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| Disclosure on Certain Financial Instruments |
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The following disclosure provides additional information on certain investments the Group
has made. |
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| COLLATERALISED DEBT/LOAN OBLIGATIONS (CDO) |
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31 Dec 2008 |
31 Dec 2007 |
Type of CDO
($m) |
Exposure |
Allowance |
Exposure |
Allowance |
 |
| Investment Portfolio |
1,056 |
459 |
1,211 |
270 |
| ABS CDO |
264 |
246 |
267 |
240 |
| Non-ABS CDO |
792 |
213 |
944 |
30 |
| CLO |
691 |
193 |
771 |
30 |
| Other CDOs |
101 |
20 |
173 |
– |
| Trading Book |
206 |
– |
975 |
– |
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| Total |
1,262 |
459 |
2,186 |
270 |
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| MOODY’S RATINGS |
| Type of CDO |
Aaa |
Aa |
A |
Baa
to B |
Caa
to Ca |
Not Rated by Moody’s (rated by the other) |
Total |
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| Investment Portfolio |
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| ABS CDO |
– |
– |
3% |
4% |
13% |
5% |
25% |
| Non-ABS CDO |
8% |
23% |
42% |
– |
1% |
1% |
75% |
| CLO |
8% |
23% |
34% |
– |
– |
1% |
66% |
| Other CDOs |
– |
– |
8% |
– |
1% |
– |
9% |
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| Total |
8% |
23% |
45% |
4% |
14% |
6% |
100% |
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| STANDARD & POOR’S RATINGS |
| Type of CDO |
Aaa |
Aa |
A |
Baa
to B |
Caa
to Ca |
Not Rated by Moody’s (rated by the other) |
Total |
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| Investment Portfolio |
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| ABS CDO |
– |
5% |
1% |
4% |
13% |
2% |
25% |
| Non-ABS CDO |
11% |
13% |
31% |
– |
– |
20% |
75% |
| CLO |
11% |
13% |
31% |
– |
– |
10% |
65% |
| Other CDOs |
– |
– |
– |
– |
– |
10% |
10% |
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| Total |
11% |
18% |
32% |
4% |
13% |
22% |
100% |
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The CDO portfolio comprised $264 million asset-backed (ABS) CDOs and $792 million
non-ABS CDOs in the investment
portfolio, and $206 million of CDOs in the trading portfolio.
The ABS CDOs have mortgage-backed securities (such as US sub-prime mortgages, Alt-A mortgages and ABS CDO tranches) as one of their asset classes, the percentage of which differs among the CDOs. By vintage, 36% of these CDOs were issued in 2004 or earlier,
59% in 2005 and 5% in 2006 or later. These ABS CDOs are 93% covered by allowances.
Of the non-ABS CDOs in the investment portfolio, a portion was in collateralised loan obligations (CLOs), which have corporate loans as their dominant underlying collateral. The other CDOs have either credit default swaps or trust preferred securities as their dominant underlying collateral.
Allowances totalling $213 million or 27% of the portfolio have been made for the non-ABS investment CDOs, of which 97% are rated A or above by Moody’s or Standard & Poor’s
or both.
The CDOs in the trading portfolio, which are designated at fair value, were valued at $206 million. As they are designated at fair value, no allowances have been taken for them. |
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OTHER US SUB-PRIME AND ALT-A EXPOSURE
The Group does not have direct exposure to US sub-prime mortgages and Alt-A mortgages other than through its ABS CDOs as disclosed above. |
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COMMERCIAL MORTGAGE-BACKED SECURITIES
The Group had $133 million of investments in commercial mortgage-backed securities, representing less than 0.1% of the
Group’s total assets. By geography, 87% were in
Singapore and 13% were in Hong Kong. By industry, commercial properties accounted for
41% of the portfolio, retail 15%, commercialcum-retail 35% and industrial 9%. All the
securities are rated A or above by Moody’s or Standard & Poor’s or both, with 87% rated
AA or higher. |
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LEVERAGED FINANCE
Leveraged finance is defined in this disclosure as acquisition financing sponsored by funds (private equity or investment) and supported by leverage. The Group’s exposure to such
loans, amounting to $493 million, represented less than 0.2% of its total assets. Of the exposure, 4% was in Singapore, 44% in Rest of Greater China, 31% in South and South-
east Asia, and the remaining 21% in other parts of Asia. By industry, they were primarily
in
finance, media, information technology services and manufacturing. |
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SPECIAL PURPOSE ENTITIES (SPE)
The list of material operating SPEs is summarised in the following table, all of which are involved in the issuance or
distribution of structured investment products. None of the SPEs
has any liquidity facility with the Group. |
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| SPE Description |
Collateral |
Risk Factors |
Constellation Investment Ltd (incorporated in
Cayman Islands) |
| • |
100% consolidated under INT FRS12
Consolidation-SPE |
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SPE activity: Issuance of structured equity/
credit-linked notes to clients |
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SPE size: $0.9 billion |
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Group’s role: Arranger, Market Agent, Calculation
Agent, Custodian for assets held as collateral,
Swap Counterparty |
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| Cash deposits, Hong Kong notes from Zenesis SPC (collateral rated AAA to BB by Fitch or S&P, with maturity of up to 6 years) |
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| Cash deposits, Hong Kong notes from Zenesis SPC (collateral rated AAA to BB by Fitch or S&P, with maturity of up to 6 years) |
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| Zenesis SPC (incorporated in Cayman Islands) |
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100% consolidated under INT FRS12
Consolidation-SPE |
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SPE activity: Issuance of rated credit-linked notes to
Constellation Investment Ltd and rated/unrated notes
to other clients |
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SPE size: $0.4 billion |
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Group’s role: Calculation Agent, Substitution Agent,
Swap Counterparty |
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| Cash deposits, 5-year notes from a Hong Kong bank (bond rating of Aa2 by Moody’s and AA- by S&P), FSA-guaranteed bonds |
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| Investment product risk is borne by clients. Should the structured notes be redeemed early and the unwind cost of the structure be larger than the early redemption value of the collateral, the Group may have to bear the difference |
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