Annual Financial Report - 28 of 48

RNS Number : 3838B

HSBC Holdings PLC

03 April 2013

 



Eurozone exposures

(Unaudited)

	Page		Tables	Page
Exposures to countries in the eurozone ...............	192
Basis of preparation ...................................................	192
Credit default swaps and off-balance sheet ..................	193		Summary of exposures to eurozone countries ...............	193
Exposures to peripheral eurozone countries ................	194		Exposures to Spain ......................................................	194
			Exposures to Ireland ....................................................	195
			Exposures to Italy ........................................................	196
			Exposures to Greece ....................................................	197
			Exposures to Portugal .................................................	198
Commentary on exposures .........................................	199
Exposures to other eurozone countries .......................	200		Summary of exposures to other eurozone countries ......	200
Redenomination risk .............................................	201		In-country funding exposure ........................................	202

Exposures to countries in the eurozone

(Audited)

The tables in this section summarise our exposures to selected eurozone countries, including:

·     governments and central banks along with quasi government agencies;

·     banks;

·     other financial institutions and corporates; and

·     personal lending.

Exposures to banks, other financial institutions, other corporates and personal lending are based upon the counterparty's country of domicile.

Basis of preparation

The gross exposure represents the on-balance sheet carrying amounts recorded in accordance with IFRSs and off-balance sheet exposures.

The net exposure is stated after taking into account mitigating offsets that are incorporated into the risk management view of the exposure but do not meet accounting offset requirements. These risk mitigating offsets include:

·     short positions managed together with trading assets;

·     derivative liabilities for which a legally enforceable right of offset with derivative assets exists; and

·     collateral received on derivative assets.

Short positions managed together with trading assets mitigate risk to which HSBC is exposed at the balance sheet date when, in the event of default, the trading asset and related short position crystallise

gains and losses simultaneously. When such relationships exist, an element of the risk will remain where the short and long positions do not match exactly, for example, the maturity of the short position is less than the trading asset or the short position does not represent an identical security. The remaining risk is reflected in the gross balance sheet exposure shown before risk mitigation. However, as the net position best reflects the effects of a credit event should it occur at the balance sheet date, we consider that this measure is a key view of risk at that date.

Credit risk mitigation includes derivative liabilities with the same counterparty when a master netting arrangement is in place and the credit risk exposure is managed on a net basis or the position is specifically collateralised, normally in the form of cash. These amounts do not qualify for net presentation for accounting purposes as settlement may not actually be made on a net basis, though we consider the net presentation more accurately reflects the risk exposure.

The effect of the transfer of risk to policyholders under unit-linked insurance contracts, as well as trading assets which represent collateral to support associated liabilities, are separately disclosed in the detailed peripheral country exposures, but are not deducted from the total net exposure.

CDSs reported in the detailed peripheral eurozone country tables are not included in the derivative exposure line as they are typically transacted with counterparties incorporated or domiciled outside the country whose exposure they reference.

Credit default swaps and off-balance sheet exposures

The CDSs were transacted with banks with investment grade credit ratings, and would pay out in the event of the default of the referenced security and certain other credit events. CDS contracts disclosed in the tables below were principally entered into for customer facilitation with banks and financial institutions where their terms are typically drawn up in accordance with the guidance set out in the 2003 ISDA Credit Derivatives Definitions and the 2009 Supplement. The credit events that trigger the payout of CDSs may differ as they are based on the terms of each agreement between the counterparties. Such credit events normally include bankruptcy, payment default on a reference asset or assets, restructuring and repudiation or moratoria.

Off-balance sheet exposures mainly relate to commitments to lend and the amounts shown in the tables represent the amounts that could be drawn down by the counterparties. In some instances, limitations are imposed on a counterparty's ability to draw down on a facility. These limitations are governed by the documentation, which differs from counterparty to counterparty. In the majority of cases, we are bound to fulfil commitments made to third parties.

