HSBC 2003 Annual Report Download - page 264

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
262
Securitisation transactions
Loans and advances to customers include balances that have been securitised. Certain of these balances meet the
requirements for linked presentation under FRS 5 ‘Reporting the substance of transactions’.
The non-recourse finance has been netted against customer loans as follows:
2003 2002
US$m US$m
Customer loans ................................................................................................................................ 2,555 2,294
Non-recourse finance ....................................................................................................................... (2,291
)
(2,049
)
Funding provided by HSBC ............................................................................................................ 264 245
Clover Funding Securitisation
HSBC has securitised a designated portion of its corporate loan portfolio. The transaction was effected through a
declaration of trust in favour of Clover Securitisation Limited. Clover Securitisation Limited holds its beneficial
interest in the trust for Clover Funding No. 1 plc, Clover Funding No. 2 plc, Clover Funding No. 3 plc, Clover
Funding No. 4 plc (collectively ‘Clover Funding’) and HSBC.
To fund the acquisition of this beneficial interest, Clover Funding has issued US$2,541 million (2002: US$2,294
million) floating rate notes (‘FRNs’ ). Clover Funding No.2 plc is in scheduled accumulation and has collected
US$395 million (2002: US$nil) to repay its outstanding Notes in April 2004. The offering circulars for the FRNs
stated that they are the obligations of Clover Funding only and are not guaranteed by, or the responsibility of, any
other party.
Non-returnable proceeds of US$1,882 million (2002: US$2,049 million) received by HSBC from Clover Funding
have been deducted from ‘Loans and advances to customers’ . Clover Securitisation Limited has entered into swap
agreements with HSBC under which Clover Securitisation Limited pays the floating rate of interest on the loans and
receives interest linked to three-month London Interbank Offered Rate (‘LIBOR’ ). The proceeds generated from the
loans are used in priority to meet the claims of the FRN holders, and amounts payable in respect of the interest rate
swap arrangements after the payment of trustee and administration expenses.
There is no provision whatsoever, either in the financing arrangements or otherwise, whereby HSBC has a right or
obligation either to keep the loans and advances on repayment of the finance or to repurchase them at any time other
than in certain circumstances where HSBC is in breach of warranty.
HSBC is not obliged to support any losses that may be suffered by the FRN holders and does not intend to provide
such support.
HSBC has taken up US$73 million (2002: US$66 million) of subordinated FRNs that are repayable after payments
in respect of senior FRNs. HSBC has made subordinated loans of US$46 million (2002: US$42 million) to Clover
Funding that are repayable after all other payments. Interest is payable on the subordinated FRNs and subordinated
loans conditional upon Clover Funding having funds available.
Clover Securitisation Limited’ s entire share capital is held by Clover Holdings Limited. Clover Funding’ s entire
share capital is held by Clover Holdings Limited. Clover Holdings Limited’ s entire share capital is held by trustees
under the terms of a trust for charitable purposes.
HSBC recognised net income of US$7 million (2002: US$4 million) which comprised US$108 million (2002:
US$96 million) of interest receivable by Clover Funding less US$101 million (2002: US$92 million) of interest on
FRNs and other third party expenses payable by Clover Funding.
HFC Bank Limited Securitisations
HSBC, through its wholly-owned subsidiary company, HFC Bank Limited (formerly HFC Bank plc) (‘HFC Bank’ ),
has securitised certain amounts of its personal loan portfolios. The transactions were effected through equitable
assignment of those loans to receivables trusts, beneficial interests in which were purchased by several special
purpose companies.