HSBC USA Inc Form 10-K. Part 2

RNS Number : 9335B

HSBC Holdings PLC

27 February 2011

 



HSBC USA Inc Form 10-K Part 2.

HSBC USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note		Page
1	Organization	120
2	Summary of Significant Accounting Policies and New Accounting Pronouncements	121
3	Discontinued Operations	131
4	Exit from Taxpayer Financial Services Loan Program	132
5	Trading Assets and Liabilities	132
6	Securities	133
7	Loans	141
8	Allowance for Credit Losses	149
9	Loans Held for Sale	150
10	Properties and Equipment, Net	151
11	Intangible Assets	151
12	Goodwill	152
13	Deposits	152
14	Short-Term Borrowings	154
15	Long-Term Debt	155
16	Derivative Financial Instruments	156
17	Fair Value Option	162
18	Income Taxes	163
19	Preferred Stock	167
20	Accumulated Other Comprehensive Loss	167
21	Share-Based Plans	168
22	Pension and Other Postretirement Benefits	169
23	Related Party Transactions	178
24	Business Segments	183
25	Retained Earnings and Regulatory Capital Requirements	187
26	Variable Interest Entities	189
27	Guarantee Arrangements	192
28	Fair Value Measurements	197
29	Collateral, Commitments and Contingent Liabilities	208
30	Concentration of Credit Risk	212
31	Financial Statements of HSBC USA Inc. (Parent)	213

1.  Organization

HSBC USA Inc. ("HSBC USA"), incorporated under the laws of Maryland, is a New York State based bank holding company and 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"). HSBC USA (together with its subsidiaries, "HUSI") may also be referred to in these notes to the consolidated financial statements as "we," "us" or "our."

Through our subsidiaries, we offer a comprehensive range of personal and commercial banking products and related financial services. HSBC Bank USA, National Association ("HSBC Bank USA"), our principal U.S. banking subsidiary, is a national banking association with banking branch offices and/or representative offices in 14 states and the District of Columbia. In addition to our domestic offices, we maintain foreign branch offices, subsidiaries and/or representative offices in the Caribbean, Europe, Asia, Latin America, and Canada. Our customers include individuals, including high net worth individuals, small businesses, corporations, institutions and governments. We also engage in mortgage banking and serve as an international dealer in derivative instruments denominated in U.S. dollars and other currencies, focusing on structuring of transactions to meet clients' needs.

2.  Summary of Significant Accounting Policies and New Accounting Pronouncements

Significant Accounting Policies

Basis of Presentation The consolidated financial statements include the accounts of HSBC USA and all subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights, or where we exercise control, including all variable interest entities ("VIEs") in which we are the primary beneficiary. Investments in companies where we have significant influence over operating and financing decisions, which primarily are those where the percentage of ownership is at least 20% but not more than 50%, are accounted for under the equity method and reported as equity method investments in other assets. All significant intercompany accounts and transactions have been eliminated.

On January 1, 2010, we adopted new guidance issued by the Financial Accounting Standards Board in June 2009 related to VIEs. The new guidance eliminated the concept of qualifying special purpose entities ("QSPEs") that were previously exempt from consolidation and changed the approach for determining the primary beneficiary of a VIE, which is required to consolidate the VIE, from a quantitative approach focusing on risk and reward to a qualitative approach focusing on (a) the power to direct the activities of the VIE and (b) the obligation to absorb losses and/or the right to receive benefits that could be significant to the VIE. We assess whether an entity is a VIE and, if so, whether we are its primary beneficiary at the time of initial involvement with the entity and on an ongoing basis. A VIE is an entity in which the equity investment at risk is not sufficient to finance the entity's activities, where the equity investors lack certain characteristics of a controlling financial interest, or where voting rights are not proportionate to the economic interests of a particular equity investor and the entity's activities are conducted primarily on behalf of that investor. A VIE must be consolidated by its primary beneficiary, which is the entity with the power to direct the activities of a VIE that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Certain reclassifications may be made to prior year amounts to conform to the current year presentation. Unless otherwise indicated, information included in these notes to consolidated financial statements relates to continuing operations for all periods presented. In 2010, we exited the wholesale banknotes business operated through our U.S. and Asian entities. See Note 3, "Discontinued Operations," for further details.