Summary of exposures to eurozone countries

(Unaudited)

	On-balance               sheet       exposures		Off-balance               sheet       exposures		Total               gross       exposures		Risk      mitigation		Total                   net         exposure
	US$bn		US$bn		US$bn		US$bn		US$bn
At 31 December 2012
Spain .......................................................	15.3		3.2		18.5		(6.4)		12.1
Ireland .....................................................	20.7		1.3		22.0		(12.1)		9.9
Italy ........................................................	12.6		3.0		15.6		(6.0)		9.6
Greece .....................................................	5.9		0.7		6.6		(0.8)		5.8
Portugal ...................................................	1.1		0.3		1.4		(0.4)		1.0
Cyprus .....................................................	0.3		0.1		0.4		-		0.4
France .....................................................	158.3		28.0		186.3		(40.8)		145.5
Germany ..................................................	112.4		11.6		124.0		(56.6)		67.4
The Netherlands ......................................	39.7		4.1		43.8		(14.4)		29.4
Others .....................................................	38.0		4.9		42.9		(14.3)		28.6
	404.3		57.2		461.5		(151.8)		309.7
At 31 December 2011
Spain .......................................................	15.7		2.0		17.7		(5.4)		12.3
Ireland .....................................................	14.1		0.3		14.4		(8.6)		5.8
Italy ........................................................	16.4		1.4		17.8		(9.4)		8.4
Greece .....................................................	6.6		1.6		8.2		(0.6)		7.6
Portugal ...................................................	1.7		-		1.7		(0.6)		1.1
Cyprus......................................................	0.2		0.2		0.4		-		0.4
France .....................................................	154.8		26.5		181.3		(31.3)		150.0
Germany ..................................................	86.3		10.1		96.4		(38.0)		58.4
The Netherlands ......................................	70.1		1.8		71.9		(6.2)		65.7
Others .....................................................	36.1		4.0		40.1		(14.0)		26.1
	402.0		47.9		449.9		(114.1)		335.8

Exposures to peripheral eurozone countries

Exposures to Spain

(Audited)

	At 31 December 2012										At 31 December 2011
	Sovereign             and    agencies		Banks		Other    financial institutions             and corporates		Personal		Total		Sovereign              and       agencies		Banks		Other      financial institutions              and   corporates		Personal		Total
	US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
Cash and balances at central banks .........	-		-		-		-		-		0.1		-		-		-		0.1
Loans and advances ...............................	-		0.1		5.0		-		5.1		-		0.2		5.6		-		5.8
- gross ...............................................	-		0.1		5.1		-		5.2		-		0.2		5.7		-		5.9
- impairment allowances ....................	-		-		(0.1)		-		(0.1)		-		-		(0.1)		-		(0.1)
Financial investments available for sale37 ...............................................................	0.4		0.3		0.1		-		0.8		0.9		0.4		0.1		-		1.4
- amortised cost .................................	0.2		0.4		0.1		-		0.7		0.9		0.4		0.1		-		1.4
Trading assets ........................................	1.4		1.9		0.1		-		3.4		1.8		2.4		0.2		-		4.4
Derivative assets ....................................	0.1		4.8		1.1		-		6.0		0.2		3.6		0.2		-		4.0
Gross balance sheet exposure before risk mitigation.................................	1.9		7.1		6.3		-		15.3		3.0		6.6		6.1		-		15.7
Risk mitigation ......................................	(0.9)		(4.6)		(0.9)		-		(6.4)		(1.8)		(3.5)		(0.1)		-		(5.4)
- short trading positions ....................	(0.9)		(0.1)		(0.1)		-		(1.1)		(1.7)		(0.4)		(0.1)		-		(2.2)
- collateral and derivative liabilities ...	-		(4.5)		(0.8)		-		(5.3)		(0.1)		(3.1)		-		-		(3.2)
Net on-balance sheet exposure .........	1.0		2.5		5.4		-		8.9		1.2		3.1		6.0		-		10.3
Off-balance sheet exposures ...................	-		0.3		2.9		-		3.2		1.0		0.4		0.6		-		2.0
- commitments ..................................	-		-		2.3		-		2.3		1.0		-		0.1		-		1.1
- guarantees and other .......................	-		0.3		0.6		-		0.9		-		0.4		0.5		-		0.9
Total net exposure ..............................	1.0		2.8		8.3		-		12.1		2.2		3.5		6.6		-		12.3
Of which:
- net trading assets representing cash collateral posted ..........................	-		1.5		-		-		1.5		0.1		1.3		-		-		1.4
- on-balance sheet exposures held to meet DPF insurance liabilities ...............	0.2		0.3		0.1		-		0.6		0.4		0.4		0.1		-		0.9
Total credit default swaps
- CDS bought positions ......................	0.4		-		-		-		0.4		0.4		0.1		0.1		-		0.6
- CDS sold positions ..........................	(0.3)		-		-		-		(0.3)		(0.4)		(0.1)		(0.1)		-		(0.6)
- CDS bought notionals ......................	6.8		2.8		1.2		-		10.8		3.3		1.5		1.4		-		6.2
- CDS sold notionals ..........................	6.4		2.7		1.2		-		10.3		3.5		1.4		1.3		-		6.2

