HSBC 2008 Annual Report Download - page 44

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Financial summary > Balance sheet > Movement in 2008 / Average balance sheet and NII
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Derivative businesses are managed within
market risk limits, and as a consequence the value of
derivative liabilities broadly matched the value of
derivative assets.
A decline of 22 per cent in debt securities in
issue was driven by the US as maturing debt
securities did not need replacing as the funding
requirements of the consumer finance business
declined as its balance sheet contracted. There was
also a reduction in debt securities in issue in line
with the decrease in holdings of asset-backed
securities.
Liabilities under insurance contracts increased
by 10 per cent, largely due to new business sales in
Hong Kong, France and the UK, partly offset by
reduced liabilities on unit-linked policies.
Other liabilities rose by 50 per cent due to the
consolidation of the CNAV funds described above.
Equity
Total shareholders’ equity declined by 19 per cent,
which mainly arose from a decline in the available-
for-sale reserve. The continuing market turmoil led
to falls in the market values of assets held in HSBC’s
available-for-sale portfolio. These declines mainly
represented market illiquidity rather than impairment
of the assets concerned, but they nonetheless reduced
the value of the available-for-sale reserve from a
positive reserve of US$0.9 billion to a negative
reserve of US$20.6 billion.
Average balance sheet and net interest
income
Average balances and related interest are shown for
the domestic operations of HSBC’s principal
commercial banks by geographical region. ‘Other
operations’ comprise the operations of the principal
Commercial Banking and consumer finance entities
outside their domestic markets and all other banking
operations, including investment banking balances
and transactions.
Average balances are based on daily averages
for the principal areas of HSBC’s banking activities
with monthly or less frequent averages used
elsewhere.
Balances and transactions with fellow
subsidiaries are reported gross in the principal
Commercial Banking and consumer finance entities
within ‘Other interest-earning assets’ and ‘Other
interest-bearing liabilities’ as appropriate and the
elimination entries are included within ‘Other
operations’ in those two categories.
Net interest margin numbers are calculated
by dividing net interest income as reported in the
income statement by the average interest-earning
assets from which interest income is reported
within the ‘Net interest income’ line of the income
statement. Interest income and interest expense
arising from trading assets and liabilities and the
funding thereof is included within ‘Net trading
income’ in the income statement.