Cash and Cash Equivalents For the purpose of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks.

Resale and Repurchase Agreements We enter into purchases and borrowings of securities under agreements to resell (resale agreements) and sales of securities under agreements to repurchase (repurchase agreements) substantially identical securities. Resale and repurchase agreements are generally accounted for as secured lending and secured borrowing transactions, respectively.

The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the consolidated balance sheets at the amount advanced or borrowed, plus accrued interest to date. Interest earned on resale agreements is reported as interest income. Interest paid on repurchase agreements is reported as interest expense. We offset resale and repurchase agreements executed with the same counterparty under legally enforceable netting agreements that meet the applicable netting criteria as permitted by generally accepted accounting principles.

Repurchase agreements may require us to deposit cash or other collateral with the lender. In connection with resale agreements, it is our policy to obtain possession of collateral, which may include the securities purchased, with market value in excess of the principal amount loaned. The market value of the collateral subject to the resale and repurchase agreements is regularly monitored, and additional collateral is obtained or provided when appropriate, to ensure appropriate collateral coverage of these secured financing transactions.

Trading Assets and Liabilities Financial instruments utilized in trading activities are stated at fair value. Fair value is generally based on quoted market prices. If quoted market prices are not available, fair values are estimated based on dealer quotes, pricing models, using observable inputs where available or quoted prices for instruments with similar characteristics. The validity of internal pricing models is regularly substantiated by reference to actual market prices realized upon sale or liquidation of these instruments. Realized and unrealized gains and losses are recognized in trading revenues.

Securities Debt securities that we have the ability and intent to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to yield over the contractual lives of the related securities. Securities acquired principally for the purpose of selling them in the near term are classified as trading assets and reported at fair value with unrealized gains and losses included in earnings.

Equity securities that are not quoted on a recognized exchange are not considered to have a readily determinable fair value, and are recorded at cost, less any provisions for impairment. Unquoted equity securities, which include Federal Home Loan Bank ("FHLB") stock, Federal Reserve Bank ("FRB") stock and Visa Class B securities, are recorded in other assets.

All other securities are classified as available-for-sale and carried at fair value, with unrealized gains and losses, net of related income taxes, recorded as adjustments to common shareholder's equity as a component of accumulated other comprehensive income.

Securities that are classified as trading assets are stated at fair value. Fair value is generally based on quoted market prices. If quoted market prices are not available, fair values are estimated based on dealer quotes, pricing models, using observable inputs where available, or quoted prices for instruments with similar characteristics. The validity of internal pricing models is substantiated by reference to actual market prices realized upon sale or liquidation of these instruments.

Realized gains and losses on sales of securities not classified as trading assets are computed on a specific identified cost basis and are reported in other revenues (losses) as security gains, net. When the fair value of a security has declined below its amortized cost basis, we evaluate the decline to assess if it is considered other-than-temporary. To the extent that such a decline is deemed to be other-than-temporary, an other-than-temporary impairment loss is recognized in earnings equal to the difference between the security's cost and its fair value except that beginning in 2009, we changed our method of accounting for other-than-temporary impairments of debt securities as a result of adopting new accounting guidance which requires that only the credit loss component of such a decline is recognized in earnings for a debt security that we do not intend to sell and for which it is not more-likely-than-not that we will be required to sell prior to recovery of its amortized cost basis. A new cost basis is established for the security that reflects the amount of the other-than-temporary impairment loss recognized in earnings. Fair value adjustments to trading securities and gains and losses on the sale of such securities are reported in other revenues (losses) as trading revenues.

Loans Loans are stated at amortized cost, which represents the principal amount outstanding, net of unearned income, charge offs, unamortized purchase premium or discount, unamortized nonrefundable fees and related direct loan origination costs and purchase accounting fair value adjustments. Loans are further reduced by the allowance for credit losses.