For footnote, see page 249.

For commentary, see page 199.

Exposures to Ireland

(Audited)

	At 31 December 2012										At 31 December 2011
	Sovereign             and    agencies		Banks		Other    financial institutions             and corporates		Personal		Total		Sovereign              and       agencies		Banks		Other      financial institutions              and   corporates		Personal		Total
	US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
Loans and advances ...............................	-		0.1		2.5		0.1		2.7		-		0.1		2.1		0.1		2.3
- gross ...............................................	-		0.1		2.5		0.2		2.8		-		0.1		2.1		0.2		2.4
- impairment allowances ....................	-		-		-		(0.1)		(0.1)		-		-		-		(0.1)		(0.1)
Financial investments held to maturity ..	-		0.2		-		-		0.2		-		0.2		-		-		0.2
- fair value .........................................	-		0.2		-		-		0.2		-		0.2		-		-		0.2
Financial investments available for sale .	0.1		-		2.3		-		2.4		0.1		0.4		0.3		-		0.8
- amortised cost .................................	0.1		-		2.5		-		2.6		0.1		0.4		0.4		-		0.9
- available-for-sale reserve .................	-		-		(0.2)		-		(0.2)		-		-		(0.1)		-		(0.1)
Trading assets ........................................	0.3		1.5		0.8		-		2.6		0.3		0.9		0.3		-		1.5
Derivative assets ....................................	0.7		11.1		1.0		-		12.8		0.3		8.3		0.7		-		9.3
Gross balance sheet exposure before risk mitigation ................................	1.1		12.9		6.6		0.1		20.7		0.7		9.9		3.4		0.1		14.1
Risk mitigation ......................................	(0.7)		(11.1)		(0.3)		-		(12.1)		(0.4)		(8.0)		(0.2)		-		(8.6)
- short trading positions ....................	(0.1)		-		-		-		(0.1)		(0.1)		-		-		-		(0.1)
- collateral and derivative liabilities....	(0.6)		(11.1)		(0.3)		-		(12.0)		(0.3)		(8.0)		(0.2)		-		(8.5)
Net on-balance sheet exposure ...............	0.4		1.8		6.3		0.1		8.6		0.3		1.9		3.2		0.1		5.5
Off-balance sheet exposures ...................	-		-		1.3		-		1.3		-		-		0.3		-		0.3
- commitments ..................................	-		-		1.1		-		1.1		-		-		0.1		-		0.1
- guarantees and others ......................	-		-		0.2		-		0.2		-		-		0.2		-		0.2
Total net exposure ..............................	0.4		1.8		7.6		0.1		9.9		0.3		1.9		3.5		0.1		5.8
Of which:
- net trading assets representing cash collateral posted ..........................	0.1		1.5		-		-		1.6		0.1		0.6		-		-		0.7
- on-balance sheet exposures held to meet DPF insurance liabilities ...............	0.1		0.2		-		-		0.3		0.1		0.2		-		-		0.3
Total credit default swaps
- CDS bought positions ......................	-		-		-		-		-		0.2		-		-		-		0.2
- CDS sold positions ..........................	-		-		-		-		-		(0.2)		-		-		-		(0.2)
- CDS bought notionals ......................	1.5		-		0.5		-		2.0		0.9		-		0.3		-		1.2
- CDS sold notionals ..........................	1.5		-		0.2		-		1.7		0.9		-		0.3		-		1.2

For commentary, see page 199.

