2008 Interim Report Section 9

4th Aug 2008 17:53



Background and disclosure policy

During the summer of 2007, credit risk concerns emanating from the US sub-prime mortgage market triggered a widespread deterioration in the markets for securitised and structured financial assets, with consequent disruption to the global financial system. As a result, many institutions recorded considerable reductions in the fair values of their asset-backed securities ('ABSs') and leveraged structured transactions, most significantly in those related to sub-prime mortgages, but also in other asset classes. As price observability for structured credit risk, including the prime tranches of such risk, became opaque, many markets for such assets became illiquid. The resulting constraint on the ability of financial institutions to access wholesale markets to fund such assets reduced capacity, adding further stress to all asset prices. 

These market conditions continued in the first six months of 2008. In general, financial institutions took steps to reduce leveraged exposures, build liquidity and raise additional capital where necessary. However, money markets remained volatile, exhibiting wide interest spreads, and markets for securitised and structured financial assets continued to be highly constrained. This lack of market liquidity, together with the restricted availability of credit, contributed to general weakness in economic conditions in the US, UK, and Europe, in particular affecting housing and commercial property markets, and added to the difficult market conditions for such assets.

The deterioration in the fair value of assets supported by sub-prime mortgages continued in the first half of 2008 with the primary market for non-US government sponsored issues remaining weak. Spreads widened due to credit and liquidity concerns, and mortgage delinquencies continued to increase beyond the levels priced into securitisation issuance over the last few years. The impact continued to extend beyond sub-prime related assets, with the fair value of securities backed by Alt-A collateral (defined below), in particular, suffering a significant deterioration in fair value.

This section contains disclosures about the effect on HSBC's securitisation activities and structured products of the recent market turmoil. Details of HSBC's principal exposure to the US and the UK mortgage markets, which primarily takes the form of credit risk from loans and advances to customers, are provided on page 161.

It is HSBC's policy to provide meaningful disclosures that help investors and other stakeholders understand the financial position, performance and changes in the financial position of the Group. Whenever appropriate, the Group provides information that goes beyond the minimum levels required by accounting standards, statutory and regulatory requirements and listing rules. In the specific context of the recent market turmoil in markets for securitised and structured assets, HSBC has considered the recent recommendations relating to disclosure contained within the report of the Financial Stability Forum on 'Enhancing Market and Institutional Resilience' (April 2008) and the report by the Committee of European Banking Supervisors on 'Banks' Transparency on Activities and Products Affected by the Recent Market Turmoil' (June 2008) and, in addition, has considered feedback from investors and other stakeholders on the disclosures that investors would find most useful. As a result, HSBC has expanded certain disclosures provided in the Annual Report and Accounts 2007 and included them in the Interim Report 2008. 

The specific topics covered in respect of HSBC's securitisation activities and structured products are as follows:

overview of exposure;

business model;

risk management;

accounting policies;

nature and extent of HSBC's exposures;

fair values of financial instruments; and

special purpose entities.

Overview of exposure

At 30 June 2008 the carrying value of HSBC's exposure to ABSs, trading loans held for securitisation plus the exposure to leveraged finance transactions was  US$117 billion (31 December 2007: US$135 billion), summarised as follows:

	At 30 June 2008				At 31 December 2007
	Carrying  value		Percentage sub-prime and Alt-A		Carrying  value		Percentage  sub-prime  and Alt-A
	US$bn		%		US$bn		%
Asset-backed securities
- fair value through profit or loss	29		14		32		20
- available for sale1	73		24		85		28
- held to maturity1	3		6		3		7
Total asset-backed securities	105		21		120		26
Trading loans	4		93		6		94
Leveraged finance2	8		-		9		-
	117		22		135		27

1 Total includes holdings of ABS issued by Freddie Mac and Fannie Mae.

2 Includes the carrying amount of funded loans plus the net exposure to unfunded leveraged finance commitments.

Most of these exposures are in the Global Banking and Markets business segment. 

The total carrying value of ABSs on the balance sheet includes ABSs holdings of US$21.5 billion (31 December 2007: US$32.1 billion) in certain special purpose entities ('SPEs'), discussed further below, on which significant first loss risks are borne by external investors. At 30 June 2008, 23 per cent of the total carrying value of ABSs and trading loans held for securitisation, or US$25 billion, was in respect of sub-prime and Alt-A residential mortgage exposure, of which US$7.7 billion is held through the SPEs referred to above.

Financial effect of market turmoil

The write-downs incurred by the Group on ABSs, structured and leveraged finance transactions, and the movement in fair values on available-for-sale ABSs taken to equity in the six months to 30 June, are summarised in the following table. Most of these effects were recorded in the Global Banking and Markets business segment.

	Half-year to
	30 June  2008		31 December  2007
	US$bn		US$bn
Write-downs taken to income statement	(4.0)		(2.3)
Fair value movement taken to available-for-sale reserve on ABSs in the period	(6.1)		(2.2)
Closing balance of available-for-sale reserve relating to ABSs	(8.3)		(2.2)

Further analysis of the write-downs taken to the income statement by Global Banking and Markets, and the net carrying amounts of these positions that have generated these write downs are shown in the following table.

Global Banking and Markets

	Write-downs at half-year to				Carrying value at
	30 June  2008		31 December  2007		30 June  2008		31 December  2007
	US$m		US$m		US$m		US$m
Sub-prime mortgage-related assets
- loan securitisation	301		529		1,565		1,965
- credit trading	665		463		1,377		1,700
Other ABSs	1,327		459		8,923		9,830
Derivative transactions with monolines
- investment grade counterparts	598		133		1,206		1,209
- non-investment grade counterparts	608		214		78		-
Leveraged finance1	278		195		8,328		8,742
Other credit related items	99		142
Available-for-sale ABSs impairment	55		-
	3,931		2,135

1 Includes the carrying amount of funded loans plus the net exposure to unfunded leveraged finance commitments.

Global Banking and Markets asset-backed securities classified as available-for-sale 

HSBC's principal exposure to ABSs is in the Global Banking and Markets' business through its exposure to structured investment vehicles ('SIVs'), the successor securities investment conduits ('SICs'), and positions held directly. 

The table below summarises Global Banking and Markets' exposures to ABSs held on an available-for-sale basis.

