Interim Report - 18 of 28 | RNS | Ticker

Interim Report - 18 of 28

RNS Announcement

RNS Number : 2047P

HSBC Holdings PLC

15 August 2014

Securitisation exposures and other structured products

This section contains information about our exposure to asset-backed securities ('ABS's), including mortgage-backed securities ('MBS's) and related collateralised debt obligations ('CDO's) and direct

lending at fair value through profit or loss summarised in the table below:

A summary of the nature of HSBC's exposures is provided on page 274 of the Annual Report and Accounts 2013.

Overall exposure of HSBC

	Carrying amount²⁸ at
	30 June 2014	30 June 2013	31 December 2013
	US$bn	US$bn	US$bn

Asset-backed securities ...............................................................................	46.6	54.6	50.1
- fair value through profit or loss .............................................................	3.1	3.1	3.1
- available for sale²⁹ .................................................................................	39.6	46.4	42.7
- held to maturity²⁹ ..................................................................................	1.0	1.3	1.1
- loans and receivables ..............................................................................	2.9	3.8	3.2

Direct lending at fair value through profit or loss .......................................	-	0.2	0.1

Total ABSs and direct lending at fair value through profit or loss ...............	46.6	54.8	50.2

For footnotes, see page 172.

Within the above table are assets held in the GB&M legacy credit portfolio with a carrying value of US$26.9bn (30 June 2013: US$29.2bn; 31 December 2013: US$28.0bn).

ABSs classified as available for sale

Our principal holdings of available-for-sale ABSs are held in GB&M structured entities ('SE's) established from the outset with the benefit of external investor first loss protection support, and positions held directly and by Solitaire Funding Ltd ('Solitaire'), where we provide first loss risk protection of US$1.2bn through a liquidity facility.

Movement in the available-for-sale reserve

	Half-year to 30 June 2014			Half-year to 30 June 2013			Half-year to 31 December 2013
	Directly held/ Solitaire³⁰	SEs	Total	Directly held/ Solitaire³⁰	SEs	Total	Directly held/ Solitaire³⁰	SEs	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m
Available-for-sale reserve at beginning of period ........	(1,514)	(129)	(1,643)	(1,473)	(720)	(2,193)	(1,586)	(362)	(1,948)
Increase/(decrease) in fair value of securities ..........	593	96	689	(215)	374	159	(227)	225	(2)
Effect of impairments³¹ ....	13	-	13	124	8	132	(23)	53	30
Repayment of capital ........	34	116	150	(35)	55	20	73	30	103
Other movements .............	(106)	(54)	(160)	13	(79)	(66)	249	(75)	174

Available-for-sale reserve at end of period .................	(980)	29	(951)	(1,586)	(362)	(1,948)	(1,514)	(129)	(1,643)

For footnotes, see page 172.

The table below summarises the carrying amount of our ABS exposure by categories of collateral and details where the risk of our ABS
exposure is mitigated through credit derivatives with monoline insurance companies and other financial institutions.

Carrying amount of HSBC's consolidated holdings of ABSs, and direct lending held at fair value through profit or loss

	Trading	Available for sale	Held to maturity	Designated at fair value through profit or loss	Loans and receivables	Total	Of which held through consolidated SEs	Gross principal exposure³²	Credit default swap protection³³	Net principal exposure³⁴
	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m

At 30 June 2014
Mortgage-related assets:
Sub-prime residential .............................	150	3,231	-	-	394	3,775	3,041	4,495	107	4,388
- direct lending ....................................	23	-	-	-	-	23	-	62	-	62
- MBSs and MBS CDOs ........................	127	3,231	-	-	394	3,752	3,041	4,433	107	4,326

US Alt-A residential ..............................	96	3,214	18	-	128	3,456	2,738	4,881	97	4,784
- direct lending ....................................	1	-	-	-	-	1	-	-	-	-
- MBSs ................................................	95	3,214	18	-	128	3,455	2,738	4,881	97	4,784

