HSBC Holdings PLC HSBA HSBC Finance Corporation 3Q 2012 Form 10-Q

  HSBC Holdings PLC (HSBA) - HSBC Finance Corporation 3Q 2012 Form 10-Q

RNS Number : 2766Q
HSBC Holdings PLC
05 November 2012




                                      

                         UNITED STATES SECURITIES AND

                             EXCHANGE COMMISSION

                            Washington, D.C. 20549

                                      

                                  FORM 10-Q

                                      

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

              For the quarterly period ended September 30, 2012

                                      OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from  to 

                        Commission file number 1-8198

                                      

                           HSBC FINANCE CORPORATION

            (Exact name of registrant as specified in its charter)



                Delaware                               86-1052062
        (State of Incorporation)          (I.R.S. Employer Identification No.)
 26525 North Riverwoods Boulevard, Suite
                  100,

            Mettawa, Illinois                            60045
(Address of principal executive offices)               (Zip Code)

                                (224) 880-7000

              Registrant's telephone number, including area code

                                      

Indicate by  check  mark whether  the  registrant (1)has  filed  all  reports 
required to be filed by Section13 or 15(d) of the Securities Exchange Act  of 
1934 during  the preceding  12 months  (or for  such shorter  period that  the 
registrant was required  to file such  reports), and (2)has  been subject  to 
such filing requirements for the past 90 days.YesxNo¨

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to  Rule 405 of Regulation S-T during  the 
preceding 12  months (or  for  such shorter  period  that the  registrant  was 
required to submit and post such files).YesxNo¨

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a  non-accelerated filer, or  a smaller reporting  company. 
See the  definitions of  "large accelerated  filer," "accelerated  filer"  and 
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):



Largeaccelerated                              Smallerreporting
             filer ¨ Acceleratedfiler ¨ Non-acceleratedfiler x          company ¨
                                (Do not check if a smaller reporting company)

Indicate by check mark whether the  registrant is a shell company (as  defined 
in Rule 12b-2 of the Exchange Act).Yes¨No x

As of November 2, 2012, there were 68 shares of the registrant's common  stock 
outstanding, all of which are owned by HSBC Investments (North America) Inc.

                                      

HSBC FINANCE CORPORATION

TABLE OF CONTENTS



Part/ItemNo.

                                                                                                                                                                                                                                 
Part I.
Item 1.             Financial Statements (Unaudited):
                    Consolidated Statement of Income (Loss).........................................................................................................................                                         
                    Consolidated Statement of Comprehensive Income (Loss).............................................................................................                                                       
                    Consolidated Balance Sheet.................................................................................................................................................                              
                    Consolidated Statement of Changes in Shareholders' Equity........................................................................................                                                        
                    Consolidated Statement of Cash Flows..............................................................................................................................                                       
                    Notes to Consolidated Financial Statements.....................................................................................................................                                          
Item 2.             Management's Discussion and Analysis of Financial Condition and Results of Operations:
                    Forward-Looking Statements...............................................................................................................................................                                
                    Executive Overview................................................................................................................................................................                       
                    Basis of Reporting..................................................................................................................................................................                     
                    Receivables Review...............................................................................................................................................................                        
                    Real Estate Owned.................................................................................................................................................................                       
                    Results of Operations............................................................................................................................................................                        
                    Segment Results- IFRS Basis.............................................................................................................................................                                
                    Credit Quality..........................................................................................................................................................................                 
                    Liquidity and Capital Resources..........................................................................................................................................                                
                    Fair Value.................................................................................................................................................................................              
                    Risk Management...................................................................................................................................................................                       
                    Reconciliations to U.S. GAAPFinancial Measures..........................................................................................................                                                
Item 3.             Quantitative and Qualitative Disclosures about Market Risk..............................................................................................                                                 
Item 4.             Controls and Procedures............................................................................................................................................................                      
PartII
Item 1.             Legal Proceedings.......................................................................................................................................................................                 
Item 1A.            Risk Factors..................................................................................................................................................................................           
Item 6.             Exhibits..........................................................................................................................................................................................       
Index....................................................................................................................................................................................................................... 
Signature................................................................................................................................................................................................................    



PartI.FINANCIAL INFORMATION

Item1.Financial Statements

                                      

CONSOLIDATED STATEMENT OF INCOME (LOSS) (UNAUDITED)



                                                                                                                                               ThreeMonthsEnded              Nine Months Ended
                                                                                                                                                 September 30,                  September30,

                                                                                                                                                                                      
                                                                                                                                         2012     2011   2012    2011
                                                                                                                                                                 (in millions)
Finance and other interest income.....................................................................................                    $ 833   $ 1,017  $ 2,598   $ 3,237
Interest expense on debt held by:
HSBC affiliates.................................................................................................................                
                                                                                                                                                     40               44           120  119
Non-affiliates....................................................................................................................       376  521  1,262   1,711
                                                                                                                                                                                           
Interest expense....................................................................................................................     416  565  1,382   1,830
                                                                                                                                                                                           
Net interest income..............................................................................................................        417  452  1,216   1,407
Provision for credit losses...................................................................................................           287   2,182  1,816   3,473
                                                                                                                                                                                           
Net interest income (loss) after provision for credit losses..........................................                                                                       
                                                                                                                                         130  (1,730 )        (600 )  (2,066 )
                                                                                                                                                                                           
