Annual Report and Accounts -

RNS Number : 7247P

HSBC Holdings PLC

31 March 2009

 



• the elapsed time between the date to which the market data relates and the balance sheet date; and
• the manner in which the data was sourced.

Models provide a logical framework for the capture and processing of necessary valuation inputs. For fair values determined using a valuation model, the control framework may include, as applicable, independent development or validation of (i) the logic within valuation models; (ii) the inputs to those models; (iii) any adjustments required outside the valuation models; and, (iv) where possible, model outputs. Valuation models are subject to a process of due diligence and calibration before becoming operational and are calibrated against external market data on an ongoing basis.

The results of the independent validation process are reported to, and considered by, Valuation Committees. Valuation Committees are composed of valuation experts from several independent support functions (Product Control, Market Risk Management, Derivative Model Review Group and Finance) in addition to senior management. The members of each Valuation Committee consider the appropriateness and adequacy of the fair value adjustments and the effectiveness of valuation models. If necessary, they may require changes to model calibration or calibration procedures. The Valuation Committees are overseen by the Valuation Committee Review Group, which consists of Heads of Global Banking and Markets' Finance and Risk Functions. All subjective valuation items with a potential impact in excess of US$5 million are reported to the Valuation Committee Review Group.

Determination of fair value 

Fair values are determined according to the following hierarchy:

•     Quoted market price: financial instruments with quoted prices for identical instruments in active markets.

•     Valuation technique using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

•     Valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable.

The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active, a valuation technique is used. 

The judgement as to whether a market is active may include, but is not restricted to, the consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the instrument requires additional work during the valuation process.

The majority of valuation techniques employ only observable market data, and so the reliability of the fair value measurement is high. However, certain financial instruments are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable, and for them, the derivation of fair value is more judgemental. An instrument in its entirety is classified as valued using significant unobservable inputs if, in the opinion of management, a significant proportion of the instrument's balance sheet value and/or inception profit ('day 1 gain or loss') is driven by unobservable inputs. 'Unobservable' in this context means that there is little or no current market data available from which to determine the price at which an arm's length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value (consensus pricing data may, for example, be used). Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable inputs may be attributable to observable inputs. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to uncertainty about the overall fair value of the financial instrument being measured. To help in understanding the extent and the range of this uncertainty, additional information is provided in the section headed 'Effect of changes in significant unobservable assumptions to reasonably possible alternatives' below. 

In certain circumstances, primarily where debt is hedged with interest rate derivatives or structured notes issued, HSBC records its own debt in issue at fair value, based on quoted prices in an active market for the specific instrument concerned, if available. When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs for which are either based upon quoted prices in an inactive market for the instrument, or are estimated by comparison with quoted prices in an active market for similar instruments. In both cases, the fair value includes the effect of applying the credit spread which is appropriate to HSBC's liabilities. For all issued debt securities, discounted cash flow modelling is used to separate the change in fair value that may be attributed to HSBC's credit spread movements from movements in other market factors such as benchmark interest rates or foreign exchange rates. Specifically, the change in fair value of issued debt securities attributable to the Group's own credit spread is computed as follows: for each security at each reporting date, an externally verifiable price is obtained or a price is derived using credit spreads for similar securities for the same issuer. Then, using discounted cash flow, each security is valued using a risk-free discount curve. The difference in the valuations is attributable to the Group's own credit spread. This methodology is applied consistently across all securities.

Structured notes issued and certain other hybrid instrument liabilities are included within trading liabilities and are measured at fair value. The credit spread applied to these instruments is derived from the spreads at which HSBC issues structured notes. These market spreads are significantly smaller than credit spreads observed for plain vanilla debt or in the credit default swap markets.

Gains and losses arising from changes in the credit spread of liabilities issued by HSBC reverse over the contractual life of the debt, provided that the debt is not repaid early.

All net positions in non-derivative financial instruments, and all derivative portfolios, are valued at bid or offer prices as appropriate. Long positions are marked at bid prices; short positions are marked at offer prices.

The fair value of a portfolio of financial instruments quoted in an active market is calculated as the product of the number of units and its quoted price and no block discounts are made. 

The valuation techniques used when quoted market prices are not available incorporate certain assumptions that HSBC believes would be made by a market participant to establish fair value. When HSBC considers that there are additional considerations not included within the valuation model, appropriate adjustments may be made. Examples of such adjustments are:

• Credit risk adjustment: an adjustment to reflect the creditworthiness of OTC derivative counterparties. 

• Market data/model uncertainty: an adjustment to reflect uncertainties in fair values based on unobservable market data inputs (for example, as a result of illiquidity), or in areas where the choice of valuation model is particularly subjective.

• Inception profit ('day 1 gain or loss'): for financial instruments valued at inception on the basis of one or more significant unobservable inputs, the difference between transaction price and model value, as adjusted, at inception (the day 1 gain or loss) is not recognised in the consolidated income statement, but is deferred. An analysis of the movement in the deferred day 1 gain or loss is provided on page 400.

Transaction costs are not included in the fair value calculation, nor are the future costs of administering the OTC derivative portfolio. These, along with trade origination costs such as brokerage fees and post-trade costs, are included either in fee expense or in operating expenses.

A detailed description of the valuation techniques applied to instruments of particular interest follows:

• Private equity

HSBC's private equity positions are generally classified as available for sale and are not traded in active markets. In the absence of an active market, an investment's fair value is estimated on the basis of an analysis of the investee's financial position and results, risk profile, prospects and other factors, as well as by reference to market valuations for similar entities quoted in an active market, or the price at which similar companies have changed ownership. The exercise of judgement is required because of uncertainties inherent in estimating fair value for private equity investments.

• Debt securities, treasury and other eligible bills, and equities 

The fair value of these instruments is based on quoted market prices from an exchange, dealer, broker, industry group or pricing service, when available. When they are unavailable, the fair value is determined by reference to quoted market prices for similar instruments, adjusted as appropriate for the specific circumstances of the instruments. 

Illiquidity and a lack of transparency in the market for debt securities backed by US sub-prime mortgages has resulted in less observable data being available. While quoted market prices are generally used to determine the fair value of these securities, valuation models are used to substantiate the reliability of the limited market data available and to identify whether any adjustments to quoted market prices are required. 

In the absence of quoted market prices, fair value is determined using valuation techniques based on the calculation of the present value of expected future cash flows of the assets. The inputs to these valuation techniques are derived from observable market data and, where relevant, assumptions in respect of unobservable inputs. In respect of ABSs and mortgages, the assumptions may include prepayment speeds, default rates and loss severity based on collateral type, and performance as appropriate. The output from the valuation techniques is benchmarked for consistency against observable data. 

• Derivatives 

OTC (i.e. non-exchange traded) derivatives are valued using valuation models. Valuation models calculate the present value of expected future cash flows, based upon 'no-arbitrage' principles. For many vanilla derivative products, such as interest rate swaps and European options, the modelling approaches used are standard across the industry. For more complex derivative products, there may be some differences in market practice. Inputs to valuation models are determined from observable market data wherever possible, including prices available from exchanges, dealers, brokers or providers of consensus pricing. Certain inputs may not be observable in the market directly, but can be determined from observable prices via model calibration procedures. Finally, some inputs are not observable, but can generally be estimated from historical data or other sources. Examples of inputs that are generally observable include foreign exchange spot and forward rates, benchmark interest rate curves and volatility surfaces for commonly traded option products. Examples of inputs that may be unobservable include volatility surfaces, in whole or in part, for less commonly traded option products, and correlations between market factors. 

• Loans including leveraged loans and loans held for securitisation

Loans held at fair value are valued from broker quotes and/or market data consensus providers when available. In the absence of an observable market, the fair value is determined using valuation techniques including discounted cash flow models, which incorporate assumptions regarding an appropriate credit spread for the loan derived from other market instruments issued by the same or comparable entities. 

• Structured notes 

The fair value of structured notes valued using a valuation technique is derived from the fair value of the underlying debt security as described above, and the fair value of the embedded derivative is determined as described in the paragraph above on derivatives.

Fair value valuation bases

The following table provides an analysis of the various bases described above which have been deployed for valuing financial assets and financial liabilities measured at fair value in the consolidated financial statements: 

Bases of valuing financial assets and liabilities measured at fair value

			Valuation techniques
	Quoted      market     price		Using     observable     inputs	With significant     unobservable     inputs			Total
	US$m		US$m		US$m		US$m
At 31 December 2008
Assets
Trading assets	234,399		185,369		7,561		427,329
Financial assets designated at fair value	14,590		13,483		460		28,533
Derivatives	8,495		476,498		9,883		494,876
Financial investments: available for sale	103,949		173,157		9,116		286,222
Liabilities
Trading liabilities	105,584		135,559		6,509		247,652
Financial liabilities designated at fair value	23,311		51,276		-		74,587
Derivatives	9,896		473,359		3,805		487,060

Bases of valuing financial assets and liabilities measured at fair value (continued)

			Valuation techniques
	Quoted      market     price		Using     observable     inputs	With significant     unobservable     inputs			Total
	US$m		US$m		US$m		US$m
At 31 December 2007
Assets
Trading assets	209,339		222,678		13,951		445,968
Financial assets designated at fair value	28,565		12,694		305		41,564
Derivatives	8,132		175,493		4,229		187,854
Financial investments: available for sale	77,045		187,677		8,510		273,232
Liabilities
Trading liabilities	140,629		167,967		5,984		314,580
Financial liabilities designated at fair value	37,709		52,230		-		89,939
Derivatives	8,879		171,444		3,070		183,393

The main drivers of the movement in the balances of assets and liabilities measured at fair value with significant unobservable inputs were an increase in the fair value of derivative assets and liabilities due to market conditions, and a reduction in the level of ABSs and loans held at fair value due either to disposal, repayment or reclassification. At 31 December 2008, financial instruments measured at fair value using a valuation technique with significant unobservable inputs represented 2 per cent of total assets and liabilities measured at fair value (31 December 2007: 2 per cent).

