HSBC 2008 Annual Report Download - page 175

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173
HSBC Holdings
The methods used by HSBC Holdings to determine
fair values of financial instruments for the purpose of
measurement and disclosure are described above.
The following table provides an analysis of the
fair value of financial instruments not carried at fair
value on the balance sheet:
Fair values of HSBC Holdings’ financial instruments not carried at fair value on the balance sheet
2008 2007
Carrying
amount
Fair
value
Carrying
amount
Fair
value
US$m US$m US$m US$m
Assets
Loans and advances to HSBC undertakings ................ 11,804 12,670 17,242 17,356
Liabilities
Amounts owed to HSBC undertakings ........................ 4,042 4,218 2,969 2,992
Subordinated liabilities ................................................. 14,017 13,940 8,544 8,609
Special purpose entities
(Audited)
This section contains disclosures about HSBC-
sponsored SPEs that are included in HSBC’s
consolidated balance sheet, with a particular focus
on SPEs containing exposures affected by recent
turmoil in credit markets, and those that are not
consolidated by HSBC under IFRSs. In addition to
the disclosures about SPEs, information on other off-
balance sheet arrangements has been included in this
section.
HSBC enters into certain transactions with
customers in the ordinary course of business which
involve the establishment of SPEs to facilitate or
secure customer transactions.
HSBC structures that utilise SPEs are authorised
centrally when they are established to ensure
appropriate purpose and governance. The activities
of SPEs administered by HSBC are closely
monitored by senior management. HSBC’s
involvement with SPE transactions is described
below.
HSBC-sponsored SPEs
HSBC sponsors the formation of entities which are
designed to accomplish certain narrow and well-
defined objectives, such as securitising financial
assets or affecting a lease, and this requires a form of
legal structure that restricts the assets and liabilities
within the structure to the single purpose for which it
was established. HSBC consolidates these SPEs
when the substance of the relationship indicates
that HSBC controls them. In assessing control, all
relevant factors are considered, including qualitative
and quantitative aspects. For example:
Qualitative factors – in substance:
the activities of the SPE are being conducted on
behalf of HSBC according to HSBC’s specific
business needs so that it obtains benefit from the
SPE’s operation. This might be evidenced, for
example, by HSBC providing a significant level
of support to the SPE; and
HSBC has the decision-making powers to obtain
the majority of the benefits of the activities of
the SPE.
Quantitative factors – hereinafter referred to as ‘the
majority of risks and rewards of ownership’. In
substance:
HSBC has rights to obtain the majority of the
benefits of the SPE and therefore may be
exposed to risks incidental to the activities of
the SPE; and
HSBC retains the majority of the residual or
ownership risks related to the SPE or its assets
in order to obtain benefits from its activities.
In a number of cases, these SPEs are accounted
for off-balance sheet under IFRSs where HSBC does
not have the majority of the risks and rewards of
ownership of the SPE. However in certain
circumstances, after careful consideration of the
facts, HSBC consolidates an SPE when, although it
does not obtain the majority of risks and rewards of
ownership, the qualitative features of HSBC’s
involvement indicate that, in substance, the activities
of the SPE are being conducted on behalf of HSBC.
HSBC reassesses the required consolidation
accounting tests whenever there is a change in the
substance of the relationship between HSBC and an
SPE, for example, when the nature of HSBC’s
involvement or the governing rules, contractual