Premiums and discounts and purchase accounting fair value adjustments are recognized as adjustments to yield over the expected lives of the related loans. Interest income is recorded based on the interest method.

Troubled debt restructures are loans for which the original contractual terms have been modified to provide for terms that are less than we would be willing to accept for new loans with comparable risk because of deterioration in the borrower's financial condition. Interest on these loans is recognized when collection is reasonably assured.

Nonrefundable fees and related direct costs associated with the origination of loans are deferred and netted against outstanding loan balances. The amortization of net deferred fees, which include points on real estate secured loans and costs, is recognized in interest income, generally by the interest method, based on the estimated or contractual lives of the related loans. Amortization periods are periodically adjusted for loan prepayments and changes in other market assumptions. Annual fees on MasterCard/Visa and home equity lines of credit ("HELOC"), net of direct lending costs, are deferred and amortized on a straight-line basis over one year.

Nonrefundable fees related to lending activities other than direct loan origination are recognized as other revenues (losses) over the period in which the related service is provided. This includes fees associated with the issuance of loan commitments where the likelihood of the commitment being exercised is considered remote. In the event of the exercise of the commitment, the remaining unamortized fee is recognized in interest income over the loan term using the interest method. Other credit-related fees, such as standby letter of credit fees, loan syndication and agency fees are recognized as other operating income over the period the related service is performed.

Allowance for Credit Losses We maintain an allowance for credit losses that is, in the judgment of management, adequate to absorb estimated probable incurred losses in our commercial and consumer loan portfolios. The adequacy of the allowance for credit losses is assessed in accordance with generally accepted accounting principles and is based, in part, upon an evaluation of various factors including:

•  an analysis of individual exposures where applicable;

•  current and historical loss experience;

•  changes in the overall size and composition of the portfolio; and

•  specific adverse situations and general economic conditions.

We also assess the overall adequacy of the allowance for credit losses by considering key ratios such as reserves to nonperforming loans and reserves as a percentage of net charge offs in developing our loss reserve estimates. Loss estimates are reviewed periodically and adjustments are reported in earnings when they become known. These estimates are influenced by factors outside of the control of management, such as consumer payment patterns and economic conditions with uncertainty inherent in these estimates, making it reasonably possible they could change.

For commercial and select consumer loans, we conduct a periodic assessment on a loan-by-loan basis of losses we believe to be inherent in the loan portfolio. When it is deemed probable, based upon known facts and circumstances, that full contractual interest and principal on an individual loan will not be collected in accordance with its contractual terms, the loan is considered impaired. An impairment reserve is established based on the present value of expected future cash flows, discounted at the loan's original effective interest rate, or as a practical expedient, the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Generally, impaired loans include loans in nonaccruing status, loans which have been assigned a specific allowance for credit losses, loans which have been partially charged off, and loans designated as troubled debt restructures. Problem commercial loans are assigned various criticized facility grades under the allowance for credit losses methodology. In assigning the obligor ratings of a particular loan, among the risk factors considered are the obligor's debt capacity and financial position, the level of earnings, the amount and sources for repayment, the level of contingencies, management strength and the industry or geography in which the obligor operates.

Formula-based reserves are also established against commercial loans when, based upon an analysis of relevant data, it is probable that a loss has been incurred and the amount of that loss can be reasonably estimated, even though an actual loss has yet to be identified. A separate reserve for credit losses associated with off-balance sheet exposures including unfunded lending commitments such as letters of credit, guarantees to extend credit and financial guarantees is also maintained and included in other liabilities, which incorporates estimates of the probability that customers will actually draw upon off-balance sheet obligations. This methodology uses the probability of default from the customer rating assigned to each counterparty, the "Loss Given Default" rating assigned to each transaction or facility based on the collateral securing the transaction, and the measure of exposure based on the transaction. Collateral is the primary driver of Loss Given Default. Specifically, the presence of collateral (secured vs. unsecured), the loan-to-value ratio and the quality of the collateral are the primary drivers of Loss Given Default. These reserves are determined by reference to continuously monitored and updated historical loss rates or factors, derived from a migration analysis which considers net charge off experience by loan and industry type in relation to internal customer credit grading.

