HBC » Topics » Quantitative factors

This excerpt taken from the HBC 20-F filed Mar 10, 2009.
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


 

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Report of the Directors: Impact of Market Turmoil (continued)
 
   
SPEs > SIVs and conduits

 

arrangements or capital structure of the SPE change. The most significant categories of SPEs are discussed in more detail below.

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