US Government agency and sponsored enterprises:
MBSs ................................................	136	16,739	1,004	-	-	17,879	-	16,411	-	16,411

Other residential ...................................	266	1,737	-	-	362	2,365	1,336	2,458	49	2,409
- direct lending ....................................	-	-	-	-	-	-	-	-	-	-
- MBSs ................................................	266	1,737	-	-	362	2,365	1,336	2,458	49	2,409

Commercial property
MBSs and MBS CDOs ........................	469	4,942	-	-	593	6,004	4,472	6,417	-	6,417
	1,117	29,863	1,022	-	1,477	33,479	11,587	34,662	253	34,409

Leveraged finance-related assets:
ABSs and ABS CDOs .............................	298	4,836	-	-	242	5,376	4,209	5,601	357	5,244
Student loan-related assets:
ABSs and ABS CDOs .............................	227	3,654	-	-	123	4,004	3,546	4,629	200	4,429
Other assets:
ABSs and ABS CDOs .............................	1,375	1,245	-	22	1,051	3,693	995	4,030	812	3,218

	3,017	39,598	1,022	22	2,893	46,552	20,337	48,922	1,622	47,300

	Trading	Available for sale	Held to maturity	Designated at fair value through profit or loss	Loans and receivables	Total	Of which held through consolidated SEs	Gross principal exposure³²	Credit default swap protection³³	Net principal exposure³⁴
	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m

At 30 June 2013
Mortgage-related assets:
Sub-prime residential .............................	195	2,607	-	-	419	3,221	2,380	4,318	121	4,197
- direct lending ....................................	54	-	-	-	-	54	-	127	-	127
- MBSs and MBS CDOs ........................	141	2,607	-	-	419	3,167	2,380	4,191	121	4,070

US Alt-A residential ..............................	104	3,641	30	-	127	3,902	2,996	6,208	100	6,108
- direct lending ....................................	11	-	-	-	-	11	-	17	-	17
- MBSs ................................................	93	3,641	30	-	127	3,891	2,996	6,191	100	6,091

US Government agency and sponsored enterprises:
MBSs ................................................	196	21,814	1,257	-	-	23,267	-	22,663	-	22,663

Other residential ...................................	579	1,877	-	-	449	2,905	1,324	3,727	62	3,665
- direct lending ....................................	166	-	-	-	-	166	-	166	-	166
- MBSs ................................................	413	1,877	-	-	449	2,739	1,324	3,561	62	3,499

Commercial property
MBSs and MBS CDOs ........................	197	6,082	-	105	1,155	7,539	5,270	8,260	-	8,260
	1,271	36,021	1,287	105	2,150	40,834	11,970	45,176	283	44,893

Leveraged finance-related assets:
ABSs and ABS CDOs .............................	279	4,980	-	-	239	5,498	4,164	5,845	374	5,471
Student loan-related assets:
ABSs and ABS CDOs .............................	205	4,003	-	-	120	4,328	3,662	5,286	199	5,087
Other assets:
ABSs and ABS CDOs .............................	1,398	1,395	-	63	1,279	4,135	1,016	5,352	1,143	4,209

	3,153	46,399	1,287	168	3,788	54,795	20,812	61,659	1,999	59,660

Carrying amount of HSBC's consolidated holdings of ABSs, and direct lending held at fair value through profit or loss (continued)

	Trading	Available for sale	Held to maturity	Designated at fair value through profit or loss	Loans and receivables	Total	Of which held through consolidated SEs	Gross principal exposure³²	Credit default swap protection³³	Net principal exposure³⁴
	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m

At 31 December 2013
Mortgage-related assets:
Sub-prime residential .............................	178	2,977	-	-	403	3,558	2,782	4,504	112	4,392
- direct lending ....................................	46	-	-	-	-	46	-	106	-	106
- MBSs and MBS CDOs ........................	132	2,977	-	-	403	3,512	2,782	4,398	112	4,286