Other revenues:
Derivative related income (expense).............................................................................                              (913     
                                                                                                                                                  (42 )                )        (261 )  (1,036 )
Gain (loss) on debt designated at fair value and related derivatives.......................                                                                      
                                                                                                                                                  (95 )  792        (399 )   1,008
Servicing and other fees from HSBC affiliates............................................................                                    
                                                                                                                                                      8                4            26               17
Lower of amortized cost or fair value adjustment on receivables held for sale......                                                           (1,597 
                                                                                                                                                  (50 )                -             )                1
Other income....................................................................................................................                 
                                                                                                                                                     35               27            27               77
                                                                                                                                                                                           
Total other revenues............................................................................................................          (144  (90  (2,204   
                                                                                                                                                      )                )             )               67
                                                                                                                                                                                           
Operating expenses:
Salaries and employee benefits.....................................................................................                             
                                                                                                                                                     55               35           134  125
Occupancy and equipment expenses, net...................................................................                                         
                                                                                                                                                     11               13            32               42
Real estate owned expenses..........................................................................................                          
                                                                                                                                                     22               39            71  174
Other servicing and administrative expenses..............................................................                                                    
                                                                                                                                         104               49           264  342
Support services from HSBC affiliates.........................................................................                                  
                                                                                                                                                     84               68           229  207
                                                                                                                                                                                           
Total operating expenses...................................................................................................                                                
                                                                                                                                         276  204           730  890
                                                                                                                                                                                           
Loss from continuing operations before income tax.......................................................                                  (290                   (3,534
                                                                                                                                                      )  (2,024 )             )  (2,889 )
Income tax benefit.................................................................................................................       
                                                                                                                                                     98  689  1,325   1,161
                                                                                                                                                                                           
Loss from continuing operations......................................................................................                     (192                   (2,209
                                                                                                                                                      )  (1,335 )             )  (1,728 )
                                                                                                                                                                                           
Discontinued Operations (Note2):
Income (loss) from discontinued operations before income tax...............................                                                
                                                                                                                                                  (36 )  378  2,685  885
Income tax benefit (expense)..........................................................................................                       (104  (1,026   (287
                                                                                                                                                     91                )             )                )
                                                                                                                                                                                           
Income from discontinued operations.............................................................................                          
                                                                                                                                                     55  274  1,659  598
                                                                                                                                                                                           
Net                                                                                                                                                                       $(550
loss...................................................................................................................................  $(137 )   $(1,061 )             )   $(1,130 )
                                                                                                                                                                                           

The accompanying  notes are  an integral  part of  the consolidated  financial 
statements.



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)



                                                                                                                                               Three Months Ended                 Nine Months Ended
                                                                                                                                                  September30,                     September30,

                                                                                                                                                                                         
                                                                                                                                          2012     2011     2012     2011
                                                                                                                                                                   (in millions)
Net
loss...................................................................................................................................   $(137 )   $(1,061 )   $(550 )   $(1,130 )
Other comprehensive income (loss), net of tax:
Net change in unrealized gains (losses), net of tax, on:                                                                                                  (56                  
Derivatives designated as cash flow hedges.........................................................                                      34                )  84                4
Securities available-for-sale, not other-than-temporarily impaired.....................                                                                                        
                                                                                                                                         15               43  22               40
Other-than-temporarily impaired debt securities available-for-sale....................                                                       
                                                                                                                                                       -                -                -             (1 )
Pension and postretirement benefit plan adjustments...............................................                                          
                                                                                                                                                       -                -                1                1
Foreign currency translation adjustments, net of tax.................................................                                      (11     
                                                                                                                                                       4                )                4             (5 )
                                                                                                                                                                                               
Other comprehensive income (loss)..................................................................................                                       (24                    
                                                                                                                                         53                )   111               39
                                                                                                                                                                                               
Total comprehensive income (loss)..................................................................................                      $(84 )   $(1,085 )   $(439 )   $(1,091 )
                                                                                                                                                                                               

The accompanying  notes are  an integral  part of  the consolidated  financial 
statements.



CONSOLIDATED BALANCE SHEET (UNAUDITED)



                                                                                                                                                                                       September30,           December31,

                                                                                                                                                                                           2012                    2011
                                                                                                                                                                                                   (in millions,
                                                                                                                                                                                                except share data)
Assets
Cash.............................................................................................................................................................................    $ 729   $ 215
Interest bearing deposits with banks.....................................................................................................................                             1,363    1,140
Securities purchased under agreements to resell.................................................................................................                                    900   920
Securities available-for-sale.....................................................................................................................................                  116   188
Receivables, net (including $5.0billion and $5.3billion at September30, 2012 and
December31, 2011, respectively, collateralizing long-term debt)..................................................................                                                     30,482     43,201
Receivables held for sale..........................................................................................................................................                                       
                                                                                                                                                                                      6,361                       -
Properties and equipment, net.................................................................................................................................                     74  77
Real estate owned......................................................................................................................................................             204   299
Derivative financial assets.......................................................................................................................................                                        
                                                                                                                                                                                   10                       -
Deferred income taxes, net.......................................................................................................................................                     3,715    3,314
Other assets................................................................................................................................................................          1,486    1,312
Assets of discontinued operations........................................................................................................................                             2,085     12,901
                                                                                                                                                                                                                    
Total assets................................................................................................................................................................           $ 47,525     $ 63,567
                                                                                                                                                                                                                    