Exposures to Italy

(Audited)

	At 31 December 2012										At 31 December 2011
	Sovereign             and    agencies		Banks		Other    financial institutions             and corporates		Personal		Total		Sovereign              and       agencies		Banks		Other      financial institutions              and   corporates		Personal		Total
	US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
Loans and advances ...............................	-		0.1		1.2		0.1		1.4		-		0.5		1.4		0.1		2.0
- gross ...............................................	-		0.1		1.2		0.1		1.4		-		0.5		1.4		0.1		2.0
Financial investments held to maturity ..	0.1		0.2		-		-		0.3		0.1		0.2		-		-		0.3
- fair value .........................................	0.1		0.2		-		-		0.3		0.1		0.2		-		-		0.3
Financial investments available for sale37 ...............................................................	0.8		0.3		0.3		-		1.4		0.8		0.3		0.3		-		1.4
- amortised cost .................................	0.8		0.3		0.3		-		1.4		0.8		0.3		0.2		-		1.3
Financial assets designated at fair value ..	-		-		0.1		-		0.1		-		-		-		-		-
Trading assets ........................................	5.2		0.7		0.1		-		6.0		8.3		0.6		0.2		-		9.1
Derivative assets ....................................	0.5		1.7		1.2		-		3.4		0.7		1.9		1.0		-		3.6
Gross balance sheet exposure before risk mitigation ................................	6.6		3.0		2.9		0.1		12.6		9.9		3.5		2.9		0.1		16.4
Risk mitigation ......................................	(3.9)		(1.6)		(0.5)		-		(6.0)		(7.6)		(1.5)		(0.3)		-		(9.4)
- short trading positions ....................	(3.9)		-		-		-		(3.9)		(6.9)		-		-		-		(6.9)
- collateral and derivative liabilities....	-		(1.6)		(0.5)		-		(2.1)		(0.7)		(1.5)		(0.3)		-		(2.5)
Net on-balance sheet exposure ...............	2.7		1.4		2.4		0.1		6.6		2.3		2.0		2.6		0.1		7.0
Off-balance sheet exposures ...................	-		0.2		2.8		-		3.0		-		0.1		1.3		-		1.4
- commitments ..................................	-		-		1.8		-		1.8		-		-		0.9		-		0.9
- guarantees and others ......................	-		0.2		1.0		-		1.2		-		0.1		0.4		-		0.5
Total net exposure ..............................	2.7		1.6		5.2		0.1		9.6		2.3		2.1		3.9		0.1		8.4
Of which:
- net trading assets representing cash collateral posted ..........................	-		0.6		-		-		0.6		-		0.5		-		-		0.5
- on-balance sheet exposures held to meet DPF insurance liabilities ...............	0.3		0.4		0.2		-		0.9		0.3		0.4		0.2		-		0.9
Total credit default swaps
- CDS bought positions ......................	0.6		0.1		0.1		-		0.8		0.6		0.5		0.3		-		1.4
- CDS sold positions ..........................	(0.5)		(0.1)		-		-		(0.6)		(0.6)		(0.5)		(0.2)		-		(1.3)
- CDS bought notionals ......................	9.9		6.1		3.6		-		19.6		3.9		3.5		3.7		-		11.1
- CDS sold notionals ..........................	10.3		6.1		3.6		-		20.0		3.8		3.5		3.5		-		10.8

For footnote, see page 249.

For commentary, see page 199.

