HSBC 2012 Annual Report Download - page 483

481
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
The balance sheet amounts disclosed below are presented on an IFRSs basis and do not reflect the amount that the
instruments contribute to regulatory capital. The IFRSs accounting and regulatory treatments differ due to the
inclusion of issuance costs and regulatory amortisation.
HSBC’s subordinated liabilities
Tier 1 capital securities
Tier 1 capital securities are perpetual subordinated securities on which investors are entitled, subject to certain
conditions, to receive distributions which are non-cumulative. Such securities do not generally carry voting rights
but rank above ordinary shares for coupon payments and in the event of a winding-up.
HSBC has the following qualifying tier 1 capital securities in issue which are accounted for as liabilities:
At 31 December
First call
date
2012
US$m
2011
US$m
Tier 1 capital securities guaranteed by HSBC Holdings1
€600m 8.03% non-cumulative step-up perpetual preferred securities2 ......................... Jun 2012 – 776
US$1,250m 4.61% non-cumulative step-up perpetual preferred securities .......................... Jun 2013 1,250 1,163
€1,400m 5.3687% non-cumulative step-up perpetual preferred securities ...................... Mar 2014 1,933 1,693
£500m 8.208% non-cumulative step-up perpetual preferred securities ........................ Jun 2015 806 771
€750m 5.13% non-cumulative step-up perpetual preferred securities .......................... Mar 2016 1,033 872
US$900m 10.176% non-cumulative step-up perpetual preferred securities, series 2 ........ Jun 2030 891 891
5,913 6,166
Tier 1 capital securities guaranteed by HSBC Bank plc1
£300m 5.862% non-cumulative step-up perpetual preferred securities ........................ Apr 2020 480 378
£700m 5.844% non-cumulative step-up perpetual preferred securities ........................ Nov 2031 1,131 1,084
1,611 1,462
1 See paragraph below, ‘Guaranteed by HSBC Holdings or HSBC Bank plc’.
2 In June 2012, HSBC redeemed these securities at par.
Guaranteed by HSBC Holdings or HSBC Bank plc
The five capital securities guaranteed, on a subordinated basis, by HSBC Holdings and the two capital securities
guaranteed, on a subordinated basis, by HSBC Bank are non-cumulative step-up perpetual preferred securities issued
by Jersey limited partnerships. The proceeds of the issues were on-lent to the respective guarantor by the limited
partnerships in the form of subordinated notes. The above preferred securities qualify as tier 1 capital for HSBC
Group and the two capital securities guaranteed by HSBC Bank also qualify as tier 1 capital for HSBC Bank (on a
solo and consolidated basis).
These preferred securities, together with the guarantee, are intended to provide investors with rights to income and
capital distributions, and distributions upon liquidation of the relevant issuer that are equivalent to the rights that
they would have had if they had purchased non-cumulative perpetual preference shares of the relevant issuer.
There are limitations on the payment of distributions if such payments are prohibited under UK banking regulations
or other requirements, if a payment would cause a breach of HSBC’s capital adequacy requirements, or if HSBC
Holdings or HSBC Bank has insufficient distributable reserves (as defined) respectively.
HSBC Holdings and HSBC Bank have individually covenanted that if prevented under certain circumstances from
paying distributions on the preferred securities in full, they will not pay dividends or other distributions in respect
of its ordinary shares, or effect repurchases or redemptions of its ordinary shares, until the distribution on preferred
securities has been paid in full.
With respect to preferred securities guaranteed by HSBC Holdings – if (i) HSBC’s total capital ratio falls below the
regulatory minimum ratio required, or (ii) the Directors expect that, in view of the deteriorating financial condition
of HSBC Holdings, that (i) will occur in the near term, then the preferred securities will be substituted by preference
shares of HSBC Holdings which have economic terms which are in all material respects equivalent to those of the
preferred securities and the guarantee taken together.
With respect to preferred securities guaranteed by HSBC Bank – if (i) any of the two issues of preferred securities are
outstanding in April 2049 or November 2048, respectively, or (ii) the total capital ratio of HSBC Bank on a solo and