HSBC 2008 Annual Report Download - page 224

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Credit risk > Impaired loans and advances > Collateral // Impairment allowances
222
Collateral and other credit enhancements
obtained
(Audited)
HSBC obtained assets by taking possession of
collateral held as security, or calling upon other
credit enhancements, as follows:
(Audited)
Carrying amount
obtained in:
2008 2007
US$m US$m
Nature of assets
Residential property ................. 2,562 2,509
Commercial and industrial
property ............................... 21 18
Other ........................................ 382 373
2,965 2,900
Repossessed properties are made available for
sale in an orderly fashion, with the proceeds used to
reduce or repay the outstanding indebtedness. If
excess funds arise after the debt has been repaid,
they are made available either to repay other secured
lenders with lower priority or are returned to the
customer. HSBC does not generally occupy
repossessed properties for its business use. The
majority of repossessed properties arose in HSBC
Finance in the US, which, compared with 2007
experienced higher levels of foreclosure and higher
losses on sale due to declining house prices. The
average time taken to sell a repossessed property
during 2008 was 177 days and the average loss upon
sale of foreclosed properties was 13 per cent. The
December 2008 balance of repossessed property was
lower than otherwise would have been the case due
to several factors that occurred during the month:
HSBC Finance implemented a voluntary one month
suspension of final court proceedings in foreclosure
cases relating to owner occupied properties in
December 2008, some states suspended foreclosure
activity, and there was a backlog in moving
foreclosure proceedings through the courts. HSBC
expects, subject to further state actions, that
repossessed property levels will increase in the first
quarter of 2009 as foreclosure proceedings
normalise. A quarterly breakdown of foreclosure
data is provided below:
HSBC Finance foreclosed properties in the US
(Unaudited) Quarter ended
2008
31 December
2008
30 September
2008
30 June
2008
31 March
2008
Number of foreclosed properties at end of period ................ 9,589 9,589 11,182 10,870 10,203
Number of properties added to foreclosed inventory
in the year/quarter .............................................................. 20,051 3,398 5,562 5,773 5,318
Average loss on sale of foreclosed properties1 ...................... 13% 13% 10% 11% 16%
Average total loss on foreclosed properties2 ......................... 42% 47% 42% 40% 39%
Average time to sell foreclosed properties (days) ................. 177 180 174 171 181
1 The average loss on sale of foreclosed properties is calculated as cash proceeds after deducting selling costs and commissions, minus
the book value of the property when it was moved to ‘Real estate owned’, divided by the book value of the property when it was moved to
‘Real estate owned’.
2 The average total loss on foreclosed properties sold during each quarter includes both the loss on sale and the cumulative write-downs
recognised on the loans up to and upon classification as ‘Real estate owned’. This average total loss on foreclosed properties is
expressed as a percentage of the book value of the property prior to its transfer to ‘Real estate owners’.