HSBC 2009 Annual Report Download - page 165

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originated assets in 2009 (2008: nil), reflecting credit
support within the asset portfolio.
Commercial property mortgage-related
assets
Of the total of US$9,954 million (2008:
US$9,232 million) of commercial property
mortgage-related assets, US$4,292 million related to
US originated assets (2008: US$3,182 million).
Spreads tightened on both US and non-US
commercial property mortgage-related assets during
2009. Impairments of US$88 million (2008: nil)
were recognised in 2009 as losses on the underlying
assets accelerated.
Leveraged finance-related assets
The majority of assets related to US originated
exposures; almost all (2009: 94 per cent; 2008:
99 per cent) were high grade with no impairments
recorded in the year (2008: nil).
Student loan-related assets
Holdings in student loan-related assets were
US$5,122 million (2008: US$4,963 million). No
impairments were recorded on student loan-related
assets in 2009 (2008: nil).
Transactions with monoline insurers
HSBC’s exposure to derivative transactions
entered into directly with monoline insurers
HSBC’s principal exposure to monolines is through
a number of over-the-counter (‘OTC’) derivative
transactions, mainly credit default swaps (‘CDS’s).
HSBC entered into these CDSs primarily to purchase
credit protection against securities held at the time
within the trading portfolio.
During 2009, the notional value of derivative
contracts with monolines and HSBC’s overall credit
exposure to monolines decreased as a number of
transactions were commuted, others matured, and
credit spreads narrowed. The table below sets out the
fair value, essentially the replacement cost, of the
remaining derivative transactions at 31 December
2009, and hence the amount at risk if the CDS
protection purchased were to be wholly ineffective
because, for example, the monoline insurer was
unable to meet its obligations. In order to further
analyse that risk, the value of protection purchased is
shown subdivided between those monolines that
were rated by Standard & Poor’s (‘S&P’) at ‘BBB–’
or above at 31 December 2009, and those that were
‘below BBB–’ (‘BBB–’ is the S&P cut-off for an
investment grade classification). As a result of the
downgrade of a number of monolines during 2009,
exposure to monolines rated ‘below BBB–’ at
31 December 2009 increased from the position as at
31 December 2008. The ‘Credit risk adjustment’
column indicates the valuation adjustment taken by
HSBC against the net exposures, and reflects
HSBC’s best estimate of the likely loss of value on
purchased protection arising from the deterioration
in creditworthiness of the monolines. These
valuation adjustments, which reflect a measure of the
irrecoverability of the protection purchased, have
been charged to the income statement.
HSBC’s exposure to derivative transactions entered into directly with monoline insurers
Notional
amount
Net exposure
before credit
risk adjustment19
Credit risk
adjustment20
Net exposure
after credit
risk adjustment
US$m US$m US$m US$m
At 31 December 2009
Derivative transactions with monoline counterparties
Monoline – investment grade (BBB– or above) ...... 5,623 997 (100) 897
Monoline – sub-investment grade (below BBB–) ... 4,400 1,317 (909) 408
10,023 2,314 (1,009) 1,305
At 31 December 2008
Derivative transactions with monoline counterparties
Monoline – investment grade (BBB– or above) ...... 9,627 2,829 (740) 2,089
Monoline – sub-investment grade (below BBB–) ... 2,731 1,104 (752) 352
12,358 3,933 (1,492) 2,441
For footnotes, see page 195.