Global Banking and Markets available-for-sale ABSs exposure

	Directly  held		SIVs   and SICs		Total
	US$m		US$m		US$m
Total carrying amount of net principal exposure	48,372		21,359		69,731
- which includes sub-prime/Alt-A exposure	9,376		7,721		17,097
Available-for-sale reserves relating to sub-prime/Alt-A exposure	(3,612)		(2,882)		(6,494)
Impairment charge	(55)		(134)		(189)
Impairment charge borne by capital note holders	-		134		134
Impairment charge borne by HSBC	(55)		-		(55)

Structured investment vehicles and securities investment conduits

In the table above, the total carrying values of ABSs on the balance sheet in respect of SIVs and SICs represent holdings in which the significant first loss risks are borne by external investors, through the investors' holdings of capital notes.

Capital notes issued by the successor SICs will suffer the initial losses from assets within these vehicles and the assets remaining in the SIVs until settlement. The maximum value of future impairment losses which may be borne by capital note holders is US$1.2 billion. Impairments borne by capital note holders at 30 June 2008 were US$134 million.

At each balance sheet date an assessment is made of whether there is any objective evidence of impairment in the value of a financial asset or group of assets in this category. Impairment charges incurred on assets held by consolidated SIVs and SICs excluding Solitaire Funding Limited ('Solitaire') are matched by a credit to the impairment line for the amount of the loss borne by capital note holders.

The exposures attributable to Solitaire, have been shown together with the directly held positions in recognition of the first loss protection of US$1.2 billion provided by HSBC through credit enhancement.

Impairments recognised at 30 June 2008 from assets held within Solitaire or directly by Global Banking and Markets were US$55 million based on a notional principal value of securities which were impaired of US$88 million. The low level of impairment recognised in comparison to the deficit in the available-for-sale reserve is a reflection of the credit quality and seniority of the assets.

Sub-prime and Alt-A residential mortgage-backed securities

Management's current assessment of the holdings of available-for-sale ABSs with the most sensitivity to possible future impairment is focused on sub-prime and Alt-A residential mortgage-backed securities ('MBSs'). 

Excluding holdings in the SIVs and SICs discussed above, the Group's available-for-sale holdings in these categories amounted to US$9.4 billion at 30 June 2008 (31 December 2007: US$10.0 billion). During the six months to 30 June 2008, the movement in fair values of these securities taken to equity was a reduction of US$2.3 billion. The deficit in the available-for-sale fair value reserve as at 30 June 2008 in relation to these securities was US$3.6 billion.

The main factor in the reduction in fair value of these securities over the period has been the effect of reduced market liquidity and negative market sentiment. The level of actual credit losses experienced, despite the deterioration in the performance of the underlying collateral for these securities in the period as US house prices have fallen and defaults have increased, has been low to date.

Based on management's current assessment of the credit quality of these securities, including stressed scenarios for collateral defaults and house prices, and given the level of credit support available, management believes that the cost of future impairment losses which may emerge in respect of holdings of available-for-sale US sub-prime and Alt-A residential MBSs is likely to be modest in relation to the fair value deficit in the available-for-sale fair value reserve as at 30 June 2008.

Business model

Asset-backed securities, structured products and leveraged acquisition finance

HSBC is or has been involved in the following activities in these areas:

the purchase of US mortgage loans with the intention of structuring and placing securitisations into the market;

trading in ABSs, including MBSs, in secondary markets; 

the holding of MBSs and other ABSs in balance sheet management activities, with the intention of earning net interest income over the life of the securities;

the holding of MBSs and other ABSs as part of investment portfolios, including the SIVs, SICs and money market funds described under 'Special purpose entities' below, with the intention of earning net interest income and management fees;

MBSs or other ABSs held in the trading portfolio hedged through credit derivative protection, typically purchased from monoline insurers, with the intention of earning the spread differential over the life of the instruments; and

leveraged acquisition finance: originating loans for the purposes of syndicating or selling them down in order to generate a trading profit and, to a lesser extent, holding them in order to earn interest margin over their lives.

Overall, these business activities were historically not a significant part of Global Banking and Markets' business, and Global Banking and Markets was not reliant on the activities for any material aspect of its business operations or profitability. 

The purchase and securitisation of US mortgage loans and the secondary trading of US MBSs was conducted in HSBC's US MBSs business. This business was discontinued in 2007.

Special purpose entities

HSBC enters into certain transactions with customers in the ordinary course of business which involve the establishment of SPEs to facilitate customer transactions. Some of these SPEs hold assets whose fair values have been adversely affected by recent market conditions.

SPEs are used in HSBC's business in order to provide structured investment opportunities for customers, facilitate the raising of funding for customers' business activities, or diversify HSBC's sources of funding and/or improve capital efficiency.

The use of SPEs is not a significant part of HSBC's activities and HSBC is not reliant on the use of SPEs for any material part of its business operations or profitability. Detailed disclosures of HSBC's sponsored SPEs are provided on page 137.

Risk management

The effect of the recent market turmoil on HSBC's risk exposures, the way in which HSBC has managed risk exposures in this context, and any changes made in HSBC's risk management polices and procedures in response to the market conditions, are set out in the following sections:

Liquidity risk - 'The impact of market turmoil on the Group's liquidity risk position' (see page 182 to 183).

Market risk - 'The impact of market turmoil on market risk' (see page 184).

In addition to holdings of securitised and structured assets, HSBC also provides personal loans to customers in the US, a proportion of which are in the nature of sub-prime loans. HSBC's exposure to US personal loans and receivables is set out in the credit risk management section - see 'Areas of special interest - credit risk' on page 161.

Accounting policies

HSBC's accounting policies regarding the classification and valuation of financial instruments are in accordance with the requirements of IAS 32 'Financial Instruments: Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'. HSBC has not made any changes to the accounting policies described on pages 347 to 361 of the Annual Report and Accounts 2007.

The following is a summary of certain key policies relevant to an understanding of the market turmoil disclosures:

Assets held at fair value with movements in fair value recognised in the income statement: this category includes ABSs that are held for trading or that are designated at fair value through profit or loss, and direct lending positions held for trading. The majority of HSBC's holdings of these assets arise from securitisation and secondary market trading activity. 

Both assets held for trading and assets designated at fair value through profit or loss, are recorded initially at fair value less transaction costs. Transaction costs are taken directly to the income statement. Subsequently, the fair values are remeasured, and gains and losses from changes in fair value are recognised in the income statement.