Financial instruments measured at fair value using a valuation technique with significant unobservable inputs

	Assets								Liabilities
	Available      for sale		Held for     trading	Designated     at fair value     through profit or loss			Derivatives		Held for     trading	Designated      at fair value     through         profit or loss			Derivatives
	US$m		US$m		US$m		US$m		US$m		US$m		US$m
At 31 December 2008
Private equity investments	2,689		54		225		-		-		-		-
Asset-backed securities	4,264		882		-		95		-		-		565
Leveraged finance	-		266		-		-		-		-		33
Loans held for securitisation	-		2,133		-		-		-		-		-
Structured notes	-		87		-		-		5,294		-		-
Derivatives with monolines	-		-		-		2,441		-		-		-
Other derivatives	-		-		-		7,347		-		-		3,207
Other portfolios	2,163		4,139		235		-		1,215		-		-
	9,116		7,561		460		9,883		6,509		-		3,805
At 31 December 2007
Private equity investments	3,037		-		-		-		-		-		-
Asset-backed securities	4,223		2,073		-		-		-		-		-
Leveraged finance	-		3,349		-		-		-		-		-
Loans held for securitisation	-		5,100		-		-		-		-		-
Structured notes	-		-		-		-		5,396		-		-
Derivatives with monolines	-		-		-		1,010		-		-		-
Other derivatives	-		-		-		3,219		-		-		3,070
Other portfolios	1,250		3,429		305		-		588		-		-
	8,510		13,951		305		4,229		5,984		-		3,070

At 31 December 2008, available-for-sale assets valued using a valuation technique with significant unobservable inputs principally comprised various ABSs, private equity investments and other portfolios, similar to the position at 31 December 2007.

Trading assets valued using a valuation technique with significant unobservable inputs principally comprised loans held for securitisation and other portfolios. Other portfolios included holdings in various bonds, preference shares and corporate and mortgage loans. The decrease during the year largely reflected leveraged finance and ABS positions no longer held on a fair value basis following their reclassification to loans and receivables as a result of the amendment to IAS 39 and a reduction in the level of loans held for securitisation.

Derivative products valued using valuation techniques with significant unobservable inputs included certain types of correlation products, such as foreign exchange basket options, foreign exchange-interest rate hybrid transactions and long-dated option transactions. Examples of the latter are equity options, interest rate and foreign exchange options and certain credit derivatives. Credit derivatives included tranched CDS transactions. The increase in derivative assets during the year was mainly due to (i) the transfer of certain leveraged credit derivative transactions into this category because widening credit spreads increased the significance of unobservable credit spread volatilities, and (ii) a general increase in the fair value of derivative assets during 2008.

Trading liabilities valued using a valuation technique with significant unobservable inputs principally comprised equity-linked structured note transactions. These notes, which HSBC issues to investors, provide the counterparty with a return that is linked to the performance of certain equity securities. 

The increase in derivative liabilities valued using a valuation technique with significant unobservable inputs was due to the general increase in the fair value of derivative liabilities during 2008.

Effect of changes in significant unobservable assumptions to reasonably possible alternatives

As discussed above, the fair value of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data. The following table shows the sensitivity of these fair values to reasonably possible alternative assumptions:

	Reflected in profit or loss				Reflected in equity
	Favourable     changes		Unfavourable     changes		Favourable     changes		Unfavourable     changes
	US$m		US$m		US$m		US$m
At 31 December 2008
Derivatives, trading assets and trading liabilities1	1,266		(703)		-		-
Financial assets and liabilities designated at fair value	30		(30)		-		-
Financial investments: available for sale	-		-		984		(1,005)
At 31 December 2007
Derivatives, trading assets and trading liabilities1	602		(415)		-		-
Financial assets and liabilities designated at fair value	30		(30)		-		-
Financial investments: available for sale	-		-		529		(591)

1    Derivatives, trading assets and trading liabilities are presented as one category to reflect the manner in which these financial instruments are risk-managed.

The increase in the effect of changes in significant unobservable inputs in relation to derivatives, trading assets and trading liabilities during the year primarily reflected increased sensitivity of instruments to unobservable parameters across asset and liability classes.

Principal assumptions used in the valuation of financial instruments with significant unobservable inputs

	Reflected in profit or loss				Reflected in equity
	Favourable     changes		Unfavourable     changes		Favourable     changes		Unfavourable     changes
	US$m		US$m		US$m		US$m
At 31 December 2008
Private equity investments	28		(28)		234		(261)
Asset-backed securities	90		(91)		667		(660)
Leveraged finance	2		(2)		-		-
Loans held for securitisation	41		(41)		-		-
Structured notes	8		(8)		-		-
Derivatives with monolines	341		(250)		-		-
Other derivatives	652		(224)		-		-
Other portfolios	134		(89)		83		(84)

Principal assumptions used in the valuation of financial instruments with significant unobservable inputs (continued)

	Reflected in profit or loss				Reflected in equity
	Favourable     changes		Unfavourable     changes		Favourable     changes		Unfavourable     changes
	US$m		US$m		US$m		US$m
At 31 December 2007
Private equity investments	-		-		228		(228)
Asset-backed securities	226		(178)		101		(163)
Leveraged finance	49		(49)		-		-
Loans held for securitisation	40		(40)		-		-
Structured notes	17		(17)		-		-
Derivatives with monolines	88		(109)		-		-
Other derivatives	132		(6)		-		-
Other portfolios	80		(46)		200		(200)

Favourable and unfavourable changes are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable parameter using statistical techniques. When parameters are not amenable to statistical analysis, quantification of uncertainty is judgemental.

When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most favourable or most unfavourable change from varying the assumptions individually.

In respect of private equity investments, the valuations are assessed on an asset by asset basis using a valuation methodology appropriate to the specific investment, in line with industry guidelines. In many of the methodologies, the principal assumption is the valuation multiple to be applied to the main financial indicators including, for example, multiples for comparable listed companies and discounts for marketability.

For ABSs whose prices are unobservable, models are used to generate the expected value of the asset, incorporating benchmark information on factors such as prepayment speeds, default rates, loss severities and the historical performance of the underlying assets. The models used are calibrated by using securities for which external market information is available.

For leveraged finance, loans held for securitisation and derivatives with monolines the principal assumption concerns the appropriate value to be attributed to the counterparty credit risk. This requires exposure at default, probability of default and recovery in the event of default to be estimated. For loan transactions, assessment of exposure at default is straight-forward. For derivative transactions, a future exposure profile is generated based on current market data. Probabilities of default and recovery levels are estimated using market evidence, which may include financial information, historical experience, CDS spreads and consensus recovery levels.

In the absence of such evidence, management's best estimate is used.

For structured notes and other derivatives, principal assumptions concern the future volatility of asset values and the future correlation between asset values. For such unobservable assumptions, estimates are based on available market data, which may include the use of a proxy method to derive a volatility or a correlation from comparable assets for which market data is more readily available, and/or an examination of historical levels.

Changes in fair value recorded in the income statement

The following table quantifies the changes in fair values recognised in profit or loss during the year in respect of exposures whose fair values are estimated using valuation techniques that incorporate significant assumptions that are not evidenced by prices from observable current market transactions in the same instrument, and are not based on observable market data: 

• the table details the total change in fair value of these instruments; it does not isolate the component of the change that is attributable to the unobservable component;

• instruments valued with significant unobservable inputs are frequently dynamically managed with instruments valued using observable inputs; the table does not include any changes in fair value of these latter instruments; and

• the table reflects the full change in fair value during 2008 of assets and liabilities valued using significant unobservable inputs at 31 December 2008 which were observable at 31 December 2007.

  	2008		2007
  	US$m		US$m
  Recorded profit/(loss) on:
  Derivatives, trading assets  and trading liabilities	779		491
  Financial assets and liabilities designated at fair value	109		9

The profit during the year primarily reflects changes in the fair value of credit derivatives which were transferred from using a valuation technique with significant observable inputs to a valuation technique with significant unobservable inputs. The change in valuation technique was due to widening credit spreads which have increased the significance of unobservable credit spread volatilities. These movements are offset by reductions occurring due to write-downs of MBSs, mortgage loans acquired for the purpose of securitisation and credit derivative transactions executed against monoline insurers.

