Guarantee Arrangements and Pledged Assets (Tables)

12 Months Ended

Dec. 31, 2012

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

The following table presents total carrying value and contractual amounts of our sell protection credit derivatives and major off-balance sheet guarantee arrangements as of December 31, 2012 and 2011. Following the table is a description of the various arrangements.



	December 31, 2012					December 31, 2011
	Carrying Value			Notional/Maximum Exposure to Loss		Carrying Value			Notional/Maximum Exposure to Loss
	(in millions)
Credit derivatives⁽¹⁾⁽⁴⁾	$	(76	)	$	237,548	$	(7,759	)	$	330,395
Financial standby letters of credit, net of participations⁽²⁾⁽³⁾	—			5,554		—			4,705
Performance (non-financial) guarantees⁽³⁾	—			2,878		—			3,088
Liquidity asset purchase agreements⁽³⁾	—			2,212		—			677
Total	$	(76	)	$	248,192	$	(7,759	)	$	338,865


⁽¹⁾	Includes $44.2 billion and $45.1 billion of notional issued for the benefit of HSBC affiliates at December 31, 2012 and 2011, respectively.


⁽²⁾	Includes $808 million and $707 million issued for the benefit of HSBC affiliates at December 31, 2012 and 2011, respectively.


⁽³⁾	For standby letters of credit and liquidity asset purchase agreements, maximum loss represents losses to be recognized assuming the letter of credit and liquidity facilities have been fully drawn and the obligors have defaulted with zero recovery.


⁽⁴⁾	For credit derivatives, the maximum loss is represented by the notional amounts without consideration of mitigating effects from collateral or recourse arrangements.

Net Credit Derivative Positions

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



	December 31, 2012						December 31, 2011
	Carrying (Fair) Value			Notional			Carrying (Fair) Value			Notional
	(in millions)
Sell-protection credit derivative positions	$	(76	)	$	237,548		$	(7,759	)	$	330,395
Buy-protection credit derivative positions	120			247,384			8,131			326,882
Net position⁽¹⁾	$	44		$	(9,836	)	$	372		$	3,513

⁽¹⁾

Positions are presented net in the table above to provide a complete analysis of our risk exposure and depict the way we manage our credit derivative portfolio. The offset of the sell-protection credit derivatives against the buy-protection credit derivatives may not be legally binding in the absence of master netting agreements with the same counterparty. Furthermore, the credit loss triggering events for individual sell protection credit derivatives may not be the same or occur in the same period as those of the buy protection credit derivatives thereby not providing an exact offset.

Summary of Credit Ratings of Credit Risk Related Guarantees

Below is a summary of the credit ratings of credit risk related guarantees including the credit ratings of counterparties against which we sold credit protection and financial standby letters of credit as of December 31, 2012 as an indicative proxy of payment risk:



	Average Life (in years)	Credit Ratings of the Obligors or the Transactions
Notional/Contractual Amounts	Average Life (in years)	Investment Grade		Non-Investment Grade		Total
	(dollars are in millions)
Sell-protection Credit Derivatives⁽¹⁾
Single name CDS	2.5	$	126,628	$	36,166	$	162,794
Structured CDS	1.9	31,540		3,386		34,926
Index credit derivatives	3.4	23,741		536		24,277
Total return swaps	6.7	11,409		4,142		15,551
Subtotal		193,318		44,230		237,548
Standby Letters of Credit⁽²⁾	1.3	7,135		1,297		8,432
Total		$	200,453	$	45,527	$	245,980


⁽¹⁾	The credit ratings in the table represent external credit ratings for classification as investment grade and non-investment grade.


⁽²⁾	External ratings for most of the obligors are not available. Presented above are the internal credit ratings which are developed using similar methodologies and rating scale equivalent to external credit ratings for purposes of classification as investment grade and non-investment grade.

Trend in Repurchase Demands Received on Loans Sold to GSEs and Other Third Parties by Loan Origination Vintage

The following table shows the trend in repurchase demands received on loans sold to GSEs and other third parties by loan origination vintage at December 31, 2012, 2011 and 2010:



	2012		2011		2010
	(in millions)
Pre- 2004	$	7	$	5	$	14
2004	21		13		31
2005	28		24		24
2006	80		56		41
2007	209		146		161
2008	123		98		112
Post 2008	18		68		34
Total repurchase demands received⁽¹⁾	$	486	$	410	$	417


⁽¹⁾	Includes repurchase demands on loans sourced from our legacy broker channel of $393 million, $300 million and $339 million at December 2012, 2011 and 2010, respectively.

Outstanding Repurchase Demands Received From GSEs and Other Third Parties

The following table provides information about outstanding repurchase demands received from GSEs and other third parties at December 31, 2012, 2011 and 2010:



	2012		2011		2010
	(in millions)
GSEs	$	86	$	77	$	92
Others	3		25		23
Total⁽¹⁾	$	89	$	102	$	115


⁽¹⁾	Includes repurchase demands on loans sourced from our legacy broker channel of $65 million, $87 million and $87 million at December 31, 2012, 2011 and 2010, respectively.

Summary of Change in Estimated Repurchase Liability for Loans Sold to GSEs and Other Third Parties

The following table summarizes the change in our estimated repurchase liability for loans sold to the GSEs and other third parties during 2012, 2011 and 2010 for obligations arising from the breach of representations and warranties associated with the sale of these loans:



	2012			2011			2010
	(in millions)
Balance at beginning of period	$	237		$	262		$	66
Increase in liability recorded through earnings	134			92			341
Realized losses	(152		)	(117		)	(145		)
Balance at end of period	$	219		$	237		$	262

Summary of Pledged Assets Included in Consolidated Balance Sheet

Pledged Assets The following table presents pledged assets included in the consolidated balance sheet.



At December 31,	2012		2011
	(in millions)
Interest bearing deposits with banks	$	673	$	4,426
Trading assets⁽¹⁾	2,346		1,640
Securities available- for-sale⁽²⁾	21,574		23,347
Securities held-to-maturity	456		476
Loans⁽³⁾	2,142		2,113
Other assets⁽⁴⁾	2,265		3,688
Total	$	29,456	$	35,690


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


⁽²⁾	Securities available-for-sale are primarily pledged against public fund deposits and various short-term and long term borrowings, as well as providing capacity for potential secured borrowings from the Federal Home Loan Bank and the Federal Reserve Bank.


⁽³⁾	Loans are primarily residential mortgage loans pledged against long-term borrowings from the Federal Home Loan Bank.


⁽⁴⁾	Other assets represent cash on deposit with non-banks related to derivative collateral support agreements.

Schedule of Future Minimum Rental Payments for Operating Leases

Future net minimum lease commitments under noncancellable operating lease arrangements were as follows:



Year Ending December 31,	Minimum Rental Payments		Minimum Sublease Income			Net
	(in millions)
2013	$	154	$	(4	)	$	150
2014	146		(4		)	142
2015	133		(3		)	130
2016	111		(3		)	108
2017	96		(1		)	95
Thereafter	260		(4		)	256
Net minimum lease commitments	$	900	$	(19	)	$	881

- Definition

Tabular disclosure of each guarantee obligation, or each group of similar guarantee obligations, including (a) the nature of the guarantee, including its term, how it arose, and the events or circumstances that would require the guarantor to perform under the guarantee; (b) the maximum potential amount of future payments (undiscounted) the guarantor could be required to make under the guarantee; (c) the current carrying amount of the liability, if any, for the guarantor's obligations under the guarantee; and (d) the nature of any recourse provisions under the guarantee, and any assets held either as collateral or by third parties, and any relevant related party disclosure. Excludes disclosures about product warranties.

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