Assets are classified as held for trading if they have been acquired principally for the purpose of selling or repurchasing in the near term, or they form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent pattern of short-term profit-taking. Assets, other than those held for trading, are designated at fair value through profit or loss if they meet one or more of the designation criteria set out on page 352 of the Annual Report and Accounts 2007, and are so designated by management. The fair value designation once made, is irrevocable. 

Assets held at fair value with movements in fair value recognised in equity: this category includes ABSs that are classified as available-for-sale including asset holdings in consolidated SPEs such as securities investment vehicles and conduits.

These securities are initially measured at fair value plus direct and incremental transaction costs. They are subsequently remeasured at fair value, and changes therein are recognised in equity in the 'Available-for-sale fair value reserve' until the securities are either sold, or impaired. When available-for-sale securities are sold, cumulative gains or losses previously recognised in equity are recognised in the income statement as 'Gains less losses from financial investments'.

At each balance sheet date, an assessment is made of whether there is any objective evidence of impairment in the value of a financial asset or group of assets in this category.

Impairment losses are recognised if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the asset that can be reliably estimated.

If the asset is impaired, the difference between the asset's acquisition cost and the current fair value, less any previous impairment, is removed from equity and recognised in the income statement. Any subsequent reduction in the fair value of an impaired asset is taken to the income statement.

Impairment losses for available-for-sale debt securities are recognised within 'Loan impairment charges and other credit risk provisions' in the income statement and impairment losses for available-for-sale equity securities are recognised within 'Gains less losses from financial investments' in the income statement.

Any impairment losses recognised in the income statement relating to ABSs are recorded in the income statement in the 'Loan impairment charges and other credit risk provisions' line. Impairment losses incurred on assets held by consolidated securities investment vehicles and conduits are matched by a credit to the impairment line for the amount of the loss borne by capital note holders. 

In a subsequent period, if the fair value of the debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement that indicates that the debt security is no longer impaired, the impairment loss may be reversed through the income statement. Impairment losses on available-for-sale equity securities are not reversed.

Assets held at amortised cost: a small proportion of HSBC's holdings of ABSs are held to maturity. These assets are initially recorded at fair value plus any directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest method, less any impairment losses.

An analysis of ABSs and direct lending by balance sheet category is provided on page 118.

Leveraged finance: For certain leveraged finance and syndicated lending activities, HSBC may commit to underwrite loans on fixed contractual terms for specified periods of time, where the drawdown of the loan is contingent upon certain future events outside the control of HSBC. Where the loan arising from the lending commitment is expected to be held for trading, the commitment to lend is recorded as a trading derivative and measured at fair value through profit or loss. On drawdown, the loan is classified as held for trading, and measured at fair value through profit or loss.

Where it is not HSBC's intention to trade the loan, a provision on the loan commitment is only recorded on the loan commitment where it is probable that HSBC will incur a loss. This may occur, for example, where a loss of principal is probable or the interest rate charged on the loan is lower than the cost of funding. On inception of the loan, the hold portion is recorded at its fair value. Where this fair value is lower than the cash amount advanced (for example, due to the rate of interest charged on the loan being below the market rate of interest), the write-down is charged to the income statement. The write-down will be recovered over the life of the loan, through the recognition of interest income using the effective interest rate method, unless the loan is or becomes impaired. The write-down is recorded as a reduction to other operating income. 

An analysis of HSBC's leveraged finance lending activity and its exposure to leveraged finance transactions through holdings of ABSs that are supported by leveraged finance-related collateral, is provided on page 127. The accounting policy for these securities is consistent with holdings of other ABSs described above.

Nature and extent of HSBC's exposures

This section contains information on HSBC's exposures to direct lending held at fair value through profit or loss, ABSs including MBSs and collateralised debt obligations ('CDOs'), monoline insurers and leveraged finance transactions.

MBSs are securities that represent an interest in a group of mortgages. Investors in these securities have the right to receive future mortgage payments (interest and/or principal). Where an MBS references mortgages with different risk profiles, the MBS is classified according to the highest risk class. Consequently, an MBS with both sub-prime and AltߛA exposures is classified as sub-prime. 

CDOs are securities in which ABSs and/or certain other related assets have been purchased and securitised by a third party, or securities which pay a return which is referenced to those assets. CDOs may feature exposure to sub-prime mortgage assets through the underlying assets. As there is often uncertainty surrounding the nature of the underlying collateral supporting CDOs, all CDOs supported by residential mortgage-related assets, irrespective of the level of sub-prime assets, are classified as sub-prime.

HSBC's holdings of ABSs and CDOs, and its direct lending positions, include the following categories of collateral and lending activity: 

sub-prime: loans to customers who have limited credit histories, modest incomes, high debt-to-income ratios or have experienced credit problems caused by occasional delinquencies, prior charge-offs, bankruptcy or other credit-related actions. For US mortgages, US credit scores are primarily used to determine whether a loan is sub-prime. US home equity lines of credit are classified as sub-prime. For non-US mortgages, management judgement is used to identify loans of similar risk characteristics to sub-prime, for example, UK non-conforming mortgages (see below);

US home equity lines of credit ('HELOCs'): a form of revolving credit facility provided to customers, which is supported by a first or second lien charge over residential property;

US Alt-A: loans classified as Alt-A are regarded as lower risk than sub-prime, but they share higher risk characteristics than lending under normal criteria. US credit scores, as well as the level of mortgage documentation held (such as proof of income), are considered when determining whether an Alt-A classification is appropriate. Non-agency mortgages in the US are classified as Alt-A if they do not meet the criteria for classification as sub-prime. These are mortgages not eligible to be sold to the major US government agency, Ginnie Mae (Government National Mortgage Association), and government sponsored enterprises in the mortgage market, Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation);

US government agency mortgage-related assets: securities that are guaranteed by US Government agencies, such as Ginnie Mae;

US Government sponsored enterprises mortgage-related assets: securities that are guaranteed by US Government sponsored entities, including Fannie Mae and Freddie Mac;

UK non-conforming mortgage-related assets: UK mortgages that do not meet normal lending criteria. This includes instances where the normal level of documentation has not been provided (for example, in the case of self-certification of income), or where increased risk factors, such as poor credit history, result in lending at a rate that is higher then the normal lending rate. UK non-conforming mortgages are treated as sub-prime exposures; and

other mortgage-related assets: residential mortgage-related assets that do not meet any of the classifications described above. Prime residential mortgage-related assets are included in this category.

