HSBC Holdings Regulatory News (HSBA)

5 Mar 2007 08:25

HSBC Holdings PLC05 March 2007 Cross-border claims Cross-border claims include receivables, loans and advances, balances due frombanks, holdings of certificates of deposit, bills, promissory notes, commercialpaper and other negotiable debt instruments, as well as accrued interest andoverdue interest on these assets. Claims are classified according to thelocation of the counterparties after taking into account the transfer of risk.For a claim guaranteed by a party situated in a country different from thecounterparty, the risk will be transferred to the country of the guarantor. Fora claim on the branch of a bank or other financial institution, the risk will betransferred to the country where its head office is situated. Claims onindividual countries or areas, after risk transfer, amounting to 10 per cent ormore of the aggregate cross-border claims are shown as follows: Banks Sovereign & other & public financial sectorFigures in HK$m institutions entities Other Total At 31Dec06 Asia-Pacific excluding Hong Kong:- Australia 33,724 - 1,355 35,079- other 49,686 1,247 9,677 60,610 83,410 1,247 11,032 95,689The Americas:- United States 25,998 1,451 9,114 36,563- other 18,800 3,482 6,837 29,119 44,798 4,933 15,951 65,682Western Europe:- United Kingdom 38,203 - 9,619 47,822- other 101,805 590 4,165 106,560 140,008 590 13,784 154,382 At 31Dec05 Asia-Pacific excluding Hong Kong:- Australia 23,961 144 712 24,817- other 38,140 1,447 6,882 46,469 62,101 1,591 7,594 71,286The Americas:- United States 13,163 1,709 6,575 21,447- other 16,248 4,727 5,814 26,789 29,411 6,436 12,389 48,236Western Europe:- United Kingdom 23,008 - 7,842 30,850- other 81,089 1,430 6,207 88,726 104,097 1,430 14,049 119,576 Additional information 1. Statutory accounts and accounting policies The information in this news release does not constitute statutory accounts. Certain financial information in this news release is extracted from thestatutory accounts for the year ended 31 December 2006 ('2006 accounts'), whichwill be delivered to the Registrar of Companies and the HKMA. The statutoryaccounts comply with the module on 'Financial Disclosure by Locally IncorporatedAuthorised Institutions' under the Supervisory Policy Manual issued by the HKMA.The auditors expressed an unqualified opinion on those statutory accounts intheir report dated 5 March 2007. The 2006 accounts and this news release have been prepared on a basis consistentwith the accounting policies adopted in the 2005 accounts except for thefollowing: Change in presentation - Hong Kong Accounting Standard 1 'Presentation ofFinancial Statements' With effect from 2006 reporting, interest income and expense from tradingfinancial assets and liabilities and financial instruments designated at fairvalue are reported under 'Net interest income' instead of 'Net trading income'and 'Net income from financial instruments designated at fair value'respectively as in the previous year. The change has been made principally tomatch the interest expense arising from trading liabilities with the interestincome from non-trading assets. This also facilitates the comparison of thegroup's net interest income and net interest margin with peer banks in Hong Kong. Comparative figures have been reclassified to conform with the current year'spresentation as follows: 2005 2005 (as previously Effect of (asFigures in HK$m reported) change^ restated) Interest income 19,029 684 19,713Interest expense (7,961) (956) (8,917)Net interest income 11,068 (272) 10,796 Net trading income 579 306 885 Net income/(expense) from financial instruments designated at fair value 2 (34) (32) ^ Increase/(decrease) in the profit for the year. For HSBC Group reporting, interest income and interest expense arising fromfinancial assets and financial liabilities held for trading are reported as 'Nettrading income' and arising from financial instruments designated at fair valuethrough profit and loss as 'Net income from financial instruments designated atfair value' (other than for debt securities in issue and subordinatedliabilities, together with the derivatives managed in conjunction with them). Amendments to Hong Kong Accounting Standard 39 ('HKAS 39') and Hong KongFinancial Reporting Standard 4 'Financial Instruments: Recognition andMeasurement and Insurance Contracts - Financial Guarantee Contracts' In prior years, financial guarantee contracts were accounted for under HKAS 37'Provisions, Contingent Liabilities and Contingent Assets' as contingentliabilities and were disclosed as off-balance sheet items. With effect from 1 January 2006 and in accordance with the above amendments,financial guarantee contracts issued are recognised as financial liabilities andreported under 'Other liabilities'. Financial guarantees are recognisedinitially at fair value and subsequently measured as the higher of (a) theamount as provisions