HSBC 2009 Annual Report Download - page 494

HSBC HOLDINGS PLC
Glossary (continued)
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Term Definition
Loan-to-value ratio (‘LTV’) A mathematical calculation that expresses the amount of the loan as a percentage o
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the value of security. A high LTV indicates that there is less cushion to protect the
lender against house price falls or increases in the loan if repayments are not made
and interest is added to the outstanding loan balance.
Loans past due Loans on which repayments are overdue.
Loss given default (‘LGD’) The estimated ratio (percentage) of the loss on an exposure to the amount
outstanding at default (EAD) upon default of a counterparty.
Market risk The risk that movements in market risk factors, including foreign exchange rates an
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commodity prices, interest rates, credit spreads and equity prices will reduce
income or portfolio values.
Monoline insurers
(‘monolines’)
Entities which specialise in providing credit protection to the holders of debt
instruments in the event of default by the debt security counterparty. This
protection is typically held in the form of derivatives such as CDSs referencing
the underlying exposures held.
Mortgage-backed securities
(‘MBS’s)
Securities that represent interests in groups of mortgages, which may be on
residential or commercial properties. Investors in these securities have the right to
cash received from future mortgage payments (interest and/or principal). When
the MBS references mortgages with different risk profiles, the MBS is classified
according to the highest risk class.
Mortgage-related assets Assets which are referenced to underlying mortgages.
Mortgage vintage The year a mortgage was originated.
Medium term notes
(‘MTN’s)
Notes issued by corporates across a range of maturities. MTNs are frequently issue
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by corporates under MTN Programmes whereby notes are offered on a regular an
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continuous basis to investors.
Net asset value per share Total shareholders’ equity, less non-cumulative preference shares and capital
securities, divided by the number of ordinary shares in issue.
Negative equity mortgages Negative equity is the value of the asset less the outstanding balance on the loan. It
arises when the value of the property purchased is below the balance outstanding
on the loan.
Net interest income The amount of interest received or receivable on assets net of interest paid or
payable on liabilities.
Net principal exposure The gross principal amount of assets that are not protected by CDSs. It includes
assets that benefit from monoline protection, except where this protection is
purchased with a CDS.
Non-conforming mortgages Mortgages that do not meet normal lending criteria, e.g. where the normal level of
documentation has not been provided or where increased risk factors are present,
such as poor credit history, result in lending at a rate that is higher than the normal
lending rate.
Operational risk The risk of loss resulting from inadequate or failed internal processes, people and
systems, or from external events, including legal risk.
Over-the-counter
(‘OTC’)
A bilateral transaction (e.g. derivatives) that is not exchange traded and valued using
valuation models.
Performance Shares Awards of HSBC Holdings ordinary shares under employee share plans that are
subject to the achievement of corporate performance conditions.
Prime A US description for mortgages granted to the most creditworthy category of
borrowers.
Private equity investments Equity securities in operating companies not quoted on a public exchange, often
involving the investment of capital in private companies or the acquisition of a
public company that results in the delisting of public equity.