HSBC 2011 Annual Report Download - page 432

HSBC HOLDINGS PLC
Shareholder Information (continued)
Glossary
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Term Definition
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.
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 a financial asset after taking account of credit protection purchased but
excluding the effect of any counterparty credit valuation adjustment to that protection. It includes
assets that benefit from monoline protection, except where this protection is purchased with a CDS.
Non-conforming mortgages US mortgages that do not meet normal lending criteria. Examples include mortgages where the expected
level of documentation is not provided (such as with income self-certification), or where poor credit
history increases the risk and results in pricing at a higher than normal lending rate.
O
Offset mortgages A flexible type of mortgage where a borrower's savings balance(s) held at the same institution can be
used to offset the mortgage balance owing. The borrower pays interest on the net balance which is
calculated by subtracting the credit balance(s) from the debit balance. As part of the offset mortgage a
total facility limit is agreed and the borrower may redraw past capital repayments up this agreed limit.
Overnight Index Swap (‘OIS’)
discounting
A method of valuing collateralised interest rate derivatives which uses a discount curve that reflects the
overnight interest rate typically earned or paid in respect of collateral received.
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 that is valued using valuation
models.
P
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 its delisting.
Probability of default (‘PD’) The probability that an obligor will default within a one-year time horizon.
R
Refi rate The refi (or refinancing) rate is set by the European Central Bank (‘ECB’) and is the price banks pay to
borrow from ECB.
Regulatory capital The capital which HSBC holds, determined in accordance with rules established by the FSA for the
consolidated Group and by local regulators for individual Group companies.
Regulatory matters Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the
actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.
Renegotiated loans Loans for which the contractual terms have been changed because of significant concerns about the
borrower’s ability to meet the contractual payments when due.
Restricted Shares Awards that define the number of HSBC Holdings ordinary shares to which the employee will become
entitled, generally between one and three years from the date of the award, and normally subject to the
individual remaining in employment. The shares to which the employee becomes entitled may be
subject to retention requirement.
Retail loans Money lent to individuals rather than institutions. This includes both secured and unsecured loans such as
mortgages and credit card balances.
Return on equity Profit attributable to ordinary shareholders divided by average invested capital.
Risk appetite An assessment of the types and quantum of risks to which HSBC wishes to be exposed.
Risk-weighted assets
(‘RWA’s)
Calculated by assigning a degree of risk expressed as a percentage (risk weight) to an exposure in
accordance with the applicable Standardised or IRB approach rules.
S
Sale and repurchase agreement A repo is a short-term funding agreement that allows a borrower to create a collateralised loan by selling
a financial asset to a lender. As part of the agreement the borrower commits to repurchase the security
at a date in the future repaying the proceeds of the loan. For the party on the other end of the
transaction (buying the security and agreeing to sell in the future) it is reverse repurchase agreement or
a reverse repo.
Seasoning The emergence of credit loss patterns in portfolios over time.
Second lien A security interest granted over an item of property to secure the repayment of a debt that is issued
against the same collateral as a first lien but that is subordinate to it. In the case of default, repayment
for this debt will only be received after the first lien has been repaid.
Securitisation A transaction or scheme whereby the credit risk associated with an exposure, or pool of exposures, is
tranched and where payments to investors in the transaction or scheme are dependent upon the
performance of the exposure or pool of exposures. A traditional securitisation involves the transfer of
the exposures being securitised to an SPE which issues securities. In a synthetic securitisation, the
tranching is achieved by the use of credit derivatives and the exposures are not removed from the
balance sheet of the originator.