Liabilities
Debt:
Due to affiliates (including $501 million and $447million at September30, 2012 and December31, 2011, respectively, carried at fair
value).......................................................................................................                                                                         $ 7,826    $ 8,262
Commercial paper.................................................................................................................................................                  79    4,026
Long-term debt (including $11.1billion and $13.7billion at September30, 2012 and December31, 2011 carried at fair value and $3.0billion and $3.3billion at
September30, 2012 and December31, 2011, respectively, collateralized by receivables)....................                                                                             30,192     39,790
                                                                                                                                                                                                                    
Total debt....................................................................................................................................................................         38,097     52,078
                                                                                                                                                                                                                    
Derivative related liabilities......................................................................................................................................               
                                                                                                                                                                                                        9  26
Liability for postretirement benefits........................................................................................................................                       237   280
Other liabilities...........................................................................................................................................................          1,258    1,688
Liabilities of discontinued operations....................................................................................................................                            1,521    2,569
                                                                                                                                                                                                                    
Total liabilities.........................................................................................................................................................             41,122     56,641
                                                                                                                                                                                                                    
Shareholders' equity
Redeemable preferred stock:
SeriesB (1,501,100shares authorized, $0.01par value, 575,000shares issued)..........................................                                                            575   575
SeriesC (1,000shares authorized, $0.01par value, 1,000shares issued).....................................................                                                         1,000    1,000
Common shareholder's equity:
Common stock, $0.01par value, 100shares authorized, 68 shares issued at both                                                                                                     
September30, 2012 and December31, 2011................................................................................................                                                                -                       -
Additional paid-in capital....................................................................................................................................                         23,974     23,966
Accumulated deficit.............................................................................................................................................                     (18,861 )   (18,219 )
Accumulated other comprehensive loss..........................................................................................................                                                              (396
                                                                                                                                                                                   (285 )                       )
                                                                                                                                                                                                                    
Total common shareholder's equity.......................................................................................................................                              4,828    5,351
                                                                                                                                                                                                                    
Total shareholders' equity......................................................................................................................................                      6,403    6,926
                                                                                                                                                                                                                    
Total liabilities and shareholders' equity...........................................................................................................                                  $ 47,525     $ 63,567
                                                                                                                                                                                                                    

The accompanying  notes are  an integral  part of  the consolidated  financial 
statements.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)



Nine Months Ended September30,                                                                                                                                                  2012              2011
                                                                                                                                                                                     (in millions)
Preferred stock
Balance at beginning and end of period...................................................................................................................                      $ 1,575   $ 1,575
                                                                                                                                                                                                    
Common shareholder's equity
Additional paid-in capital
Balance at beginning of period.............................................................................................................................                     23,966    23,321
Capital contribution from parent...........................................................................................................................               
                                                                                                                                                                                           -  400
Employee benefit plans, including transfers and other.....................................................................................                                  
                                                                                                                                                                                           8                 6
                                                                                                                                                                                                    
Balance at end of period........................................................................................................................................                23,974    23,727
                                                                                                                                                                                                    
Accumulated deficit
Balance at beginning of period.............................................................................................................................                   (18,219 )  (16,685 )
Net                                                                                                                                                                                            (1,130
loss.....................................................................................................................................................................  (550 )                 )
Dividends:
Preferred stock..............................................................................................................................................               (92    
                                                                                                                                                                                           )             (96 )
                                                                                                                                                                                                    
Balance at end of period........................................................................................................................................              (18,861 )  (17,911 )
                                                                                                                                                                                                    
Accumulated other comprehensive loss
Balance at beginning of period.............................................................................................................................                                   (491
                                                                                                                                                                           (396 )                 )
Other comprehensive income................................................................................................................................                                     
                                                                                                                                                                             111                39
                                                                                                                                                                                                    
Balance at end of period........................................................................................................................................                              (452
                                                                                                                                                                           (285 )                 )
                                                                                                                                                                                                    
Total common shareholder's equity at end of period...............................................................................................                             4,828   5,364
                                                                                                                                                                                                    
Total shareholders' equity at end of period................................................................................................................                    $ 6,403   $ 6,939
                                                                                                                                                                                                    

The accompanying  notes are  an integral  part of  the consolidated  financial 
statements.



CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)



Nine Months Ended September30,                                                                                                                                                             2012           2011
                                                                                                                                                                                               (in millions)
Cash flows from operating activities
Net                                                                                                                                                                                                     $ (1,130
loss.................................................................................................................................................................................. $ (550 )             )
Income from discontinued operations...............................................................................................................................                                       
                                                                                                                                                                                          1,659           598
                                                                                                                                                                                                            
Loss from continuing operations.......................................................................................................................................                                  (1,728
                                                                                                                                                                                        (2,209 )             )
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:
Provision for credit losses........................................................................................................................................                                         
                                                                                                                                                                                          1,816         3,473
Lower of amortized cost or fair value adjustment on receivables held for sale................................................                                                                          
                                                                                                                                                                                          1,597          (1 )
Loss on sale of real estate owned, including lower of amortized cost or market adjustments.......................                                                                         
                                                                                                                                                                                                    37            83
Depreciation and amortization.................................................................................................................................                          
                                                                                                                                                                                                     6            13
Mark-to-market on debt designated at fair value and related derivatives.........................................................                                                                           
                                                                                                                                                                                        715        (534 )
Foreign exchange and derivative movements on long-term debt and net change in non-FVO related derivative assets and                                                                      (743     
liabilities...........................................................................................................................                                                               )        (140 )
Net change in other assets.......................................................................................................................................                        (574     
                                                                                                                                                                                                     )        (606 )
Net change in other liabilities...................................................................................................................................                       (473     
                                                                                                                                                                                                     )        (100 )
Other, net.....................................................................................................................................................................                          
                                                                                                                                                                                        337           245
                                                                                                                                                                                                            
