Guarantee Arrangements and Pledged Assets (Tables)

9 Months Ended

Sep. 30, 2012

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

Following the table is a description of the various arrangements.


	September 30, 2012					December 31, 2011
	Carrying Value			Notional		Carrying Value			Notional
	(in millions)
Credit derivatives⁽¹⁾⁽⁴⁾	$	(1,194	)	$	262,985	$	(7,759	)	$	330,395
Financial standby letters of credit, net of participations⁽²⁾⁽³⁾		-			5,097		-			4,705
Performance (non-financial) guarantees⁽²⁾⁽³⁾		-			3,023		-			3,088
Liquidity asset purchase agreements⁽³⁾		-			1,550		-			677

Total	$	(1,194	)	$	272,655	$	(7,759	)	$	338,865

⁽¹⁾	Includes $45.9 billion and $45.1 billion issued for the benefit of HSBC affiliates at September 30, 2012 and December 31, 2011, respectively.

⁽²⁾	Includes $757 million and $707 million issued for the benefit of HSBC affiliates at September 30, 2012 and December 31, 2011, 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 limited to the recorded amounts of these instruments.

Net Credit Derivative Positions

The following table summarizes our net credit derivative positions as of September 30, 2012 and December 31, 2011:


	September 30, 2012						December 31, 2011
	Carrying (Fair) Value			Notional			Carrying (Fair) Value			Notional
	(in millions)
Sell-protection credit derivative positions	$	(1,194	)	$	262,985		$	(7,759	)	$	330,395
Buy-protection credit derivative positions		1,162			263,055			8,131			326,882

Net position⁽¹⁾	$	(32	)	$	(70	)	$	372		$	3,513

⁽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 September 30, 2012 as an indicative proxy of payment risk:


Notional/Contractual Amounts	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		2.5	$	138,852	$	35,086	$	173,938
Structured CDS		1.7		43,798		4,008		47,806
Index credit derivatives		3.1		25,999		733		26,732
Total return swaps		7.2		11,355		3,154		14,509

Subtotal				220,004		42,981		262,985
Standby Letters of Credit⁽²⁾		1.3		7,087		1,033		8,120

Total			$	227,091	$	44,014	$	271,105

⁽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 during the three and nine months ended September 30, 2012 and 2011, respectively:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in millions)
Pre- 2004	$	2	$	1	$	5	$	4
2004		5		1		16		10
2005		6		6		19		20
2006		20		11		65		35
2007		51		34		170		104
2008		28		15		106		73
Post 2008		4		14		15		59

Total repurchase demands received⁽¹⁾	$	116	$	82	$	396	$	305

⁽¹⁾	Includes repurchase demands on loans sourced from our legacy broker channel of $98 million and $61 million for the three months ended September 30, 2012 and 2011, respectively and $330 million and $218 million for the nine months ended September 30, 2012 and 2011, 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, 2012 and December 31, 2011:


	September 30, 2012		December 31, 2011
	(in millions)
GSEs	$	110	$	77
Others		58		25

Total⁽¹⁾	$	168	$	102

⁽¹⁾	Includes repurchase demands on loans sourced from our legacy broker channel of $143 million and $87 million at September 30, 2012 and December 31, 2011, 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, 2012 and 2011 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,
	2012			2011			2012			2011
	(in millions)
Balance at beginning of period	$	222		$	237		$	237		$	262
Increase in liability recorded through earnings		28			1			81			41
Realized losses		(34	)		(29	)		(102	)		(94	)

Balance at end of period	$	216		$	209		$	216		$	209

Summary of Pledged Assets Included in Consolidated Balance Sheet

Pledged Assets Pledged assets included in the consolidated balance sheet are summarized in the following table.


	September 30, 2012		December 31, 2011
	(in millions)
Interest bearing deposits with banks	$	917	$	4,426
Trading assets⁽¹⁾		5,384		1,640
Securities available-for-sale⁽²⁾		18,481		23,347
Securities held to maturity		346		476
Loans⁽³⁾		1,736		2,113
Other assets⁽⁴⁾		2,476		3,688

Total	$	29,340	$	35,690

⁽¹⁾	Trading assets are primarily pledged against liabilities associated with consolidated variable interest entities.

⁽²⁾	Securities available-for-sale are primarily pledged against 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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