HSBC 2009 Annual Report Download - page 491

489
Term Definition
Alt-A A US description for loans regarded as lower risk than sub-prime, but with higher
risk characteristics than lending under normal criteria.
Arrears Customers are said to be in arrears (or in a state of delinquency) when they are
behind in fulfilling their obligations, with the result that an outstanding loan is
unpaid or overdue. When a customer is in arrears, the total outstanding loans on
which payments are overdue are described as delinquent.
Asset-backed securities
(‘ABS’s)
Securities that represent an interest in an underlying pool of referenced assets. The
referenced pool can comprise any assets which attract a set of associated cash
flows but are commonly pools of residential or commercial mortgages.
Back-testing A statistical technique used to monitor and assess the accuracy of a model, and how
that model would have performed had it been applied in the past.
Basel II The capital adequacy framework issued by the Basel Committee on Banking
Supervision in June 2006 in the form of the ‘International Convergence of Capital
Measurement and Capital Standards’.
Collectively assessed
impairment
Impairment assessment on a collective basis for homogeneous groups of loans that
are not considered individually significant.
Collateralised debt obligation
(‘CDO’)
A security issued by a third party which references ABSs and/or certain other relate
d
assets purchased by the issuer. CDOs may feature exposure to sub-prime
mortgage assets through the underlying assets.
Commercial paper (‘CP’) An unsecured, short-term debt instrument issued by a corporation, typically for the
financing of accounts receivable, inventories and meeting short-term liabilities.
The debt is usually issued at a discount, reflecting prevailing market interest rates.
Commercial real estate Any real estate investment, comprising buildings or land, intended to generate a
profit, either from capital gain or rental income.
Conduits A vehicle that holds asset-backed securities such as mortgages, vehicle finance loans
and credit card loans which is financed by short-term debt normally issued in the
form of commercial paper which is collateralised by the asset-backed debt.
Constant net asset value fund
(‘CNAV’)
A fund that prices its assets on an amortised cost basis, subject to the amortised boo
k
value of the portfolio remaining within 50 basis points of its market value.
Contractual maturities The date on which the final payment (principal or interest) of any financial
instrument is due to be paid, at which point all the remaining outstanding principal
and interest have been repaid.
Core tier 1 capital The highest quality form of regulatory capital that comprises total shareholders’
equity and related minority interests, less goodwill and intangible assets and
certain other regulatory adjustments.
Credit default swap A derivative contract whereby a buyer pays a fee to a seller in return for receiving a
payment in the event of a defined credit event (e.g. bankruptcy, payment default
on a reference asset or assets, or downgrades by a rating agency) on an underlying
obligation (which may or may not be held by the buyer).
Credit derivative product
companies (‘CDPC’s)
Independent companies that specialise in selling credit default protection on
corporate exposures in the form of credit derivatives.
Credit enhancements Facilities used to enhance the creditworthiness of financial obligations and cover
losses due to asset default.
Credit risk Risk of financial loss if a customer or counterparty fails to meet an obligation unde
r
a contract. It arises mainly from direct lending, trade finance and leasing business,
but also from products such as guarantees, derivatives and debt securities.
Credit risk adjustment An adjustment to the valuation of OTC derivative contracts to reflect the
creditworthiness of OTC derivative counterparties.