Cash provided by (used in) operating activities-continuing operations..........................................................                                                                          
                                                                                                                                                                                        509           705
Cash provided by (used in) operating activities-discontinued operations......................................................                                                                               
                                                                                                                                                                                          2,361         1,785
                                                                                                                                                                                                            
Net cash provided by (used in) operating activities............................................................................................                                                             
                                                                                                                                                                                          2,870         2,490
                                                                                                                                                                                                            
Cash flows from investing activities
Securities:
Purchased....................................................................................................................................................................                  
                                                                                                                                                                                                 (46 )        (573 )
Matured.......................................................................................................................................................................              
                                                                                                                                                                                                    89           157
Sold..............................................................................................................................................................................                       
                                                                                                                                                                                        123           279
Net change in short-term securities available-for-sale....................................................................................................                                   
                                                                                                                                                                                                 (92 )         (88 )
Net change in securities purchased under agreements to resell...................................................................................                                               
                                                                                                                                                                                                    20         1,436
Net change in interest bearing deposits with banks.......................................................................................................                                (223      
                                                                                                                                                                                                     )         1,000
Receivables:
Net collections............................................................................................................................................................                                 
                                                                                                                                                                                          2,210         2,772
Proceeds from sales of real estate owned..............................................................................................................                                                      
                                                                                                                                                                                        474         1,271
Purchases of properties and equipment............................................................................................................................                        
                                                                                                                                                                                                  (3 )          (1 )
                                                                                                                                                                                                            
Cash provided by (used in) investing activities-continuing operations.....................................................................                                                                  
                                                                                                                                                                                          2,552         6,253
Cash provided by (used in) investing activities-discontinued operations.................................................................                                                                   
                                                                                                                                                                                          9,359        (359 )
                                                                                                                                                                                                            
Net cash provided by (used in) investing activities.......................................................................................................                                                  
                                                                                                                                                                                           11,911         5,894
                                                                                                                                                                                                            

                                      

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (Continued)



Nine Months Ended September30,                                                                                                                                        2012             2011
                                                                                                                                                                          (in millions)
Cash flows from financing activities
Debt:
Net change in commercial paper..........................................................................................................................           $ (3,947 ) $ 1,147
Net change in due to affiliates..............................................................................................................................                        
                                                                                                                                                                 (490 )             498
Long-term debt                                                                                                                                                     
issued...........................................................................................................................................                                -             245
Long-term debt                                                                                                                                                                      (10,488
retired...........................................................................................................................................                 (9,472 )               )
Capital contribution from                                                                                                                                          
Parent.....................................................................................................................................                                      -             400
Shareholders'                                                                                                                                                     (92  
dividends..................................................................................................................................................                      )           (96 )
                                                                                                                                                                                         
Cash provided by (used in) financing activities-continuing operations..................................................................                                                  
                                                                                                                                                                    (14,001 )        (8,294 )
Cash provided by (used in) financing activities-discontinued operations..............................................................                                              
                                                                                                                                                                 (195 )              27
                                                                                                                                                                                         
Net cash provided by (used in) financing activities....................................................................................................                                  
                                                                                                                                                                    (14,196 )        (8,267 )
                                                                                                                                                                                         
Net change in                                                                                                                                                                        
cash...........................................................................................................................................................    585             117
Cash at beginning of                                                                                                                                                                 
period^(1)..........................................................................................................................................               318             175
                                                                                                                                                                                         
Cash at end of                                                                                                                                                                        $
period^(2)....................................................................................................................................................     $ 903             292
                                                                                                                                                                                         
Supplemental Noncash Investing and Capital Activities:
Fair value of properties added to real estate owned....................................................................................................                               $
                                                                                                                                                                   $ 416             763
Transfer of receivables to held for                                                                                                                                                     
sale.........................................................................................................................                                       6,756           8,620



^(1) Cash at beginning  of period includes $103  million and $11 million  for 
discontinued  operations   at  December31,   2011  and   December31,   2010, 
respectively.

^(^2^) Cash  at end  of period  includes  $174 million  and $72  million  for 
discontinued operations at of September30, 2012 and 2011, respectively.

The accompanying  notes are  an integral  part of  the consolidated  financial 
statements.





NOTESTO CONSOLIDATED FINANCIAL STATEMENTS



Note                                                                                                                                                                                                           Page
1                                                                                                                                                                                                
               Organization and Basis of Presentation..............................................................................................................................                                  
2 Discontinued Operations......................................................................................................................................................                
3 Securities.................................................................................................................................................................................. 
4 Receivables..............................................................................................................................................................................    
5 Credit Loss Reserves.............................................................................................................................................................            
6 Receivables Held for Sale......................................................................................................................................................              
7 Derivative Financial Instruments.........................................................................................................................................                    
8 Fair Value Option....................................................................................................................................................................        
9 Income Taxes...........................................................................................................................................................................      
10  Accumulated Other Comprehensive Income......................................................................................................................                                 
11  Pension and Other Postretirement Benefits........................................................................................................................                            
12  Related Party Transactions...................................................................................................................................................                
13  Business Segments................................................................................................................................................................            
14  Variable Interest Entities........................................................................................................................................................           
15  Fair Value Measurements......................................................................................................................................................                
16  Litigation and Regulatory Matters.......................................................................................................................................                     
17  New Accounting Pronouncements......................................................................................................................................                          