HSBC's exposure to non-residential mortgage-related ABSs and direct lending includes:

commercial property mortgage-related assets: MBSs with collateral other than residential mortgage-related assets;

leveraged finance-related assets: securities with collateral relating to leveraged finance loans;

student loan-related assets: securities with collateral relating to student loans; and

other assets: securities with other receivable-related collateral.

Carrying amount of HSBC's consolidated holdings of ABSs, and direct lending held at fair value through profit or loss

	At 30 June 2008
	Trading		Available for sale		Held to maturity	Designated at fair value through profit or loss			Total	Of which: held through consolidated SPEs
	US$m		US$m		US$m		US$m		US$m		US$m
Sub-prime residential mortgage-related assets	5,914		6,935		-		2		12,851		7,328
Direct lending	3,534		-		-		-		3,534		1,825
MBSs and MBS CDOs1	2,380		6,935		-		2		9,317		5,503
US Alt-A residential mortgage-related assets	2,084		10,316		165		-		12,565		7,199
Direct lending	325		-		-		-		325		-
MBSs1	1,759		10,316		165		-		12,240		7,199
US government agency mortgage-related assets:
MBSs1	181		6,299		535		-		7,015		-
US government-sponsored enterprises mortgage-related assets:
MBSs1	2,008		13,994		1,947		25		17,974		-
Other residential mortgage-related assets	3,320		5,625		-		61		9,006		3,531
Direct lending	298		-		-		-		298		-
MBSs1	3,022		5,625		-		61		8,708		3,531
Commercial property mortgage-related assets	3,265		10,369		-		101		13,735		7,741
Direct lending	-		-		-		-		-		-
MBSs and MBS CDOs1	3,265		10,369		-		101		13,735		7,741
Leveraged finance-related assets:
ABSs and ABS CDOs1	259		5,613		-		-		5,872		4,666
Student loan-related assets:
ABSs and ABS CDOs1	175		6,262		-		4		6,441		5,407
Other assets	8,262		7,410		-		7,310		22,982		4,862
Direct lending	-		-		-		-		-		-
ABSs and ABS CDOs1	8,262		7,410		-		7,310		22,982		4,862
	25,468		72,823		2,647		7,503		108,441		40,734

For footnotes, see page 128.

The above table excludes leveraged finance transactions, which are shown separately on page 127.

	At 31 December 2007
	Trading		Available for sale		Held to maturity	Designated at fair value through profit or loss			Total	Of which: held through consolidated SPEs
	US$m		US$m		US$m		US$m		US$m		US$m
Sub-prime residential mortgage-related assets	9,431		9,311		-		2		18,744		11,504
Direct lending	5,825		-		-		-		5,825		3,596
MBSs and MBS CDOs1	3,606		9,311		-		2		12,919		7,908
US Alt-A residential mortgage-related assets	3,288		14,760		173		-		18,221		11,193
Direct lending	342		-		-		-		342		-
MBSs1	2,946		14,760		173		-		17,879		11,193
US government agency mortgage-related assets:
MBSs1	204		5,239		552		-		5,995		-
US government-sponsored enterprises  mortgage-related assets:
MBSs1	2,583		11,414		1,881		26		15,904		-
Other residential mortgage-related assets	5,243		5,701		-		289		11,233		4,441
Direct lending	416		-		-		-		416		-
MBSs1	4,827		5,701		-		289		10,817		4,441
Commercial property mortgage-related assets	3,467		10,505		-		105		14,077		8,600
Direct lending	-		-		-		-		-		-
MBSs and MBS CDO1	3,467		10,505		-		105		14,077		8,600
Leveraged finance-related assets:
ABSs and ABS CDOs1	263		5,820		-		-		6,083		5,126
Student loan-related assets:
ABSs and ABS CDOs1	144		7,052		-		-		7,196		6,308
Other assets	6,252		14,784		-		7,736		28,772		13,596
Direct lending	3		-		-		-		3		-
ABSs and ABS CDOs1	6,249		14,784		-		7,736		28,769		13,596
	30,875		84,586		2,606		8,158		126,225		60,768

For footnotes, see page 128.

Included in the above table are ABSs which are held through SPEs that are consolidated by HSBC. Although HSBC includes these assets in full on its balance sheet, the risks arising from the assets are mitigated to the extent of third party investment in notes issued by those SPEs. For a description of HSBC's holdings of and arrangements with SPEs, see page 137. 

The exposure detailed above includes long positions matched by specific credit derivatives with monolines and other financial institutions. These positions comprise:

residential MBSs with a carrying value of US$1.5 billion (31 December 2007: US$2.1 billion);

residential MBS CDOs with a carrying value of US$174 million (31 December 2007: US$349 million); and

ABSs other than residential MBSs and MBS CDOs with a carrying value of US$11.6 billion (31 December 2007: US$10.8 billion).

In the tables which follow, carrying amounts and gains and losses are given for securities except those matched by specific credit derivatives with monolines. The counterparty credit risk arising from the derivative transactions undertaken with monoline insurers is included in the monoline exposure analysis detailed on page 126. 

US government-sponsored enterprises mortgage-related assets shown in the table above include holdings of securities issued by Freddie Mac of US$9.4 billion (31 December 2007: US$6.8 billion) and by Fannie Mae of US$7.4 billion (31 December 2007: US$8.5 billion).

