HSBC 2011 Annual Report Download - page 429

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Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Term Definition
Conduits HSBC sponsors and manages multi-seller conduits and securities investment conduits (‘SIC’s). The multi-
seller conduits hold interests in diversified pools of third-party assets such as vehicle loans, trade
receivables and credit card receivables funded through the issuance of short-dated commercial paper
and supported by a liquidity facility. The SICs hold predominantly asset-backed securities referencing
such items as commercial and residential mortgages, vehicle loans and credit card receivables funded
through the issuance of both long-term and short-term debt.
Constant net asset value fund A fund that prices its assets on an amortised cost basis, subject to the amortised book 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 non-
controlling interests, less goodwill and intangible assets and certain other regulatory adjustments.
Countercyclical capital buffer A capital buffer, prescribed by regulators under Basel III, which aims to ensure that capital requirements
take account of the macro-financial environment in which banks operate. This will provide the banking
sector with additional capital to protect it against potential future losses, when excess credit growth in
the financial system as a whole is associated with an increase in system-wide risk.
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 under 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 valuation adjustment An adjustment to the valuation of OTC derivative contracts to reflect the creditworthiness of OTC
derivative counterparties. Formerly described as Credit Risk Adjustment.
Credit risk mitigation A technique to reduce the credit risk associated with an exposure by application of credit risk mitigants
such as collateral, guarantee and credit protection.
Credit risk spread The premium over the benchmark or risk-free rate required by the market to accept a lower credit quality.
The yield spread between securities with the same coupon rate and maturity structure but with different
associated credit risks. The yield spread rises as the credit rating worsens.
Customer deposits Money deposited by account holders. Such funds are recorded as liabilities.
Customer remediation Customer remediation refers to activities carried out by HSBC to compensate customers for losses or
damages associated with a failure to comply with regulations. Customer remediation is initiated by
HSBC in response to customer complaints, and not specifically initiated by regulatory action.
Customer risk rating (‘CRR’) A scale of 23 grades measuring internal obligor probability of default.
D
Debit valuation adjustment An adjustment made by an entity to the valuation of OTC derivative liabilities to reflect within fair value
the entity’s own credit risk.
Debt restructuring A restructuring by which the terms and provisions of outstanding debt agreements are changed. This is
often done in order to improve cash flow and the ability of the borrower to repay the debt. It can
involve altering the repayment schedule as well as debt or interest charge reduction.
Debt securities Assets on the Group’s balance sheet representing certificates of indebtedness of credit institutions, public
bodies or other undertakings, excluding those issued by Central Banks.
Debt securities in issue Transferable certificates of indebtedness of the Group to the bearer of the certificates. These are liabilities
of the Group and include certificates of deposits.
Deed-in-lieu An arrangement in which a borrower surrenders the deed for a property to the lender without going
through foreclosure proceedings and is subsequently released from any further obligations on the loan.
Defined benefit obligation The present value of expected future payments required to settle the obligations of a defined benefit plan
resulting from employee service.
Delinquency See ‘Arrears’.
E
Economic capital The internally calculated capital requirement which is deemed necessary by HSBC to support the risks to
which it is exposed.
Economic profit The difference between the return on financial capital invested by shareholders and the cost of that
capital. Economic profit may be expressed as a whole number or as a percentage.
Equity risk The risk arising from positions, either long or short, in equities or equity-based instruments, which create
exposure to a change in the market price of the equities or equity instruments.
Expected loss (‘EL’) A regulatory calculation of the amount expected to be lost on an exposure using a 12 month time horizon
and downturn loss estimates. EL is calculated by multiplying the Probability of Default (a percentage)
by the Exposure at Default (an amount) and Loss Given Default (a percentage).
Exposure A claim, contingent claim or position which carries a risk of financial loss.