1.Organization and Basis of Presentation

                                      

HSBC Finance Corporation is an indirect wholly owned subsidiary of HSBC  North 
America Holdings  Inc. ("HSBC  North America"),  which is  an indirect  wholly 
owned subsidiary of  HSBC Holdings  plc ("HSBC").  The accompanying  unaudited 
interim consolidated financial statements of HSBC Finance Corporation and  its 
subsidiaries have  been  prepared  in accordance  with  accounting  principles 
generally accepted in the United  States of America ("U.S.GAAP") for  interim 
financial information and with the instructions to Form10-Q and Article10 of
RegulationS-X. Accordingly, they do  not include all  of the information  and 
footnotes required by  generally accepted accounting  principles for  complete 
financial statements. In the opinion  of management, all normal and  recurring 
adjustments  considered  necessary  for  a  fair  presentation  of   financial 
position, results of operations  and cash flows for  the interim periods  have 
been made. HSBC Finance Corporation and its subsidiaries may also be  referred 
to in  this  Form10-Q  as  "we,"  "us"  or  "our."  These  unaudited  interim 
consolidated financial  statements  should be  read  in conjunction  with  our 
Annual Report on  Form10-K for the  year ended December31,  2011 (the  "2011 
Form10-K"). Certain reclassifications have been made to prior period  amounts 
to conform to the current period presentation.

The consolidated financial statements have been prepared on the basis that  we 
will continue as a going concern. Such assertion contemplates the  significant 
losses recognized  in  recent years  and  the challenges  we  anticipate  with 
respect to  a near-term  return to  profitability on  a continuing  operations 
basis under prevailing and forecasted  economic conditions. HSBC continues  to 
be fully committed and has the  capacity to continue to provide the  necessary 
capital and liquidity to fund continuing operations.

The preparation of financial statements in conformity with U.S.GAAP  requires 
management to make estimates and assumptions that affect the amounts  reported 
in the  financial  statements and  accompanying  notes. Actual  results  could 
differ from those estimates. Unless  otherwise noted, information included  in 
these notes to  the consolidated  financial statements  relates to  continuing 
operations for all periods  presented. See Note2, "Discontinued  Operations," 
for further details. Interim  results should not  be considered indicative  of 
results in future periods.

During the second quarter of 2012, we transferred $6.8 billion of receivables,
net of credit loss reserves and a  lower of cost or fair value adjustment,  to 
receivables held for sale.  The transfer included $3.3  billion of first  lien 
real estate secured receivables, a  substantial majority of which had  already 
been written down to the fair value of the collateral less cost to sell as  we 
considered the collateral to be the sole source for repayment. As we now  plan 
to sell these receivables to a third party investor, fair value represents the
price we believe  a third party  investor would pay  to acquire the  portfolio 
and, as a result, a fair value adjustment was recorded at the time of transfer
to held for sale. This adjustment, amongst other things, takes into account  a 
required return that a third party  investor would require for these types  of 
receivables.  See  Note  6,  "Receivables  Held  for  Sale,"  for   additional 
information.



2.Discontinued Operations

                                      

2012 Discontinued Operations:

Insurance As discussed in prior filings, during the second quarter of 2012, we
decided to exit the manufacturing of  all insurance products through the  sale 
of our interest  in substantially all  of our insurance  subsidiaries as  this 
business did  not fit  with HSBC's  core  strategy in  the United  States  and 
Canada. Insurance  products will  continue  to be  offered to  HSBC  customers 
through non-affiliate providers.  As a  result, our  Insurance operations  are 
part of a disposal group held for sale and we began reporting this business as
discontinued operations  in the  second quarter  of 2012.  Since the  carrying 
value of the  disposal group was  greater than its  estimated fair value  less 
costs to sell, we recorded a pre-tax impairment loss of $92 million during the
second quarter of  2012 to reflect  the disposal group  at its estimated  fair 
value less  cost  to sell.  This  estimate takes  into  consideration  foreign 
currency translation adjustments  and unrealized  gains on  available-for-sale 
securities associated with  the disposal  group and  reflected in  accumulated 
other comprehensive income.

In September 2012, we announced we have entered into an agreement to sell  our 
Insurance operations to Enstar Group Ltd ("Enstar") for $181 million in  cash, 
to be adjusted to reflect the actuarial value and capital of these  operations 
at the date of  closing, which is anticipated  to be by the  end of the  first 
quarter of 2013, subject to regulatory  approval. During the third quarter  of 
2012, we updated our  estimate of fair  value less cost to  sell based on  our 
announced agreement and reversed  $33 million of  the pre-tax impairment  loss 
previously recorded resulting in a cumulative pre-tax lower of amortized  cost 
or fair value less cost to sell of $59 million during the year-to-date period.
As part of our analysis  of the lower of amortized  cost or fair market  value 
adjustment recorded during the second quarter of 2012, we assumed that planned
pre-sale distributions by  these insurance  subsidiaries would  be treated  as 
additional sales proceeds and become taxable,  resulting in a $72 million  tax 
provision. However, based on new information, during the third quarter of 2012
we have now  assumed that pre-sale  distributions would not  be taxable  which 
resulted  in  a  reversal  of  income  tax  expense  previously  recorded.  At 
September30,   2012,   disposal   group   assets   consisted   primarily   of 
available-for-sale  securities  totaling  $1.5  billion  and  disposal   group 
liabilities  consisted  primarily  of  insurance  policy  and  claim  reserves 
totaling $996 million.