Probable incurred losses for pools of homogeneous consumer loans are generally estimated using a roll rate migration analysis that estimates the likelihood that a loan will progress through the various stages of delinquency, or buckets, and ultimately charge off. This analysis considers delinquency status, loss experience and severity and takes into account whether loans are in bankruptcy, have been restructured, or are subject to forbearance, an external debt management plan, hardship, modification, extension or deferment. The allowance for credit losses on consumer receivables also takes into consideration the loss severity expected based on the underlying collateral, if any, for the loan in the event of default based on historical and recent trends. In addition, loss reserves are maintained on consumer receivables to reflect our judgment of portfolio risk factors which may not be fully reflected in the statistical roll rate calculation or when historical trends are not reflective of current inherent losses in the loan portfolio. Risk factors considered in establishing the allowance for credit losses on consumer receivables include growth, product mix and risk selection, unemployment rates, bankruptcy trends, geographic concentrations, loan product features such as adjustable rate loans, economic conditions such as national and local trends in unemployment, housing markets and interest rates, portfolio seasoning, changes in underwriting practices, current levels of charge-offs and delinquencies, changes in laws and regulations and other items which can affect consumer payment patterns on outstanding receivables such as natural disasters.

Provisions for credit losses on commercial and consumer loans for which we have modified the loan terms as part of a troubled debt restructuring ("TDR Loans") are determined using a discounted cash flow impairment analysis or in the case of certain commercial loans which are solely dependent on the collateral for repayment, the estimated fair value of the collateral less costs to sell. Modifications may include changes to one or more terms of the loan, including, but not limited to, a change in interest rate, extension of the amortization period, reduction in payment amount and partial forgiveness or deferment of principal. TDR Loans are considered to be impaired loans. Interest income on TDR Loans is recognized when collection is reasonably assured. For consumer loans, once a loan is classified as a TDR Loan, it continues to be reported as such until it is paid off or charged-off. For commercial loans, if they subsequently perform in accordance with the new terms and such terms represent current market rates at the time of restructure, they will be no longer be reported as a TDRs beginning in the year after restructure.

Charge-Off and Nonaccrual Policies and Practices Our charge-off and nonaccrual policies vary by product and are summarized below:

Product	Charge-off Policies and Practices	Nonaccrual Policies and Practices
Commercial Loans Construction and other real estate Business banking and middle market enterprises Large corporate Other commercial	Commercial loan balances are charged off at the time all or a portion of the balance is deemed uncollectible	Loans are generally categorized as nonaccruing when contractually delinquent for more than 90 days and in the opinion of management, reasonable doubt exists with respect to the ultimate collectibility of interest or principal based on certain factors including the period of time past due and adequacy of collateral. When classified as nonaccruing, any accrued interest recorded on the loan is generally deemed uncollectible and reversed against income. Interest income is subsequently recognized only to the extent of cash received until the loan is placed on accrual status. In instances where there is doubt as to collectibility of principal, interest payments received are applied to principal. Loans are not reclassified as accruing until interest and principal payments are current and future payments are reasonably assured.
Residential Mortgage Loans	Carrying values in excess of net realizable value are generally charged off at or before the time foreclosure is completed or when settlement is reached with the borrower, but not to exceed the end of the month in which the account becomes six months contractually delinquent. If foreclosure is not pursued and there is no reasonable expectation for recovery, the account is generally charged off no later than the end of the month in which the account becomes six months contractually delinquent.	Loans are generally designated as nonaccruing when contractually delinquent for more than three months. When classified as non-accruing, any accrued interest on the loan is generally deemed uncollectible and reversed against income. Interest accruals are resumed when the loan either becomes current or becomes less than 90 days delinquent and 6 months of consecutive payments have been made.
Auto Finance	Carrying values in excess of net realizable value are generally charged off at the earlier of the following:	Interest income accruals are suspended and the portion of previously accrued interest expected to be uncollectible is
	• The collateral has been repossessed and sold, •  The collateral has been in our possession for more than 30 days, or • The loan becomes 120 days contractually delinquent.	written off when principal payments are contractually past due for more than two months and resumed when the receivable becomes less than two months contractually delinquent.
Private label credit cards	Loan balances are generally charged off by the end of the month in which the account becomes six months contractually delinquent.	Interest generally accrues until charge-off.
Credit cards	Loan balances are generally charged off by the end of the month in which the account becomes six months contractually delinquent.	Interest generally accrues until charge-off.
Other Consumer Loans	Loan balances are generally charged off by the end of the month in which the account becomes four months contractually delinquent.	Interest generally accrues until charge-off.