Exposures to Greece

(Audited)

	At 31 December 2012										At 31 December 2011
	Sovereign             and    agencies		Banks		Other    financial institutions             and corporates		Personal		Total		Sovereign              and       agencies		Banks		Other      financial institutions              and   corporates		Personal		Total
	US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
Loans and advances ...............................	0.1		-		3.4		1.0		4.5		-		0.1		3.8		1.0		4.9
- gross ...............................................	0.1		-		3.4		1.0		4.5		-		0.1		4.0		1.0		5.1
- impairment allowances ....................	-		-		-		-		-		-		-		(0.2)		-		(0.2)
Financial investments available for sale .	-		-		-		-		-		0.1		-		-		-		0.1
- cumulative impairment ...................	-		-		-		-		-		0.2		-		-		-		0.2
Trading assets ........................................	-		0.6		-		-		0.6		0.4		0.4		-		-		0.8
Derivative assets ....................................	-		0.8		-		-		0.8		-		0.7		0.1		-		0.8
Gross balance sheet exposure before risk mitigation ................................	0.1		1.4		3.4		1.0		5.9		0.5		1.2		3.9		1.0		6.6
Risk mitigation ......................................	-		(0.8)		-		-		(0.8)		(0.1)		(0.5)		-		-		(0.6)
- short trading positions ....................	-		-		-		-		-		(0.1)		-		-		-		(0.1)
- collateral and derivative liabilities....	-		(0.8)		-		-		(0.8)		-		(0.5)		-		-		(0.5)
Net on-balance sheet exposure ...............	0.1		0.6		3.4		1.0		5.1		0.4		0.7		3.9		1.0		6.0
Off-balance sheet exposures ...................	-		-		0.7		-		0.7				0.2		1.4		-		1.6
- commitments ..................................	-		-		0.2		-		0.2		-		-		0.8		-		0.8
- guarantees and others ......................	-		-		0.5		-		0.5		-		0.2		0.6		-		0.8
Total net exposure ..............................	0.1		0.6		4.1		1.0		5.8		0.4		0.9		5.3		1.0		7.6
Total credit default swaps
- CDS bought positions ......................	-		-		-		-		-		1.2		-		0.1		-		1.3
- CDS sold positions ..........................	-		-		-		-		-		(0.7)		-		(0.1)		-		(0.8)
- CDS bought notionals ......................	-		-		0.4		-		0.4		1.8		-		0.2		-		2.0
- CDS sold notionals ..........................	-		-		0.4		-		0.4		1.0		-		0.3		-		1.3

For commentary, see page 199.

Exposures to Portugal

(Audited)

	At 31 December 2012										At 31 December 2011
	Sovereign             and    agencies		Banks		Other    financial institutions             and corporates		Personal		Total		Sovereign              and       agencies		Banks		Other      financial institutions              and   corporates		Personal		Total
	US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
Loans and advances ...............................	-		0.3		0.2		-		0.5		-		0.3		-		-		0.3
- gross ...............................................	-		0.3		0.2		-		0.5		-		0.3		-		-		0.3
Financial investments available for sale .	0.1		-		-		-		0.1		0.1		-		0.1		-		0.2
- cumulative impairment ...................	-		-		-		-		-		-		-		-		-		-
- amortised cost .................................	0.1		-		-		-		0.1		0.1		-		0.1		-		0.2
- available-for-sale reserve .................	-		-		-		-		-		-		-		-		-		-
Trading assets ........................................	0.3		-		-		-		0.3		0.6		0.1		-		-		0.7
Derivative assets ....................................	-		0.2		-		-		0.2		0.3		0.2		-		-		0.5
Gross balance sheet exposure before risk mitigation ................................	0.4		0.5		0.2		-		1.1		1.0		0.6		0.1		-		1.7
Risk mitigation ......................................	(0.2)		(0.2)		-		-		(0.4)		(0.5)		(0.1)		-		-		(0.6)
- short trading positions ....................	(0.2)		-		-		-		(0.2)		(0.2)		-		-		-		(0.2)
- collateral and derivative liabilities....	-		(0.2)		-		-		(0.2)		(0.3)		(0.1)		-		-		(0.4)
Net on-balance sheet exposure ...............	0.2		0.3		0.2		-		0.7		0.5		0.5		0.1		-		1.1
Off-balance sheet exposures ...................	-		0.1		0.2		-		0.3		-		-		-		-		-
- commitments ..................................	-		-		0.2		-		0.2		-		-		-		-		-
- guarantees and others ......................	-		0.1		-		-		0.1		-		-		-		-		-
Total net exposure ..............................	0.2		0.4		0.4		-		1.0		0.5		0.5		0.1		-		1.1
Of which:
- net trading assets representing cash collateral posted ..........................	-		-		-		-		-		-		0.1		-		-		0.1
- on-balance sheet exposures held to meet DPF insurance liabilities ...............	0.1		-		-		-		0.1		0.1		-		0.1		-		0.2
Total credit default swaps
- CDS bought positions ......................	0.1		-		-		-		0.1		0.4		0.1		0.1		-		0.6
- CDS sold positions ..........................	(0.1)		-		-		-		(0.1)		(0.3)		(0.1)		(0.1)		-		(0.5)
- CDS bought notionals ......................	1.6		0.9		0.8		-		3.3		1.2		0.6		0.6		-		2.4
- CDS sold notionals ..........................	1.5		0.9		0.8		-		3.2		1.2		0.5		0.7		-		2.4

