HSBC 2012 Annual Report Download - page 461

459
Overview
Operating & Financial Review
Corporate Governance
Financial Statements
Shareholder Information
• 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, foreign currency,
prepayment and other price risks.
• Derecognition does not occur 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, but either:
i) retains substantially all of the risks and rewards of ownership of the transferred asset; or
ii) neither retains nor transfers substantially all of the risks and rewards of ownership but has retained control of
the financial asset. In this situation the financial assets are recognised on the balance sheet to the extent
of HSBC’s continuing involvement.
The majority of transferred 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.
As the substance of these transactions is secured borrowings the asset collateral continues to be recognised in full and
the related liability reflecting the Group’s obligation to repurchase the transferred assets for a fixed price at a future
date is recognised in deposits from banks or customers as appropriate. As a result of these transactions, the Group is
unable to use, sell or pledge the transferred assets for the duration of the transaction. The Group remains exposed to
interest rate risk and credit risk on these pledged instruments. The counterparty’s recourse is not limited to the
transferred assets.
Other transactions where the counterparty’s recourse is only to the transferred asset includes a Canadian government
sponsored securitisation programme, where HSBC Bank Canada assigns ownership and its right to sell or pledge
residential mortgages. HSBC Bank Canada remains exposed to credit and interest rate risk on the assigned residential
mortgages, which continue to be recorded as loans and advances. Third party funds received by HSBC Bank Canada
under the programme are accounted for as secured borrowings and presented as debt securities in issue on the
consolidated balance sheet.
In a small number of securitisation transactions, HSBC has neither transferred nor retained substantially all the risks
and rewards of ownership of the transferred assets, and has retained control of the transferred assets. Circumstances
in which HSBC has continuing involvement in the transferred assets may include retention of servicing rights over
the transferred assets, entering into a derivative transaction with the securitisation vehicle or retaining an interest in
the securitisation vehicle. Where HSBC has continuing involvement it continues to recognise the transferred assets
to the extent of its continuing involvement and recognises an associated liability. The net carrying amount of the
transferred assets and associated liabilities reflects the rights and obligations that HSBC has retained.
The following table analyses the carrying amount of financial assets that did not qualify for derecognition and their
associated financial liabilities, including those that are recognised to the extent of HSBC’s continuing involvement
and the associated liabilities.
Financial assets not qualifying for full derecognition and associated financial liabilities1
Carrying
amount of
assets
before
transfer
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
Fair
value of
transferred
assets
Fair
value of
associated
liabilities
Net
position
US$m US$m US$m US$m US$m US$m
At 31 December 2012
Repurchase agreements ...................................... 122,130 121,589
Securities lending agreements ............................ 5,891 5,820
Other sales (recourse to transferred asset only) . 9,727 9,733 9,767 9,856 (89)
Securitisations recognised to the extent of
continuing involvement .................................. 17,427 12 6 12 6 6
1 The disclosure for 2012 reflects amendments made to IFRS 7 that are effective prospectively for annual reporting periods beginning on
or after 1 July 2011.