Charge-off involving a bankruptcy for private label credit card and credit card receivables occurs by the end of the month 60 days after notification or 180 days contractually delinquent, whichever comes first. For auto finance receivables, bankrupt accounts are charged off at the earlier of 60 days after notification or the end of the month in which the account becomes 120 days contractually delinquent.

Delinquency status for loans is determined using the contractual method which is based on the status of payments under the loan. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status may be affected by customer account management policies and practices such as the restructure, re-age or modification of accounts.

Payments received on nonaccrual loans are generally applied to reduce the carrying value of such loans.

Purchased Credit-Impaired Loans Purchased loans with evidence of deterioration in credit quality since origination for which it is probable at acquisition that we will be unable to collect all contractually required payments are considered to be credit impaired. Purchased credit-impaired loans are initially recorded at fair value, which is estimated by discounting the cash flows expected to be collected at the acquisition date. Because the estimate of expected cash flows reflects an estimate of future credit losses expected to be incurred over the life of the loans, an allowance for credit losses is not recorded at the acquisition date.

The excess of cash flows expected at acquisition over the estimated fair value is recognized in interest income over the remaining life of the loans using the interest method. A subsequent decrease in the estimate of cash flows expected to be received on purchased credit-impaired loans generally results in the recognition of an allowance for credit losses and a corresponding charge to provision expense. A subsequent increase in estimated cash flows results in a reversal of a previously recognized allowance for credit losses and/or a positive impact on the amount of interest income subsequently recognized on the loans.

The process of estimating the cash flows expected to be received on purchased credit-impaired loans is subjective and requires management judgment with respect to key assumptions such as default rates, loss severity, and the amount and timing of prepayments. The application of different assumptions could result in different fair value estimates and could also impact the recognition and measurement of impairment losses and/or interest income.

Loans Held for Sale With the exception of certain leveraged loans and commercial loans for which the fair value option has been elected, loans that are classified as held for sale are carried at the lower of aggregate cost or fair value. Fair value is determined based on quoted market prices for similar loans, outstanding investor commitments or discounted cash flow analyses using market assumptions. Increases in the valuation allowance utilized to adjust loans that are classified as held for sale to fair value, and subsequent recoveries of prior allowances recorded, are recorded in other income in the consolidated income statement. Receivables are classified as held for sale when management no longer intends to hold the receivables for the foreseeable future.

Transfers of Financial Assets and Securitizations Transfers of financial assets in which we have surrendered control over the transferred assets are accounted for as sales. In assessing whether control has been surrendered, we consider whether the transferee would be a consolidated affiliate, the existence and extent of any continuing involvement in the transferred financial assets and the impact of all arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were not entered into at the time of transfer. Control is generally considered to have been surrendered when (i) the transferred assets have been legally isolated from us and our consolidated affiliates, even in bankruptcy or other receivership, (ii) the transferee (or, if the transferee is an entity whose sole purpose is to engage in securitization or asset-backed financing that is constrained from pledging or exchanging the assets it receives, each third-party holder of its beneficial interests) has the right to pledge or exchange the assets (or beneficial interests) it received without any constraints that provide more than a trivial benefit to us, and (iii) neither we nor our consolidated affiliates and agents have (a) both the right and obligation under any agreement to repurchase or redeem the transferred assets before their maturity, (b) the unilateral ability to cause the holder to return specific financial assets that also provides us with a more-than-trivial benefit (other than through a cleanup call) and (c) an agreement that permits the transferee to require us to repurchase the transferred assets at a price so favorable that it is probable that it will require us to repurchase them. Prior to 2010, transfers to QSPEs were accounted for as sales if certain criteria were met.