For commentary, see page 199.

Commentary on exposures

Spain

At 31 December 2012, our total net exposure to Spain was US$12.1bn, US$0.2bn lower than at the end of 2011.

Our total net exposure to Spanish sovereign and agencies was US$1.0bn, US$1.2bn lower than at the end of 2011. The reduction was primarily due to lower off-balance sheet positions.

Our total net exposure to Spanish banks was US$2.8bn, US$0.7bn lower than at the end of 2011. The reduced exposure was due to increased risk mitigation. Our total net exposure to Spanish other financial institutions and corporates was US$8.3bn, an increase of US$1.7bn primarily due to higher off‑balance sheet commitments. Our exposure to Spanish other financial institutions and corporates mainly comprised large multinational companies and other financial institutions with significant operations outside Spain, which mitigated the risk. Exposure to the commercial real estate sector in Spain remained insignificant.

Ireland

At 31 December 2012, our total net exposure to Ireland was US$9.9bn, US$4.1bn higher than at the end of 2011. This increase was in respect of exposures to other financial institutions and corporates.

Our total net exposure to Irish other financial institutions and corporates was US$7.6bn, US$4.1bn higher than at the end of 2011. The increase was primarily in financial investments available for sale for which the underlying risk is not predominantly Irish. A significant portion of our exposure related to foreign-owned entities incorporated in Ireland.

Italy

At 31 December 2012, our total net exposure to Italy was US$9.6bn, US$1.2bn higher than at the end of 2011.

Our total net exposure to Italian sovereign agencies was US$2.7bn, US$0.4bn higher than at the end of 2011. This was due to a decrease in risk mitigation.

Our total net exposure to Italian banks was US$1.6bn, US$0.5bn lower than at the end of 2011. The reduced exposure was primarily due to lower amounts of loans and advances.

Our total net exposure to other financial institutions and corporates at 31 December 2012 was US$5.2bn, an increase of US$1.3bn. Our exposure to Italian other financial institutions and corporates mainly comprised large multinational companies and other financial institutions with significant operations outside Italy, which mitigated the risk.

Greece

At 31 December 2012, our total net exposure to Greece was US$5.8bn, US$1.8bn lower than at the end of 2011. Although there was a reduction in exposure levels to all Greek counterparties in the first half of 2012, the majority of the reduction was in respect of exposures to other financial institutions and corporates.

Our total net exposure to Greek sovereign and agencies was US$0.1bn, US$0.3bn lower than at the end of 2011. Our Greek sovereign exposure decreased as a result of the debt restructuring in March 2012 and the associated settlement of CDS contracts.

Our total net exposure to Greek banks was US$0.6bn, US$0.3bn lower than at the end of 2011. The decrease was primarily due to lower off-balance sheet positions.