determined in accordance with HKAS 37; and (b) the amountinitially recognised less cumulative amortisation. Financial liabilities recorded under 'Other liabilities' at 31 December 2006amounted to HK$4 million. No restatement of comparative figures was made as theamounts were immaterial. Hong Kong Financial Reporting Standard 7 ('HKFRS 7') 'Financial Instruments:Disclosures' The group has adopted HKFRS 7 prior to its required application date of 1January 2007. The adoption of HKFRS 7 impacted the type and amount ofdisclosures made in the financial statements, but had no impact on the reportedprofits or financial position of the group. In accordance with the transitionalrequirements of HKFRS 7, the group has provided full comparative information. 2. Comparative figures Certain comparative figures have been reclassified to conform with the currentyear's presentation. 3. Property revaluation On 30 September 2006, the group's premises and investment properties wererevalued by DTZ Debenham Tie Leung Limited who confirmed that there had been nomaterial change in valuation as at 31 December 2006. The valuation was carriedout by qualified persons who are members of the Hong Kong Institute ofSurveyors. The basis of the valuation of premises was open market value forexisting use and the basis of valuation for investment properties was openmarket value. The revaluation surplus for group premises amounted to HK$646million of which HK$17 million was a reversal of revaluation deficits previouslycharged to the income statement. The balance of HK$629 million was credited tothe premises revaluation reserve. Revaluation gains on investment properties ofHK$304 million were recognised through the income statement. The relateddeferred tax provisions for group premises and investment properties were HK$113million and HK$53 million respectively. 4. Market risk Market risk is the risk that foreign exchange rates, interest rates or equityand commodity prices will move and result in profits or losses for the group.The group's market risk arises from customer-related business and from positiontaking. Market risk is managed within risk limits approved by the Board of Directors.Risk limits are set by product and risk type with market liquidity being aprincipal factor in determining the level of limits set. Limits are set using acombination of risk measurement techniques, including position limits,sensitivity limits, as well as value at risk ('VAR') limits at a portfoliolevel. The group adopts the risk management policies and risk measurement techniquesdeveloped by the HSBC Group. The daily risk monitoring process measures actualrisk exposures against approved limits and triggers specific action to ensurethe overall market risk is managed within an acceptable level. VAR is a technique which estimates the potential losses that could occur on riskpositions taken due to movements in market rates and prices over a specifiedtime horizon and to a given level of confidence. In line with the HSBC Group,Hang Seng has changed its VAR calculation from a variance/co-variance ('VCV')basis to historical simulation ('HS') basis with effect from 3 May 2005. HS usesscenarios derived from historical market rates and takes account of therelationships between different markets and rates, for example, interest ratesand foreign exchange rates. Movements in market prices are calculated byreference to market data from the last two years. The assumed holding period isa one-day period with a 99 per cent level of confidence, reflecting the way therisk positions are managed. Aggregation of VAR from different risk types isbased upon the assumption of independence between risk types. In recognition ofthe inherent limitations of VAR methodology, stress testing is performed toassess the impact of extreme events on market risk exposures. The group has obtained approval from the HKMA to use HS for calculating marketrisk in capital adequacy reporting. The group's VAR for all interest rate risk and foreign exchange risk positionsand on individual risk portfolios during 2006 and 2005 are shown in the tablesbelow. The VAR figures for 2005 are based on four months' VCV and eight months'HS. VAR Minimum Maximum Average during during for the the theFigures in HK$m At 31Dec06 year year year VAR for all interest rate riskand foreign exchange risk 42 29 119 64VAR for foreign exchange risk (trading) 2 1 16 5VAR for interest rate risk- trading 4 3 16 8- non-trading 45 35 123 68 Minimum Maximum Average during during for the the theFigures in HK$m At 31Dec05 year year year VAR for all interest rate risk and foreign exchange risk 113 111 264 181VAR for foreign exchange risk (trading) 3 _ 6 2VAR for interest rate risk- trading 3 1 21 4- non-trading 118 117 260 180 The average daily revenue earned from market risk-related treasury activities in2006, including non-trading book net interest income and funding related