The following summarizes the operating  results of our discontinued  Insurance 
business for the periods presented:



                                                                                              ThreeMonthsEnded            NineMonthsEnded
                                                                                                September 30,               September 30,

                                                                                                                                   
                                                                                        2012    2011   2012  2011
                                                                                                              (in millions)
Net interest income and other                                                                                             $    $
revenues^(1)........................................................................... $ 105 $ 94          169            276
Income (loss) from discontinued operations before income                                   
tax......................................                                                          28                5        (72 )             21



^(1) Interest  expense, which  is included  as a  component of  net  interest 
income, was  allocated  to  discontinued operations  in  accordance  with  our 
existing internal  transfer pricing  policy. This  policy uses  match  funding 
based on the expected lives of the  assets and liabilities of the business  at 
the time of origination,  subject to periodic review,  as demonstrated by  the 
expected cash flows and re-pricing characteristics of the underlying assets.



The following summarizes  the assets  and liabilities  which are  part of  the 
disposal  group  held  for  sale  related  to  our  Insurance  operations   at 
September30, 2012 and December31, 2011 which are reported as a component  of 
Assets of discontinued operations  and Liabilities of discontinued  operations 
in our consolidated balance sheet.



                                                                                                                                                                                       September30,                       December31,

                                                                                                                                                                                            2012                               2011
                                                                                                                                                                                                               (in millions)
Cash.............................................................................................................................................................................. $2  $5
Interest bearing deposit with bank..........................................................................................................................                         
                                                                                                                                                                                                       32 3
Available-for-sale securities.....................................................................................................................................                    1,474    1,851
Other assets.................................................................................................................................................................       247   143
                                                                                                                                                                                                                                
Assets of discontinued operations.........................................................................................................................                             $1,755     $2,002
                                                                                                                                                                                                                                
Insurance policy and claim reserves........................................................................................................................                           $996     $1,049
Other liabilities............................................................................................................................................................       175  43
                                                                                                                                                                                                                                
Liabilities of discontinued operations.....................................................................................................................                            $1,171     $1,092
                                                                                                                                                                                                                                

Commercial Our Commercial business  has been in run-off  since 1994. Prior  to 
the second quarter  of 2012,  this business  continued to  be reported  within 
continuing operations as we continued to  generate cash flow from the  ongoing 
collection of the receivables, including  interest and fees. Beginning in  the 
second quarter of 2012, we now report our Commercial business in  discontinued 
operations as there are no longer  any outstanding receivable balances or  any 
remaining significant cash flows generated from this business. Our  Commercial 
business was previously  included in the  "All Other" caption  in our  segment 
reporting. The following summarizes the operating results of our  discontinued 
Commercial business for the periods presented:



                                                                                                ThreeMonthsEnded               NineMonthsEnded
                                                                                                  September 30,                   September 30,

                                                                                                                                        
                                                                                           2012     2011   2012    2011
                                                                                                                  (in millions)
Net interest income and other                                                                              $  $  $
revenues^(1)............................................................................ $ 1                2            23                5
Income from discontinued operations before income                                           
tax.................................................                                                    -                1            20                3



^(1) Interest  expense, which  is included  as a  component of  net  interest 
income, was  allocated  to  discontinued operations  in  accordance  with  our 
existing internal  transfer pricing  policy. This  policy uses  match  funding 
based on the expected lives of the  assets and liabilities of the business  at 
the time of origination,  subject to periodic review,  as demonstrated by  the 
expected cash flows and re-pricing characteristics of the underlying assets.

2011 Discontinued Operations:

Card and  Retail  Services On  May1,  2012, HSBC,  through  its  wholly-owned 
subsidiaries HSBC Finance  Corporation, HSBC  USA Inc  and other  wholly-owned 
affiliates, sold  its  Card  and  Retail  Services  business  to  Capital  One 
Financial Corporation  ("Capital  One")  for  a premium  of  8.75  percent  of 
receivables. In addition  to receivables,  the sale included  real estate  and 
certain other assets and liabilities which were sold at book value or, in  the 
case of  real estate,  appraised  value. Under  the  terms of  the  agreement, 
interests in facilities in Chesapeake,  Virginia; Las Vegas, Nevada;  Mettawa, 
Illinois; Volo, Illinois; Hanover, Maryland; Salinas, California; Sioux Falls,
South Dakota  and Tigard,  Oregon were  sold or  transferred to  Capital  One, 
although we have entered into  site-sharing arrangements for certain of  these 
locations for a period of time. The total cash consideration was $11.8 billion
which resulted in  a pre-tax  gain of  $2.2 billion  ($1.4 billion  after-tax) 
being recorded  during  the  second  quarter of  2012.  The  majority  of  the 
employees in our Card and Retail Services business transferred to Capital One.
As such, no significant one-time closure or severance costs were incurred as a
result of this transaction. Our Card and Retail Services business is  reported 
in discontinued operations.



