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Annual Report and Accounts - 31 of 35

31st Mar 2009 17:00

RNS Number : 7354P

HSBC Holdings PLC

31 March 2009

23 Property, plant and equipment

HSBC

Property, plant and equipment

	Freehold land and buildings	Long leasehold land and buildings	Short leasehold land and buildings1	Equipment, fixtures and fittings2	Equipment on operating leases	Total3
	US$m	US$m	US$m	US$m	US$m	US$m
Cost or fair value
At 1 January 2008	4,701	1,438	2,856	10,957	6,054	26,006
Additions at cost4	466	26	327	1,813	353	2,985
Acquisition of subsidiaries	29	-	-	16	-	45
Fair value adjustments	(93)	4	(3)	-	-	(92)
Disposals	(138)	(102)	(41)	(803)	(175)	(1,259)
Reclassified from/(to) held for sale	16	469	(2)	98	-	581
Transfers	-	3	(3)	-	-	-
Exchange differences	(611)	(62)	(214)	(1,876)	(1,685)	(4,448)
Other changes	(244)	(40)	4	115	-	(165)

At 31 December 2008	4,126	1,736	2,924	10,320	4,547	23,653

Accumulated depreciation and impairment
At 1 January 2008	(344)	(175)	(826)	(7,003)	(1,964)	(10,312)
Depreciation charge for the year	(82)	(53)	(184)	(1,201)	(187)	(1,707)
Disposals	7	2	14	537	57	617
Reclassified (from)/to held for sale	1	(18)	-	(30)	-	(47)
Transfers	-	(3)	3	-	-	-
Impairment losses recognised	(30)	(2)	-	(11)	-	(43)
Exchange differences	73	9	107	1,257	561	2,007
Other changes	7	12	-	(163)	1	(143)

At 31 December 2008	(368)	(228)	(886)	(6,614)	(1,532)	(9,628)

Net carrying amount at 31 December 2008	3,758	1,508	2,038	3,706	3,015	14,025

Cost or fair value
At 1 January 2007	5,331	1,936	2,574	9,702	5,923	25,466
Additions at cost4	684	78	397	1,429	132	2,720
Acquisition of subsidiaries	93	-	-	-	-	93
Fair value adjustments	25	21	106	-	-	152
Disposals	(256)	(37)	(117)	(542)	(129)	(1,081)
Reclassified to held for sale	(446)	(596)	(82)	(160)	-	(1,284)
Transfers	-	(5)	5	-	-	-
Exchange differences	237	1	49	450	128	865
Other changes	(967)	40	(76)	78	-	(925)

At 31 December 2007	4,701	1,438	2,856	10,957	6,054	26,006

Accumulated depreciation and impairment
At 1 January 2007	(342)	(168)	(723)	(5,974)	(1,835)	(9,042)
Depreciation charge for the year	(93)	(37)	(167)	(1,192)	(205)	(1,694)
Disposals	41	7	95	469	115	727
Reclassified to held for sale	73	23	3	67	-	166
Impairment losses recognised	(26)	-	(5)	(3)	-	(34)
Impairment losses reversed	14	-	-	-	-	14
Exchange differences	(18)	(1)	(19)	(282)	(38)	(358)
Other changes	7	1	(10)	(88)	(1)	(91)

At 31 December 2007	(344)	(175)	(826)	(7,003)	(1,964)	(10,312)

Net carrying amount at 31 December 2007	4,357	1,263	2,030	3,954	4,090	15,694

Net carrying amount at 1 January 2007	4,989	1,768	1,851	3,728	4,088	16,424

1 Including assets held on finance leases with a net book value of US$13 million (2007: US$13 million).

2 Including assets held on finance leases with a net book value of US$315 million (2007: US$397 million).

3 Including assets with a net book value of US$28 million (2007: US$422 million) pledged as security for liabilities.

4 At 31 December 2008, HSBC had US$1,498 million (2007: US$1,011 million) of contractual commitments to acquire property, plant and equipment.

On 31 May 2007, HSBC entered into a contract for the sale and leaseback of the property and long leasehold land comprising 8 Canada Square, London to Metrovacesa, S.A. ('Metrovacesa') for £1,090 million (US$2,154 million). In the normal course of business, HSBC provided finance to Metrovacesa in respect of the debt element of this transaction at arm's length market rates in the form of a bridging loan of £810 million (US$1,601 million) secured by a charge on the property. The equity portion of £280 million (US$553 million) was settled in cash by Metrovacesa on 31 May 2007. At 31 December 2007, the sale was not recognised in the financial statements because HSBC retained a significant interest by virtue of the loan provided to part-finance the purchase of the building. The equity portion received from Metrovacesa was presented in the balance sheet as deferred income at 31 December 2007 with a value of US$562 million.

On 4 December 2008, HSBC purchased Project Maple II, B.V., the subsidiary of Metrovacesa which owned 8 Canada Square, for £838 million (US$1,315 million). At this date the deferred income recognised by HSBC was released to the income statement. The net effect on the income statement for the year ended 31 December 2008 was £244 million (US$383 million), comprising a gain of £265 million (US$416 million) included within 'Other operating income' and a charge of £21 million (US$33 million) included within 'Depreciation and impairment of property, plant and equipment'.

At 31 December 2008, the property has been reclassified to Property plant and equipment and Prepayments and accrued income (representing the long leasehold on the land) because it no longer meets the criteria for recognition as a non-current asset held for sale.

Leasehold land and buildings

Leasehold land and buildings are considered to be held under finance lease contracts where the value of the land cannot reliably be separated from the value of the lease, and the respective contracts do not meet the criteria for classification as operating leases.

Included within 'Short leasehold land and buildings' are the following amounts in respect of assets classed as improvements to buildings, which are carried at depreciated historical cost:

	2008		2007
	Cost	Accumulated depreciation	Cost	Accumulated depreciation
	US$m	US$m	US$m	US$m

At 1 January	1,490	(671)	1,277	(351)
Additions	314	-	294	-
Disposals	(40)	12	(117)	94
Depreciation charge for the year	-	(116)	-	(123)
Exchange differences	(141)	100	43	(10)
Other changes	(2)	-	(7)	(281)

At 31 December	1,621	(675)	1,490	(671)

Net carrying amount at 31 December	946		819

Investment properties

The composition of the investment properties at fair value in the year was as follows:

	Freehold land and buildings	Long leasehold land and buildings	Short leasehold land and buildings	Total
	US$m	US$m	US$m	US$m
Fair value
At 1 January 2008	925	205	216	1,346
Additions at cost	78	-	-	78
Fair value adjustments	(93)	4	(3)	(92)
Disposals	(2)	-	-	(2)
Transfers	-	-	(1)	(1)
Exchange differences	(196)	(15)	5	(206)
Other changes	(146)	(6)	-	(152)

At 31 December 2008	566	188	217	971

	Freehold land and buildings	Long leasehold land and buildings	Short leasehold land and buildings	Total
	US$m	US$m	US$m	US$m
Fair value
At 1 January 2007	1,533	174	242	1,949
Acquisition of subsidiaries	93	-	-	93
Additions at cost	287	-	-	287
Fair value adjustments	25	21	106	152
Disposals	(3)	-	-	(3)
Reclassified as held for sale	(61)	(5)	(48)	(114)
Transfers	-	(2)	4	2
Exchange differences	27	1	(1)	27
Other changes1	(976)	16	(87)	(1,047)

At 31 December 2007	925	205	216	1,346

1 Mainly relating to investment properties of subsidiaries no longer qualifying for consolidation, because HSBC does not have the majority of the risks and rewards of ownership.

Investment properties are valued on an open market value basis as at 31 December each year by independent professional valuers who have recent experience in the location and type of properties. Investment properties in Hong Kong, the Macau Special Administrative Region and mainland China, which represent 25 per cent by value of HSBC's investment properties subject to revaluation, were valued by an independent valuer who is a member of the Hong Kong Institute of Surveyors and who has recent experience in the locations and categories of the investment properties.