HSBC Holdings 

The following table provides an analysis of the basis for valuing financial assets and financial liabilities measured at fair value in the financial statements:

Bases of valuing HSBC Holdings' financial assets and liabilities measured at fair value

			Valuation techniques
	Quoted      market     price		Using     observable     inputs	With significant     unobservable     inputs			Total
	US$m		US$m		US$m		US$m
At 31 December 2008
Assets
Derivatives	-		3,682		-		3,682
Financial investments: available for sale	-		-		2,629		2,629
Liabilities
Financial liabilities designated at fair value	16,389		-		-		16,389
Derivatives	-		1,324		-		1,324
At 31 December 2007
Assets
Derivatives	-		2,660		-		2,660
Financial investments: available for sale	346		-		2,676		3,022
Liabilities
Financial liabilities designated at fair value	18,683		-		-		18,683
Derivatives	-		44		-		44

Financial investments measured using a valuation technique with significant unobservable inputs comprise fixed-rate trust-preferred securities and senior notes purchased from HSBC undertakings. The unobservable elements of the valuation technique include the use of implied credit spreads and simplified bond pricing assumptions.

Effect of changes in significant unobservable assumptions to reasonably possible alternatives

As discussed above, the fair value of financial instruments are in certain circumstances measured using valuation models that incorporate assumptions that are not supported by prices from observable current market transactions in the same instrument and are not based on observable market data. The following table shows the sensitivity of non-derivative financial instruments to reasonably possible alternative assumptions.

	Reflected in equity
	Favourable     changes		Unfavourable     changes
	US$m		US$m
Financial investments available for sale
At 31 December 2008	113		(97)
At 31 December 2007	53		(52)

Assessing available-for-sale assets for impairment

HSBC's policy on impairment of available-for-sale assets is described on page 350. The following is a description of HSBC's application of that policy.

A systematic impairment review is carried out periodically of all available-for-sale assets, and all available indicators are considered to determine whether there is any objective evidence that an impairment may have occurred, whether as the result of a single loss event or as the combined effect of several events.

Debt securities

When assessing available-for-sale debt securities for objective evidence of impairment at the balance sheet date, HSBC considers all available evidence, including observable data or information about events specifically relating to the securities which may result in a shortfall in recovery of future cash flows. These events may include a significant financial difficulty of the issuer, a breach of contract such as a default, bankruptcy or other financial reorganisation, or the disappearance of an active market for the debt security because of financial difficulties relating to the issuer.

These types of specific event and other factors such as information about the issuers' liquidity, business and financial risk exposures, levels of and trends in default for similar financial assets, national and local economic trends and conditions, and the fair value of collateral and guarantees may be considered individually, or in combination, to determine if there is objective evidence of impairment of a debt security.

In addition, when assessing available-for-sale ABSs for objective evidence of impairment, HSBC considers the performance of underlying collateral, the extent and depth of market price declines and changes in credit ratings. The primary indicators of potential impairment are considered to be adverse fair value movements, and the disappearance of an active market for the securities.

At 31 December 2008, the population of available-for-sale ABSs identified as being most at risk of impairment included residential MBSs backed by sub-prime and Alt-A mortgages originated in the US, and CDOs with significant exposure to this sector. The estimated future cash flows of these securities are assessed to determine whether any of their cash flows are unlikely to be recovered as a result of events occurring on or before the balance sheet date.

In particular, for residential MBSs the estimated future cash flows are assessed by determining the future projected cash flows arising on the underlying collateral taking into consideration the delinquency status of underlying loans, the probability of delinquent loans progressing to default and the proportion of the advances subsequently recoverable. HSBC uses a modelling approach which incorporates historically observed progression rates to default, to determine if the decline in aggregate projected cash flows from the underlying collateral will lead to a shortfall in contractual cash flows. In such cases the security is considered to be impaired. 

In respect of CDOs, in order to determine whether impairment has occurred, the expected future cash flows of the CDOs are compared with the total of the underlying collateral on the non-defaulted assets and the recovery value of the defaulted assets. In the event of a shortfall, the CDO is considered to be impaired.

When a security benefits from a contract provided by a monoline insurer that insures payments of principal and interest, the expected recovery on the contract is assessed in determining the total expected credit support available to the ABS.

Equity securities

Objective evidence of impairment for available-forߛsale equity securities may include specific information about the issuer as detailed above, but may also include information about significant changes in technology, markets, economics or the law that provides evidence that the cost of the equity securities may not be recovered. 

A significant or prolonged decline in the fair value of the asset below its cost is also objective evidence of impairment. In assessing whether it is significant, the decline in fair value is evaluated against the original cost of the asset at initial recognition. In assessing whether it is prolonged, the decline is evaluated against the period in which the fair value of the asset has been below its original cost at initial recognition.

For impairment losses on available-for-sale debt and equity securities, see pages 34 and 30, respectively. Any impairment losses recognised in the income statement relating to ABSs are recorded in the 'Loan impairment charges and other credit risk provisions' line. Impairment losses incurred on assets held by consolidated securities investment conduits (excluding Solitaire) are offset by a credit to the impairment line for the amount of the loss borne by capital note holders.

Fair values of financial instruments not carried at fair value

Financial instruments that are not measured at fair value on the balance sheet include loans and advances to banks and customers, deposits by banks, customer accounts, debt securities in issue and subordinated liabilities. Their fair values are, however, provided for information by way of note disclosure and are calculated as described below.

The calculation of fair value incorporates HSBC's estimate of the amount at which financial assets could be exchanged, or financial liabilities settled, between knowledgeable, willing parties in an arm's length transaction. It does not reflect the economic benefits and costs that HSBC expects to flow from the instruments' cash flows over their expected future lives. Other reporting entities may use different valuation methodologies and assumptions in determining fair values for which no observable market prices are available, so comparisons of fair values between entities may not be meaningful and users are advised to exercise caution when using this data.

Since August 2007, the unstable market conditions in the US mortgage lending industry have resulted in a significant reduction in the secondary market demand for US consumer lending assets. Uncertainty over the extent and timing of future credit losses, together with an absence of liquidity for non-prime ABSs, continued to be reflected in a lack of bid prices at 31 December 2008. It is not possible to distinguish from the indicative market prices that are available, between the relative discount to nominal value within the fair value measurement that reflects cash flow impairment due to expected losses to maturity, and the discount that the market is demanding for holding an illiquid and out of favour asset. Under impairment accounting for loans and advances, there is no need nor requirement to adjust carrying amounts to reflect illiquidity as HSBC's intention is to fund assets until the earlier of prepayment, charge-off or repayment on maturity. Market fair values, on the other hand, reflect both incurred loss and loss expected through the life of the asset, a discount for illiquidity and a credit spread which reflects the market's current risk preferences. This usually differs from the credit spread applicable in the market at the time the loan was underwritten and funded. 

The estimated fair values at 31 December 2008 and 31 December 2007 of loans and advances to customers in North America reflect the combined effect of these conditions. As a result, the fair values are substantially lower than the carrying amount of customer loans held on-balance sheet and lower than would otherwise be reported under more normal market conditions. Accordingly, the fair values reported do not reflect HSBC's estimate of the underlying long-term value of the assets.

Fair values at the balance sheet date of the assets and liabilities set out below are estimated for the purpose of disclosure as follows:

• Loans and advances to banks and customers

The fair value of loans and advances is based on observable market transactions, where available. In the absence of observable market transactions, fair value is estimated using discounted cash flow models. Performing loans are grouped, as far as possible, into homogeneous pools segregated by maturity and coupon rates. In general, contractual cash flows are discounted using HSBC's estimate of the discount rate that a market participant would use in valuing instruments with similar maturity, repricing and credit risk characteristics. 

The fair value of a loan portfolio reflects both loan impairments at the balance sheet date and estimates of market participants' expectations of credit losses over the life of the loans.

For impaired loans, fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered.

•     Financial investments

The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial investments are determined using valuation techniques that take into consideration the prices and future earnings streams of equivalent quoted securities. 

•     Deposits by banks and customer accounts

For the purposes of estimating fair value, deposits by banks and customer accounts are grouped by residual maturity. Fair values are estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities. The fair value of a deposit repayable on demand is assumed to be the amount payable on demand at the balance sheet date. 

• Debt securities in issue and subordinated liabilities

Fair values are determined using quoted market prices at the balance sheet date where available, or by reference to quoted market prices for similar instruments.

The fair values in this note are stated at a specific date and may be significantly different from the amounts which will actually be paid on the maturity or settlement dates of the instruments. In many cases, it would not be possible to realise immediately the estimated fair values given the size

of the portfolios measured. Accordingly, these fair values do not represent the value of these financial instruments to HSBC as a going concern.

For all classes of financial instruments, fair value represents the product of the value of a single instrument, multiplied by the number of instruments held. No block discount or premium adjustments are made. The fair values of intangible assets related to the businesses which originate and hold the financial instruments subject to fair value measurement, such as values placed on portfolios of core deposits, credit card and customer relationships, are not included above because they are not classified as financial instruments. Accordingly, an aggregation of fair value measurements does not approximate to the value of the organisation as a going concern.

