HSBC 2009 Annual Report Download - page 465

463
39 Contingent liabilities, contractual commitments and guarantees
HSBC HSBC Holdings
2009
2008 2009 2008
US$m US$m US$m US$m
Guarantees and contingent liabilities
Guarantees and irrevocable letters of credit pledged as
collateral security ............................................................. 73,385 72,895 35,073 47,341
Other contingent liabilities ................................................... 174 259 – –
73,559 73,154 35,073 47,341
Commitments
Documentary credits and short-term trade-related
transactions ....................................................................... 9,066 9,789 – –
Forward asset purchases and forward forward deposits
placed ............................................................................... 192 197 – –
Undrawn formal standby facilities, credit lines and other
commitments to lend ........................................................ 548,792 594,036 3,240 3,241
558,050 604,022 3,240 3,241
The above table discloses the nominal principal amounts of commitments excluding capital commitments, which are
separately disclosed below, guarantees and other contingent liabilities; mainly credit-related instruments including
both financial and non-financial guarantees and commitments to extend credit. Contingent liabilities arising from
litigation against the Group are disclosed in Note 42. Nominal principal amounts represent the amounts at risk should
contracts be fully drawn upon and clients default. The amount of the loan commitments shown above reflects, where
relevant, the expected level of take-up of pre-approved loan offers made by mailshots to personal customers. As a
significant portion of guarantees and commitments is expected to expire without being drawn upon, the total of the
nominal principal amounts is not representative of future liquidity requirements.
Guarantees
HSBC provides guarantees and similar undertakings on behalf of both third-party customers and other entities within
the HSBC Group. These guarantees are generally provided in the normal course of HSBC’s banking business. The
principal types of guarantees provided, and the maximum potential amount of future payments which HSBC could be
required to make at 31 December 2009, were as follows:
At 31 December 2009 At 31 December 2008
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 guarantees and similar contracts1 ............................. 23,558 35,073 20,879 47,341
Standby letters of credit that are financial guarantee contracts2 10,712 – 11,171 –
Other direct credit substitutes3 .................................................. 4,676 – 4,613 –
Performance bonds4 .................................................................. 14,468 – 15,304 –
Bid bonds4 ................................................................................. 728 – 627 –
Standby letters of credit related to particular transactions4 ...... 4,944 – 4,791 –
Other transaction-related guarantees4 ....................................... 13,577 – 15,028 –
Other items ................................................................................ 722 – 482 –
73,385 35,073 72,895 47,341
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.
Similar contracts are contracts that provide protection against credit risk on a specified exposure but do not meet the definition of
financial guarantees. 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.