Included within 'Other operating income' was rental income of US$23 million (2007: US$42 million; 2006: US$153 million) earned by HSBC on its investment properties. Direct operating expenses of US$2 million (2007: US$3 million; 2006: US$61 million) incurred in respect of the investment properties during the year were recognised in 'General and administrative expenses'. Direct operating expenses arising in respect of investment properties that did not generate rental income during 2008 amounted to nil (2007 and 2006: nil).

HSBC recognised no contractual obligations to purchase, construct, develop, maintain or enhance investment properties (2007: US$22 million).

HSBC Holdings had no investment properties at 31 December 2008 or 2007.

HSBC properties leased to customers

HSBC properties leased to customers included US$396 million at 31 December 2008 (2007: US$387 million) let under operating leases, net of accumulated depreciation of US$9 million (2007: US$18 million). None was held by HSBC Holdings.

24 Investments in subsidiaries

Principal subsidiaries of HSBC Holdings

	At 31 December 2008
	Country of incorporation or registration	HSBC's interest in equity capital %	Issued equity capital	Share class
Europe
HFC Bank Limited	England	100	£109m	Ordinary £1 Preference £1
HSBC Global Asset Management (UK) Limited (formerly HSBC Investments (UK) Limited)	England	100	£37m	Ordinary £0.25 RP1 £1
HSBC Asset Finance (UK) Limited	England	100	£265m	Ordinary £1
HSBC Bank A.S.	Turkey	100	TRL652m	A-Common TRL1 B-Common TRL1
HSBC Bank Malta p.l.c.	Malta	70.03	€88m	Ordinary €0.30
HSBC Bank plc	England	100	£797m	Ordinary £1 Preferred Ordinary £1 Series 2 Third Dollar Preference US$0.01 Third Dollar Preference US$0.01
HSBC France	France	99.99	€337m	Shares €5.00
HSBC Bank International Limited	Jersey	100	£1m	Ordinary £1
HSBC Life (UK) Limited	England	100	£94m	Ordinary £1
HSBC Private Banking Holdings (Suisse) S.A.	Switzerland	100	CHF1m	Ordinary CHF1,000
HSBC Trinkaus & Burkhardt AG	Germany	78.60	€70m	Shares of no par value value
Marks and Spencer Retail Financial Services Holdings Limited	England	100	£67m	Ordinary £1

Hong Kong
Hang Seng Bank Limited	Hong Kong	62.14	HK$9,559m	Ordinary HK$5.00
HSBC Insurance (Asia) Limited	Hong Kong	100	HK$125m	Ordinary HK$1,000
HSBC Life (International) Limited	Bermuda	100	HK$327m	Ordinary HK$1.00
The Hongkong and Shanghai Banking Corporation Limited	Hong Kong	100	HK$22,494m	Ordinary HK$2.50 CIP2 US$1.00 CRP3 US$1.00 NIP4 US$1.00

Rest of Asia-Pacific
HSBC Bank Australia Limited	Australia	100	A$811m	Ordinary A$1.00 Pref A$10,000
HSBC Bank (China) Company Limited	PRC5	100	RMB8,000m	Ordinary CNY1.00
HSBC Bank Egypt S.A.E.	Egypt	94.53	E£1,073m	Ordinary EGP84.00
HSBC Bank Malaysia Berhad	Malaysia	100	RM$114m	Ordinary RM0.50
HSBC Bank Middle East Limited	Jersey	100	US$631m	CRP3 US$1.00 Ordinary US$1.00

North America
The Bank of Bermuda Limited	Bermuda	100	US$30m	Common BMD1.00
HSBC Bank Canada	Canada	100	C$1,225m	Class 1 Pref of NPV6 Class 2 Pref of NPV6 Common of NPV
HSBC Bank USA, N.A.	United States	100	US$2m	Common US$100
HSBC Finance Corporation	United States	100	US$3,038m	Common US$0.01
HSBC Securities (USA) Inc.	United States	100	-7	Common US$0.05

Latin America
HSBC Bank Argentina S.A.	Argentina	99.99	ARS1,244m	Ordinary-A ARS1.00 Ordinary-B ARS1.00
HSBC Bank Brasil S.A. - Banco Múltiplo	Brazil	100	BRL2,289m	Ordinary BRL1.14 Ordinary BRL1.89 Ordinary BRL1.17
HSBC Mexico S.A.	Mexico	99.99	MXN2,471m	Ordinary MXN2.00
HSBC Bank (Panama) S.A.	Panama	100	US$315m	Ordinary PAB 1.00

1 Redeemable Preference shares.

2 Cumulative Irredeemable Preference shares.

3 Cumulative Redeemable Preference shares.

4 Non-cumulative Irredeemable Preference shares.

5 People's Republic of China.

6 Preference shares of nil par value.

7 Issued equity capital is less than US$1 million.

Details of the debt, subordinated debt and preference shares issued by the principal subsidiaries to parties external to the Group are included in the Notes 28 'Debt securities in issue', 32 'Subordinated liabilities' and 36 'Minority interests', respectively.

All the above subsidiaries are included in the HSBC consolidated financial statements.

Details of all HSBC subsidiaries will be annexed to the next Annual Return of HSBC Holdings filed with the UK Registrar of Companies.

All the above make their financial statements up to 31 December except for HSBC Bank Argentina S.A., HSBC La Buenos Aires Seguros S.A. and Maxima S.A. AFJP, whose financial statements are made up to 30 June annually.

The principal countries of operation are the same as the countries of incorporation except for HSBC Bank Middle East Limited which operates mainly in the Middle East and HSBC Life (International) Limited which operates mainly in Hong Kong.

Subsidiaries which experience significant restrictions on their ability to transfer funds to HSBC in the form of cash dividends or to repay loans and advances

During 2008 and 2007, none of the Group's subsidiaries experienced significant restrictions on paying dividends or repaying loans and advances.

Subsidiaries excluding SPEs where HSBC owns less than 50 per cent of the voting rights

Subsidiary	HSBC's interest in equity capital	Description of relationship that gives HSBC control
	%
2008
HSBC Private Equity Fund 3	38.8	HSBC has control under IAS 27 because it is the investment adviser/manager of the fund and has a significant equity interest.
2007
HSBC Private Equity Fund 3	38.8	HSBC has control under IAS 27 because it is the investment adviser/manager of the fund and has a significant equity interest.

SPEs consolidated by HSBC where HSBC owns less than 50 per cent of the voting rights

Carrying value of total consolidated assets		Nature of SPE
	US$bn
2008
Barion Funding Limited	4.5	Structured investment conduit
Bryant Park Funding LLC	5.5	Conduit
Cullinan Funding Ltd	0.4	Structured investment vehicle
HSBC Affinity Corporation I	6.0	Securitisation
HSBC Auto Receivables Corporation	3.5	Securitisation
HSBC Corporate Money Fund (Euro)	0.6	Money market fund
HSBC Home Equity Loan Corporation I	3.5	Securitisation
HSBC Investor Prime Money Market Fund	10.5	Money market fund
HSBC Receivables Funding, Inc I	5.7	Securitisation
HSBC Sterling Liquidity Fund	7.7	Money market fund
HSBC US Dollar Liquidity Fund	25.0	Money market fund
Malachite Funding Limited	4.2	Structured investment conduit
Mazarin Funding Limited	11.5	Structured investment conduit
Metris Receivables Inc	3.6	Securitisation
Metrix Funding Ltd	3.6	Securitisation
Metrix Securities plc	4.2	Securitisation
Regency Assets Limited	8.1	Conduit
Solitaire Funding Ltd	12.1	Conduit
Turquoise Receivable Trustee Ltd	2.3	Securitisation
Carrying value of total consolidated assets		Nature of SPE
	US$bn
2007
Asscher Finance Limited	7.4	Structured investment vehicle
Bryant Park Funding LLC	5.3	Conduit
Cullinan Funding Ltd	33.3	Structured investment vehicle
Household Consumer Loan Corporation	9.3	Securitisation
HSBC Affinity Corporation I	5.8	Securitisation
HSBC Auto Receivables Corporation	5.2	Securitisation
HSBC Home Equity Loan Corporation I	8.2	Securitisation
HSBC Receivables Funding, Inc I	6.0	Securitisation
Metris Receivables Inc	5.5	Securitisation
Metrix Securities plc	4.0	Securitisation
Metrix Funding Ltd	4.1	Securitisation
Regency Assets Limited	9.1	Conduit
Solitaire Funding Ltd	21.6	Conduit
Turquoise Receivable Trustee Ltd	2.3	Securitisation

In each of the above cases, HSBC has less than 50 per cent of the voting rights, but consolidates because it has the majority of risks and rewards of ownership of the SPE, or the substance of the relationship with the SPE is such that its activities are conducted on behalf of HSBC according to its specific business needs so that HSBC obtains benefit from the SPE's operation. HSBC also consolidates a number of other individually insignificant SPEs where it owns less than 50 per cent of the voting rights. The consolidation of SPEs sponsored by HSBC is discussed on page 173.

