Guarantee Arrangements and Pledged Assets (Tables)

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Carrying Value and Contractual Amounts of our Sell Protection Credit Derivatives and Major Off-Balance Sheet Guarantee Arrangements

The following table presents total carrying value and contractual amounts of our sell protection credit derivatives and major off-balance sheet guarantee arrangements as of March 31, 2013 and December 31, 2012. Following the table is a description of the various arrangements.



	March 31, 2013					December 31, 2012
	Carrying Value			Notional/Maximum Exposure to Loss		Carrying Value			Notional/Maximum Exposure to Loss
	(in millions)
Credit derivatives⁽¹⁾⁽⁴⁾	$	(621	)	$	229,166	$	(76	)	$	237,548
Financial standby letters of credit, net of participations⁽²⁾⁽³⁾	—			5,405		—			5,554
Performance (non-financial) guarantees⁽³⁾	—			2,747		—			2,878
Liquidity asset purchase agreements⁽³⁾	—			2,454		—			2,212
Total	$	(621	)	$	239,772	$	(76	)	$	248,192


⁽¹⁾	Includes $42.4 billion and $44.2 billion of notional issued for the benefit of HSBC affiliates at March 31, 2013 and December 31, 2012, respectively.


⁽²⁾	Includes $840 million and $808 million issued for the benefit of HSBC affiliates at March 31, 2013 and December 31, 2012, respectively.


⁽³⁾	For standby letters of credit and liquidity asset purchase agreements, maximum loss represents losses to be recognized assuming the letter of credit and liquidity facilities have been fully drawn and the obligors have defaulted with zero recovery.


⁽⁴⁾	For credit derivatives, the maximum loss is represented by the notional amounts without consideration of mitigating effects from collateral or recourse arrangements.

Net Credit Derivative Positions

The following table summarizes our net credit derivative positions as of March 31, 2013 and December 31, 2012.



	March 31, 2013						December 31, 2012
	Carrying (Fair) Value			Notional			Carrying (Fair) Value			Notional
	(in millions)
Sell-protection credit derivative positions	$	(621	)	$	229,166		$	(76	)	$	237,548
Buy-protection credit derivative positions	777			234,311			120			247,384
Net position⁽¹⁾	$	156		$	(5,145	)	$	44		$	(9,836	)

⁽¹⁾

Positions are presented net in the table above to provide a complete analysis of our risk exposure and depict the way we manage our credit derivative portfolio. The offset of the sell-protection credit derivatives against the buy-protection credit derivatives may not be legally binding in the absence of master netting agreements with the same counterparty. Furthermore, the credit loss triggering events for individual sell protection credit derivatives may not be the same or occur in the same period as those of the buy protection credit derivatives thereby not providing an exact offset.

Summary of Credit Ratings of Credit Risk Related Guarantees

Below is a summary of the credit ratings of credit risk related guarantees including the credit ratings of counterparties against which we sold credit protection and financial standby letters of credit as of March 31, 2013 as an indicative proxy of payment risk:



	Average Life (in years)	Credit Ratings of the Obligors or the Transactions
Notional/Contractual Amounts	Average Life (in years)	Investment Grade		Non-Investment Grade		Total
	(dollars are in millions)
Sell-protection Credit Derivatives⁽¹⁾
Single name CDS	2.4	$	128,824	$	27,325	$	156,149
Structured CDS	1.7	30,714		3,324		34,038
Index credit derivatives	3.3	25,166		58		25,224
Total return swaps	7.3	11,710		2,045		13,755
Subtotal		196,414		32,752		229,166
Standby Letters of Credit⁽²⁾	1.3	6,694		1,458		8,152
Total		$	203,108	$	34,210	$	237,318


⁽¹⁾	The credit ratings in the table represent external credit ratings for classification as investment grade and non-investment grade.


⁽²⁾	External ratings for most of the obligors are not available. Presented above are the internal credit ratings which are developed using similar methodologies and rating scale equivalent to external credit ratings for purposes of classification as investment grade and non-investment grade.

Trend in Repurchase Demands Received on Loans Sold to GSEs and Other Third Parties by Loan Origination Vintage

The following table shows the trend in repurchase demands received on loans sold to GSEs and other third parties by loan origination vintage for the three months ended March 31, 2013 and 2012:



Three Months Ended March 31,	2013		2012
	(in millions)
Pre- 2004	$	2	$	2
2004	9		4
2005	4		4
2006	15		16
2007	37		45
2008	23		27
Post 2008	5		4
Total repurchase demands received⁽¹⁾	$	95	$	102


⁽¹⁾	Includes repurchase demands on loans sourced from our legacy broker channel of $77 million and $84 million at March 31, 2013 and 2012, respectively.

Outstanding Repurchase Demands Received From GSEs and Other Third Parties

The following table provides information about outstanding repurchase demands received from GSEs and other third parties at March 31, 2013 and December 31, 2012:



	March 31, 2013		December 31, 2012
	(in millions)
GSEs	$	74	$	86
Others	4		3
Total⁽¹⁾	$	78	$	89


⁽¹⁾	Includes repurchase demands on loans sourced from our legacy broker channel of $64 million and $65 million at March 31, 2013 and December 31, 2012, respectively.

Summary of Change in Estimated Repurchase Liability for Loans Sold to GSEs and Other Third Parties

The following table summarizes the change in our estimated repurchase liability for loans sold to the GSEs and other third parties during the three months ended March 31, 2013 and December 31, 2012 for obligations arising from the breach of representations and warranties associated with the sale of these loans:



Three Months Ended March 31,	2013			2012
	(in millions)
Balance at beginning of period	$	219		$	237
Increase in liability recorded through earnings	13			21
Realized losses	(21		)	(35		)
Balance at end of period	$	211		$	223

Summary of Pledged Assets Included in Consolidated Balance Sheet

The following table presents pledged assets included in the consolidated balance sheet.



	March 31, 2013		December 31, 2012
	(in millions)
Interest bearing deposits with banks	$	462	$	673
Trading assets⁽¹⁾	2,616		2,346
Securities available-for-sale⁽²⁾	18,323		17,236
Securities held-to-maturity	432		456
Loans⁽³⁾	1,935		2,142
Other assets⁽⁴⁾	2,244		2,265
Total	$	26,012	$	25,118


⁽¹⁾	Trading assets are primarily pledged against liabilities associated with repurchase agreements.


⁽²⁾	Securities available-for-sale are primarily pledged against derivatives, public fund deposits and various short-term and long term borrowings, as well as providing capacity for potential secured borrowings from the Federal Home Loan Bank and the Federal Reserve Bank.


⁽³⁾	Loans are primarily residential mortgage loans pledged against long-term borrowings from the Federal Home Loan Bank.


⁽⁴⁾	Other assets represent cash on deposit with non-banks related to derivative collateral support agreements.

- Definition

Tabular disclosure of each guarantee obligation, or each group of similar guarantee obligations, including (a) the nature of the guarantee, including its term, how it arose, and the events or circumstances that would require the guarantor to perform under the guarantee; (b) the maximum potential amount of future payments (undiscounted) the guarantor could be required to make under the guarantee; (c) the current carrying amount of the liability, if any, for the guarantor's obligations under the guarantee; and (d) the nature of any recourse provisions under the guarantee, and any assets held either as collateral or by third parties, and any relevant related party disclosure. Excludes disclosures about product warranties.

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