US Alt-A residential ..............................	101	3,538	18	-	134	3,791	2,926	5,692	100	5,592
- direct lending ....................................	10	-	-	-	-	10	-	14	-	14
- MBSs ................................................	91	3,538	18	-	134	3,781	2,926	5,678	100	5,578

US Government agency and sponsored enterprises:
MBSs ................................................	178	18,661	1,110	-	-	19,949	-	19,812	-	19,812

Other residential ...................................	618	1,925	-	-	399	2,942	1,513	3,981	53	3,928
- direct lending ....................................	-	-	-	-	-	-	-	-	-	-
- MBSs ................................................	618	1,925	-	-	399	2,942	1,513	3,981	53	3,928

Commercial property
MBSs and MBS CDOs ........................	133	5,667	-	104	669	6,573	5,146	7,188	-	7,188

	1,208	32,768	1,128	104	1,605	36,813	12,367	41,177	265	40,912
Leveraged finance-related assets:
ABSs and ABS CDOs .............................	294	5,011	-	-	251	5,556	4,310	5,841	365	5,476
Student loan-related assets:
ABSs and ABS CDOs .............................	196	3,705	-	-	121	4,022	3,495	4,897	199	4,698
Other assets:
ABSs and ABS CDOs .............................	1,271	1,265	-	34	1,186	3,756	989	4,805	1,010	3,795

	2,969	42,749	1,128	138	3,163	50,147	21,161	56,720	1,839	54,881

For footnotes, see page 172.

The above table excludes leveraged finance transactions.

Representations and warranties related to mortgage sales and securitisation activities

We have been involved in various activities related to the sale and securitisation of residential mortgages, that are not recognised on our balance sheet. These activities include:

· the purchase of US$24bn of third-party originated mortgages by HSBC Bank USA and the securitisation of these by HSBC Securities (USA) Inc. ('HSI') between 2005 and 2007;

· HSI acting as underwriter for third-party issuance of private label MBSs with an original issuance value of US$37bn, most of which were sub-prime; and

· the origination and sale by HSBC Bank USA of mortgage loans, primarily to government sponsored entities.

In selling and securitising mortgage loans, various representations and warranties may be made to purchasers of the mortgage loans and MBSs. When purchasing and securitising mortgages originated by third-parties and underwriting third-party MBSs, the obligation to repurchase loans in the event of a breach of loan level representations and warranties resides predominantly with the organisation that originated the loan.

Participants in the US mortgage securitisation market that purchased and repackaged whole loans, such as servicers, originators, underwriters, trustees or sponsors of securitisations have been the subject of lawsuits and governmental and regulatory investigations and inquiries. Further details are provided in Note 25 on the Financial Statements.

At 30 June 2014, a liability of US$34m (30 June 2013: US$217m; 31 December 2013: US$99m) was recognised in respect of various representations and warranties relating to the origination and sale by HSBC Bank USA of mortgage loans, primarily to government sponsored entities. These relate to, among other things, the ownership of the loans, the validity of the liens, the loan selection and origination process, and compliance with the origination criteria established by the agencies. In the event of a breach of its representations and warranties, HSBC Bank USA may be obliged to repurchase the loans with identified defects or to indemnify the buyers. The estimated liability was based on the level of outstanding repurchase demands, the level of outstanding requests for loan files and the expected future repurchase demands in respect of mortgages sold to date which were either two or more payments delinquent or might become delinquent at an estimated conversion rate. Repurchase demands of US$3m were outstanding at 30 June 2014 (30 June 2013: US$53m; 31 December 2013: US$44m).

This information is provided by RNS

The company news service from the London Stock Exchange

END

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RNS metadata

Title: Interim Report - 18 of 28
Time: 17:32:06
Date: 15 Aug 2014
Category: Results
ID: 2047P