totrading positions, was HK$5 million (HK$5 million for 2005). The standarddeviation of these daily revenues was HK$3 million (HK$8 million for 2005). Interest rate risk arises in both the treasury trading and non-tradingportfolios, which are managed by treasury under limits approved by the Board ofDirectors. The average daily revenue earned from treasury-related interest rateactivities for 2006 was HK$2 million (HK$3 million for 2005). The group's foreign exchange exposures mainly comprise foreign exchange tradingby treasury and currency exposures originated by its banking business. Thelatter are transferred to treasury where they are centrally managed withinforeign exchange position limits approved by the Board of Directors. The averageone-day foreign exchange profit for 2006 was HK$3 million (HK$2 million for2005). Structural foreign exchange positions arising from capital investment insubsidiaries and branches outside Hong Kong, mainly in US dollar and renminbi ('RMB') as set out in Note 5, are managed by the Asset and Liability Management Committee. 5. Foreign currency positions Foreign currency exposures include those arising from trading, non-trading andstructural positions. At 31 December 2006, the US dollar (US$) was the onlycurrency in which the group had a non-structural foreign currency position thatexceeded 10 per cent of the total net position in all foreign currencies. Figures in HK$m At 31Dec06 At 31Dec05 US$ RMB US$ RMBNon-structural positionSpot assets 205,544 14,422 193,149 5,955Spot liabilities (189,232) (12,670) (168,513) (6,008)Forward purchases 128,102 353 84,026 439Forward sales (141,544) (1,904) (104,960) (300)Net options position 120 _ (77) _Net long non-structural position 2,990 201 3,625 86 At 31 December 2006, the group's major structural foreign currency positionswere US dollar and RMB. At 31Dec06 At 31Dec05 (restated) % of % of total net total net structural structural HK$m position HK$m positionStructural positionsUS dollar 1,430 26.8 1,035 28.9RMB 3,760 70.5 2,439 68.1 6. Non-adjusting post balance sheet event On 5 February 2007, Industrial Bank Co., Ltd. ('Industrial Bank'), an associateof the bank, issued 1,001 million new shares for a total consideration ofRMB15,996 million. The bank did not subscribe for any additional shares and,as a result, its interest in the equity of Industrial Bank decreased from 15.98per cent to 12.78 per cent. While the bank's interest has reduced, the assets ofIndustrial Bank have substantially increased as a result of this issue.Consequently, it is expected that this transaction would result in an increaseof about RMB1.5 billion in the group's share of the underlying net assets of Industrial Bank. The decrease of the bank's interest in the equity of Industrial Bank does notaffect the influence that the bank has over this associate, as there has been nochange in the composition of major shareholders in Industrial Bank or in thebank's representation in the Industrial Bank's Board of Directors or ExecutiveCommittee. The bank will continue to have the power to participate in thefinancial and operating policy decisions of Industrial Bank, and its investmentwill continue to be accounted for using the equity method. 7. Ultimate holding company Hang Seng Bank is an indirectly held, 62.14 per cent-owned subsidiary of HSBCHoldings plc. 8. Register of shareholders The register of shareholders of Hang Seng Bank will be closed on Tuesday, 20March 2007, during which no transfer of shares can be registered. In order toqualify for the fourth interim dividend, all transfers, accompanied by therelevant share certificates, must be lodged with the bank's registrars,Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor,Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, for registration nolater than 4:30 pm on Monday, 19 March 2007. The fourth interim dividend will bepayable on 30 March 2007 to shareholders on the register of shareholders of thebank on 20 March 2007. 9. Proposed timetable for 2007 quarterly dividends First Second Third Fourth interim interim interim interim dividend dividend dividend dividend Announcement 3 May 2007 30 July 2007 5 November 2007 3 March 2008Book close date 22 May 2007 21 August 2007 27 November 2007 18 March 2008Payment date 5 June 2007 30 August 2007 11 December 2007 28 March 2008 10. News release Copies of this news release may be obtained from Legal and Company SecretarialServices Department, Level 10, 83 Des Voeux Road Central, Hong Kong; or fromHang Seng's website http://www.hangseng.com. The 2006 Annual Report and Accounts are available from the same website onMonday, 5 March 2007 and will also be published on the website of The StockExchange of Hong Kong Limited in due course. Printed copies of the 2006 AnnualReport will be sent to shareholders by early-April 2007. This information is provided by RNS The company news service from the London Stock Exchange