Acquisitions

There were minor acquisitions and increases in investment in subsidiaries which increased goodwill by US$155 million. This included the acquisition of the assets, liabilities and operations of The Chinese Bank Co., Ltd in Taiwan, which was completed on 29 March 2008. This resulted in HSBC receiving a cash payment of US$1.6 billion from the Taiwan Government's Central Deposit Insurance Corporation to deliver an agreed net asset position. The cash and cash equivalents held on the balance sheet of The Chinese Bank Co., Ltd at this date amounted to US$36 million.

Disposals

On 2 July 2008, HSBC completed the sale of seven French regional banks to Banque Fédérale des Banques Populaires for €2.1 billion (US$3.2 billion). The French regional banks generated net profits after tax of €62 million (US$95 million) for the period to 2 July 2008. The Group's pre-tax profit on sale was US$2.4 billion.

The following assets and liabilities were attributable to the disposal of the French regional banks:

	US$m

Cash	413
Loans and advances to banks and customers	9,097
Other assets	1,126

Total assets	10,636

Deposits by banks	158
Customer accounts	10,285
Other liabilities	308

Total liabilities	10,751

25 Other assets

	2008	2007
	US$m	US$m

Bullion	6,095	9,244
Assets held for sale	2,075	2,804
Reinsurers' share of liabilities under insurance contracts (Note 30)	2,023	1,315
Endorsements and acceptances	10,482	12,248
Other accounts	17,147	13,882

	37,822	39,493

Assets held for sale

	2008	2007
	US$m	US$m
Non-current assets held for sale
Interests in associates	2	2
Property, plant and equipment	2,007	2,502
Investment properties	2	111
Financial assets	62	185
Other	2	4

Total assets classified as held for sale	2,075	2,804

Property, plant and equipment

The property, plant and equipment classified as held for sale is the result of repossession of property that had been pledged as collateral by customers. These assets are disposed of within 12 months of acquisition. Neither a gain nor loss was recognised on reclassifying these assets as held for sale. The majority arose within the geographical segment North America.

8 Canada Square has been reclassified out of 'Assets held for sale', as described in Note 23.

26 Trading liabilities

	2008 US$m	2007 US$m

Deposits by banks	36,537	58,940
Customer accounts	113,053	102,710
Other debt securities in issue	31,288	44,684
Other liabilities - net short positions	66,774	108,246

	247,652	314,580

At 31 December 2008, the cumulative amount of change in fair value attributable to changes in credit risk was a gain of US$563 million (2007: gain of US$34 million).

27 Financial liabilities designated at fair value

HSBC

	2008	2007
	US$m	US$m

Deposits by banks and customer accounts	6,618	7,724
Liabilities to customers under investment contracts	9,283	16,053
Debt securities in issue (Note 28)	34,969	38,587
Subordinated liabilities (Note 32)	20,316	22,831
Preference shares (Note 32)	3,401	4,744

	74,587	89,939

The carrying amount at 31 December 2008 of financial liabilities designated at fair value was US$1,851 million less than the contractual amount at maturity (2007: US$648 million less). At 31 December 2008, the cumulative amount of the change in fair value attributable to changes in credit risk was a gain of US$7,978 million (2007: gain of US$1,619 million).

HSBC Holdings

	2008	2007
	US$m	US$m
Subordinated liabilities (Note 32):
- owed to third parties	13,321	14,496
- owed to HSBC undertakings	3,068	4,187

	16,389	18,683

The carrying amount at 31 December 2008 of financial liabilities designated at fair value was US$969 million less than the contractual amount at maturity (2007: US$130 million less). At 31 December 2008, the cumulative amount of the change in fair value attributable to changes in credit risk was a gain of US$2,638 million (2007: gain of US$548 million).

28 Debt securities in issue


	2008	2007
	US$m	US$m

Bonds and medium-term notes	160,927	221,767
Other debt securities in issue	85,023	108,083

	245,950	329,850
	2008	2007
	US$m	US$m

Bonds and medium-term notes	160,927	221,767
Other debt securities in issue	85,023	108,083

	245,950	329,850
Of which debt securities in issue reported as:
- trading liabilities (Note 26)	(31,288)	(44,684)
- financial liabilities designated at fair value (Note 27)	(34,969)	(38,587)

	179,693	246,579

Certain debt securities in issue are managed on a fair value basis as part of HSBC's interest rate risk management policies. The hedged portion of these debt securities is presented within the balance sheet caption 'Financial liabilities designated at fair value', with the remaining portion included within 'Trading liabilities'. The following table analyses the carrying amount of bonds and medium-term notes in issue at 31 December with original maturities greater than one year:

	2008	2007
	US$m	US$m
Fixed rate
Secured financing:
1.14% to 3.99%: due 2009 to 2013	767	115
4.00% to 4.99%: due 2009 to 2016	1,590	1,409
5.00% to 5.99%: due 2009 to 2017	2,754	13,002
6.00% to 6.99%: due 2008	-	459
7.00% to 8.99%: due 2009 to 2025	14	521
9.00% to 9.99%: due 2009 to 2028	462	-
Other fixed rate senior debt:
0.01% to 3.99%: due 2009 to 2069	21,790	28,322
4.00% to 4.99%: due 2009 to 2046	13,088	20,909
5.00% to 5.99%: due 2009 to 2036	22,357	18,511
6.00% to 6.99%: due 2009 to 2036	11,176	15,400
7.00% to 7.99%: due 2009 to 2032	4,995	4,037
8.00% to 9.99%: due 2009 to 2036	1,822	1,666
10.00% or higher: due 2009 to 2017	884	867

	81,699	105,218

Variable interest rate
Secured financings - 1.00% to 9.99%: due 2009 to 2023	27,741	47,404
FHLB advances - 5.00% to 5.99%: due 2009 to 2036	3,156	5,500
Other variable interest rate senior debt - 2.16% to 9.99%: due 2008 to 2057	43,849	56,244

	74,746	109,148

Structured notes
Interest rate linked	348	770
Equity, equity index or credit-linked	4,134	6,631

	4,482	7,401

Total bonds and medium-term notes	160,927	221,767

29 Other liabilities


	HSBC		HSBC Holdings
	2008	2007	2008	2007
	HSBC		HSBC Holdings
	2008	2007	2008	2007
	US$m	US$m	US$m	US$m

Amounts due to investors in funds consolidated by HSBC	44,539	3,548	-	-
Obligations under finance leases (Note 42)	563	703	-	-
Dividend declared and payable by HSBC Holdings	1,795	1,393	1,795	1,393
Endorsements and acceptances	10,482	12,248	-	-
Other liabilities	15,005	17,121	21	12

	72,384	35,013	1,816	1,405

30 Liabilities under insurance contracts

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
At 31 December 2008
Non-life insurance liabilities
Unearned premium provision	1,136	(159)	977
Notified claims	908	(230)	678
Claims incurred but not reported	368	(41)	327
Other	68	-	68

	2,480	(430)	2,050

Life insurance liabilities to policyholders
Life (non-linked)	17,370	(637)	16,733
Investment contracts with discretionary participation features1	17,766	-	17,766
Life (linked)	6,067	(956)	5,111

	41,203	(1,593)	39,610

Total liabilities under insurance contracts	43,683	(2,023)	41,660

At 31 December 2007
Non-life insurance liabilities
Unearned premium provision	1,279	(181)	1,098
Notified claims	1,063	(380)	683
Claims incurred but not reported	420	(49)	371
Other	92	(43)	49

	2,854	(653)	2,201

Life insurance liabilities to policyholders
Life (non-linked)	14,370	(605)	13,765
Investment contracts with discretionary participation features1	18,983	-	18,983
Life (linked)	6,399	(57)	6,342

	39,752	(662)	39,090

Total liabilities under insurance contracts	42,606	(1,315)	41,291

1 Though investment contracts with discretionary participation features are financial instruments, HSBC continued to treat them as insurance contracts as permitted by IFRS 4.

