HSBC 2012 Annual Report Download - page 535

533
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Term Definition
K
Key management personnel Directors and Group Managing Directors of HSBC Holdings.
L
Legacy credit in GB&M A separately identifiable, discretely managed business comprising Solitaire Funding Limited, the
securities investment conduits, the asset-backed securities trading portfolios and credit correlation
portfolios, derivative transactions entered into directly with monoline insurers, and certain other
structured credit transactions.
Legal proceedings Legal proceedings include civil court, arbitration or tribunal proceedings brought against HSBC
companies (whether by way of claim or counterclaim) or civil disputes that may, if not settled, result in
court, arbitration or tribunal proceedings.
Legal risk The risk of financial loss, sanction and/or reputational damage resulting from contractual risk (the risk
that the rights and/or obligations of a Group member within a contractual relationship are defective);
dispute risk (the risk when involved in or managing potential or actual disputes); legislative risk (the risk
that a Group member fails to adhere to laws of the jurisdiction in which it operates); and non contractual
rights risk (the risk that a Group member’s assets are not properly owned or are infringed by others or the
infringement by a Group member of another party’s rights).
Level 1 – quoted market price Financial instruments with quoted prices for identical instruments in active markets.
Level 2 – valuation technique
using observable inputs
Financial instruments with quoted prices for similar instruments in active markets or quoted prices for
identical or similar instruments in inactive markets and financial instruments valued using models
where all significant inputs are observable.
Level 3 – valuation technique
with significant unobservable
inputs
Financial instruments valued using valuation techniques where one or more significant inputs are
unobservable.
Leveraged finance Funding provided for entities with higher than average indebtedness, which typically arises from sub-
investment grade acquisitions or event-driven financing.
Leverage ratio A measure, prescribed by regulators under Basel III, which is the ratio of tier 1 capital to total exposures.
Total exposures include on-balance sheet items, off-balance sheet items and derivatives, and should
generally follow the accounting measure of exposure. This supplementary measure to the risk-based
capital requirements is intended to constrain the build-up of excess leverage in the banking sector.
Liquidity coverage ratio
(‘LCR’)
The ratio of the stock of high quality liquid assets to expected net cash outflows over the following 30
days. High quality liquid assets should be unencumbered, liquid in markets during a time of stress and,
ideally, be central bank eligible. The Basel III rules require this ratio to be at least 100% with effect
from 2015. The LCR is still subject to an observation period and review to address any unintended
consequences.
Liquidity risk The risk that HSBC does not have sufficient financial resources to meet its obligations as they fall due, or
will have to do so at an excessive cost. This risk arises from mismatches in the timing of cash flows.
Loan modification An account management action that results in a change to the original terms and conditions of a loan
either temporarily or permanently without resetting its delinquency status, except in case of a
‘modification re-age’ where delinquency status is also reset to up-to-date. Account modifications may
include revisions to one or more terms of the loan including, but not limited to, a change in interest rate,
extension of the amortisation period, reduction in payment amount and partial forgiveness or deferment
of principal.
Loan re-age An account management action that results in the resetting of the contractual delinquency status of an
account to up-to-date upon fulfilment of certain requirements which indicate that payments are
expected to be made in accordance with the contractual terms.
Loans past due Loans on which repayments are overdue.
Loan to value ratio (‘LTV’) A mathematical calculation that expresses the amount of the loan as a percentage of the value of security.
A high LTV indicates that there is less cushion to protect the lender against house price falls or
increases in the loan if repayments are not made and interest is added to the outstanding loan balance.
Loss given default (‘LGD’) The estimated ratio (percentage) of the loss on an exposure to the amount outstanding at default (EAD)
upon default of a counterparty.
Loss severity The realised amount of losses incurred (including ancillary amounts owed) when a loan is foreclosed or
disposed of through the arrangement with the borrower. The loss severity is represented as a
percentage of the outstanding loan balance.
M
Market risk The risk that movements in market risk factors, including foreign exchange rates and commodity prices,
interest rates, credit spreads and equity prices will reduce income or portfolio values.
Medium-term notes (‘MTN’s) Notes issued by corporates across a range of maturities. MTNs are frequently issued by corporates under
MTN Programmes whereby notes are offered on a regular and continuous basis to investors.
Monoline insurers
(‘monolines’)
Entities which specialise in providing credit protection to the holders of debt instruments in the event of
default by the debt security counterparty. This protection is typically held in the form of derivatives
such as CDSs referencing the underlying exposures held.