The following table lists financial instruments whose carrying amount is a reasonable approximation of fair value because, for example, they are short-term in nature or reprice to current market rates frequently:

Assets

Cash and balances at central banks

Items in the course of collection from other banks

Hong Kong Government certificates of indebtedness 

Endorsements and acceptances

Short-term receivables within 'Other assets'

Accrued income

Liabilities 

Hong Kong currency notes in circulation 

Items in the course of transmission to other banks

Investment contracts with discretionary participation features within 'Liabilities under insurance contracts'

Endorsements and acceptances

Short-term payables within 'Other liabilities'

Accruals 

Fair values of financial instruments which are not carried at fair value on the balance sheet

	At 31 December 2008				At 31 December 2007
	Carrying     amount		Fair     value		Carrying     amount		Fair     value
	US$m		US$m		US$m		US$m
Assets
Loans and advances to banks	153,766		153,363		237,366		237,374
Loans and advances to customers	932,868		876,239		981,548		951,850
Financial investments: debt securities	14,013		15,057		9,768		10,154
Liabilities
Deposits by banks	130,084		130,129		132,181		132,165
Customer accounts	1,115,327		1,115,291		1,096,140		1,095,727
Debt securities in issue	179,693		170,599		246,579		243,802
Subordinated liabilities	29,433		28,381		24,819		23,853

Fair values of financial investments classified as held for sale which are not carried at fair value on the balance sheet

	At 31 December 2008				At 31 December 2007
	Carrying     amount		Fair    value		Carrying     amount		Fair    value
	US$m		US$m		US$m		US$m
Assets classified as held for sale
Loans and advances to banks and customers	11		11		14		14
Financial investments: debt securities	37		37		27		27

Analysis of loans and advances to customers by geographical segment

	At 31 December 2008				At 31 December 2007
	Carrying     amount		Fair     Value		Carrying     amount		Fair     value
	US$m		US$m		US$m		US$m
Loans and advances to customers
Europe	426,191		417,256		452,275		450,010
Hong Kong	100,220		100,490		89,638		89,908
Rest of Asia-Pacific	107,956		104,687		101,852		101,860
North America1	256,214		211,346		289,860		262,123
Latin America	42,287		42,460		47,923		47,949
	932,868		876,239		981,548		951,850

1    The reasons for the significant difference between carrying amount and fair value of loans and advances to customers in North America are discussed on page 170.

HSBC Holdings

The methods used by HSBC Holdings to determine fair values of financial instruments for the purpose of measurement and disclosure are described above.

The following table provides an analysis of the fair value of financial instruments not carried at fair value on the balance sheet:

Fair values of HSBC Holdings' financial instruments not carried at fair value on the balance sheet

	2008				2007
	Carrying     amount		Fair     value		Carrying     amount		Fair     value
	US$m		US$m		US$m		US$m
Assets
Loans and advances to HSBC undertakings	11,804		12,670		17,242		17,356
Liabilities
Amounts owed to HSBC undertakings	4,042		4,218		2,969		2,992
Subordinated liabilities	14,017		13,940		8,544		8,609

Special purpose entities

(Audited)

This section contains disclosures about HSBC-sponsored SPEs that are included in HSBC's consolidated balance sheet, with a particular focus on SPEs containing exposures affected by recent turmoil in credit markets, and those that are not consolidated by HSBC under IFRSs. In addition to the disclosures about SPEs, information on other off-balance sheet arrangements has been included in this section.

HSBC enters into certain transactions with customers in the ordinary course of business which involve the establishment of SPEs to facilitate or secure customer transactions. 

HSBC structures that utilise SPEs are authorised centrally when they are established to ensure appropriate purpose and governance. The activities of SPEs administered by HSBC are closely monitored by senior management. HSBC's involvement with SPE transactions is described below.

HSBC-sponsored SPEs

HSBC sponsors the formation of entities which are designed to accomplish certain narrow and well-defined objectives, such as securitising financial assets or affecting a lease, and this requires a form of legal structure that restricts the assets and liabilities within the structure to the single purpose for which it was established. HSBC consolidates these SPEs when the substance of the relationship indicates that HSBC controls them. In assessing control, all relevant factors are considered, including qualitative and quantitative aspects. For example:

Qualitative factors - in substance:

• the activities of the SPE are being conducted on behalf of HSBC according to HSBC's specific business needs so that it obtains benefit from the SPE's operation. This might be evidenced, for example, by HSBC providing a significant level of support to the SPE; and

• HSBC has the decision-making powers to obtain the majority of the benefits of the activities of the SPE.

Quantitative factors - hereinafter referred to as 'the majority of risks and rewards of ownership'. In substance:

• HSBC has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incidental to the activities of the SPE; and

• HSBC retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from its activities.

In a number of cases, these SPEs are accounted for off-balance sheet under IFRSs where HSBC does not have the majority of the risks and rewards of ownership of the SPE. However in certain circumstances, after careful consideration of the facts, HSBC consolidates an SPE when, although it does not obtain the majority of risks and rewards of ownership, the qualitative features of HSBC's involvement indicate that, in substance, the activities of the SPE are being conducted on behalf of HSBC.

HSBC reassesses the required consolidation accounting tests whenever there is a change in the substance of the relationship between HSBC and an SPE, for example, when the nature of HSBC's involvement or the governing rules, contractual arrangements or capital structure of the SPE change. The most significant categories of SPEs are discussed in more detail below.

Structured investment vehicles and conduits

Structured investment vehicles 

Structured investment vehicles ('SIV's) are SPEs which invest in diversified portfolios of interest-earning assets, generally funded through issues of commercial paper ('CP'), medium-term notes ('MTN's) and other senior debt to take advantage of the spread differentials between the assets in the SIV and the funding cost. Prior to the implementation of Basel II, it was capital efficient to many bank investors to invest in highly-rated investment securities in this way. HSBC sponsored the establishment of two SIVs, Cullinan Finance Limited ('Cullinan') and Asscher Finance Limited ('Asscher') in 2005 and 2007, respectively, and in November 2007 HSBC consolidated Cullinan and Asscher. 

As market illiquidity intensified, there were two main challenges for the SIV sector which could force asset sales: an inability to fund in the CP markets and the sensitivity of the continuing operation of SIVs to changes in the market value of their underlying assets. 

In order to remove the risk of having to make forced asset sales, HSBC established three new securities investment conduits (defined below) to take on the assets held in Cullinan and Asscher. Mazarin Funding Limited ('Mazarin'), an asset backed CP conduit, and Barion Funding Limited ('Barion'), a term-funding vehicle, were set up in respect of Cullinan; and Malachite Funding Limited ('Malachite'), a term-funding vehicle, was set up in respect of Asscher. During 2008, the investors in the capital notes issued by Cullinan and Asscher had the option of exchanging their existing capital notes for the capital notes of the respective new conduits. In addition, the new conduits agreed to purchase the assets in Cullinan and Asscher. As a result of this agreement the legal title of all Cullinan and Asscher's assets were transferred to the new conduits. By 31 December 2008, all the original assets in Cullinan and Asscher were transferred to the new conduits.

During 2008, 91.3 per cent of the remaining capital note holders in Asscher and all of the capital note holders in Cullinan elected to exchange their existing holdings for capital notes in the new conduits. In January 2009, the remaining 8.7 per cent of Asscher's capital notes were redeemed. At 31 December 2007, the holders of the capital notes bore the risk of any actual losses arising in the new conduits up to US$2.3 billion, being the par value of their respective holdings. Prior to the exchanges of assets against capital note extinguishments, the par value of the capital notes was US$2.6 billion. At 31 December 2008, the economic first loss protection from capital note holders amounted to US$2.2 billion (2007: US$2.3 billion). The reduction in economic first loss protection is attributable to the recognition of a US$92 million realised loss at 31 December 2008 (2007: n/a). On an IFRS accounting basis, the capital notes were initially recognised at fair value on consolidation, which amounted to US$1.3 billion at 31 December 2007. At 31 December 2008, on an IFRS accounting basis, an impairment charge of US$293 million (2007: n/a) was recognised in addition to the realised loss of US$92 million, therefore reducing the carrying amount of these capital notes to US$0.9 billion. 

Conduits

HSBC sponsors and manages two types of conduits which issue CP; multi-seller securities and securities investment conduits ('SIC's). HSBC has consolidated these conduits from inception because it is exposed to the majority of risks and rewards of ownership.

Securities investment conduits 

Solitaire, HSBC's principal securities investment conduit, purchases highly rated ABSs to facilitate tailored investment opportunities. HSBC's other SICs, Mazarin, Barion and Malachite, evolved from the restructuring of HSBC's sponsored SIVs as discussed above. 

Multi-seller conduits 

These vehicles were established for the purpose of providing access to flexible market-based sources of finance for HSBC's clients, for example, to finance discrete pools of third-party originated trade and vehicle finance loan receivables. HSBC's principal multi-seller conduits are Regency Assets Limited ('Regency'), Bryant Park Funding Limited LLC ('Bryant Park'), Abington Square Funding LLC ('Abington Square') and Performance Trust.

The multi-seller conduits purchase or fund interests in diversified pools of third-party assets financed by issuing CP or drawing advances from HSBC. The cash flows received by the conduits from the third-party assets are used to service the funding and provide a commercial rate of return for HSBC for structuring, for various other administrative services, and for the liquidity and credit support it gives to the conduits. The asset pools acquired by the conduits are structured so that the credit enhancement the conduits receive, which equates to senior investment grade ratings, and the benefit of liquidity facilities typically provided by HSBC mean that the CP issued by the multi-seller conduits is itself highly rated.

During 2008, the finance provided by HSBC to Abington Square Funding LLC at the end of 2007 was repaid using the proceeds received from refinancing the assets within the conduit. The conduit did not enter into any new securitisation transactions during the period.