The movement of liabilities under insurance contracts during the year was as follows:

Non-life insurance liabilities

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
2008
Unearned premium reserve ('UPR')
At 1 January	1,279	(181)	1,098
Changes in UPR recognised as (income)/expense	(58)	3	(55)
Gross written premiums	1,776	(260)	1,516
Gross earned premiums	(1,834)	263	(1,571)
Exchange differences and other movements	(85)	19	(66)

At 31 December	1,136	(159)	977

Notified and incurred but not reported claims
At 1 January	1,483	(429)	1,054
Notified claims	1,063	(380)	683
Claims incurred but not reported	420	(49)	371

Claims paid in current year	(1,044)	158	(886)
Claims incurred in respect of current year	975	(68)	907
Claims incurred in respect of prior years	69	(15)	54
Exchange differences and other movements	(207)	83	(124)

At 31 December	1,276	(271)	1,005
Notified claims	908	(230)	678
Claims incurred but not reported	368	(41)	327


Other	68	-	68

Total non-life insurance liabilities	2,480	(430)	2,050

2007
Unearned premium reserve ('UPR')
At 1 January	1,262	(176)	1,086
Changes in UPR recognised as (income)/expense	(2)	22	20
Gross written premiums	1,853	(385)	1,468
Gross earned premiums	(1,855)	407	(1,448)
Exchange differences and other movements	19	(27)	(8)

At 31 December	1,279	(181)	1,098

Notified and incurred but not reported claims
At 1 January	1,409	(413)	996
Notified claims	949	(355)	594
Claims incurred but not reported	460	(58)	402

Claims paid in current year	(1,017)	207	(810)
Claims incurred in respect of current year	1,035	(189)	846
Claims incurred in respect of prior years	64	18	82
Exchange differences and other movements	(8)	(52)	(60)

At 31 December	1,483	(429)	1,054
Notified claims	1,063	(380)	683
Claims incurred but not reported	420	(49)	371


Other	92	(43)	49

Total non-life insurance liabilities	2,854	(653)	2,201

Life insurance liabilities to policyholders

	Gross	Reinsurers' share	Net
	US$m	US$m	US$m
2008
Life (non-linked)
At 1 January	14,370	(605)	13,765
Benefits paid	(1,491)	172	(1,319)
Increase in liabilities to policyholders	5,480	(792)	4,688
Exchange differences and other movements	(989)	588	(401)

At 31 December	17,370	(637)	16,733

Investment contracts with discretionary participation features
At 1 January	18,983	-	18,983
Benefits paid	(1,911)	-	(1,911)
Increase in liabilities to policyholders	1,743	-	1,743
Exchange differences and other movements	(1,049)	-	(1,049)

At 31 December	17,766	-	17,766

Life (linked)
At 1 January	6,399	(57)	6,342
Benefits paid	(481)	44	(437)
Increase in liabilities to policyholders	939	(1,442)	(503)
Exchange differences and other movements1	(790)	499	(291)

At 31 December	6,067	(956)	5,111

Total liabilities to policyholders	41,203	(1,593)	39,610

2007
Life (non-linked)
At 1 January	11,026	(1,046)	9,980
Benefits paid	(940)	169	(771)
Increase in liabilities to policyholders	3,377	349	3,726
Acquisitions of subsidiaries	702	-	702
Exchange differences and other movements	205	(77)	128

At 31 December	14,370	(605)	13,765

Investment contracts with discretionary participation features
At 1 January	20	-	20
Benefits paid	(1,080)	-	(1,080)
Increase in liabilities to policyholders	2,188	-	2,188
Acquisitions of subsidiaries	16,406	-	16,406
Exchange differences and other movements	1,449	-	1,449

At 31 December	18,983	-	18,983

Life (linked)
At 1 January	3,685	(58)	3,627
Benefits paid	(790)	(45)	(835)
Increase in liabilities to policyholders	2,886	(1,120)	1,766
Acquisitions of subsidiaries	339	-	339
Exchange differences and other movements1	279	1,166	1,445

At 31 December	6,399	(57)	6,342

Total liabilities to policyholders	39,752	(662)	39,090

1 Includes amounts arising under reinsurance agreements.

The increase in liabilities to policyholders represents the aggregate of all events giving rise to additional liabilities to policyholders in the year. These include death claims, surrenders, lapses, the setting up of liability to policyholders at the initial inception of the policy, the declaration of bonuses and other amounts attributable to policyholders.

31 Provisions

	2008	2007
	US$m	US$m

At 1 January	1,958	1,763
Additional provisions/increase in provisions1	738	1,307
Provisions utilised	(624)	(986)
Amounts reversed	(147)	(318)
Exchange differences and other movements	(195)	192

At 31 December	1,730	1,958

1 The increase in provisions includes the unwinding of discounts of US$3 million (2007: US$1 million) in relation to vacant space provisions and US$21 million (2007: US$24 million) in relation to Brazilian provisions for civil and fiscal labour claims.

Included within provisions are:

(i) Provisions for onerous property contracts of US$85 million (2007: US$56 million), of which US$20 million (2007: US$33 million) relates to discounted future costs associated with leasehold properties that became vacant as a consequence of HSBC's move to Canary Wharf in 2002. The provisions cover rent voids while finding new tenants, shortfalls in expected rent receivable compared with rent payable and the cost of refurbishing the buildings to attract tenants. Uncertainties arise from movements in market rents, delays in finding new tenants and the timing of rental reviews.

(ii) Labour, civil and fiscal litigation provisions in HSBC's Brazil operations of US$334 million (2007: US$391 million). These relate to labour and overtime litigation claims brought by employees after leaving the bank. The provisions are based on the expected number of departing employees, their individual salaries and historical trends. The timing of the settlement of these claims is uncertain.

(iii) Provisions of US$439 million (2007: US$444 million) have been made in respect of costs arising from contingent liabilities and contractual commitments (Note 40), including guarantees of US$35 million (2007: US$29 million) and commitments of US$192 million (2007: US$125 million).

32 Subordinated liabilities

HSBC


	2008	2007
	US$m	US$m
Subordinated liabilities
At amortised cost	29,433	24,819
- subordinated liabilities	24,618	19,308
- preferred securities	4,815	5,511

Designated at fair value (Note 27)	23,717	27,575
- subordinated liabilities	20,316	22,831
- preferred securities	3,401	4,744


	53,150	52,394

Subordinated liabilities
HSBC Holdings	23,544	18,931
Other HSBC	29,606	33,463

	53,150	52,394
	2008	2007
	US$m	US$m
Subordinated liabilities
At amortised cost	29,433	24,819
- subordinated liabilities	24,618	19,308
- preferred securities	4,815	5,511

Designated at fair value (Note 27)	23,717	27,575
- subordinated liabilities	20,316	22,831
- preferred securities	3,401	4,744