HSBC's consolidated holdings of US ABSs, and direct lending held at fair value through profit or loss

	Half-year to 30 June 2008								At 30 June 2008								At 31 December 2007
Unrealised  gains and  (losses)3			Realised  gains and  (losses)4	Fair value movements through   equity5		Impair- ment	Impair- ment6		Gross principal7		CDS gross protection8		Net  principal   exposure9		Carrying   amount10		Gross principal7		CDS gross protection8		Net  principal exposure9		Carrying amount10
	US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m	US$m	US$m	US$m	US$m	US$m	US$m
US sub-prime residential mortgage-related assets
Direct lending	(234)		(8)		-		-		4,199		-		4,199		3,534		6,288		-		6,288		5,825
MBSs1	(621)		6		(903)		(29)		8,239		601		7,638		5,283		9,576		657		8,919		7,981
- high grade2	(228)		7		(518)		(29)		5,930		571		5,359		4,142		9,079		647		8,432		7,807
- rated C to A	(333)		-		(385)		-		2,292		30		2,262		1,118		462		10		452		153
- not publicly rated	(60)		(1)		-		-		17		-		17		23		35		-		35		21
MBS CDOs1	(123)		-		(32)		(21)		1,200		569		631		152		1,157		652		505		440
- high grade2	(8)		-		(32)		-		230		50		180		97		923		454		469		411
- rated C to A	(115)		-		-		(21)		970		519		451		55		234		198		36		29
- not publicly rated	-		-		-		-		-		-		-		-		-		-		-		-
	(978)		(2)		(935)		(50)		13,638		1,170		12,468		8,969		17,021		1,309		15,712		14,246
US Alt-A residential mortgage-related assets
Direct lending	-		-		-		-		329		-		329		325		341		-		341		342
MBSs1	(368)		(59)		(3,243)		(5)		17,548		204		17,344		11,349		19,175		205		18,970		17,708
- high grade2	(340)		(49)		(3,115)		(5)		16,898		204		16,694		10,969		19,099		205		18,894		17,640
- rated C to A	(29)		(9)		(100)		-		533		-		533		299		64		-		64		56
- not publicly rated	1		(1)		(28)		-		117		-		117		81		12		-		12		12
	(368)		(59)		(3,243)		(5)		17,877		204		17,673		11,674		19,516		205		19,311		18,050
US government agency mortgage-related assets
MBSs1	(2)		-		(54)		-		7,052		-		7,052		7,015		5,996		-		5,996		5,995
- high grade2	(2)		-		(54)		-		7,052		-		7,052		7,015		5,996		-		5,996		5,995
- rated C to A	-		-		-		-		-		-		-		-		-		-		-		-
- not publicly rated	-		-		-		-		-		-		-		-		-		-		-		-
US government-sponsored enterprises mortgage-related assets
MBSs1	(50)		40		(91)		-		18,249		-		18,249		17,974		16,125		-		16,125		15,904
- high grade2	(50)		40		(91)		-		18,249		-		18,249		17,974		16,125		-		16,125		15,904
- rated C to A	-		-		-		-		-		-		-		-		-		-		-		-
- not publicly rated	-		-		-		-		-		-		-		-		-		-		-		-
Balance carried forward	(1,398)		(21)		(4,323)		(55)		56,816		1,374		55,442		45,632		58,658		1,514		57,144		54,195

HSBC's consolidated holdings of US ABSs, and direct lending held at fair value through profit or loss (continued)

	Half-year to 30 June 2008								At 30 June 2008								At 31 December 2007
Unrealised  gains and  (losses)3			Realised  gains and  (losses)4	Fair value  movements  through  equity5		Impair- ment	Impair- ment6		Gross principal7		CDS  gross protection8		Net  principal   exposure9		Carrying   amount10		Gross principal7		CDS  gross protection8		Net  principal   exposure9		Carrying   amount10
	US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m	US$m	US$m	US$m	US$m	US$m	US$m
Balance brought forward	(1,398)		(21)		(4,323)		(55)		56,816		1,374		55,442		45,632		58,658		1,514		57,144		54,195
Other US residential mortgage-related  assets
Direct lending	(26)		34		-		-		312		-		312		298		424		-		424		416
MBSs1	(107)		(123)		(4)		-		889		195		694		555		1,587		821		766		756
- high grade2	(105)		(123)		(4)		-		864		187		677		546		1,565		799		766		756
- rated C to A	(2)		-		-		-		25		8		17		9		22		22		-		-
- not publicly rated	-		-		-		-		-		-		-		-		-		-		-		-
	(133)		(89)		(4)		-		1,201		195		1,006		853		2,011		821		1,190		1,172
Commercial property mortgage-related assets
Direct lending	-		-		-		-		-		-		-		-		-		-		-		-
MBS and MBS CDOs1	(69)		-		(295)		-		5,838		415		5,423		4,943		5,981		685		5,296		5,196
- high grade2	(55)		-		(290)		-		5,554		415		5,139		4,682		5,760		685		5,075		4,983
- rated C to A	-		-		(5)		-		64		-		64		55		-		-		-		-
- not publicly rated	(14)		-		-		-		220		-		220		206		221		-		221		213
	(69)		-		(295)		-		5,838		415		5,423		4,943		5,981		685		5,296		5,196
Leveraged finance-related assets
ABSs and ABS CDOs1	(4)		-		(227)		-		5,153		577		4,576		4,168		4,930		322		4,608		4,432
- high grade2	(4)		-		(227)		-		5,153		577		4,576		4,168		4,930		322		4,608		4,432
- rated C to A	-		-		-		-		-		-		-		-		-		-		-		-
- not publicly rated	-		-		-		-		-		-		-		-		-		-		-		-
Student loan-related assets
ABSs and ABS CDOs1	(64)		-		(507)		-		7,412		-		7,412		6,437		7,352		-		7,352		7,196
- high grade2	(44)		-		(437)		-		7,202		-		7,202		6,343		7,312		-		7,312		7,159
- rated C to A	(20)		-		(70)		-		210		-		210		94		40		-		40		37
- not publicly rated	-		-		-		-		-		-		-		-		-		-		-		-
Other assets
Direct lending	-		-		-		-		-		-		-		-		-		-		-		-
ABS and ABS CDOs1	(186)		(3)		(27)		-		9,057		2,941		6,116		4,956		10,476		2,735		7,741		7,683
- high grade2	(111)		(2)		6		-		6,345		2,433		3,912		3,086		9,353		2,707		6,646		6,632
- rated C to A	(62)		(1)		(56)		-		1,874		508		1,366		1,076		1,008		28		980		954
- not publicly rated	(13)		-		23		-		838		-		838		794		115		-		115		97
	(186)		(3)		(27)		-		9,057		2,941		6,116		4,956		10,476		2,735		7,741		7,683
Total	(1,854)		(113)		(5,383)		(55)		85,477		5,502		79,975		66,989		89,408		6,077		83,331		79,874

HSBC's consolidated holdings of UK ABSs, and direct lending held at fair value through profit or loss