An analysis of the assets held by HSBC's SIVs and conduits is set out below:

Ratings analysis of assets

	Solitaire		Other     SICs		Total      SICs		Total      multi-seller     conduits	Total      SICs	Total     SIVs
	US$bn		US$bn		US$bn		US$bn	US$bn	US$bn
S&P ratings at 31 December 2008
AAA	8.1		12.0		20.1		6.1	20.1	0.3
AA	0.7		1.4		2.1		1.8	2.1	-
A	1.0		4.7		5.7		1.6	5.7	-
BBB	0.8		1.0		1.8		1.2	1.8	-
BB	0.3		0.4		0.7		0.2	0.7	-
B	0.1		0.2		0.3		0.5	0.3	-
CCC	0.2		0.2		0.4		1.8	0.4	-
D	-		-		-		0.3	0.0	-
Total investments	11.2		19.9		31.1		13.5	31.1	0.3
Cash and other investments	0.9		0.3		1.2		0.4	1.2	0.1
	12.1		20.2		32.3		13.9	32.3	0.4
S&P ratings at 31 December 2007
AAA	20.8		-		20.8		9.7	20.8	28.3
AA	-		-		-		1.6	-	3.3
A	-		-		-		3.9	-	3.4
BBB	-		-		-		0.1	-	0.1
Total investments	20.8		-		20.8		15.3	-	35.1
Cash and other investments	0.8		-		0.8		0.5	0.8	5.6
	21.6		-		21.6		15.8	21.6	40.7

Composition of asset portfolio

	Solitaire		Other     SICs		Total      SICs		Total     multi-seller     conduits1	Total      SICs	Total     SIVs
	US$bn		US$bn		US$bn		US$bn	US$bn	US$bn
Asset class at 31 December 2008
Structured finance
Vehicle loans and equipment leases	-		-		-		3.9		-
Consumer receivables	-		-		-		0.7		-
Credit card receivables	0.2		-		0.2		1.4		-
Residential MBSs	4.4		5.7		10.1		0.6		-
Commercial MBSs	2.1		3.1		5.2		0.2		-
Auto floor plan	-		-		-		2.2		-
Trade receivables	-		-		-		2.7		-
Student loan securities	2.2		2.0		4.2		-		-
Vehicle finance loan securities	-		0.3		0.3		-		-
Leverage loan securities	1.5		2.2		3.7		-		-
Other ABSs	0.8		1.3		2.1		1.7		-
	11.2		14.6		25.8		13.4		-

Composition of asset portfolio (continued)

	Solitaire		Other     SICs		Total      SICs		Total     multi-seller     conduits1	Total      SICs	Total     SIVs
	US$bn		US$bn		US$bn		US$bn	US$bn	US$bn
Finance
Commercial bank securities and deposits	-		4.4		4.4		0.4		-
Investment bank debt securities	-		0.5		0.5		-		-
Investment bank securities	-		-		-		-		-
Finance company debt securities	-		0.4		0.4		-		0.3
Other assets	0.9		0.3		1.2		0.1		0.1
	0.9		5.6		6.5		0.5		0.4
	12.1		20.2		32.3		13.9		0.4
US sub-prime mortgages	0.6		0.7		1.3		-		-
US Alt-A	2.3		2.2		4.5		-		-
	2.9		2.9		5.8		-		-
Asset class at 31 December 2007
Structured finance
Vehicle loans and equipment leases	-		-		-		3.6		-
Consumer receivables	-		-		-		0.8		-
Credit card receivables	-		-		-		1.5		-
Residential MBSs	9.3		-		9.3		2.0		14.5
Commercial MBSs	3.7		-		3.7		0.1		5.0
Auto floor plan	-		-		-		2.0		-
Trade receivables	-		-		-		3.1		-
Student loan securities	3.5		-		3.5		-		2.6
Vehicle finance loan securities	0.1		-		0.1		-		0.3
Leverage loan securities	2.2		-		2.2		-		2.8
Other ABSs	2.2		-		2.2		2.3		6.9
	21.0		-		21.0		15.4		32.1
Finance
Commercial bank securities and deposits	0.6		-		0.6		-		7.3
Investment bank debt securities	-		-		-		-		0.8
Investment bank securities	-		-		-		0.4		-
Finance company debt securities	-		-		-		-		0.5
	0.6		-		0.6		0.4		8.6
	21.6		-		21.6		15.8		40.7
US sub-prime mortgages	1.9		-		1.9		0.1		3.5
US Alt-A	5.3		-		5.3		-		5.9
	7.2		-		7.2		0.1		9.4

1    Assets within multi-seller conduits are classified as collateralised loans. Under IFRSs, the conduits cannot recognise the underlying assets. 

During 2008, the credit ratings of various securities held by the SICs, many with exposures to US sub-prime and Alt-A mortgages, were downgraded by rating agencies. At 31 December 2008, 44.7 per cent of the SICs' exposures to US sub-prime and Alt-A mortgages remained AAA rated (2007: 100 per cent), while 81.4 per cent remained investment grade.

It should be noted that securities purchased by SICs typically benefit from substantial transaction-specific credit enhancements such as subordinated tranches and/or excess spread, which absorb any credit losses before they would fall on the tranche held by the SPE.

As noted above, by 31 December 2008, all the original assets held by the SIVs were transferred to the new SICs. However, during the second half of 2008, the SIVs purchased CP issued by certain SICs set up by HSBC and, at 31 December 2008, the SIVs' holdings amounted to US$0.3 billion. The cash flows of the CP issued by the new SICs are referenced to bonds which include those backed by US sub-prime and US Alt-A MBSs. In early 2009, the CP matured, and the cash received by the SIVs has been transferred to the respective SICs.

Asset analysis by geographical origination for multi-seller conduits1

	At 31     December
	2008		2007
	US$bn		US$bn
Europe	7.5		7.4
Rest of Asia-Pacific	0.9		1.0
North America	5.5		6.3
Latin America	-		1.1
	13.9		15.8

1    For details on the geographical origin of the mortgage loans held at fair value and ABSs, including those represented by MBSs and CDOs held in consolidated SIVs and securities investment conduits, see 'Nature and extent of HSBC's exposures' on page 150.

Total assets by balance sheet classification

	Solitaire		Other     SICs		Total      SICs		Total      multi-seller     conduits	Total      SICs	Total     SIVs
	US$bn		US$bn		US$bn		US$bn	US$bn	US$bn
At 31 December 2008
Financial instruments designated at  fair value	0.1		-		0.1		-		-
Derivative assets	-		0.2		0.2		0.1		-
Loans and advances to banks	-		0.1		0.1		-		0.1
Loans and advances to customers	-		-		-		13.4		-
Financial investments	11.1		19.9		31.0		-		0.3
Other assets	0.9		-		0.9		0.4		-
	12.1		20.2		32.3		13.9		0.4
At 31 December 2007
Financial instruments designated at  fair value	0.1		-		0.1		-		-
Derivative assets	0.1		-		0.1		-		0.3
Loans and advances to banks	0.2		-		0.2		-		3.1
Loans and advances to customers	-		-		-		14.9		-
Financial investments	20.6		-		20.6		0.5		37.1
Other assets	0.6		-		0.6		0.4		0.2
	21.6		-		21.6		15.8		40.7

Weighted average maturity of assets and life of portfolios

	Solitaire		Other     SICs		Total      SICs		Total      multi-seller     conduits	Total      SICs	Total     SIVs
	US$bn		US$bn		US$bn		US$bn	US$bn	US$bn
At 31 December 2008
0-6 months	1.0		1.3		2.3		5.7		0.4
6-12 months	0.2		1.4		1.6		0.5		-
Over 12 months	10.9		17.5		28.4		7.7		-
1-3 years	1.8		5.6		7.4		6.2		-
3-5 years	3.6		6.6		10.2		1.5		-
5+ years	5.5		5.3		10.8		-		-
	12.1		20.2		32.3		13.9		0.4
Weighted average life (years)	5.8		3.9		4.6		1.6		-
At 31 December 2007
0-6 months	0.3		-		0.3		5.6		6.9
6-12 months	0.3		-		0.3		2.5		2.2
Over 12 months	21.0		-		21.0		7.7		31.6
1-3 years	2.5		-		2.5		4.8		7.6
3-5 years	8.3		-		8.3		2.2		13.4
5+ years	10.2		-		10.2		0.7		10.6
	21.6		-		21.6		15.8		40.7
Weighted average life (years)	5.3		-		5.3		1.6		4.0

The revolving credit facilities of multi-seller conduits will predominantly have expected average lives with maturities of less than 12 months, but typically have a range of 1 to 60 months.

