HSBC 2011 Annual Report Download - page 158

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > Securitisation exposures and other structured products // Liquidity and funding > In 2011
156
HSBC’s exposure to leveraged finance transactions
(Audited)
At 31 December 2011 At 31 December 2010
Funded
exposures42
Unfunded
exposures42
Total
exposures
Funded
exposures42
Unfunded
exposures42
Total
exposures
US$m US$m US$m US$m US$m US$m
Europe .................................................. 2,795 253 3,048 3,337 298 3,635
Rest of Asia-Pacific ............................. – – – 17 22 39
North America ..................................... 445 126 571 1,066 185 1,251
3,240 379 3,619 4,420 505 4,925
Held within:
– loans and receivables .................... 3,120 328 3,448 4,199 393 4,592
– fair value through profit or loss ... 120 51 171 221 112 333
For footnotes, see page 185.
Representations and warranties related to
mortgage sales and securitisation activities
(Audited)
We have been involved in various activities related
to the sale and securitisation of residential mortgages
which are not recognised on our balance sheet.
These activities include:
• the purchase of US$24bn of third-party
originated mortgages by HSBC Bank USA and
the securitisation of these by HSBC Securities
(USA) Inc. (‘HSI’) between 2005 and 2007;
• HSI acting as underwriter for third-party
issuance of private label MBSs with an original
issuance value of US$37bn, most of which were
sub-prime; and
• the origination and sale by HSBC Bank USA of
mortgage loans, primarily to government
sponsored entities.
In sales and securitisations of mortgage loans,
various representations and warranties regarding the
loans may be made to purchasers of the mortgage
loans and MBSs. In respect of the purchase and
securitisation of third party originated mortgages and
the underwriting of third party MBSs, the obligation
to repurchase loans in the event of a breach of
loan level representations and warranties resides
predominantly with the organisation that originated
the loan.
Participants in the US mortgage securitisation
market that purchased and repackaged whole loans
have been the subject of lawsuits and governmental
and regulatory investigations and inquiries which
have been directed at groups within the US mortgage
market such as servicers, originators, underwriters,
trustees or sponsors of securitisations. Further
information is provided in Note 44 on the Financial
Statements.
At 31 December 2011, a liability of US$237m
was recognised in respect of various representations
and warranties relating to the origination and sale by
HSBC Bank USA of mortgage loans, primarily to
government sponsored entities (2010: US$262m).
These relate to, among other things, the ownership of
the loans, the validity of the liens, the loan selection
and origination process and compliance with the
origination criteria established by the agencies. In
the event of a breach of our representations and
warranties, HSBC Bank USA may be obliged to
repurchase the loans with identified defects or to
indemnify the buyers. The liability is estimated
based on the level of outstanding repurchase
demands, the level of outstanding requests for loan
files and estimated future demands in respect of
mortgages sold to date which are either two or
more payments delinquent or expected to become
delinquent at an estimated conversion rate.
Repurchase demands of US$113m were outstanding
at 2011 (2010: US$115m).