	53,150	52,394

Subordinated liabilities
HSBC Holdings	23,544	18,931
Other HSBC	29,606	33,463

	53,150	52,394

HSBC's subordinated liabilities

		2008	2007
		US$m	US$m

Amounts owed to third parties by HSBC Holdings (see below)		23,544	18,931

Other HSBC subordinated liabilities
€1,400m	5.3687% non-cumulative step-up perpetual preferred securities1	1,532	2,018
US$1,350m	9.547% non-cumulative step-up perpetual preferred securities, Series 11	1,337	1,335
US$1,200m	Undated floating rate primary capital notes	1,214	1,207
€800m	Callable subordinated floating rate notes 20163	1,116	1,176
£700m	5.844% non-cumulative step-up perpetual preferred securities2	1,021	1,404
US$1,000m	4.625% subordinated notes 2014	1,001	1,001
US$1,000m	5.911% trust preferred securities 20354	992	992
US$1,000m	5.875% subordinated notes 2034	953	990
US$900m	10.176% non-cumulative step-up perpetual preferred securities, Series 21	900	900
£600m	4.75% subordinated notes 2046	863	1,186
€600m	8.03% non-cumulative step-up perpetual preferred securities1	834	878
€600m	4.25% callable subordinated notes 20166	831	881
€750m	5.13% non-cumulative step-up perpetual preferred securities1	790	1,039
US$750m	Undated floating rate primary capital notes	750	750
US$1,250m	4.61% non-cumulative step-up perpetual preferred securities1	745	1,130
£500m	8.208% non-cumulative step-up perpetual preferred securities1	724	996
US$750m	5.625% subordinated notes 2035	715	653
US$700m	7.00% subordinated notes 2039	694	-
£500m	4.75% callable subordinated notes 20205	675	931
£500m	5.375% subordinated notes 2033	659	931
€500m	Callable subordinated floating rate notes 20208	567	676
£350m	Callable subordinated variable coupon notes 20177	518	712
US$500m	Undated floating rate primary capital notes	500	500
US$500m	6.00% subordinated notes 2017	498	498
£350m	5% callable subordinated notes 20239	481	672
£350m	5.375% callable subordinated step-up notes 203010	461	652
US$450m	Callable subordinated floating rate notes 20163	449	448
£300m	6.5% subordinated notes 2023	436	598
US$300m	7.65% subordinated notes 2025	384	359
£300m	5.862% non-cumulative step-up perpetual preferred securities2	333	558
£225m	6.25% subordinated notes 2041	325	447
US$300m	6.95% subordinated notes 2011	324	325
US$300m	Undated floating rate primary capital notes, Series 3	300	301
US$300m	Callable subordinated floating rate notes 201711	299	299
CAD400m	4.80% subordinated notes 2022	277	389
US$250m	7.20% subordinated debentures 2097	218	218
BRL500m	Subordinated certificate of deposit 2016	215	281
US$200m	7.75% subordinated notes 2009	203	202
US$200m	7.808% capital securities 2026	200	200
US$200m	8.38% capital securities 2027	200	200
US$200m	6.625% subordinated notes 2009	198	199
CAD200m	4.94% subordinated debentures 2021	163	207
BRL608m	Subordinated debentures 2008	-	341
US$250m	5.875% subordinated notes 2008	-	248
	Other subordinated liabilities each less than US$200m	3,711	3,535

		29,606	33,463

		53,150	52,394

Subordinated loan capital is repayable at par on maturity, but some is repayable prior to maturity at the option of the borrower, generally subject to prior notification to the Financial Services Authority, and, where relevant, the consent of the local banking regulator, and in certain cases at a premium over par. Interest rates on the floating rate loan capital are related to interbank offered rates. On the remaining subordinated loan capital, interest is payable at fixed rates up to 10.176 per cent.

1 See 'Step-up perpetual preferred securities' below, note (a) 'Guaranteed by HSBC Holdings'.

2 See 'Step-up perpetual preferred securities' below, note (b) 'Guaranteed by HSBC Bank'.

3 The interest margin on the €800 million and US$450 million callable subordinated floating rate notes 2016 increases by 0.5 per cent from March 2011 and July 2011, respectively.

4 The distributions on the trust preferred securities change in November 2015 to three-month dollar LIBOR plus 1.926 per cent.

5 The interest rate on the 4.75 per cent callable subordinated notes 2020 changes in September 2015 to three-month sterling LIBOR plus 0.82 per cent.

6 The interest rate on the 4.25 per cent callable subordinated notes changes in March 2011 to three-month EURIBOR plus 1.05 per cent.

7 The interest rate on the callable subordinated variable coupon notes 2017 is fixed at 5.75 per cent until June 2012. Thereafter, the rate per annum is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.70 per cent.

8 The interest margin on the callable subordinated floating rate notes 2020 increases by 0.5 per cent from September 2015.

9 The interest rate on the 5 per cent callable subordinated notes 2023 changes in March 2018 to become the rate per annum which is the sum of the gross redemption yield of the prevailing five-year UK gilt plus 1.80 per cent.

10 The interest rate on the 5.375 per cent callable subordinated step-up notes 2030 changes in November 2025 to three-month sterling LIBOR plus 1.50 per cent.

11 The interest margin on the callable subordinated floating rate notes 2017 increases by 0.5 per cent from July 2012.

Footnotes 3 to 10 all relate to notes that are repayable at the option of the borrower on the date of the change of the interest rate, and at subsequent interest rate reset dates and interest payment dates in some cases, subject to prior notification to the Financial Services Authority and, where relevant, the consent of the local banking regulator.

Step-up perpetual preferred securities

(a) Guaranteed by HSBC Holdings

The seven issues of non-cumulative step-up perpetual preferred securities (footnote 1) were made by Jersey limited partnerships and are guaranteed, on a subordinated basis, by HSBC Holdings. The proceeds of the issues were on-lent to HSBC Holdings by the limited partnerships by issue of subordinated notes. The preferred securities qualify as innovative tier 1 capital for HSBC. The preferred securities, together with the guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon liquidation of HSBC Holdings that are equivalent to the rights that they would have had if they had purchased non-cumulative perpetual preference shares of HSBC Holdings.

The preferred securities are perpetual, but redeemable in 2014, 2010, 2030, 2012, 2016, 2013 and 2015, respectively, at the option of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become floating rate or, for the sterling issue, for each successive five-year period the sum of the then five-year benchmark UK gilt plus a margin. There are limitations on the payment of distributions if prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC's capital adequacy requirements, or if HSBC Holdings has insufficient distributable reserves (as defined).

HSBC Holdings has covenanted that if it is prevented under certain circumstances from paying distributions on the preferred securities in full, it will not pay dividends or other distributions in respect of its ordinary shares, or effect repurchase or redemption of its ordinary shares, until after a distribution has been paid in full.

If (i) HSBC's total capital ratio falls below the regulatory minimum ratio required, or (ii) the Directors expect that, in view of the deteriorating financial condition of HSBC Holdings, the former will occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Holdings having economic terms which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.

(b) Guaranteed by HSBC Bank

The two issues of non-cumulative step-up perpetual preferred securities (footnote 2) were made by Jersey limited partnerships and are guaranteed, on a subordinated basis, by HSBC Bank. The proceeds of the issues were on-lent to HSBC Bank by the limited partnerships by issue of subordinated notes. The preferred securities qualify as innovative tier 1 capital for HSBC and for HSBC Bank on a solo and consolidated basis and, together with the guarantee, are intended to provide investors with rights to income and capital distributions and distributions upon liquidation of HSBC Bank that are equivalent to the rights they would have had if they had purchased non-cumulative perpetual preference shares of HSBC Bank.

The two issues of preferred securities are perpetual, but redeemable in 2031 and 2020, respectively, at the option of the general partner of the limited partnerships. If not redeemed, the distributions payable step-up and become floating rate. The same limitations on the payment of distributions apply to HSBC Bank as to HSBC Holdings, as described above. HSBC Bank has provided a similar covenant to that provided by HSBC Holdings, also as described above.

If (i) any of the two issues of preferred securities are outstanding in November 2048 or April 2049, respectively, or (ii) the total capital ratio of HSBC Bank on a solo and consolidated basis falls below the regulatory minimum ratio required, or (iii) in view of the deteriorating financial condition of HSBC Bank, the Directors expect (ii) to occur in the near term, then the preferred securities will be substituted by preference shares of HSBC Bank having economic terms which are in all material respects equivalent to those of the preferred securities and the guarantee taken together.