Funding structure

	Solitaire				Other SICs				Total SICs				Total multi-seller conduits				Total SIVs
	Total		Provided      by HSBC		Total		Provided      by HSBC		Total		Provided      by HSBC		Total		Provided      by HSBC		Total		Provided     by HSBC
	US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
At 31 December 2008
Capital notes	-		-		0.9		-		0.9		-		-		-		-		-
Drawn liquidity  facility	2.4		2.4		-		-		2.4		2.4		-		-		-		-
Commercial paper	17.2		8.3		10.5		10.4		27.7		18.7		12.9		2.1		-		-
Medium-term notes	-		-		3.4		3.4		3.4		3.4		-		-		0.1		-
Term repos executed	0.8		0.8		13.3		13.3		14.1		14.1		-		-		-		-
	20.4		11.5		28.1		27.1		48.5		38.6		12.9		2.1		0.1		-
At 31 December 2007
Capital notes	-		-		-		-		-		-		-		-		1.3		-
Commercial paper	23.0		7.8		-		-		23.0		7.8		14.8		8.6		7.3		2.4
Medium-term notes	-		-		-		-		-		-		-		-		23.2		5.3
Term repos executed	-		-		-		-		-		-		-		-		8.7		8.2
	23.0		7.8		-		-		23.0		7.8		14.8		8.6		40.5		15.9

Weighted average life of the funding liabilities

	Solitaire		Other     SICs		Total      SICs		Total      multi-seller     conduits	Total      SICs	Total     SIVs
	Years		Years		Years		Years	US$bn	Years
At 31 December 2008
CP funding	0.1		0.2		0.1		0.1		n/a
MTN funding	n/a		7.3		7.3		n/a		0.1
At 31 December 2007
CP funding	0.4		-		-		0.1		0.5
MTN funding	-		-		-		-		1.1

The majority CP and MTN funding issued by the SIVs was repaid in full during 2008 using the proceeds from the asset sales to the new SICs. The MTNs matured in early 2009.

HSBC's maximum exposure 

Conduits

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 2008, HSBC's exposure amounted to US$15.5 billion (2007: n/a). First loss protection is provided through the capital notes issued by Mazarin, which are substantially all held by third parties.

• In addition, at 31 December 2008, HSBC held 1.3 per cent of Mazarin's capital notes, which 

have a par value of US$17 million (2007: n/a), and a carrying amount of US$0.6 million (2007: n/a).

Barion and Malachite

• These SICs are term funded by HSBC, consequently HSBC's primary exposure to them is represented by the amortised cost of the debt required to support the non-cash assets of the vehicles. At 31 December 2008 this amounted to US$11.7 billion (2007: n/a).

•     First loss protection is provided through the capital notes issued by these vehicles, which are substantially all held by third parties. 

•     In addition, at 31 December 2008, HSBC held 3.53 per cent (2007: n/a) of the capital notes issued by these vehicles which have a par value of US$35 million (2007: n/a), and a carrying amount of US$1.3 million (2007: n/a).

Solitaire

• CP issued by Solitaire benefits from a 100 per cent liquidity facility provided by HSBC. First loss credit protection, after any transaction-specific credit enhancement (as described on page 148) and retained reserves, is provided by HSBC in the form of letters of credit with a combined notional value of US$1.2 billion at 31 December 2008 (2007: US$1.2 billion). 

• HSBC's maximum exposure to Solitaire is limited to the amortised cost of non-cash equivalent assets, which represents the risk that HSBC may be required to fund the vehicle in the event the debt is redeemed without reinvestment from third parties.

• HSBC's maximum exposure at 31 December 2008 amounted to US$20.4 billion (2007: US$25.7 billion).

Multi-seller conduits

• HSBC provides transaction-specific liquidity facilities to each of its multi-seller conduits, designed to be drawn in order to ensure the repayment of the CP issued. At 31 December 2008, the committed liquidity facilities amounted to US$17.1 billion (2007: US$21.2 billion).

• First loss protection is provided through transaction-specific credit enhancements, for example, over-collateralisation and excess spread. These credit enhancements are provided by the originator of the assets and not by HSBC. In addition, a layer of secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities, and at 31 December 2008 this amounted to US$0.6 billion (2007: US$0.7 billion). HSBC's maximum exposure is equal to the transaction-specific liquidity facilities offered to the multi-seller conduits, as described above.

• The liquidity facilities are set to support total commitments and therefore exceed the funded assets as at 31 December 2008.

• In consideration of the significant first loss protection afforded by the structure, the credit enhancements and a range of indemnities provided by the various obligors, HSBC carries only a minimal risk of loss from the programme.

Structured investment vehicles 

• At 31 December 2008, Cullinan held Mazarin CP amounting to US$0.3 billion. HSBC retains no marginal exposure through Cullinan to Mazarin's activities over the maximum exposure value stated for Mazarin.

• Asscher retains only cash and equivalent assets held within the HSBC Group. Consequently, HSBC retains no exposure to the vehicle.

Money market funds

HSBC has established and manages a number of money market funds which provide customers with tailored investment opportunities with a set of narrow and well-defined objectives. In most cases, they are not consolidated in HSBC because the Group's holdings in them are not of sufficient size to represent the majority of the risks and rewards of ownership.

Investors in money market funds generally have no recourse other than to the assets in the funds, so asset holdings are designed to meet expected fund liabilities. Usually, money market funds are constrained in their operations should the value of their assets and their ratings fall below predetermined thresholds. The risks to HSBC are, therefore, contingent, arising from the reputational damage which could occur if an HSBC-sponsored money market fund was thought to be unable to meet withdrawal requests on a timely basis or in full.

In aggregate, HSBC has established money market funds with total assets of US$102.7 billion at 31 December 2008 (2007: US$91.3 billion).

The main sub-categories of money market funds are: 

• US$72.0 billion (2007: US$56.8 billion) in Constant Net Asset Value ('CNAV') funds, which invest in shorter-dated and highly-rated money market securities with the objective of providing investors with a highly liquid and secure investment; 

• US$2.7 billion (2007: US$11.9 billion) in French domiciled dynamique ('dynamic') funds and Irish 'enhanced' funds, together Enhanced Variable Net Asset Value ('Enhanced VNAV') funds, which invest in longer-dated money market securities to provide investors with a higher return than traditional money market funds; and

• US$28.0 billion (2007: US$22.6 billion) in various other money market Variable Net Asset Value ('VNAV') funds, including funds domiciled in Brazil, France, India, Mexico and other countries.

These money market funds invest in diverse portfolios of highly-rated debt instruments, including limited holdings in instruments issued by SIVs. At 31 December 2008, the exposure of these funds to SIVs was US$0.5 billion (2007: US$3.9 billion). 

Constant Net Asset Value funds 

CNAV funds price their assets on an amortised cost basis, subject to the amortised book value of the portfolio remaining within 50 basis points of its market value. This feature enables CNAV funds to create and liquidate shares in the funds at a constant price. If the amortised value of an asset portfolio were to vary by more than 50 basis points from its market value, the CNAV fund would be required to price its assets at market value, and consequently would no longer be able to create or liquidate shares at a constant price. This is commonly known as 'breaking the buck'.

Investments made by the CNAV funds in senior notes issued by SIVs continued to deteriorate in valuation terms during 2008. The market values of the underlying assets of those SIVs were affected by market nervousness over possible default levels, exacerbated by severe illiquidity. This reduced the ability of SIVs to sell assets in order to fund maturing liabilities, or issue new senior notes in order to raise cash. As a consequence, the CNAV funds recorded unrealised losses on their SIV holdings.

During 2008, the following actions were taken by HSBC in respect of the CNAV funds to maintain their AAA rating and mitigate any forced sale of liquid assets to meet potential redemptions:

• the provision of additional letters of limited indemnity ('LOI') to the directors of the CNAV funds that held investments in SIVs, as well as amendments to existing letters of limited indemnity. The total assets under management ('AUM') of the funds in respect of which indemnities were provided amounted to US$43.8 billion at 31 December 2008 (2007: US$27.1 billion); and

• in early October 2008, HSBC:

(i)    purchased all the SIV assets that were in enforcement from the CNAV funds, which amounted to US$687 million. Enforcement is the process by which winding down of independent SIVs and repaying secured 

    creditors begins. The purchased SIV assets are included within HSBC's consolidated holdings of ABSs on page 151;

(ii)    made a payment of US$43 million under the letters of limited indemnity as a consequence of HSBC purchasing all the SIV assets that were in enforcement from the CNAV funds; and 

(iii)    made capital contributions amounting to US$53 million.

The following table provides a breakdown of the losses incurred and capital contributions made as a result of the actions taken by HSBC.

	2008
	US$m
Payment under LOI	43
Capital contribution	53
Fair value write down1	18
Total	114

1    When HSBC purchased the enforced SIV assets from a fund at their amortised cost, an immediate loss was recognised by HSBC on initial recognition.

As stated on page 173, a reassessment of the required consolidation accounting tests is performed whenever there is a change in the substance of the relationship between HSBC and an SPE. As a result of the events described above, a reassessment of the consolidation tests was, therefore, performed. 

When considered together, the actions taken by HSBC demonstrated the Group's support, within limited parameters, of the CNAV funds in the prevailing market conditions. This support was based on a commercial decision to support the funds at that time, but did not constitute any commitment to undertake further action and the future operations of the funds in question continue to be governed by their respective prospectuses. HSBC concluded that this substantively changed the relationship HSBC had with these CNAV funds, and therefore HSBC consolidated them from 30 September 2008. Although the actions taken by HSBC described above occurred in early October 2008, management's intention had been agreed prior to this date.

The effect of consolidating the CNAV funds on HSBC's balance sheet was to include US$43.8 billion of assets and US$43.1 billion of liabilities. HSBC's exposure to the funds is described below. 