Our total net exposure to Greek other financial institutions and corporates was US$4.1bn, US$1.2bn lower than at the end of 2011. The reduction was primarily due to lower level of off-balance sheet positions. At 31 December 2012, our exposure to Greek shipping companies amounted to US$2.2bn. We believe the industry is less sensitive to the Greek economy as it is mainly dependent on international trade.

Portugal

At 31 December 2012, our total net exposure to Portugal was US$1.0bn, similar to the end of 2011.

Our total net exposure to Portuguese other financial institutions and corporates was US$0.4bn, US$0.3bn higher than at the end of 2011. The increase was primarily due to higher off-balance sheet commitments, which were in support of internationally active corporates with significant operations outside Portugal, which reduced the risk.

Cyprus

Our gross on-balance sheet exposure to Cyprus of US$0.3bn (2011: US$0.2bn) consisted primarily of loans and advances to other financial institutions and corporates of US$0.3bn (2011: US$0.2bn). We have also provided off-balance sheet commitments and guarantees to other financial institutions and corporates of US$0.1bn (2011: US$0.1bn).

Exposures to other eurozone countries

Summary of exposures to other eurozone countries

(Unaudited)

	Sovereign and agencies		Banks		Other         financial    institutions and corporates		Personal		Total
	US$bn		US$bn		US$bn		US$bn		US$bn
At 31 December 2012
France
On-balance sheet exposure ......................	44.1		55.0		43.7		15.5		158.3
Off-balance sheet exposure ......................	0.2		1.7		25.3		0.8		28.0
Total gross exposure..	44.3		56.7		69.0		16.3		186.3
Risk mitigation .........	(11.3)		(26.2)		(3.3)		-		(40.8)
Total net exposure ...	33.0		30.5		65.7		16.3		145.5
Germany
On-balance sheet exposure ......................	40.8		56.5		14.8		0.3		112.4
Off-balance sheet exposure ......................	-		0.2		11.1		0.3		11.6
Total gross exposure..	40.8		56.7		25.9		0.6		124.0
Risk mitigation .........	(13.4)		(42.4)		(0.8)		-		(56.6)
Total net exposure ...	27.4		14.3		25.1		0.6		67.4
The Netherlands
On-balance sheet exposure ......................	14.4		10.4		14.8		0.1		39.7
Off-balance sheet exposure ......................	-		0.1		4.0		-		4.1
Total gross exposure..	14.4		10.5		18.8		0.1		43.8
Risk mitigation .........	(4.4)		(5.2)		(4.8)		-		(14.4)
Total net exposure ...	10.0		5.3		14.0		0.1		29.4
Others
On-balance sheet exposure ......................	13.0		14.0		8.4		2.6		38.0
Off-balance sheet exposure ......................	-		0.3		4.0		0.6		4.9
Total gross exposure..	13.0		14.3		12.4		3.2		42.9
Risk mitigation .........	(3.2)		(10.7)		(0.4)		-		(14.3)
Total net exposure ...	9.8		3.6		12.0		3.2		28.6
At 31 December 2011
France
On-balance sheet exposure ......................	36.7		67.0		37.1		14.0		154.8
Off-balance sheet exposure ......................	1.9		1.8		21.7		1.1		26.5
Total gross exposure..	38.6		68.8		58.8		15.1		181.3
Risk mitigation .........	(9.5)		(19.9)		(1.7)		(0.2)		(31.3)
Total net exposure ...	29.1		48.9		57.1		14.9		150.0
Germany
On-balance sheet exposure ......................	31.0		47.6		7.4		0.3		86.3
Off-balance sheet exposure ......................	-		1.5		8.2		0.4		10.1
Total gross exposure..	31.0		49.1		15.6		0.7		96.4
Risk mitigation .........	(11.0)		(26.4)		(0.6)		-		(38.0)
Total net exposure ...	20.0		22.7		15.0		0.7		58.4
The Netherlands
On-balance sheet exposure ......................	43.3		16.3		10.4		0.1		70.1
Off-balance sheet exposure ......................	-		0.2		1.6		-		1.8
Total gross exposure..	43.3		16.5		12.0		0.1		71.9
Risk mitigation .........	(3.3)		(1.3)		(1.6)		-		(6.2)
Total net exposure ...	40.0		15.2		10.4		0.1		65.7
Others
On-balance sheet exposure ......................	10.3		14.3		9.2		2.3		36.1
Off-balance sheet exposure ......................	-		0.3		2.9		0.8		4.0
Total gross exposure..	10.3		14.6		12.1		3.1		40.1
Risk mitigation .........	(3.0)		(10.7)		(0.3)		-		(14.0)
Total net exposure ...	7.3		3.9		11.8		3.1		26.1

