HSBC 2009 Annual Report Download - page 433

431
20 Transfers of financial assets not qualifying for de-recognition
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:
Financial assets and associated financial liabilities not qualifying for derecognition
2009 2008
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 ............................................................ 108,518 107,525 94,154 91,139
Securities lending agreements .................................................. 7,363 7,264 4,497 4,096
115,881 114,789 98,651 95,235
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:
HSBC’s continuing involvement in financial assets qualifying for partial derecognition
Securitisations at 31 December
2009 2008
US$m US$m
Carrying amount of assets (original) ....................................................................................................... 17,427 17,427
Carrying amount of assets (currently recognised) ................................................................................... 139 299
Carrying amount of associated liabilities (currently recognised) ........................................................... 69 149