	Half-year to 30 June 2008								At 30 June 2008								At 31 December 2007
Unrealised  gains and  (losses)3			Realised  gains and  (losses)4	Fair value  movements  through   equity5			Impair- ment6		Gross principal7		CDS  gross  protection8		Net  principal   exposure9		Carrying   amount10		Gross principal7		CDS  gross  protection8		Net  principal   exposure9		Carrying   amount10
	US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m	US$m	US$m	US$m	US$m	US$m	US$m
UK non-conforming residential mortgage-related assets
Direct lending	-		-		-		-		-		-		-		-		-		-		-		-
MBSs1	(20)		10		(92)		-		2,851		-		2,851		2,625		3,355		-		3,355		3,211
- high grade2	(12)		10		(88)		-		2,793		-		2,793		2,585		3,321		-		3,321		3,183
- rated C to A	(8)		-		(4)		-		52		-		52		36		28		-		28		24
- not publicly rated	-		-		-		-		6		-		6		4		6		-		6		4
MBS CDOs1	-		-		-		-		-		-		-		-		-		-		-		-
- high grade2	-		-		-		-		-		-		-		-		-		-		-		-
- rated C to A	-		-		-		-		-		-		-		-		-		-		-		-
- not publicly rated	-		-		-		-		-		-		-		-		-		-		-		-
	(20)		10		(92)		-		2,851		-		2,851		2,625		3,355		-		3,355		3,211
Other UK residential mortgage-related assets
Direct lending	-		-		-		-		-		-		-		-		-		-		-		-
MBSs1	(39)		-		(99)		-		5,494		-		5,494		5,128		5,943		-		5,943		5,640
- high grade2	(23)		-		(98)		-		5,126		-		5,126		4,803		5,411		-		5,411		5,156
- rated C to A	(16)		-		(1)		-		359		-		359		316		520		-		520		472
- not publicly rated	-		-		-		-		9		-		9		9		12		-		12		12
	(39)		-		(99)		-		5,494		-		5,494		5,128		5,943		-		5,943		5,640
Commercial property mortgage-related  assets
Direct lending	-		-		-		-		-		-		-		-		-		-		-		-
MBSs and MBS CDOs1	(71)		-		(186)		-		5,295		10		5,285		4,833		5,330		-		5,330		4,902
- high grade2	(22)		-		(180)		-		4,336		10		4,326		3,980		4,437		-		4,437		4,095
- rated C to A	(12)		-		(2)		-		185		-		185		151		173		-		173		113
- not publicly rated	(37)		-		(4)		-		774		-		774		702		720		-		720		694
	(71)		-		(186)		-		5,295		10		5,285		4,833		5,330		-		5,330		4,902
Balance carried forward	(130)		10		(377)		-		13,640		10		13,630		12,586		14,628		-		14,628		13,753

HSBC's consolidated holdings of UK ABSs, and direct lending held at fair value through profit or loss (continued)

	Half-year to 30 June 2008								At 30 June 2008								At 31 December 2007
Unrealised  gains and  (losses)3			Realised  gains and  (losses)4	Fair value  movements  through   equity5		Impair- ment	Impair- ment6		Gross principal7		CDS  gross protection8		Net  principal exposure9		Carrying   amount10		Gross principal7		CDS  gross protection8		Net  principal exposure9		Carrying   amount10
	US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m	US$m	US$m	US$m	US$m	US$m	US$m
Balance brought forward	(130)		10		(377)		-		13,640		10		13,630		12,586		14,628		-		14,628		13,753
Leveraged finance-related assets
ABSs and ABS CDOs1	-		-		(13)		-		1,315		946		369		347		675		330		345		336
- high grade2	-		-		(13)		-		984		615		369		347		366		21		345		336
- rated C to A	-		-		-		-		-		-		-		-		-		-		-		-
- not publicly rated	-		-		-		-		331		331		-		-		309		309		-		-
Student loan-related assets
ABSs and ABS CDOs1	-		-		-		-		4		-		4		4		-		-		-		-
- high grade2	-		-		-		-		4		-		4		4		-		-		-		-
- rated C to A	-		-		-		-		-		-		-		-		-		-		-		-
- not publicly rated	-		-				-		-		-		-		-		-		-		-		-
					-
Other assets
Direct lending	-		-		-		-		-		-		-		-		-		-		-		-
ABS and ABS CDOs1	(81)		-		(186)		-		10,124		6,760		3,364		3,033		9,766		6,802		2,964		2,879
- high grade2	(53)		-		(152)		-		2,772		-		2,772		2,496		2,315		-		2,315		2,258
- rated C to A	(10)		-		(34)		-		203		-		203		159		317		-		317		309
- not publicly rated	(18)		-		-		-		7,149		6,760		389		378		7,134		6,802		332		312
	(81)		-		(186)		-		10,124		6,760		3,364		3,033		9,766		6,802		2,964		2,879
Total	(211)		10		(576)		-		25,083		7,716		17,367		15,970		25,069		7,132		17,937		16,968

For footnotes, see page 128.

HSBC's consolidated holdings of ABSs, and direct lending held at fair value through profit or loss, other than those supported by US and UK-originated assets