If the sale criteria are met, the transferred financial assets are removed from our balance sheet and a gain or loss on sale is recognized. If the sale criteria are not met, the transfer is recorded as a secured borrowing in which the assets remain on our balance sheet and the proceeds from the transaction are recognized as a liability. For the majority of financial asset transfers, it is clear whether or not we have surrendered control. For other transfers, such as in connection with complex transactions or where we have continuing involvement such as servicing responsibilities, we generally obtain a legal opinion as to whether the transfer results in a true sale by law.

We securitize certain private label card and credit card receivables where securitization provides an attractive source of funding. All private label card and credit card securitization transactions have been structured as secured financings.

Properties and Equipment, Net Properties and equipment are recorded at cost, net of accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the related assets, which generally range from 3 to 40 years. Leasehold improvements are depreciated over the lesser of the useful life of the improvement or the term of the lease. Costs of maintenance and repairs are expensed as incurred. Impairment testing is performed whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Mortgage Servicing Rights Mortgage servicing rights ("MSRs") are initially measured at fair value at the time that the related loans are sold and periodically re-measured using the fair value measurement method. MSRs are measured at fair value at each reporting date with changes in fair value reflected in earnings in the period that the changes occur.

MSRs are subject primarily to interest rate risk, in that their fair value will fluctuate as a result of changes in the interest rate environment. Fair value is determined based upon the application of valuation models and other inputs. The valuation models incorporate assumptions market participants would use in estimating future cash flows. These assumptions include expected prepayments, default rates and market based option adjusted spreads.

We use certain derivative financial instruments including options and interest rate swaps to protect against a decline in the economic value of MSRs. These instruments have not been designated as qualifying hedges and are therefore recorded as trading assets that are marked-to-market through earnings.

Goodwill Goodwill, representing the excess of purchase price over the fair value of identifiable net assets acquired, results from business combinations. Goodwill is not amortized, but is reviewed for impairment annually using a discounted cash flow methodology. This methodology utilizes cash flow estimates based on internal forecasts updated to reflect current economic conditions and revised economic projections at the review date and discount rates that we believe adequately reflect the risk and uncertainty in our internal forecasts and are appropriate based on the implicit market rates in current comparable transactions. Impairment may be reviewed as of an interim date if circumstances indicate that the carrying amount may not be recoverable. We consider significant and long-term changes in industry and economic conditions to be primary indicators of potential impairment.

Repossessed Collateral Collateral acquired in satisfaction of a loan is initially recognized at its fair value less estimated costs to sell and reported in other assets. A valuation allowance is created to recognize any subsequent declines in fair value less estimated costs to sell. These values are periodically reviewed and adjusted against the valuation allowance but not in excess of cumulative losses previously recognized subsequent to the date of repossession. Adjustments to the valuation allowance, costs of holding repossessed collateral, and any gain or loss on disposition are credited or charged to operating expense.

Collateral We pledge assets as collateral as required for various transactions involving security repurchase agreements, public deposits, Treasury tax and loan notes, derivative financial instruments, short-term borrowings and long-term borrowings. Assets that have been pledged as collateral, including those that can be sold or repledged by the secured party, continue to be reported on our consolidated balance sheet.

We also accept collateral, primarily as part of various transactions involving security resale agreements. Collateral accepted by us, including collateral that we can sell or repledge, is excluded from our consolidated balance sheet.

The market value of collateral we have accepted or pledged is regularly monitored and additional collateral is obtained or provided as necessary to ensure appropriate collateral coverage in these transactions.

