HSBC 2006 Annual Report Download - page 433

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does not recognise a gain in a secured financing transaction. At 31 December 2006, secured financings of
US$23.9 billion included in long-term debt were secured by US$30.5 billion of customer loans.
Prior to the third quarter of 2004, HSBC sold MasterCard and Visa private label, personal non-credit card and
vehicle finance loans in various securitisation transactions. HSBC continues to service and receive servicing fees
on the outstanding balance of these securitised loans and retains rights to future cash flows arising from the loans
after the investors receive their contractual return. HSBC has also, in certain cases, retained other subordinated
interests in these securitisations. These transactions result in the recording of interest-only strip receivables,
which represent the value of the future residual cash flows from securitised loans. The investors and the
securitisation trusts have only limited recourse to HSBC assets for failure of debtors to pay. That recourse is
limited to HSBC’s rights to future cash flows and any subordinated interest retained. Servicing assets and
liabilities are not recognised in conjunction with securitisations since HSBC receives adequate compensation
relative to current market rates to service the loans sold.
Securitisation-related revenue includes income associated with the current and prior period securitisation of
loans with limited recourse structured as sales under US GAAP. Such income includes gains on sales, net of the
estimate of probable credit losses under the recourse provisions, servicing income and excess spread relating to
those loans.
The following table provides a summary of securitisation revenue:
2006 2005 2004
US$m US$m US$m
Net initial gains ....................................................................................... – – 25
Net replenishment gains from revolving securitisations ........................ 30 154 414
Servicing revenue and excess spread ...................................................... 169 212 569
Other ........................................................................................................ – 6 –
Total securitisation revenue .................................................................... 199 372 1,008
Certain revolving securitisation trusts, such as credit cards, are established at fixed levels and require frequent
sales of new loan balances into the trusts to replace loans as they run off. These replenishments totalled
US$6 billion in 2006 (2005: US$17.5 billion). Cash flows received from securitisation trusts were as follows:
Real estate
secured
Vehicle
finance
MasterCard
/Visa
Private
label
Personal
non-credit
card
Total
US$m US$m US$m US$m US$m US$m
2006
Proceeds from initial securitisations .......... – – – – – –
Servicing fees received .............................. – 16 22 45 10 93
Other cash flows received on retained
interests1 ................................................. – 97 108 11 18 234
2005
Proceeds from initial securitisations .......... – – – – – –
Servicing fees received .............................. – 45 97 50 46 238
Other cash flows received on retained
interests1 ................................................. – 40 243 109 52 444
2004
Proceeds from initial securitisations .......... – – 550 190 – 740
Servicing fees received .............................. 1 86 185 93 161 526
Other cash flows received on retained
interests1 ................................................. 4 (9) 705 252 80 1,032
1 Other cash flows included all cash flows from interest-only strip receivables, excluding servicing fees.
At 31 December 2006, the sensitivity of the current fair value of the interest-only strip receivables to an
immediate 10 per cent and 20 per cent unfavourable change in assumptions are presented in the table below.
These sensitivities are based on assumptions used to value interest-only strip receivables at 31 December 2006.