	Half-year to 30 June 2008								At 30 June 2008								At 31 December 2007
Unrealised  gains and  (losses)3			Realised  gains and  (losses)4	Fair value  movements through equity5		Impair- ment	Impair- ment6		Gross principal7		CDS  gross protection8		Net  principal   exposure9		Carrying amount10		Gross principal7		CDS  gross protection8		Net  principal   exposure9		Carrying amount10
	US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m	US$m	US$m	US$m	US$m	US$m	US$m
Non-US and non-UK sub-prime residential mortgage-related assets
Direct lending	-		-		-		-		-		-		-		-		-		-		-		-
MBSs1	(15)		6		(2)		-		885		-		885		587		624		-		624		385
- high grade2	(7)		6		(2)		-		820		-		820		534		447		-		447		279
- rated C to A	-		-		-		-		-		-		-		-		104		-		104		38
- not publicly rated	(8)		-		-		-		65		-		65		53		73		-		73		68
MBS CDOs1	(3)		-		(3)		-		35		-		35		32		-		-		-		-
- high grade2	(3)		-		(3)		-		32		-		32		29		-		-		-		-
- rated C to A	-		-		-		-		-		-		-		-		-		-		-		-
- not publicly rated	-		-		-		-		3		-		3		3		-		-		-		-
	(18)		6		(5)		-		920		-		920		619		624		-		624		385
Other non-US and non-UK residential mortgage-related assets
Direct lending	-		-		-		-		-		-		-		-		-		-		-		-
MBSs1	(72)		(7)		(13)		-		3,076		54		3,022		2,844		4,001		814		3,187		3,055
- high grade2	(57)		(7)		(13)		-		2,635		10		2,625		2,491		3,703		710		2,993		2,869
- rated C to A	(12)		-		-		-		339		44		295		256		130		90		40		36
- not publicly rated	(3)		-		-		-		102		-		102		97		168		14		154		150
	(72)		(7)		(13)		-		3,076		54		3,022		2,844		4,001		814		3,187		3,055
Commercial property mortgage-related assets
Direct lending	-		-		-		-		-		-		-		-		-		-		-		-
MBSs and MBS CDOs1	(33)		-		(107)		-		3,888		64		3,824		3,560		3,576		238		3,338		3,051
- high grade2	(14)		-		(105)		-		3,492		60		3,432		3,220		3,212		102		3,110		2,827
- rated C to A	(11)		-		-		-		217		4		213		172		185		136		49		49
- not publicly rated	(8)		-		(2)		-		179		-		179		168		179		-		179		175
	(33)		-		(107)		-		3,888		64		3,824		3,560		3,576		238		3,338		3,051
Balance carried forward	(123)		(1)		(125)		-		7,884		118		7,766		7,023		8,201		1,052		7,149		6,491

HSBC's consolidated holdings of ABSs, and direct lending held at fair value through profit or loss, other than those supported by US and UK-originated assets (continued)

	Half-year to 30 June 2008								At 30 June 2008								At 31 December 2007
Unrealised  gains and  (losses)3			Realised  gains and  (losses)4	Fair value  movements  through equity5		Impair- ment	Impair- ment6		Gross principal7		CDS  gross protection8		Net  principal exposure9		Carrying   amount10		Gross principal7		CDS  gross protection8		Net  principal exposure9		Carrying   amount10
	US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m	US$m	US$m	US$m	US$m	US$m	US$m
Balance brought forward	(123)		(1)		(125)		-		7,884		118		7,766		7,023		8,201		1,052		7,149		6,491
Leveraged finance-related assets
ABSs and ABS CDOs1	(5)		-		(46)		-		1,451		3		1,448		1,357		1,356		3		1,353		1,315
- high grade2	(1)		-		(46)		-		1,371		2		1,369		1,285		1,281		2		1,279		1,244
- rated C to A	-		-		-		-		-		-		-		-		-		-		-		-
- not publicly rated	(4)		-		-		-		80		1		79		72		75		1		74		71
Student loan-related assets
ABSs and ABS CDOs1	-		-		-		-		-		-		-		-		-		-		-		-
- high grade2	-		-		-		-		-		-		-		-		-		-		-		-
- rated C to A	-		-		-		-		-		-		-		-		-		-		-		-
- not publicly rated	-		-		-		-		-		-		-		-		-		-		-		-
Other assets
Direct lending	-		-		-		-		-		-		-		-		3		-		3		3
ABS and ABS CDOs1	(67)		(2)		55		-		6,900		2,608		4,292		3,813		10,232		1,702		8,530		8,366
- high grade2	(46)		(1)		(54)		-		4,573		1,709		2,864		2,431		9,531		1,443		8,088		7,721
- rated C to A	(19)		-		(39)		-		1,717		802		915		891		547		259		288		522
- not publicly rated	(2)		(1)		148		-		610		97		513		491		154		-		154		123
	(67)		(2)		55		-		6,900		2,608		4,292		3,813		10,235		1,702		8,533		8,369
Total	(195)		(3)		(116)		-		16,235		2,729		13,506		12,193		19,792		2,757		17,035		16,175

For footnotes, see page 128.

The following table shows the vintages of the collateral assets supporting HSBC's holdings of US sub-prime and Alt-A mortgage backed securities. Market prices for these instruments generally incorporate higher discounts for later vintages. The majority of HSBC's holdings of US sub-prime mortgage backed securities are originated pre-2007; holdings of US Alt-A mortgage backed securities are more evenly distributed between pre and post 2007 vintages.

Vintages of US sub-prime and Alt-A mortgage-backed securities

	US sub-prime mortgage-backed securities				US Alt-A mortgage-backed securities
	Gross principal7 at 30 June  2008		Gross principal7 at 31 December  2007		Gross principal7 at 30 June  2008		Gross principal7 at 31 December  2007
	US$m		US$m		US$m		US$m
Mortgage vintage
Pre-2006	2,860		3,170		2,591		2,870
2006	4,990		5,186		7,710		7,777
2007	1,589		2,377		7,247		8,528
	9,439		10,733		17,548		19,175

For footnotes, see page 128.

HSBC's exposure to derivative transactions entered into directly with monoline insurers

HSBC's principal exposure to monoline insurers, or monolines, is through a number of over the counter ('OTC') derivative transactions, primarily credit default swaps ('CDSs'). HSBC entered into these CDSs primarily to purchase credit protection against securities held within the trading portfolio.

During the second half of 2007, and continuing in 2008, the market value of the securities declined, with offsetting increases in the mark-to-market value of the CDS transactions, thereby increasing OTC counterparty credit risk to the monolines. The table below sets out the fair value of the derivative transactions at 30 June 2008, and hence the amount at risk, based on 30 June 2008 security prices, if the CDS protection purchased were to be wholly ineffective because, for example, the monoline insurer was unable to meet its obligations. In order to assess that risk, protection purchased is shown sub-divided between those monoline insurers that were rated by S&P at 'BBB or above' at 30 June 2008, and those that were 'below BBB'. As certain monolines have been downgraded during the first half of 2008, the exposure to monolines rated 'below BBB' at 30 June 2008 increased from the position as at 31 December 2007. The 'Credit risk adjustment' column indicates the valuation adjustment taken against the mark-to-market exposures, and reflects the assessed loss of value on purchased protection arising from the deterioration in creditworthiness of the monoline insurers evidenced during the first half of 2008. These valuation adjustments, which reflect the possibility of the irrecoverability of the protection purchased, have been charged to the income statement.

