify for derecognition relate to loans, credit cards, debt securities
and trade receivables that have been securitised under arrangements by which HSBC retains a continuing
involvement in such transferred assets. Continuing involvement may entail retaining the rights to future cash flows
arising from the assets after investors have received their contractual terms (for example, interest rate strips);
providing subordinated interest; liquidity support; continuing to service the underlying asset; or entering into
derivative transactions with the securitisation vehicles. As such, HSBC continues to be exposed to risks associated
with these transactions.
The rights and obligations that HSBC retains from its continuing involvement in securitisations are initially recorded
as an allocation of the fair value of the financial asset between the part that is derecognised and the part that continues
to be recognised on the date of transfer. The following analyses the carrying amount of financial assets to the extent
of HSBC’s continuing involvement that qualified for partial derecognition during the year, and their associated
liabilities:
Securitisations at 31 December
2007 2006
US$m US$m
Carrying amount of assets (original) ................................................................................................. 17,713 20,095
Carrying amount of assets (currently recognised) ............................................................................. 598 599
Carrying amount of associated liabilities (currently recognised) ..................................................... 299 306