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 rise to a balance sheet exposure. It is to be noted that this analysis can only be an indication as it does not include euro-denominated exposures booked by HSBC outside the countries at risk which are connected with those countries (see 'external contracts' below).

External contracts redenomination risk: contracts entered into between HSBC businesses based outside a country exiting the euro with in-country counterparties or those otherwise closely connected with the relevant country, may be affected by redenomination. The effect remains subject to a high level of uncertainty. Factors such as the country law under which the contract is documented, the HSBC entity involved and the payment mechanism may all be relevant to this assessment, as will the precise exit scenario as the consequences for external contracts of a disorderly exit or one

sanctioned under EU law may be different. In addition, capital controls could be introduced which may affect the ability to repatriate funds including currencies not affected by the redenomination event.

We continue to identify and monitor potential redenomination risks and, where possible, take steps to mitigate them and/or reduce our overall exposure to losses that might arise in the event of a redenomination. We continue to emphasise, however, that a euro exit could take different forms in a number of different scenarios. These give rise to distinct legal consequences which could significantly alter the potential effectiveness of any steps taken, and it is accordingly not possible to predict how effective particular measures may be until they are tested against the precise circumstances of a redenomination event.

In-country funding exposure

(Unaudited)

		Denominated in:
		euros		US dollars		other   currencies		Total
		US$bn		US$bn		US$bn		US$bn
At 31 December 2012
Greece	In-country assets .......................................	2.1		0.1		-		2.2
	In-country liabilities ..................................	(1.5)		(0.8)		(0.1)		(2.4)
	Net in-country funding exposure ...............	0.6		(0.7)		(0.1)		(0.2)
	Off-balance sheet exposure .......................	(0.3)		0.2		0.2		0.1
Italy	In-country assets .......................................	1.0		-		-		1.0
	In-country liabilities38 ...............................	(2.0)		-		-		(2.0)
	Net in-country funding exposure ...............	(1.0)		-		-		(1.0)
	Off-balance sheet exposure .......................	0.8		-		-		0.8
Spain	In-country assets .......................................	2.4		0.8		-		3.2
	In-country liabilities ..................................	(1.7)		(0.1)		-		(1.8)
	Net in-country funding exposure ...............	0.7		0.7		-		1.4
	Off-balance sheet exposure .......................	0.7		0.2		-		0.9
At 31 December 2011
Greece	In-country assets .......................................	2.9		2.2		0.1		5.2
	In-country liabilities ..................................	(2.1)		(1.6)		(0.1)		(3.8)
	Net in-country funding exposure ...............	0.8		0.6		-		1.4
	Off-balance sheet exposure .......................	0.2		-		-		0.2
Italy	In-country assets .......................................	2.1		-		-		2.1
	In-country liabilities38 ...............................	(2.6)		-		-		(2.6)
	Net in-country funding exposure ...............	(0.5)		-		-		(0.5)
	Off-balance sheet exposure .......................	0.8		-		-		0.8
Spain	In-country assets .......................................	4.4		0.6		0.1		5.1
	In-country liabilities ..................................	(1.7)		(0.1)		-		(1.8)
	Net in-country funding exposure ...............	2.7		0.5		0.1		3.3
	Off-balance sheet exposure .......................	2.4		0.5		-		2.9

For footnote, see page 249.

 

END

 

 

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