HSBC's exposure to derivative transactions entered into directly with monoline insurers

	Notional  amount	Net exposure  before credit risk adjustment13			Credit risk adjustment14		Net exposure  after credit  risk adjustment
	US$m		US$m		US$m		US$m
At 30 June 2008
Derivative transactions with monoline counterparties:
Monoline - BBB or above	12,444		1,937		(731)		1,206
Monoline - below BBB	2,123		900		(822)		78
	14,567		2,837		(1,553)		1,284
At 31 December 2007
Derivative transactions with monoline counterparties:
Monoline - BBB or above	14,314		1,342		(133)		1,209
Monoline - below BBB	1,120		214		(214)		-
	15,434		1,556		(347)		1,209

For footnotes, see page 128.

HSBC's exposure to debt securities which benefit from guarantees provided by monoline insurers

Within both the trading and available-for-sale portfolios, HSBC holds bonds that are 'wrapped' with a credit enhancement from a monoline insurer. As the bonds are traded explicitly with the benefit of this enhancement, any deterioration in the credit profile of the monoline insurer is reflected in market prices and therefore in the carrying value of these securities on HSBC's balance sheet at 30 June 2008. For wrapped bonds held in the trading portfolio, the mark-to-market movement has been reflected through the income statement. For wrapped bonds held in the available-for-sale portfolio, the mark-to-market movement is reflected in equity unless there is objective evidence of impairment, in which case the impairment loss is reflected in the income statement. 

HSBC's exposure to direct lending and irrevocable commitments to lend to monoline insurers

HSBC has extended liquidity facilities totalling US$158 million to monoline insurers, of which US$23 million was drawn at 30 June 2008 (31 December 2007: US$158 million, none drawn).

Leveraged finance transactions

Leveraged finance transactions include sub-investment grade acquisition or event-driven financing. The following tables show HSBC's gross commitments and exposure to leveraged finance transactions arising from primary transactions and the movement in that leveraged finance exposure in the period. HSBC's additional exposure to leveraged finance loans through holdings of ABSs from its trading and investment activities is shown in the tables on pages 118 and 119. 

HSBC's gross commitments to leveraged finance transactions

	Funded  commitments		Unfunded commitments		Total  commitments
	US$m		US$m		US$m
At 30 June 2008
Europe	4,713		1,642		6,355
Rest of Asia-Pacific	59		24		83
North America	2,056		307		2,363
	6,828		1,973		8,801
At 31 December 2007
Europe	4,004		1,822		5,826
Hong Kong	-		160		160
Rest of Asia-Pacific	45		182		227
North America	1,991		733		2,724
	6,040		2,897		8,937

HSBC's exposure to leveraged finance transactions

	At 30 June 2008						Half-year to  30 June 2008
	Funded   exposures11		Unfunded exposures12		Total  exposures		Income  statement  write-downs
	US$m		US$m		US$m		US$m
Europe	4,450		1,620		6,070		(175)
Rest of Asia-Pacific	59		24		83		-
North America	1,883		292		2,175		(103)
	6,392		1,936		8,328		(278)

	At 31 December 2007						Half-year to 31 December 2007
	Funded exposures11		Unfunded exposures12		Total  exposures		Income  statement  write-downs
	US$m		US$m		US$m		US$m
Europe	3,903		1,813		5,716		(110)
Hong Kong	-		160		160		-
Rest of Asia-Pacific	45		182		227		-
North America	1,917		722		2,639		(85)
	5,865		2,877		8,742		(195)

For footnotes, see below.

Movement in leveraged finance exposures

			Funded exposures11		Unfunded exposures12		Total  exposures
			US$m		US$m		US$m
At 31 December 2007			5,865		2,877		8,742
Additions			98		554		652
Fundings			855		(855)		-
Sales, repayments and other movements			(171)		(617)		(788)
Write-downs			(255)		(23)		(278)
At 30 June 2008			6,392		1,936		8,328

For footnotes, see below.

At 30 June 2008, HSBC's principal exposures were to companies in two sectors: data processing (US$3.6 billion; 31 December 2007: US$3.8 billion) and communications and infrastructure (US$2.6 billion; 31 December 2007: US$2.7 billion). During the period, 99 per cent of the total write-downs were against exposures in these two sectors.

Footnotes to 'Nature and extent of HSBC's exposures'

1 Mortgage-backed securities ('MBSs'), asset-backed securities ('ABSs') and collateralised debt obligations ('CDOs').

2 High grade assets rated AA or AAA.

3 Unrealised gains and losses on the net principal exposure (see footnote 9) recognised during the half year in the income statement as a result of changes in the fair value of the asset, adjusted for the cumulative amount of transfers to realised gains and losses as a result of the disposal of assets. 

4 Realised gains and losses on the net principal exposure (see footnote 9) recognised during the half year in the income statement as a result of the disposal of assets.

5 Fair value gains and losses on the net principal exposure (see footnote 9) recognised in equity during the half year as a result of the changes in the fair value of available-for-sale assets, adjusted for transfers from the available-for-sale reserve to the income statement as a result of impairment, and adjusted for transfers to realised gains and losses following the disposal of assets.

6 Impairment losses recognised in the income statement in respect of the net principal amount (see footnote 9) of available-for-sale and held-to-maturity assets.

7 The gross principal is the redemption amount on maturity or, in the case of an amortising instrument, the sum of the future redemption amounts through the residual life of the security.

8 A CDS is a credit default swap. CDS gross protection principal is the gross principal of the underlying instrument that is protected by CDSs.

9 Net principal exposure is the gross principal amount of assets that are not protected by CDSs. It includes assets that benefit from monoline protection, except where this protection is purchased with a CDS.

10 Carrying amount of the net principal exposure.

11 Funded exposure represents the loan amount advanced to the customer, less any fair value write-downs, net of fees held on deposit.

12 Unfunded exposures represent the contractually committed loan facility amount not yet drawn down by the customer, less any fair value write-downs, net of fees held on deposit .

13 Net exposure after legal netting and any other relevant credit mitigation prior to deduction of the credit risk adjustment.

14 Cumulative fair value adjustment recorded against OTC derivative counterparty exposures to reflect the creditworthiness of the counterparty. 

ENDMSCPIMFTMMTMBMP

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