Derivative Financial Instruments Derivative financial instruments are recognized on the consolidated balance sheet at fair value. On the date a derivative contract is entered into, we designate it as either:

•  a qualifying hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge);

• a qualifying hedge of the variability of cash flows to be received or paid related to a recognized asset, liability or forecasted transaction (cash flow hedge); or

•a trading instrument or a non-qualifying (economic) hedge.

Changes in the fair value of a derivative that has been designated and qualifies as a fair value hedge, along with the changes in the fair value of the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current period earnings. Changes in the fair value of a derivative that has been designated and qualifies as a cash flow hedge, to the extent effective as a hedge, are recorded in accumulated other comprehensive income, net of income taxes, and reclassified into earnings in the period during which the hedged item affects earnings. Ineffectiveness in the hedging relationship is reflected in current earnings. Changes in the fair value of derivatives held for trading purposes or which do not qualify for hedge accounting are reported in current period earnings.

At the inception of each designated qualifying hedge, we formally document all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions, the nature of the hedged risk, and how hedge effectiveness and ineffectiveness will be measured. This process includes linking all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also formally assess both at inception and on a recurring basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items and whether they are expected to continue to be highly effective in future periods. This assessment is conducted using statistical regression analysis.

Earnings volatility may result from the on-going mark to market of certain economically viable derivative contracts that do not satisfy the hedging requirements under U.S. GAAP, as well as from the hedge ineffectiveness associated with the qualifying hedges.

Embedded Derivatives We may acquire or originate a financial instrument that contains a derivative instrument "embedded" within it. Upon origination or acquisition of any such instrument, we assess whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the principal component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.

When we determine that: (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is either separated from the host contract (bifurcated), carried at fair value, and designated as a trading instrument or the entire financial instrument is carried at fair value with all changes in fair value recorded to current period earnings. If bifurcation is elected, any gain recognized at inception related to the derivative is effectively embedded in the host contract and is recognized over the life of the financial instrument.

Hedge Discontinuation We discontinue hedge accounting prospectively when:

•  the derivative is no longer effective or expected to be effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions);

•  the derivative expires or is sold, terminated, or exercised;

•  it is unlikely that a forecasted transaction will occur;

•  the hedged firm commitment no longer meets the definition of a firm commitment; or

•  the designation of the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value or cash flow hedge, the derivative will continue to be carried on the balance sheet at fair value.

In the case of a discontinued fair value hedge of a recognized asset or liability, as long as the hedged item continues to exist on the balance sheet, the hedged item will no longer be adjusted for changes in fair value. The basis adjustment that had previously been recorded to the hedged item during the period from the hedge designation date to the hedge discontinuation date is recognized as an adjustment to the yield of the hedged item over the remaining life of the hedged item.

In the case of a discontinued cash flow hedge of a recognized asset or liability, as long as the hedged item continues to exist on the balance sheet, the effective portion of the changes in fair value of the hedging derivative will no longer be reclassified into other comprehensive income. The balance applicable to the discontinued hedging relationship will be recognized in earnings over the remaining life of the hedged item as an adjustment to yield. If the discontinued hedged item was a forecasted transaction that is not expected to occur, any amounts recorded on the balance sheet related to the hedged item, including any amounts recorded in accumulated other comprehensive income, are immediately reclassified to current period earnings.

In the case of either a fair value hedge or a cash flow hedge, if the previously hedged item is sold or extinguished, the basis adjustment to the underlying asset or liability or any remaining unamortized other comprehensive income balance will be reclassified to current period earnings.

In all other situations in which hedge accounting is discontinued, the derivative will be carried at fair value on the consolidated balance sheets, with changes in its fair value recognized in current period earnings unless redesignated as a qualifying hedge.

Interest Rate Lock and Purchase Agreements We enter into commitments to originate residential mortgage loans whereby the interest rate on the loan is set prior to funding (rate lock commitments). We also enter into commitments to purchase residential mortgage loans through correspondent channels (purchase commitments). Both rate lock and purchase commitments for residential mortgage loans that are classified as held for sale are considered to be derivatives and are recorded at fair value in other assets or other liabilities in the consolidated balance sheets. Changes in fair value are recorded in other income in the consolidated statements of income.