The receivables and other assets sold to Capital One were transferred to  held 
for sale during the third quarter of  2011. As a result, we stopped  recording 
provisions for credit losses, including charge-offs, at that time.

The following summarizes the  operating results of  our discontinued Card  and 
Retail Services business for the periods presented:



                                                                                                       ThreeMonths Ended                                    NineMonths Ended
                                                                                                          September30,                                          September30,

                                                                                                                                                                      
                                                                                            2012             2011                    2012^(2)                    2011
                                                                                                                                         (in millions)
Net interest income and other                                                              $(14
revenues^(1).............................................................................              )  $959  $3,342  $2,785
Income (loss) from discontinued operations before income                                  (64
tax.......................................                                                             ) 373 2,737 870



^(1) Interest  expense, which  is included  as a  component of  net  interest 
income, was  allocated  to  discontinued operations  in  accordance  with  our 
existing internal  transfer pricing  policy in  all applicable  periods.  This 
policy uses  match funding  based on  the  expected lives  of the  assets  and 
liabilities of the business  at the time of  origination, subject to  periodic 
review,  as  demonstrated   by  the   expected  cash   flows  and   re-pricing 
characteristics of the underlying assets.

^(^2^) Includes the gain on sale to Capital One of $2.2 billion in the  nine 
months ended September30, 2012.

During the  three months  ended September30,  2012, net  interest income  and 
other revenues of $(14) million reflects refunds due to customers for  certain 
enhancement programs as well as the final settlement of partner payments.  The 
loss from discontinued operations before income tax of $64 million during  the 
three months ended September30,  2012 also reflects  expenses of $50  million 
primarily related to activities to complete the separation of the credit  card 
operational infrastructure  between us  and  Capital One,  predominantly  with 
external consultants.

The following summarizes the assets  and liabilities of our discontinued  Card 
and Retail Services business at September30, 2012 and December31, 2011 which
are  reported  as  a  component  of  Assets  of  discontinued  operations  and 
Liabilities of discontinued operations in our consolidated balance sheet.



                                                                                                                                                                                                 September30,                  December31,

                                                                                                                                                                                                      2012                          2011
                                                                                                                                                                                                                 (in millions)
Cash.....................................................................................................................................................................................             $            $
                                                                                                                                                                                          172     96
Receivables.........................................................................................................................................................................                           
                                                                                                                                                                                            -  9,001
Intangible assets................................................................................................................................................................                           
                                                                                                                                                                                            -    514
Properties and equipment, net.........................................................................................................................................                                    
                                                                                                                                                                                            -     95
Other assets........................................................................................................................................................................                              
                                                                                                                                                                                           84  1,102
                                                                                                                                                                                                                                    
Assets of discontinued operations................................................................................................................................                                     $                   $
                                                                                                                                                                                          256 10,808
                                                                                                                                                                                                                                    
Long-term debt...................................................................................................................................................................               $              $
                                                                                                                                                                                            -    211
Other liabilities...................................................................................................................................................................                
                                                                                                                                                                                             349                
                                                                                                                                                                                                                  ^(1)  1,257
                                                                                                                                                                                                                                    
Liabilities of discontinued operations............................................................................................................................                                    $                 $
                                                                                                                                                                                          349  1,468
                                                                                                                                                                                                                                    



^(1) Primarily consists of amounts due to Capital One for cash collections we
have received on customer accounts as well as legal accruals.

Intangible assets at December31, 2011 included $29 million, net, that related
to account relationships  we purchased from  HSBC Bank USA,  N.A. ("HSBC  Bank 
USA")  in  July  2004.  All  new  receivable  originations  on  these  account 
relationships were sold on a daily basis to HSBC Bank USA and we serviced  the 
receivables for a fee. In March  2012, we sold these account relationships  to 
HSBC Bank USA resulting  in a gain  of $79 million  being recorded during  the 
first quarter  of  2012  which is  included  as  a component  of  income  from 
discontinued operations. All remaining intangible assets related to cardholder
relationships were sold to Capital One on May1, 2012.



We had secured conduit credit facilities with commercial banks which  provided 
for secured  financings  of  credit  card receivables  on  a  revolving  basis 
totaling $650  million at  December31, 2011.  At December31,  2011,  secured 
financings with  a balance  of $195million  were secured  by $355million  of 
credit card  receivables.  These  secured  financings were  paid  in  full  on 
April30, 2012.

We previously entered  into commitments  to meet  the financing  needs of  our 
credit card customers.  At December31, 2011,  we had $105.0  billion of  open 
consumer lines of  credit. As  a result  of the sale  of the  Card and  Retail 
Services business, the  open line of  credit commitments for  our credit  card 
customers were transferred to Capital One on May1, 2012.

2010 Discontinued Operations:

Taxpayer Financial Services ("TFS") In  December 2010, it was determined  that 
we would not offer any tax  refund anticipation loans or related products  for 
the 2011  tax season  and we  exited the  TFS business.  As a  result of  this 
decision, our TFS business is reported in discontinued operations. The  assets 
and liabilities of our TFS business as of September30, 2012 and  December31, 
2011 were not significant. Additionally, revenues and income before income tax
for our TFS business were not significant  for the three or nine months  ended 
September30, 2012 and 2011.