HSBC Holdings


	2008	2007
	US$m	US$m
Subordinated liabilities:
- At amortised cost	14,017	8,544
- Designated at fair value (Note 27)	16,389	18,683

	30,406	27,227
	2008	2007
	US$m	US$m
Subordinated liabilities:
- At amortised cost	14,017	8,544
- Designated at fair value (Note 27)	16,389	18,683

	30,406	27,227

HSBC Holdings subordinated borrowings

		2008 US$m	2007 US$m
Amounts owed to third parties
€2,000m	Callable subordinated floating rate notes 20141	2,805	2,905
US$2,500m	6.5% subordinated notes 2037	2,669	2,495
€1,600m	6.25% subordinated notes 2018	2,231	-
US$2,000m	6.5% subordinated notes 2036	2,052	2,058
US$1,500m	6.8% subordinated notes 2038	1,484	-
US$1,400m	5.25% subordinated notes 2012	1,455	1,413
€1,000m	5.375% subordinated notes 2012	1,403	1,488
£900m	6.375% callable subordinated notes 20222	1,330	1,858
£750m	7.0% subordinated notes 2038	1,140	-
US$1,000m	7.5% subordinated notes 2009	1,068	1,077
£650m	6.75% subordinated notes 2028	938	-
£650m	5.75% subordinated notes 2027	878	1,262
€700m	3.625% callable subordinated notes 20203	840	922
US$750m	Callable subordinated floating rate note 20161	750	750
US$750m	Callable subordinated floating rate notes 20151	750	750
US$488m	7.625% subordinated notes 2032	609	609
£250m	9.875% subordinated bonds 20184	441	619
€300m	5.5% subordinated notes 2009	432	457
US$222m	7.35% subordinated notes 2032	269	268

		23,544	18,931

Amounts owed to HSBC undertakings
€1,400m	5.3687% fixed/floating subordinated notes 2043 - HSBC Capital Funding (Euro 2) LP	1,532	2,018
US$1,350m	9.547% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Dollar 1) LP	1,337	1,335
US$900m	10.176% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Dollar 1) LP	900	900
€600m	8.03% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Euro 1) LP	834	878
€750m	5.13% fixed/floating subordinated notes 2044 - HSBC Capital Funding (Euro 3) LP	790	1,039
US$1,250m	4.61% fixed/floating subordinated notes 2043 - HSBC Capital Funding (Dollar 2) LP	745	1,130
£500m	8.208% subordinated step-up cumulative notes 2040 - HSBC Capital Funding (Sterling 1) LP	724	996

		6,862	8,296

		30,406	27,227

1 The interest margins on the callable subordinated floating rate notes 2014, 2015 and 2016 increase by 0.5 per cent from September 2009, March 2010 and October 2011 respectively. The notes are repayable from their step up date at the option of the borrower, subject to the prior notification of the Financial Services Authority ('FSA').

2 The interest rate on the 6.375 per cent callable subordinated notes 2022 changes in October 2017 to become three-month sterling LIBOR plus 1.3 per cent. The notes may be redeemed at par from October 2017 at the option of the borrower, subject to the prior notification of the FSA.

3 The interest rate on the 3.625 per cent callable subordinated notes 2020 changes in June 2015 to become three-month EURIBOR plus 0.93 per cent. The notes may be redeemed at par from June 2015 at the option of the borrower, subject to the prior notification of the FSA.

4 The interest rate on the 9.875 per cent subordinated bonds 2018 changes in April 2013 to become the higher of (i) 9.875 per cent or (ii) the sum of the yield on the relevant benchmark treasury stock plus 2.5 per cent. The bonds may be redeemed in April 2013 at par and redemption has also been allowed from April 1998, subject to the prior notification of the FSA, for an amount based on the redemption yields of the relevant benchmark treasury stocks.

33 Maturity analysis of assets and liabilities

The following is an analysis, by remaining contractual maturities at the balance sheet date, of asset and liability line items that represent amounts expected to be recovered or settled within one year, and after more than one year.

Trading assets and liabilities are excluded because they are not held for collection or settlement over the period of contractual maturity.

HSBC

	At 31 December 2008
	Due within one year	Due after more than one year	Total
	US$m	US$m	US$m
Assets
Financial assets designated at fair value	4,735	23,798	28,533
Loans and advances to banks	146,268	7,498	153,766
Loans and advances to customers	407,582	525,286	932,868
Financial investments	111,027	189,208	300,235
Other financial assets	27,642	6,308	33,950

	697,254	752,098	1,449,352

Liabilities
Deposits by banks	123,835	6,249	130,084
Customer accounts	1,083,426	31,901	1,115,327
Financial liabilities designated at fair value	7,368	67,219	74,587
Debt securities in issue	107,094	72,599	179,693
Other financial liabilities	70,898	4,860	75,758
Subordinated liabilities	745	28,688	29,433

	1,393,366	211,516	1,604,882

	At 31 December 2007
	Due within one year	Due after more than one year	Total
	US$m	US$m	US$m
Assets
Financial assets designated at fair value	5,752	35,812	41,564
Loans and advances to banks	222,674	14,692	237,366
Loans and advances to customers	438,246	543,302	981,548
Financial investments	103,492	179,508	283,000
Other financial assets	24,087	6,390	30,477

	794,251	779,704	1,573,955

Liabilities
Deposits by banks	124,475	7,706	132,181
Customer accounts	1,066,148	29,992	1,096,140
Financial liabilities designated at fair value	6,217	83,722	89,939
Debt securities in issue	143,651	102,928	246,579
Other financial liabilities	33,056	4,352	37,408
Subordinated liabilities	341	24,478	24,819

	1,373,888	253,178	1,627,066

HSBC Holdings

	At 31 December 2008
	Due within one year	Due after more than one year	Total
	US$m	US$m	US$m
Assets
Loans and advances to HSBC undertakings	4,842	6,962	11,804
Financial investments	-	2,629	2,629
Other financial assets	25	-	25

	4,867	9,591	14,458

Liabilities
Amounts owed to HSBC undertakings	176	3,866	4,042
Financial liabilities designated at fair value	1,500	14,889	16,389
Other financial liabilities	1,805	11	1,816
Subordinated liabilities	-	14,017	14,017

	3,481	32,783	36,264

	At 31 December 2007
	Due within one year	Due after more than one year	Total
	US$m	US$m	US$m
Assets
Loans and advances to HSBC undertakings	7,371	9,871	17,242
Financial investments	346	2,676	3,022
Other financial assets	21	-	21

	7,738	12,547	20,285

Liabilities
Amounts owed to HSBC undertakings	1,906	1,063	2,969
Financial liabilities designated at fair value	-	18,683	18,683
Other financial liabilities	1,397	8	1,405
Subordinated liabilities	-	8,544	8,544

	3,303	28,298	31,601

34 Foreign exchange exposures

Structural foreign exchange exposures

HSBC's structural foreign exchange exposures are represented by the net asset value of its foreign exchange equity and subordinated debt investments in subsidiaries, branches, joint ventures and associates. Gains or losses on structural foreign exchange exposures are recognised directly in equity. HSBC's management of its structural foreign exchange exposures is discussed in the 'Report of the Directors: Risk' on page 242.

In its separate financial statements, HSBC Holdings recognises its foreign exchange gains and losses on structural foreign exchange exposures in the income statement.

Net structural foreign exchange exposures

	2008	2007
	US$m	US$m
Currency of structural exposure
Euro	23,137	23,985
Pound sterling	15,319	24,527
Chinese renminbi	11,927	10,892
Mexican pesos	4,127	5,247
Hong Kong dollars	3,929	4,635
UAE dirhams	3,472	2,182
Canadian dollars	3,423	4,136
Brazilian reais	3,381	4,007
Indian rupees	3,252	2,699
Swiss francs	2,192	2,657
Turkish lira	1,505	1,796
Korean won	1,243	1,282
Malaysian ringgit	1,148	1,044
Australian dollars	690	940
Singapore dollars	534	432
Saudi riyals1	530	404
Egyptian pounds	517	392
Argentine pesos	510	370
Taiwanese dollars	485	382
Vietnamese dong	483	331
Philippine pesos	445	459
Thai baht	404	384
Costa Rican colon	378	375
Honduran lempira	341	325
Qatari rial	272	197
Russian rouble	268	114
Japanese yen	263	300
Indonesian rupiah	221	221
Omani rial	210	140
Colombian peso	185	202
Chilean pesos	176	214
South African rand	151	148
Jordanian dinar	147	116
New Zealand dollars	124	169
Bahraini dinar	114	106
Others, each less than US$100 million	732	686
Maltese lira	-	270

Total	86,235	96,766

1 After deducting sales of Saudi riyals amounting to nil (2007: US$750 million) in order to manage the foreign exchange risk of the investments.

