Guarantee Arrangements and Pledged Assets and Collateral (Tables)

6 Months Ended

Jun. 30, 2014

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 June 30, 2014 and December 31, 2013. Following the table is a description of the various arrangements.



	June 30, 2014				December 31, 2013
	Carrying Value		Notional/Maximum Exposure to Loss		Carrying Value		Notional/Maximum Exposure to Loss
	(in millions)
Credit derivatives⁽¹⁾⁽⁴⁾	$	1,047	$	149,540	$	545	$	180,380
Financial standby letters of credit, net of participations⁽²⁾⁽³⁾	—		5,491		—		5,237
Performance (non-financial) guarantees⁽³⁾	—		2,904		—		3,172
Liquidity asset purchase agreements⁽³⁾	—		2,354		—		2,560
Total	$	1,047	$	160,289	$	545	$	191,349


⁽¹⁾	Includes $36,920 million and $34,856 million of notional issued for the benefit of HSBC affiliates at June 30, 2014 and December 31, 2013, respectively.


⁽²⁾	Includes $842 million and $865 million issued for the benefit of HSBC affiliates at June 30, 2014 and December 31, 2013, 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 June 30, 2014 and December 31, 2013:



	June 30, 2014						December 31, 2013
	Carrying (Fair) Value			Notional			Carrying (Fair) Value			Notional
	(in millions)
Sell-protection credit derivative positions	$	1,047		$	149,540		$	545		$	180,380
Buy-protection credit derivative positions	(1,056		)	153,494			(505		)	174,906
Net position⁽¹⁾	$	(9	)	$	(3,954	)	$	40		$	5,474

⁽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 June 30, 2014 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 credit default swaps ("CDS")	2.5	$	96,763	$	18,760	$	115,523
Structured CDS	2.1	11,139		1,565		12,704
Index credit derivatives	2.8	17,148		194		17,342
Total return swaps	3.3	3,553		418		3,971
Subtotal		128,603		20,937		149,540
Standby Letters of Credit⁽²⁾	1.1	6,222		2,173		8,395
Total		$	134,825	$	23,110	$	157,935


⁽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.

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 June 30, 2014 and December 31, 2013:



	June 30, 2014		December 31, 2013
	(in millions)
GSEs	$	3	$	41
Others	—		3
Total⁽¹⁾	$	3	$	44


⁽¹⁾	Includes repurchase demands on loans sourced from our legacy broker channel of $1 million and $26 million at June 30, 2014 and December 31, 2013, 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 six months ended June 30, 2014 and 2013 for obligations arising from the breach of representations and warranties associated with the sale of these loans:



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in millions)
Balance at beginning of period	$	36		$	211		$	99		$	219
Increase (decrease) in liability recorded through earnings	—			23			(34		)	36
Realized losses	(2		)	(17		)	(31		)	(38		)
Balance at end of period	$	34		$	217		$	34		$	217

Summary of Pledged Assets Included in Consolidated Balance Sheet

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



	June 30, 2014		December 31, 2013
	(in millions)
Interest bearing deposits with banks	$	324	$	355
Trading assets⁽¹⁾	3,051		1,296
Securities available-for-sale⁽²⁾	15,307		21,346
Securities held-to-maturity	327		362
Loans⁽³⁾	3,732		3,969
Other assets⁽⁴⁾	2,904		2,904
Total	$	25,645	$	30,232


⁽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, trust 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 June 30, 2014 and December 31, 2013:



					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 June 30, 2014:
Assets:
Securities purchased under agreements to resell	$	7,745	5,434	2,311	2,311	—	$	—
Liabilities:
Securities sold under repurchase agreements	$	11,915	5,434	6,481	6,481	—	$	—

As of December 31, 2013:
Assets:
Securities purchased under agreements to resell	$	4,187	2,068	2,119	2,118	—	$	1
Liabilities:
Securities sold under repurchase agreements	$	14,989	2,068	12,921	12,913	—	$	8


⁽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.