Guarantee Arrangements and Pledged Assets and Collateral (Tables)

9 Months Ended

Sep. 30, 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 September 30, 2013 and December 31, 2012. Following the table is a description of the various arrangements.



	September 30, 2013					December 31, 2012
	Carrying Value			Notional/Maximum Exposure to Loss		Carrying Value			Notional/Maximum Exposure to Loss
	(in millions)
Credit derivatives⁽¹⁾⁽⁴⁾	$	(331	)	$	198,020	$	(76	)	$	237,548
Financial standby letters of credit, net of participations⁽²⁾⁽³⁾	—			5,165		—			5,554
Performance (non-financial) guarantees⁽³⁾	—			3,119		—			2,878
Liquidity asset purchase agreements⁽³⁾	—			2,216		—			2,212
Total	$	(331	)	$	208,520	$	(76	)	$	248,192


⁽¹⁾	Includes $38.6 billion and $44.2 billion of notional issued for the benefit of HSBC affiliates at September 30, 2013 and December 31, 2012, respectively.


⁽²⁾	Includes $862 million and $808 million issued for the benefit of HSBC affiliates at September 30, 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 September 30, 2013 and December 31, 2012.



	September 30, 2013						December 31, 2012
	Carrying (Fair) Value			Notional			Carrying (Fair) Value			Notional
	(in millions)
Sell-protection credit derivative positions	$	(331	)	$	198,020		$	(76	)	$	237,548
Buy-protection credit derivative positions	366			204,971			120			247,384
Net position⁽¹⁾	$	35		$	(6,951	)	$	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

The following table summarizes 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 September 30, 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	$	116,525	$	22,946	$	139,471
Structured CDS	1.8	22,433		3,045		25,478
Index credit derivatives	3.2	21,197		666		21,863
Total return swaps	8.7	10,055		1,153		11,208
Subtotal		170,210		27,810		198,020
Standby Letters of Credit⁽²⁾	1.1	6,813		1,471		8,284
Total		$	177,023	$	29,281	$	206,304


⁽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 and nine months ended September 30, 2013 and 2012:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(in millions)
Pre- 2004	$	1	$	2	$	4	$	5
2004	4		5		15		16
2005	13		6		20		19
2006	12		20		38		65
2007	25		51		86		170
2008	13		28		48		106
Post 2008	2		4		12		15
Total repurchase demands received⁽¹⁾	$	70	$	116	$	223	$	396


⁽¹⁾	Includes repurchase demands on loans sourced from our legacy broker channel of $55 million and $98 million for the three months ended September 30, 2013 and 2012, respectively, and $175 million and $330 million for the nine months ended September 30, 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 September 30, 2013 and December 31, 2012:



	September 30, 2013		December 31, 2012
	(in millions)
GSEs	$	64	$	86
Others	3		3
Total⁽¹⁾	$	67	$	89


⁽¹⁾	Includes repurchase demands on loans sourced from our legacy broker channel of $55 million and $65 million at September 30, 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 and nine months ended September 30, 2013 and 2012 for obligations arising from the breach of representations and warranties associated with the sale of these loans:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(in millions)
Balance at beginning of period	$	217		$	222		$	219		$	237
Increase in liability recorded through earnings	—			28			36			81
Realized losses	(19		)	(34		)	(57		)	(102		)
Balance at end of period	$	198		$	216		$	198		$	216

Summary of Pledged Assets Included in Consolidated Balance Sheet

Pledged assets included in the consolidated balance sheet consisted of the following.



	September 30, 2013		December 31, 2012
	(in millions)
Interest bearing deposits with banks	$	535	$	673
Trading assets⁽¹⁾	3,434		2,346
Securities available-for-sale⁽²⁾	19,976		17,236
Securities held-to-maturity	587		456
Loans⁽³⁾	3,953		2,142
Other assets⁽⁴⁾	2,692		2,265
Total	$	31,177	$	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.

Offsetting Assets and Liabilities

The following table provides information about repurchase agreements and resell agreements that are subject to offset as of September 30, 2013 and December 31, 2012:



					Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet⁽¹⁾	Net Amounts Presented in the Balance Sheet	Financial Instruments ⁽²⁾	Cash Collateral Received / Pledged	Net Amount ⁽³⁾
	(in millions)
As of September 30, 2013:
Assets:
Securities purchased under agreements to resell	$	4,524	2,308	2,216	2,216	—	$	—
Liabilities:
Securities sold under repurchase agreements	$	14,831	2,308	12,523	12,523	—	$	—

As of December 31, 2012:
Assets:
Securities purchased under agreements to resell	$	5,736	2,587	3,149	3,146	—	$	3
Liabilities:
Securities sold under repurchase agreements	$	9,404	2,587	6,817	6,817	—	$	—


⁽¹⁾	Represents recognized amount of resale and repurchase agreements with counterparties subject to legally enforceable netting agreements that meet the applicable netting criteria as permitted by generally accepted accounting principles.


⁽²⁾	Represents securities received or pledged to cover financing transaction exposures.


⁽³⁾	Represents the amount of our exposure that is not collateralized / covered by pledged collateral.