All resulting exchange differences on consolidation of foreign operations are recognised in a separate component of equity. Shareholders' equity would decrease by US$1,830 million (2007: US$2,426 million) if euro and sterling foreign currency exchange rates weakened by 5 per cent relative to the US dollar.

35 Assets charged as security for liabilities and collateral accepted as security for assets

Financial assets pledged to secure liabilities were as follows:

	Assets pledged at 31 December
	2008	2007
	US$m	US$m

Treasury bills and other eligible securities	3,434	7,200
Loans and advances to banks	6,949	7,389
Loans and advances to customers	70,209	78,755
Debt securities	185,224	219,956
Equity shares	4,326	19,257
Other	439	3,933

	270,581	336,490

These transactions are conducted under terms that are usual and customary to collateralised transactions, including, where relevant, standard securities lending and repurchase agreements.

Collateral accepted as security for assets

The fair value of assets accepted as collateral that HSBC is permitted to sell or repledge in the absence of default is US$225,748 million (2007: US$329,893 million). The fair value of any such collateral that has been sold or repledged was US$159,256 million (2007: US$212,956 million). HSBC is obliged to return equivalent securities.

These transactions are conducted under terms that are usual and customary to standard securities borrowing and reverse repurchase agreements.

36 Minority interests

	2008	2007
	US$m	US$m

Minority interests attributable to holders of ordinary shares in subsidiaries	4,227	4,775
Preference shares issued by subsidiaries	2,411	2,481

	6,638	7,256

Preference shares issued by subsidiaries

		2008	2007
		US$m	US$m

US$575m	6.36% non-cumulative preferred stock, Series B1	559	559
US$518m	Floating rate non-cumulative preferred stock, Series F2	518	518
US$374m	Floating rate non-cumulative preferred stock, Series G3	374	374
US$374m	6.50% non-cumulative preferred stock, Series H3	374	374
CAD175m	Non-cumulative redeemable class 1 preferred shares, Series C4	143	178
CAD175m	Non-cumulative class 1 preferred shares, Series D4	143	178
US$150m	Depositary shares each representing 25% interest in a share of adjustable-rate cumulative preferred stock, Series D5	150	150
US$150m	Cumulative preferred stock6	150	150

		2,411	2,481

1 The Series B preferred stock is redeemable at the option of HSBC Finance Corporation, in whole or in part, from 24 June 2010 at par.

2 The Series F preferred stock is redeemable at par at the option of HSBC USA Inc., in whole or in part, on any dividend payment date on or after 7 April 2010.

3 The Series G and Series H preferred stock are redeemable at par at the option of HSBC USA Inc., in whole or in part, at any time from 1 January 2011 and 1 July 2011, respectively.

4 The Series C and Series D preferred stock are redeemable at a declining premium above par at the option of HSBC Bank Canada, in whole or in part, from 30 June 2010 and 31 December 2010, respectively.

5 The preferred stock has been redeemable at the option of HSBC USA Inc., in whole or in part, from 1 July 1999 at par.

6 The preferred stock has been redeemable at the option of HSBC USA Inc., in whole or in part, from 1 October 2007 at par.

All redemptions are subject to prior notification to the Financial Services Authority and, where relevant, the local banking regulator.

37 Called up share capital and other equity instruments

Authorised

At 31 December 2008 and 2007, the authorised ordinary share capital of HSBC Holdings was US$7,500 million divided into 15,000 million ordinary shares of US$0.50 each.

At 31 December 2008 and 2007, the authorised preference share capital of HSBC Holdings was 10 million non-cumulative preference shares of £0.01 each, 10 million non-cumulative preference shares of US$0.01 each, and 10 million non-cumulative preference shares of €0.01 each.

At 31 December 2008 and 2007, the authorised non-voting deferred share capital of HSBC Holdings was £301,500 divided into 301,500 non-voting deferred shares of £1 each.

Issued

	2008	2007
	US$m	US$m

HSBC Holdings ordinary shares	6,053	5,915

	Number	US$m
HSBC Holdings ordinary shares
At 1 January 2008	11,829,052,317	5,915
Shares issued under HSBC Finance share plans	65,198	-
Shares issued under HSBC employee share plans	40,578,468	20
Shares issued in lieu of dividends	235,569,099	118

At 31 December 2008	12,105,265,082	6,053

At 1 January 2007	11,572,207,735	5,786
Shares issued under HSBC Finance share plans	685,005	-
Shares issued under HSBC employee share plans	32,620,922	17
Shares issued in lieu of dividends	223,538,655	112

At 31 December 2007	11,829,052,317	5,915

All ordinary shares in issue confer identical rights in respect of capital, dividends, voting and otherwise.

	Number	US$m
HSBC Holdings non-cumulative preference shares of US$0.01 each

At 1 January 2008 and 31 December 2008	1,450,000	-

At 1 January 2007 and 31 December 2007	1,450,000	-

Dividends on the HSBC Holdings non-cumulative dollar preference shares in issue are paid quarterly at the sole and absolute discretion of the Board of Directors. The Board of Directors will not declare a dividend on the preference shares in issue if payment of the dividend would cause HSBC Holdings not to meet the applicable capital adequacy requirements of the FSA or the profit of HSBC Holdings available for distribution as dividends is not sufficient to enable HSBC Holdings to pay in full both dividends on the preference shares in issue and dividends on any other shares that are scheduled to be paid on the same date and that have an equal right to dividends. HSBC Holdings may not declare or pay dividends on any class of its shares ranking lower in the right to dividends than the preference shares in issue nor redeem nor purchase in any manner any of its other shares ranking equal with or lower than the preference shares in issue unless it has paid in full, or set aside an amount to provide for payment in full, the dividends on the preference shares in issue for the then-current dividend period. The preference shares in issue carry no rights to conversion into ordinary shares of HSBC Holdings. Holders of the preference shares in issue will only be entitled to attend and vote at general meetings of shareholders of HSBC Holdings if the dividend payable on the preference shares in issue has not been paid in full for four consecutive dividend payment dates. In such circumstances, holders of the preference shares in issue will be entitled to vote on all matters put to general meetings until such time as HSBC Holdings has paid a full dividend on the preference shares in issue. HSBC Holdings may redeem the preference shares in issue in whole at any time on or after 16 December 2010, subject to prior notification to the FSA.

HSBC Holdings non-voting deferred shares

The 301,500 non-voting deferred shares were in issue throughout 2007 and 2008 and are held by a subsidiary of HSBC Holdings. Holders of the non-voting deferred shares are not entitled to receive dividends on these shares. In addition, on winding-up or other return of capital, holders are entitled to receive the amount paid up on their shares after distribution to ordinary shareholders of £10 million in respect of each ordinary share held by them.

Other equity instruments

On 9 April 2008, HSBC Holdings issued, in bearer form, 88 million 8.125 per cent Perpetual Subordinated Capital Securities ('Capital Securities'), each with a par value of US$25 and with an aggregate nominal value of US$2,200 million. The securities were issued at par value, raising US$2,133 million, net of issuance costs. The Capital Securities were issued to support the development of and to strengthen further HSBC's capital base. Coupon payments on the Capital Securities are paid quarterly in arrears from 15 July 2008 and may be deferred at the discretion of HSBC Holdings. The Capital Securities have no fixed maturity and are redeemable at HSBC's option on or after 15 April 2013 at their principal amounts together with any accrued, unpaid and deferred coupon payments. While any coupon payments are unpaid or deferred, HSBC Holdings will not declare, pay dividends or make distributions or similar periodic payments in respect of, or repurchase, redeem or otherwise acquire any securities of lower or equal rank. At the Company's discretion, and subject to certain conditions being satisfied, the Capital Securities may be exchanged on any coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and which would rank pari passu with the dollar preference shares in issue at 2 March 2009. The preference shares will be issued at a nominal value of US$0.01 per share and a premium of US$24.99 per share, with both such amounts being subscribed and fully paid.