Auto Finance  In  August 2010,  we  sold the  remainder  of our  auto  finance 
receivable portfolio with an outstanding principal balance of $2.6billion  at 
the time of sale and other related  assets to Santander Consumer USA Inc.  The 
aggregate sales  price for  the  auto finance  receivables and  other  related 
assets was  $2.5billion  which  included  the  transfer  of  $431million  of 
indebtedness secured  by  auto  finance receivables,  resulting  in  net  cash 
proceeds of $2.1billion. As  a result of this  transaction, our Auto  Finance 
business is reported as discontinued operations. The assets and liabilities of
our Auto Finance business as of September30, 2012 and December31, 2011  were 
not significant. Additionally, revenues and  income before income tax for  our 
Auto Finance business were not significant for the three or nine months  ended 
September30, 2012 and 2011.



3.Securities

                                      

Securities consisted of the following available-for-sale investments:



                                                                                                                                                                        Gross                  Gross

                                                                                                                                                Amortized            Unrealized             Unrealized            Fair

September30, 2012                                                                                                                                 Cost                 Gains                 Losses             Value
                                                                                                                                                                             (in millions)
Continuing operations:
Obligations of U.S. states and political subdivisions......................................................                                                          $     $
                                                                                                                                            $ 1   - - $ 1
Equity securities....................................................................................................................                                 
                                                                                                                                             11   - -  11
Money market funds.............................................................................................................                                       
                                                                                                                                               104   - -    104
                                                                                                                                                                                                                
Subtotal...................................................................................................................................                           
                                                                                                                                               116   - -    116
Accrued investment income................................................................................................                            
                                                                                                                                                             -   - -              -
                                                                                                                                                                                                                
Securities available-for-sale - continuing operations...........................................................                                                     $     $
                                                                                                                                               $ 116   - -    $ 116
                                                                                                                                                                                                                
Securities available-for-sale - discontinued operations^(^4^).....................................................                                                        $     $
                                                                                                                                                $ 1,283 191 -     $ 1,474
                                                                                                                                                                                                                



                                                                                                                                                               Gross                 Gross

                                                                                                                                        Amortized           Unrealized            Unrealized          Fair

December31, 2011                                                                                                                         Cost                 Gains                Losses            Value
                                                                                                                                                                   (in millions)
Continuing operations:
U.S. Treasury.................................................................................................................                             $  $
                                                                                                                                    $ 80   -                   - $ 80
U.S. government sponsored enterprises^(1).................................................................                                 
                                                                                                                                                    1   -                   -             1
U.S. corporate debt securities^(^2^)...................................................................................                           
                                                                                                                                                   57   1                (1 )            57
Foreign debt securities^(^3^)...............................................................................................                   
                                                                                                                                                   26   -                   -            26
Equity securities............................................................................................................                  
                                                                                                                                                   10   -                   -            10
Money market funds.....................................................................................................                        
                                                                                                                                                   13   -                   -            13
                                                                                                                                                                                                     
Subtotal...........................................................................................................................                           
                                                                                                                                     187   1                (1 )  187
Accrued investment income........................................................................................                          
                                                                                                                                                    1   -                   -             1
                                                                                                                                                                                                     
Securities available-for-sale - continuing operations...................................................                                                    $ $ (1
                                                                                                                                     $ 188   1                   )  $ 188
                                                                                                                                                                                                     
Securities available-for-sale - discontinued operations^(^4^)............................................                                                       $ $ (8
                                                                                                                                      $ 1,694 165                   )   $ 1,851
                                                                                                                                                                                                     



^(1) Represents  mortgage-backed securities  issued by  the Federal  National 
Mortgage Association  and the  Federal Home  Loan Mortgage  Corporation as  of 
December31, 2011.

^(2)  The  majority  of  our  U.S.  corporate  debt  securities   represented 
investments in the financial services, consumer products and insurance sectors
at December31, 2011.

^(3) We did not hold any  foreign debt securities issued by the  governments 
of Portugal, Ireland, Italy, Greece or Spain at December31, 2011. We did  not 
hold any foreign debt securities at September30, 2012.

^(4) Securities available-for-sale in our discontinued operations relates  to 
our discontinued Insurance business and  primarily consists of U.S.  corporate 
debt  securities,  money   market  funds  and   foreign  debt  securities   at 
September30, 2012 and December31, 2011.





At September30, 2012, we did not hold any available-for-sale securities  from 
continuing operations with gross unrealized losses. The table below provides a
summary of gross unrealized losses and related fair values as of  December31, 
2011 for available-for-sale securities for continuing operations classified as
to the length of time the losses have existed.







                                                                                     Less Than One Year                                              Greater Than One Year

                                                                                                                                                              
                                                                                            Gross              Aggregate                                     Gross               Aggregate

                                                                    Numberof            Unrealized          FairValueof           Numberof            Unrealized           FairValueof

December31, 2011                                                   Securities             Losses             Investments           Securities              Losses              Investments
                                                                                                                   (dollars are in millions)
U.S. corporate debt securities.............................          $ (1                             $  $
                                                              17                   ) $ 26 - -                      -
Foreign debt                                                                   
securities........................................            10                   -                    15 - -                      -
Equity                                                                     
securities...................................................  1                   -                     5 - -                      -
                                                                                                                                                                                
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