Composition of CNAV asset portfolio

	2008
	US$bn
ABSs	0.8
Certificates of deposit	13.0
CP	18.1
Floating rate notes	5.2
Government agency bonds	1.9
Other assets	4.8
Total	43.8

HSBC's maximum exposure

HSBC's maximum exposure to consolidated and unconsolidated CNAV funds is represented by HSBC's investment in the units of each CNAV fund, and by the maximum limit of the letters of limited indemnity provided to the CNAV funds. HSBC's exposure at 31 December 2008 amounted to US$0.7 billion (2007: US$1.3 billion) and US$58 million (2007: US$41 million) for investment in units within the CNAV funds and letters of limited indemnity, respectively. 

Enhanced Variable Net Asset Value funds

Enhanced VNAV funds price their assets on a fair value basis and, consequently, prices may change from one day to the next. These funds pursue an 'enhanced' investment strategy, as part of which investors accept greater credit and duration risk in the expectation of higher returns. 

As part of action taken in respect of these funds in the second half of 2007, HSBC acquired some of the underlying assets and shares in two of its French dynamic money market funds. HSBC's aggregate holding in these funds at 31 December 2008 amounted to €0.5 billion (US$0.6 billion) (2007: €0.9 billion; US$1.4 billion). As a result of continued redemptions by unitholders during 2008, HSBC's holding in the two funds increased to a level at which it obtained the majority of the risks and rewards of ownership, and it therefore consolidated these funds.

HSBC's maximum exposure

HSBC's maximum exposure to consolidated and unconsolidated Enhanced VNAV and consolidated and unconsolidated VNAV funds is represented by HSBC's investment in the units of each fund. HSBC's maximum exposure at 31 December 2008 amounted to US$0.6 billion (2007: 

US$5.9 billion) and US$1.6 billion (2007: US$0.3 billion), for Enhanced VNAV and VNAV funds, respectively.

Total assets of HSBC's money market funds which are on-balance sheet by balance sheet classification

	At     31 December
	2008		2007
	US$bn		US$bn
Cash	0.3		-
Trading assets	43.3		0.7
Financial instruments designated at fair value	-		5.0
Other assets	2.3		-
	45.9		5.7

Non-money market investment funds 

HSBC, through its fund management business, has established a large number of non-money market funds to enable customers to invest in a range of assets, typically equities and debt securities. At the launch of a fund HSBC, as fund manager, usually provides a limited amount of initial capital known as 'seed capital' to enable the fund to start purchasing assets. These holdings are normally redeemed over time. The majority of these funds are off-balance sheet for HSBC because the Group's limited economic interest means it does not have the majority of the risks and rewards of ownership. As the non-money market funds explicitly provide investors with tailored risk, the risk to HSBC is restricted to HSBC's own investments in the funds.

In aggregate, HSBC has established non-money market funds with total assets of US$200.3 billion at 31 December 2008 (2007: US$288.8 billion).

The main sub-categories of non-money market funds are:

• US$83.1 billion (2007: US$132.0 billion) in specialist funds, which comprise fundamental active specialists and active quantitative specialists;

• US$96.2 billion (2007: US$126.4 billion) in local investment management funds, which invest in domestic products, primarily for retail and private clients; and

• US$21.0 billion (2007: US$30.4 billion) in multi-manager funds, which offer fund of funds and manager of manager products across a diversified portfolio of assets.

Total assets of HSBC's non-money market funds which are on-balance sheet by balance sheet classification

	At     31 December
	2008		2007
	US$bn		US$bn
Cash	0.4		0.4
Trading assets	0.2		0.5
Financial instruments designated at fair value	2.3		3.0
Financial investments	0.8		0.2
	3.7		4.1

HSBC's maximum exposure 

HSBC's maximum exposure to consolidated and unconsolidated non-money market funds is represented by HSBC's investment in the units of each respective fund. HSBC's exposure at 31 December 2008 amounted to US$4.4 billion (2007: US$6.0 billion).

Securitisations

HSBC uses SPEs to securitise customer loans and advances that it has originated, mainly in order to diversify its sources of funding for asset origination and for capital efficiency purposes. In such cases, the loans and advances are transferred by HSBC to the SPEs for cash, and the SPEs issue debt securities to investors to fund the cash purchases. Credit enhancements to the underlying assets may be used to obtain investment grade ratings on the senior debt issued by the SPEs. Except in one instance, these securitisations are all consolidated by HSBC. HSBC has also established securitisation programmes in the US and Germany where loans originated by third parties are securitised. Most of these vehicles are not consolidated by HSBC as it is not exposed to the majority of risks and rewards of ownership in the SPEs. In 2008, demand for the securitised products remained low.

In addition, HSBC uses SPEs to mitigate the capital absorbed by some of the customer loans and advances it has originated. Credit derivatives are used to transfer the credit risk associated with such customer loans and advances to an SPE, using securitisations commonly known as synthetic securitisations. These SPEs are consolidated when HSBC is exposed to the majority of risks and rewards of ownership.

Total assets of HSBC's securitisations which are on-balance sheet, by balance sheet classification

	At 31     December
	2008		2007
	US$bn		US$bn
Trading assets	1.3		3.6
Loans and advances to customers	50.8		69.6
Financial investments	-		0.1
Other assets	1.1		1.3
Derivatives	1.4		0.1
	54.6		74.7

These assets include US$1.3 billion (2007: US$3.6 billion) of exposure to US sub-prime mortgages.

Total assets of HSBC's securitisations which are offߛbalance sheet

	2008		2007
	US$bn		US$bn
HSBC originated assets	0.6		0.9
Non-HSBC originated assets - term securitisation programmes	13.5		16.0
	14.1		16.9

HSBC's financial investments in off-balance sheet securitisations at 31 December 2008 amounted to US$0.2 billion (2007: US$0.4 billion). These assets include assets which are classified as available-for-sale securities and measured at fair value, and have been securitised by HSBC under arrangements by which HSBC retains a continuing involvement in them. Further details are provided in Note 20 on the Financial Statements.

HSBC's maximum exposure

The maximum exposure is the aggregate of any holdings of notes issued by these vehicles and the reserve account positions intended to provide credit support under certain pre-defined circumstances to senior note holders. HSBC is not obligated to provide further funding. At 31 December 2008, HSBC's maximum exposure to consolidated and unconsolidated securitisations amounted to US$27.2 billion (2007: US$31 billion).

Other

HSBC also establishes SPEs in the normal course of business for a number of purposes, for example, structured credit transactions for customers to provide finance to public and private sector infrastructure projects, and for asset and structured finance ('ASF') transactions. 

Structured credit transactions

HSBC provides structured credit transactions to thirdߛparty professional and institutional investors who wish to obtain exposure, sometimes on a leveraged basis, to a reference portfolio of debt instruments. In such structures, the investor receives returns referenced to the underlying portfolio by purchasing notes issued by the SPEs. HSBC enters into contracts with the SPEs, generally in the form of derivatives, in order to pass the required risks and rewards of the reference portfolios to the SPEs. HSBC's risk in relation to the derivative contracts with the SPEs is managed within HSBC's trading market risk framework (see 'Market risk' on page 241). In certain transactions HSBC is exposed to risk often referred to as gap risk. Gap risk typically arises in transactions where the aggregate potential claims against the SPE by HSBC pursuant to one or more derivatives could be greater than the value of the collateral held by the SPE and securing such derivatives. HSBC often mitigates such gap risk by incorporating in the SPE transaction features which allow for deleveraging, a managed liquidation of the portfolio, or other mechanisms. Following the inclusion of such risk reduction mechanisms, HSBC has, in certain circumstances, retained all or a portion of the underlying exposure in the transaction. When this retained exposure represents ABSs, it has been included in 'Nature and extent of HSBC's exposures' on page 150.

Often, transactions are facilitated through SPEs to enable the notes issued to the investors to be rated. The SPEs are not consolidated by HSBC because the investors bear substantially all the risks and rewards of ownership through the notes.

The total fair value of liabilities (notes issued and derivatives) in structured credit transaction SPEs was US$21.2 billion at 31 December 2008 (2007: US$23.6 billion). These amounts included US$0.3 billion (2007: US$0.1 billion) in SPEs that were consolidated by HSBC.

Other uses of SPEs

HSBC participates in Public-Private Partnerships to provide financial support for infrastructure projects initiated by government authorities. The funding structure is commonly achieved through the use of SPEs. HSBC consolidates these SPEs when it is exposed to the majority of risks and rewards of the vehicles.

HSBC's ASF business specialises in leasing and arranging finance for aircraft and other physical assets, which it is customary to ring-fence through the use of SPEs, and in structured loans and deposits, where SPEs introduce cost efficiencies. HSBC consolidates these SPEs when the substance of the relationship indicates that HSBC controls the SPE.

HSBC's risks and rewards of ownership in these SPEs are in respect of its on-balance sheet assets and liabilities.

