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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) |
| |
31 Dec 2009 |
31 Dec 2008 |
Type of CDO
($m) |
Exposure |
Allowance |
Exposure |
Allowance |
 |
| Investment Portfolio |
195 |
137 |
1,056 |
459 |
| ABS CDO |
150 |
137 |
264 |
246 |
| Non-ABS CDO |
45 |
– |
792 |
213 |
| CLO |
31 |
– |
691 |
193 |
| Other CDOs |
14 |
– |
101 |
20 |
| Trading Book |
91 |
– |
206 |
– |
|
| Total |
286 |
137 |
1,262 |
459 |
|
| |
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| MOODY’S RATINGS |
| Type of CDO |
Aaa |
Aa |
A |
Baa
|
Ba
to B |
Caa
to C |
Not Rated
by Moody’s (rated by
the other) |
Total |
|
| Investment Portfolio |
|
|
|
|
|
|
|
|
| ABS CDO |
– |
– |
– |
– |
– |
56% |
22% |
78% |
| Non-ABS CDO |
– |
– |
15% |
7% |
– |
– |
– |
22% |
| CLO |
– |
– |
15% |
– |
– |
– |
– |
15% |
| Other CDOs |
– |
– |
– |
7% |
– |
– |
– |
7% |
|
| Total |
– |
– |
15% |
7% |
– |
56% |
22% |
100% |
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| STANDARD & POOR’S RATINGS |
| Type of CDO |
AAA |
AA |
A |
BBB
|
BB
to B |
CCC
to C |
Not Rated
by S&P’s (rated by
the other) |
Total |
|
| Investment Portfolio |
|
|
|
|
|
|
|
|
| ABS CDO |
– |
– |
28% |
– |
5% |
34% |
11% |
78% |
| Non-ABS CDO |
– |
– |
15% |
– |
– |
– |
7% |
22% |
| CLO |
– |
– |
15% |
– |
– |
– |
– |
15% |
| Other CDOs |
– |
– |
– |
– |
– |
– |
7% |
7% |
|
| Total |
– |
– |
43% |
– |
5% |
34% |
18% |
100% |
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The CDO portfolio comprised $150 million of asset-backed (ABS) CDOs and $45 million of non-ABS CDOs in the investment portfolio, and $91 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. The ABS CDO portfolio fell from $264 million a year ago to $150 million largely due to write-offs. By vintage, 47% of the remaining ABS CDOs were issued in 2004 or earlier and 53% in 2005. These ABS CDOs are 91% covered by allowances.
The bulk of the non-ABS CDO investment portfolio was disposed of during the year and the allowances that had been set aside for the portfolio were more than sufficient to offset the loss on sale of the portfolio.
The CDOs in the trading portfolio, which are designated at fair value, declined from $206 million a year ago to $91 million due to disposals. As these CDOs 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 $64 million of investments in commercial mortgage-backed securities, representing less than 0.1% of the Group’s total assets. By geography, 73% were in Singapore and 27% were in Hong Kong. By industry, retail accounted for 27% of the portfolio and commercial-cum-retail 73%. All the securities are rated A or above by Moody’s or Standard & Poor’s or both, with 86% 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 $487 million, represented 0.2% of its total assets. Of the exposure, 4% was in Singapore, 43% in Rest of Greater China, 37% in South and South-East Asia, and the remaining 16% 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 |
| • |
SPE activity: Issuance of structured equity/credit-linked notes to clients |
| • |
SPE size: $0.4 billion |
| • |
Group’s role: Arranger, Market Agent, Calculation Agent, Custodian for assets held as collateral, Swap Counterparty |
 |
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| Cash deposits, Hong Kong government securities, structured notes from Zenesis SPC (collateral rated A+ to BB- by Fitch or S&P |
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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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| Zenesis SPC (incorporated in Cayman Islands) |
| • |
100% consolidated under INT FRS12 Consolidation-SPE |
| • |
SPE activity: Issuance of rated credit-linked notes to Constellation Investment Ltd and rated/unrated notes to other clients |
| • |
SPE size: $0.4 billion |
| • |
Group’s role: Calculation Agent, Substitution Agent, Swap Counterparty |
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| Cash deposits, Corporate bond (rated A- 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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