HSBC 2015 Annual Report Download - page 445

HSBC HOLDINGS PLC
443
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
HSBC’s arrangements that involve structured entities are authorised centrally when they are established to ensure appropriate
purpose and governance. The activities of structured entities administered by HSBC are closely monitored by senior management.
The Group is involved with both consolidated and unconsolidated structured entities which are established either by HSBC or a
third party, as detailed below.
Consolidated structured entities
Total assets of HSBC’s consolidated structured entities, split by entity type
Conduits Securitisations
HSBC
managed
funds Other Total
$bn $bn $bn $bn $bn
At 31 December 2015 25.9 5.6 8.2 5.7 45.4
At 31 December 2014 27.2 7.9 11.2 6.7 53.0
Conduits
HSBC has established and manages two types of conduits: securities investment conduits (‘SIC’s) and multi-seller conduits.
These entities have been designed so that voting or similar rights are not the dominant factor in deciding who has control: in
such cases, the relevant activities are directed by means of contractual arrangement. The conduits are consolidated as HSBC
is exposed to or has the right to variable returns from its involvement with the entity and has the ability to affect its returns
through its power over the entity.
Securities investment conduits
Solitaire, HSBC’s principal SIC, purchases highly rated ABSs to facilitate tailored investment opportunities. At 31 December
2015, Solitaire held $6.2bn of ABSs (2014: $8.0bn). These are included within the disclosures of ABSs ‘held through consolidated
structured entities’ on page 153. HSBC’s other SICs, Mazarin, Barion and Malachite, evolved from the restructuring of the
Group’s structured investment vehicles in 2008.
• Solitaire – Solitaire is currently funded entirely by commercial paper (‘CP’) issued to HSBC. Although HSBC continues to
provide a liquidity facility, Solitaire has no need to draw on it as long as HSBC purchases its issued CP, which HSBC intends
to do for the foreseeable future. At 31 December 2015, HSBC held $8bn of CP (2014: $9.5bn).
• Mazarin – HSBC is exposed to the par value of Mazarin’s assets through the provision of a liquidity facility equal to the
lesser of the amortised cost of issued senior debt and the amortised cost of non-defaulted assets. At 31 December 2015,
this amounted to $1.8bn (2014: $3.9bn). First loss protection is provided through the capital notes issued by Mazarin, which
are substantially all held by third parties.
At 31 December 2015, HSBC held 2.7% of Mazarin’s capital notes (2014: 1.2%) with a par value of $13m (2014: $10m) and a
carrying amount of $4m (2014: $1.4m).
• Barion and Malachite – HSBC’s primary exposure to these SICs is represented by the amortised cost of the debt required to
support the non-cash assets of the vehicles. At 31 December 2015, this amounted to $1.4bn (2014: $3.0bn). First loss
protection is provided through the capital notes issued by these vehicles, which are substantially all held by third parties.
At 31 December 2015, HSBC held 13.7% of the capital notes (2014: 9.9%) issued by these vehicles with a par value of
$42.2m (2014: $54.8m) and a carrying amount of $20.3m (2014: $10.1m).
Multi-seller conduits
Multi-seller conduits were established for the purpose of providing access to flexible market-based sources of finance for
HSBC’s clients. HSBC bears risk equal to the transaction-specific liquidity facilities offered to the multi-seller conduits
amounting to $19.8bn at 31 December 2015 (2014: $15.4bn). First loss protection is provided by the originator of the assets,
and not by HSBC, through transaction-specific credit enhancements. A layer of secondary loss protection is provided by HSBC
in the form of programme-wide enhancement facilities.
Securitisations
HSBC uses structured entities to securitise customer loans and advances that it has originated in order to diversify its sources
of funding for asset origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the
structured entities for cash or synthetically through credit default swaps, and the structured entities issue debt securities to
investors.
HSBC managed funds
HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal
rather than agent in its role as investment manager, HSBC controls and hence consolidates these funds.