Shares under option

Details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings Group Share Option Plan, HSBC Holdings Executive Share Option Scheme, the HSBC Share Plan and HSBC Holdings savings-related share option plans are given in Note 10. In aggregate, options outstanding under these plans were as follows:

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2008	211,226,573	2009 to 2015	£5.3496 - 9.642
	11,344,167	2009 to 2014	HK$103.4401 - 108.4483
	1,304,119	2009 to 2014	€8.6720 - 11.0062
	7,382,145	2009 to 2014	US$13.3290 - 14.7478

31 December 2007	240,726,775	2008 to 2015	£5.3496 - 9.642
	12,839,412	2008 to 2013	HK$103.4401 - 108.4483
	823,472	2008 to 2013	€10.4217 - 11.0062
	6,324,920	2008 to 2013	US$13.3290 - 14.7478

31 December 2006	269,423,027	2007 to 2015	£5.0160 - 9.642
	6,661,998	2007 to 2012	HK$103.4401
	270,473	2007 to 2012	€11.0062
	2,932,100	2007 to 2012	US$13.3290 - 14.1621

HSBC France and subsidiary company plans

Following the acquisition of HSBC France in 2000, outstanding employee share options over HSBC France shares vested. On exercise of the options, the HSBC France shares are exchangeable for HSBC Holdings ordinary shares in the same ratio as for the acquisition of HSBC France (13 HSBC Holdings ordinary shares for each HSBC France share).

During 2008, 221,154 (2007: 280,850) HSBC France shares were issued following the exercise of employee share options and were exchanged for 2,875,002 HSBC Holdings ordinary shares. These shares were delivered from the HSBC Holdings Employee Benefit Trust 2001 (No. 1) (2007: 3,651,050 HSBC Holdings ordinary shares). During 2008, no options over HSBC France shares lapsed (2007: nil). During 2007 and 2008 no HSBC France shares previously issued following the exercise of employee share options were exchanged for HSBC Holdings ordinary shares. At 31 December 2008, The HSBC Holdings Employee Benefit Trust 2001 (No. 1) held 8,790,276 (2007: 11,665,278) HSBC Holdings ordinary shares which may be exchanged for HSBC France shares arising from the exercise of options.

HSBC France options effectively outstanding over HSBC Holdings ordinary shares under this arrangement were as follows:

	Number of HSBC France shares exchangeable for HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2008	787,877	2009 to 2010	€81.71 - 142.50
31 December 2007	1,009,031	2008 to 2010	€73.48 - 142.50
31 December 2006	1,287,881	2007 to 2010	€37.05 - 142.50

HSBC Private Bank France plan

There are also outstanding options over the shares of HSBC Private Bank France, a subsidiary of HSBC France.

On exercise of options over shares of HSBC Private Bank France, the HSBC Private Bank France shares are exchangeable for HSBC Holdings ordinary shares in the ratio of 1.83 HSBC Holdings shares for each HSBC Private Bank France share. During 2008, 7,000 (2007: 61,880) HSBC Private Bank France shares were issued following the exercise of employee share options and exchanged for 12,810 (2007: 113,234) HSBC Holdings ordinary shares, such shares being delivered from The CCF Employee Benefit Trust 2001 (Private Banking France). During 2008, no options over HSBC Private Bank France shares lapsed (2007: nil). During 2008, no (2007: 8,819) HSBC Private Bank France shares previously issued following the exercise of employee share options were exchanged for HSBC Holdings ordinary shares (2007: 16,137). There were 333,976 HSBC Private Bank France employee share options exchangeable for HSBC Holdings ordinary shares outstanding at 31 December 2008 (2007: 340,976). At 31 December 2008, The CCF Employee Benefit Trust 2001 (Private Banking France) held 943,142 (2007: 955,952) HSBC Holdings ordinary shares which may be exchanged for HSBC Private Bank France shares arising from the exercise of options.

HSBC Private Bank France options effectively outstanding over HSBC Holdings ordinary shares under this arrangement were as follows:

	Number of HSBC Private Bank France shares exchangeable for HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2008	333,976	2009 to 2012	€10.84 - 22.22
31 December 2007	340,976	2008 to 2012	€10.84 - 22.22
31 December 2006	411,675	2007 to 2012	€10.84 - 22.22

HSBC Finance and subsidiary company plans

Following the acquisition of HSBC Finance in 2003, all outstanding options and equity-based awards over HSBC Finance common shares were converted into rights to receive HSBC Holdings ordinary shares in the same ratio as the share exchange offer for HSBC Finance (2.675 HSBC Holdings ordinary shares for each HSBC Finance common share) and the exercise prices per share adjusted accordingly. During 2008, options and equity-based awards over 327,635 (2007: 5,370,104) HSBC Holdings ordinary shares were exercised and 169,138 (2007: 4,602,172) HSBC Holdings ordinary shares delivered from The HSBC (Household) Employee Benefit Trust 2003 to satisfy the exercise of these options. During 2008, options over 718,793 (2007: 399,823) HSBC Holdings ordinary shares lapsed. At 31 December 2008, The HSBC (Household) Employee Benefit Trust 2003 held a total of 1,687,279 (2007: 1,856,417) HSBC Holdings ordinary shares and 196,455 (2007: 196,455) ADSs, which may be used to satisfy the exercise of these options and equity-based awards under the HSBC Finance share plans. Each ADS represents five HSBC Holdings ordinary shares.

Options (and, in 2007 and 2006, equity-based awards) outstanding over HSBC Holdings ordinary shares under the HSBC Finance share plans were as follows:

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2008	20,681,582	2009 to 2012	US$10.66 - US$21.37
31 December 2007	21,728,010	2008 to 2012	nil - US$21.37
31 December 2006	27,497,937	2007 to 2012	nil - US$21.37

Bank of Bermuda plan

Following the acquisition of Bank of Bermuda in 2004, all outstanding employee share options over Bank of Bermuda shares were converted into rights to receive HSBC Holdings ordinary shares based on the consideration of US$40 for each Bank of Bermuda share and the average closing price of HSBC Holdings ordinary shares, derived from the London Stock Exchange Daily Official List, for the five business days preceding the closing date of the acquisition. During 2008, options over 12,847 HSBC Holdings ordinary shares were exercised (2007: 377,046) and delivered from the HSBC (Bank of Bermuda) Employee Benefit Trust 2004 to satisfy the exercise of these options. During 2008, options over 95,915 (2007: 11,228) HSBC Holdings ordinary shares lapsed. At 31 December 2008, the HSBC (Bank of Bermuda) Employee Benefit Trust 2004 held 1,877,056 (2007: 1,889,903) HSBC Holdings ordinary shares which may be used to satisfy the exercise of options.

Options outstanding over HSBC Holdings ordinary shares under the Bank of Bermuda share plans were as follows:

	Number of HSBC Holdings ordinary shares	Period of exercise	Exercise price

31 December 2008	2,205,321	2009 to 2013	US$7.04 - 18.35
31 December 2007	2,314,083	2008 to 2013	US$7.04 - 18.35
31 December 2006	2,710,368	2007 to 2013	US$7.04 - 18.35

Maximum obligation to deliver HSBC Holdings ordinary shares

At 31 December 2008, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements, together with Performance Share and Restricted Share awards under the HSBC Holdings Restricted Share Plan 2000 and the HSBC Share Plan, was 400,887,713 (2007: 417,044,591). The total number of shares at 31 December 2008 held by employee benefit trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 164,985,811 (2007: 149,423,898).

This information is provided by RNS

The company news service from the London Stock Exchange

END

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