HSBC 2012 Annual Report Download - page 203

201
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
At 31 December 2012, our net on-balance sheet
exposure to France, Germany and the Netherlands was
US$199bn, US$37bn lower than at the end of 2011.
Our net on-balance sheet exposure to the sovereign
and agency debt of France, Germany and the
Netherlands was US$70bn, US$17bn lower than at the
end of 2011. Our exposure to France and Germany was
commensurate with the size of our operations in these
countries. In 2012, cash balances held with the Dutch
Central Bank were reduced and redirected to the French
Central Bank to align more closely with our underlying
operations. The cash placements continued to be put into
the euro clearing system managed by the ECB.
At 31 December 2012, our net on-balance sheet
exposure to the bank debt of France, Germany, and the
Netherlands was US$48bn, US$35bn lower than at the
end of 2011. The decrease reflected our ongoing efforts
to reduce exposure to counterparties domiciled in these
countries with exposures to sovereigns and/or banks in
peripheral eurozone countries of sufficient size to
threaten the counterparties’ on-going viability in the
event of an unfavourable conclusion to the current
crisis.
At 31 December 2012, our net on-balance sheet
exposure to the corporate and other financial institution
debt of France, Germany and the Netherlands was
US$64bn, US$13bn higher than at the end of 2011.
Off-balance sheet exposures increased by US$3.6bn in
France. Our exposure in Germany and France was
commensurate with the size of our operations and was
well diversified across portfolios, sectors and products.
Our relationships in these countries are mostly with
large global entities that have significant operations
outside their respective domestic markets. This
mitigates our risk as these corporates have diversified
the sources of their revenue and, more importantly,
their ability to raise finance internationally should their
domestic markets become strained.
In France, our net exposure to personal lending at
31 December 2012 was US$16bn, US$1bn higher than
at the end of 2011. The exposure was mainly in
residential mortgages, loans secured by a national
guarantee scheme and unsecured personal loans, and
both delinquency and impairment charges remained
low.
Exposure to other eurozone countries
In addition to the countries disclosed above,
HSBC had net on-balance sheet exposures of
US$24bn , US$1.6bn higher than in 2011 to
eurozone countries that were not significant to
the Group. Of these, the largest exposure was
represented by our retail and corporate banking
operations in Malta, which had a net on-balance
sheet exposure of US$5.8bn, US$0.2bn lower than in
2011. Our second largest exposure was in Finland
with US$4.3bn of net on-balance sheet exposure to
sovereign, agencies and banks (of which US$2.6bn
was cash collateral held in respect of derivative
liabilities). We also had US$3.3bn of net on-balance
sheet exposure to sovereigns, agencies and banks in
Belgium (of which US$1.4bn was fully
collateralised) and US$1.2bn to other financial
institutions and corporates. Our remaining net on-
balance sheet exposure to the eurozone was less than
5% of the Group’s total equity.
Redenomination risk
(Unaudited)
As the peripheral eurozone countries continue to
exhibit distress, there is continuing possibility of a
member state exiting from the eurozone. There
remains no established legal framework within the
European treaties to facilitate such an event;
consequently, it is not possible to accurately predict
the course of events and legal consequences that
would ensue.
Our current view is that there would be a greater
impact on HSBC from a euro exit of Greece, Italy or
Spain than from Ireland, Portugal or Cyprus.
Key risks associated with an exit by a eurozone
member include:
Foreign exchange losses: an exit would
probably be accompanied by the passing of laws
in the country concerned establishing a new local
currency and providing for a redenomination of
euro-denominated assets into the new local currency.
The value of assets and liabilities in the country
would immediately fall assuming the value of the
redenominated currency is less than the original
euros when translated into the carrying amounts. It
is not possible to predict what the total consequential
loss might be as it is uncertain which assets and
liabilities would be legally re-denominated or what
the extent of the devaluation would be. However,
in order to provide an indication of one part of the
possible exposure, the table below identifies assets
and liabilities booked in our banking operations in
Greece, Italy and Spain (described as ‘in-country’).
These assets and liabilities predominantly comprise
loans and deposits arising from our commercial
banking operations in these countries. The net assets
represent our net funding exposure to those countries
which we consider most likely to be affected by a
redenomination event. The table also identifies in-
country off-balance sheet exposures as these are at
risk of redenomination should they be called, giving