HSBC 2008 Annual Report Download - page 443

441
At 31 December 2008 At 31 December 2007
Guarantees in
favour of
third parties
Guarantees
by HSBC
Holdings
in favour of
other HSBC
Group entities
Guarantees
in favour of
third parties
Guarantees
by HSBC
Holdings
in favour of
other HSBC
Group entities
US$m US$m US$m US$m
Guarantee type
Financial guarantee contracts1 ...................................... 20,879 47,341 25,086 38,457
Standby letters of credit which are financial
guarantee contracts2 .................................................. 11,171 – 8,357 –
Other direct credit substitutes3 ...................................... 4,613 – 4,938 –
Performance bonds4 ...................................................... 15,304 – 12,969 –
Bid bonds4 ..................................................................... 627 – 1,119 –
Standby letters of credit related to particular
transactions4 .............................................................. 4,791 – 8,235 –
Other transaction-related guarantees4 ........................... 15,028 – 16,940 –
Other items .................................................................... 482 – 241 –
72,895 47,341 77,885 38,457
1 Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred
because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. The
amounts in the above table are nominal principal amounts.
2 Standby letters of credit which are financial guarantee contracts are irrevocable obligations on the part of HSBC to pay third parties
when customers fail to make payments when due.
3 Other direct credit substitutes include re-insurance letters of credit and trade-related letters of credit issued without provision for the
issuing entity to retain title to the underlying shipment.
4 Performance bonds, bid bonds, standby letters of credit and other transaction-related guarantees are undertakings by which the
obligation on HSBC to make payment depends on the outcome of a future event.
The amounts disclosed in the above table reflect HSBC’s maximum exposure under a large number of individual
guarantee undertakings. The risks and exposures arising from guarantees are captured and managed in accordance
with HSBC’s overall credit risk management policies and procedures. Approximately half of the above guarantees
have a term of less than one year. Guarantees with terms of more than one year are subject to HSBC’s annual credit
review process.
Financial Services Compensation Scheme
The UK Financial Services Compensation Scheme (‘FSCS’) has provided compensation to consumers following the
collapse of a number of deposit takers such as Bradford & Bingley plc, Heritable Bank plc, Kaupthing Singer &
Friedlander Limited, Landsbanki ‘Icesave’ and London Scottish Bank plc. The compensation paid out to consumers
is currently funded through loans from the Bank of England and HM Treasury. HSBC Bank plc (‘the bank’) could be
liable to pay a proportion of the outstanding borrowings that the FSCS has borrowed from HM Treasury which at
16 December 2008 stood at £19.7 billion (US$28.7 billion). The bank is also obligated to pay its share of forecast
management expenses based on the bank’s market share of deposits protected under the FSCS. The bank has
provided £86 million (US$125.4 million) as at 31 December 2008 in respect of the share of forecast management
expense, including interest costs, for the 2008/9 and 2009/10 levy years. This accrual is based on the bank’s
estimated share of total market protected deposits at 31 December 2007 and 2008, respectively. However, the
ultimate FSCS levy to the industry as a result of the 2008 collapses cannot currently be estimated reliably as it is
dependent on various uncertain factors including the potential recoveries of assets by the FSCS and changes in the
interest rate, the level of protected deposits and the population of FSCS members at the time.
Commitments
In addition to the commitments disclosed on page 440, at 31 December 2008, HSBC had US$1,541 million (2007:
US$942 million) of capital commitments contracted but not provided for and US$267 million (2007:
US$194 million) of capital commitments authorised but not contracted for.