HSBC 2012 Annual Report Download - page 214

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Liquidity and funding > Encumbered and unencumbered assets
212
At 31 December 2012, the Group held
US$1,749bn of unencumbered assets that could
be used to support potential future funding and
collateral needs, representing 80% of the total assets
that can support funding and collateral needs (on
and off-balance sheet). Of this amount, US$764bn
(US$666bn on-balance sheet) were assessed to be
readily realisable.
The effect of active collateral management
Collateral is managed on an operating entity basis,
consistent with the operating entity management of
liquidity and funding. The available collateral held
by each operating entity is managed as a single
collateral pool. In managing this collateral and
deciding which collateral to pledge, each operating
entity will seek to optimise the use of the available
collateral pool, within the confines of the LFRF,
irrespective of whether the collateral pledged is
recognised on-balance sheet or was received in
respect of reverse repo, stock borrowing or
derivative transactions.
As a result of managing collateral in this
manner, in terms of asset encumbrance presentation,
we may encumber on-balance sheet holdings while
maintaining available unencumbered off-balance
sheet holdings, even though we are not seeking to
directly finance the on-balance sheet holdings
pledged.
In quantifying the level of encumbrance of
negotiable securities, the encumbrance has been
analysed on an individual security basis. In doing so
where a particular security has been encumbered and
HSBC has holdings of the security both on-balance
sheet and off-balance sheet with the right to
repledge, it is assumed for the purpose of this
disclosure that the off-balance sheet holding is
encumbered ahead of the on-balance sheet holding.
An on balance-sheet encumbered and off-
balance sheet unencumbered asset will occur, for
example, if we receive a specific security as a result
of a reverse repo/stock borrow transaction, but
finance the cash lent by pledging a generic collateral
basket, even if the security received is eligible for
the collateral basket pledged. This will also occur if
we receive a generic collateral basket as a result of a
reverse repo transaction but finance the cash lent by
pledging specific securities, even if the securities
pledged are eligible for the collateral basket.
Off-balance sheet collateral received and
pledged for reverse repo and stock
borrowing transactions
The fair value of assets accepted as collateral that
HSBC is permitted to sell or repledge in the absence
of default was US$296bn at 31 December 2012
(2011: US$302bn). The fair value of any such
collateral that has been sold or repledged was
US$203bn (2011: US$189bn). HSBC is obliged
to return equivalent securities. These transactions
are conducted under terms that are usual and
customary to standard reverse repo and stock
borrowing transactions.
The fair value of collateral received and
repledged in relation to reverse repo and stock
borrowing are reported on a gross basis. The related
balance sheet receivables and payables are reported
on a net basis where required under IFRS netting
criteria.
As a result of reverse repo and stock borrowing
transactions where the collateral received can be sold
or re-pledged, but has not been sold or re-pledged,
we held US$93bn of unencumbered collateral
available to support potential future funding and
collateral needs at 31 December 2012.
Off-balance sheet non-cash collateral
received and pledged for derivative
transactions
The fair value of assets accepted as collateral related
to derivative transactions that we are permitted to
sell or repledge in the absence of default was
US$6.0bn. The fair value of any such collateral
that has been sold or repledged was US$0.8bn. We
are obliged to return equivalent securities. These
transactions are conducted under terms that are
usual and customary to derivative transactions.
Analysis of on-balance sheet encumbered
and unencumbered assets
The table on page 213 presents an analysis of
on-balance sheet holdings only, and shows the
amounts of balance sheet assets that are encumbered.
The table therefore excludes any available off-
balance sheet holdings received in respect of
reverse repo, stock borrowing or derivatives.