HSBC's maximum exposures to SPEs

The following tables show the total assets of the various types of SPEs, and the amount and types of funding provided by HSBC to these SPEs. The tables also show HSBC's maximum exposure to the SPEs and, within that exposure, the types of liquidity and credit enhancements provided by HSBC. The maximum exposures to SPEs represent HSBC's maximum possible risk exposure that could occur as a result of the Group's arrangements and commitments to SPEs. The maximum amounts are contingent in nature, and may arise as a result of drawdowns under liquidity facilities, where these have been provided, and any other funding commitments, or as a result of any loss protection provided by HSBC to the SPEs. The conditions under which such exposure might arise differ depending on the nature of each SPE and HSBC's involvement with it. The aggregation of such maximum exposures across the different forms of SPEs results in a theoretical total maximum exposure number. The elements of the maximum exposure to an SPE are not necessarily additive and a detailed explanation of how maximum exposures are determined is provided under each category of SPE.

HSBC's maximum exposure to consolidated SPEs affected by the recent market turmoil

			Securities						Enhanced				Non-money market funds
	SIVs		investment      conduits1		Multi-seller     conduits		CNAV      funds		VNAV      funds		VNAV      funds		Specialist     funds		Local      funds2		Securit-     isations3		Other		Total
	US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
At 31 December 2008
Total assets	0.4		32.3		13.9		43.8		0.7		1.4		0.6		3.1		54.6		0.3		151.1
Direct lending4	-		-		-		-		-		-		-		-		1.3		-		1.3
ABSs4	-		25.8		-		0.8		-		-		-		-		-		-		26.6
Other	0.4		6.5		13.9		43.0		0.7		1.4		0.6		3.1		53.3		0.3		123.2
Funding provided by HSBC	-		38.6		2.1		0.7		0.6		1.3		0.2		3.2		0.7		0.2		47.6
CP	-		18.7		2.1		-		-		-		-		-		-		-		20.8
MTNs	-		3.4		-		-		-		-		-		-		0.4		0.2		4.0
Junior notes	-		-		-		-		-		-		-		-		0.3		-		0.3
Term repos executed	-		14.1		-		-		-		-		-		-		-		-		14.1
Investments in funds	-		-		-		0.7		0.6		1.3		0.2		3.2		-		-		6.0
Drawn liquidity facility	-		2.4		-		-		-		-		-		-		-		-		2.4
Capital notes5	-		-		-		-		-		-		-		-		-		-		-
Total maximum exposure to  consolidated SPEs	-		47.6		17.1		0.8		0.    0.6		1.3		0.2		3.2		27.0		0.2		98.0
Liquidity and credit enhancements
Deal-specific liquidity facilities	-		-		17.1		-		-		-		-		-		-		-		17.1
Indemnities	-		-		-		0.1		-		-		-		-		-		-		0.1
Programme-wide liquidity facilities	-		34.8		-		-		-		-		-		-		-		-		34.8
Programme-wide limited credit enhancements	-		1.2		0.6		-		-		-		-		-		-		-		1.8
Other liquidity and credit enhancements	-		-		-		-		-		-		-		-		0.1		-		0.1

			Securities						Non-money market funds
	SIVs		investment      conduits1		Multi-seller     conduits		Enhanced     VNAV funds		Specialist     funds		Local      funds2,6		Securit-     isations3		Other		Total
	US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
At 31 December 2007
Total assets	40.7		21.6		15.8		5.7		1.0		3.1		74.7		0.1		162.7
Direct lending4	-		-		-		-		-		-		3.6		-		3.6
ABSs4	32.1		21.0		-		-		-		-		-		-		53.1
Other	8.6		0.6		15.8		5.7		1.0		3.1		71.1		0.1		106.0
Funding provided by HSBC	15.9		7.8		8.6		4.6		0.4		2.8		1.0		-		41.1
CP	2.4		7.8		8.6		-		-		-		-		-		18.8
MTNs	5.3		-		-		-		-		-		0.3		-		5.6
Junior notes	-		-		-		-		-		-		0.7		-		0.7
Term repos executed	8.2		-		-		-		-		-		-		-		8.2
Investments in funds	-		-		-		4.6		0.4		2.8		-		-		7.8
Total maximum exposure to consolidated SPEs	40.0		25.7		21.2		4.6		0.4		2.8		30.6		0.1		125.4
Liquidity and credit enhancements
Deal-specific liquidity facilities	-		-		21.2		-		-		-		-		-		21.2
Programme-wide liquidity facilities	0.8		25.7		-		-		-		-		-		-		26.5
Programme-wide limited credit enhancements	-		0.2		0.7		-		-		-		-		-		0.9
Other liquidity and credit enhancements	-		-		-		-		-		-		0.2		-		0.2

1    The securities investment conduits include Mazarin, Barion, Malachite and Solitaire.

2    Local investment management funds.

3    Also includes consolidated SPEs that hold mortgage loans held at fair value.

4    These assets only include those measured at fair value. For details on the geographical origin of the mortgage loans held at fair value and ABSs, including those represented by MBSs and CDOs held in consolidated SIVs and securities investment conduits, see 'Nature and extent of HSBC's exposures' on page 150. The geographical origin of the loans and receivables held by the multi-seller conduits is disclosed on page 177.

5    The carrying amount of HSBC's holding of capital notes in the securities investment conduits amounted to US$1.9 million (2007: n/a) with a par value of US$52 million (2007: n/a). 

6    Total assets for 2007 have been restated as a result of reclassifying assets amounting to US$17 billion from VNAV to local funds.

HSBC's maximum exposure to unconsolidated SPEs

	Securitisations1				Money market funds1						Non-money market funds1
	HSBC    originated      assets		Non-HSBC    originated      assets2		CNAV     funds		Enhanced    VNAV     funds		VNAV4     funds		Specialist     funds		Local     funds3,4		Multi-    manager     funds		Other		Total
	US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
At 31 December 2008
Total assets	0.6		13.5		28.2		2.0		26.6		82.5		93.1		21.0		20.9		288.4
Funding provided by HSBC	-		0.2		-		-		0.3		-		1.0		-		8.3		9.8
MTNs	-		0.2		-		-		-		-		-		-		8.3		8.5
Investments in funds	-		-		-		-		0.3		-		1.0		-		-		1.3
											-
Total maximum exposure to unconsolidated SPEs	-		0.2		-		-		0.3		-		1.0		-		4.1		5.6
At 31 December 2007
Total assets	0.9		16.0		56.8		6.2		22.6		131.0		123.3		30.4		23.5		410.7
Funding provided by HSBC	-		0.4		1.3		1.3		0.3		0.1		2.6		0.1		7.2		13.3
MTNs	-		0.3		-		-		-		-		-		-		7.2		7.5
Mezzanine notes	-		0.1		-		-		-		-		-		-		-		0.1
Investments in funds	-		-		1.3		1.3		0.3		0.1		2.6		0.1		-		5.7
Total maximum exposure to unconsolidated SPEs	-		0.4		1.3		1.3		0.3		0.1		2.6		0.1		4.5		10.6

1    HSBC's financial investments in off-balance sheet money market funds and non-money market funds have been classified as available-for-sale securities, and measured at fair value. HSBC's financial investments in off-balance sheet securitisations have been classified as trading assets and available-for-sale securities, and measured at fair value.

2    In the US, HSBC has established securitisation programmes where term-funded SPEs are used to securitise third-party originated mortgages, mainly sub-prime and Alt-A residential mortgages. The majority of these SPEs are not consolidated by HSBC as it is not exposed to the majority of the risk and rewards of ownership in the SPEs. No liquidity facility has been provided by HSBC.

3    Local investment management funds.

4    Total assets for 2007 have been restated as a result of reclassifying assets amounting to US$17 billion from VNAV funds to local funds.

Third-party sponsored SPEs

Through standby liquidity facility commitments, HSBC has exposure to third-party sponsored SIVs, conduits and securitisations under normal banking arrangements on standard market terms. These exposures are quantified below.

HSBC's commitments under liquidity facilities to third-party SIVs, conduits and securitisations

	Commit-    ments		Drawn
	US$bn		US$bn
At 31 December 2008
Third-party SIVs	-		-
Third-party conduits	1.1		0.1
Third-party securitisations	0.6		0.1
	1.7		0.2
At 31 December 2007
Third-party SIVs	0.3		-
Third-party conduits	4.4		0.4
Third-party securitisations	0.5		-
	5.2		0.4

Other exposures to third-party SIVs, conduits and securitisations where a liquidity facility has been provided

	At     31 December
	2008		2007
	US$bn		US$bn
Derivative assets	-		0.2

Other off-balance sheet arrangements and commitments

Financial guarantees, letters of credit and similar undertakings

Note 40 on the Financial Statements describes various types of guarantees and discloses the maximum potential future payments under such arrangements. Credit risk associated with all forms of guarantees is assessed in the same manner as for on-balance sheet credit advances and, where necessary, provisions for assessed impairment are included in 'Other provisions'.

Commitments to lend

Undrawn credit lines are disclosed in Note 40 on the Financial Statements. The majority by value of undrawn credit lines arise from 'open to buy' lines on personal credit cards, advised overdraft limits and other pre-approved loan products, and mortgage offers awaiting customer acceptance. HSBC generally has the right to change or terminate any conditions of a personal customer's overdraft, credit card or other credit line upon notification to the customer. In respect of corporate commitments to lend, in most cases HSBC's position will be protected through restrictions on access to funding in the event of material adverse change.

Leveraged finance transactions

Loan commitments in respect of leveraged finance transactions are accounted for as derivatives where it is HSBC's intention to sell the loan after origination. Further information is provided on page 160.

 

END

 

 

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