Foreign Currency Translation We have foreign operations in several countries. The accounts of our foreign operations are measured using the local currency as the functional currency. Assets and liabilities are translated into U.S. dollars at the rate of exchange in effect on the balance sheet date. Income and expenses are translated at average monthly exchange rates. Net exchange gains or losses resulting from such translation are included in common shareholder's equity as a component of accumulated other comprehensive income. Foreign currency denominated transactions in other than the local functional currency are translated using the actual or period-average exchange rate with any foreign currency transaction gain or loss recognized currently in income.

Share-Based Compensation We use the fair value based method of accounting for awards of HSBC stock granted to employees under various stock option, restricted share and employee stock purchase plans. Stock compensation costs are recognized prospectively for all new awards granted under these plans. Compensation expense relating to share options is calculated using a methodology that is based on the underlying assumptions of the Black-Scholes option pricing model and is charged to expense over the requisite service period (e.g., vesting period), generally one to five years. When modeling awards with vesting that is dependent on performance targets, these performance targets are incorporated into the model using Monte Carlo simulation. The expected life of these awards depends on the behavior of the award holders, which is incorporated into the model consistent with historical observable data.

Compensation expense relating to restricted stock rights ("RSRs") is based upon the fair value of the RSRs on the date of grant and is charged to earnings over the requisite service period (e.g., vesting period) of the RSRs.

Pension and Other Postretirement Benefits We recognize the funded status of the postretirement benefit plans on the consolidated balance sheets with an offset to other comprehensive income (a component of shareholder's equity), net of income taxes. Net postretirement benefit cost charged to current earnings related to these plans is based on various actuarial assumptions regarding expected future experience.

Certain employees are participants in various defined contribution and other non-qualified supplemental retirement plans. Our contributions to these plans are charged to current earnings.

Through various subsidiaries, we maintain various 401(k) plans covering substantially all employees. Employer contributions to the plan, which are charged to current earnings, are based on employee contributions.

Income Taxes HSBC USA is included in HSBC North America's consolidated federal income tax return and various combined state income tax returns. As such, we have entered into a tax allocation agreement with HSBC North America and its subsidiary entities ("the HNAH Group") included in the consolidated return which governs the timing and amount of income tax payments required by the various entities included in the consolidated return filings. Generally, such agreements allocate taxes to members of the HNAH Group based on the calculation of tax on a separate return basis, adjusted for the utilization or limitation of credits of the consolidated group. To the extent all the tax attributes available cannot be currently utilized by the consolidated group, the proportionate share of the utilized attribute is allocated based on each affiliate's percentage of the available attribute computed in a manner that is consistent with the taxing jurisdiction's laws and regulations regarding the ordering of utilization. In addition, we file some separate company state tax returns.

We recognize deferred tax assets and liabilities for the future tax consequences related to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax credits and state net operating losses. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the deferred tax items are expected to be realized. If applicable, valuation allowances are recorded to reduce deferred tax assets to the amounts we conclude are more-likely-than-not to be realized. Since we are included in HSBC North America's consolidated federal tax return and various combined state tax returns, the related evaluation of the recoverability of the deferred tax assets is performed at the HSBC North America legal entity level. We look at the HNAH Group's consolidated deferred tax assets and various sources of taxable income, including the impact of HSBC and HNAH Group tax planning strategies, in reaching conclusions on recoverability of deferred tax assets. The HNAH Group evaluates deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, tax planning strategies and any available carryback capacity. In evaluating the need for a valuation allowance, the HNAH Group estimates future taxable income based on management approved business plans, future capital requirements and ongoing tax planning strategies, including capital support from HSBC necessary as part of such plans and strategies. This process involves significant management judgment about assumptions that are subject to change from period to period. Only those tax planning strategies that are both prudent and feasible, and for which management has the ability and intent to implement, are incorporated into our analysis and assessment.

Where a valuation allowance is determined to be necessary at the HNAH consolidated level, such allowance is allocated to principal subsidiaries within the HNAH Group in a manner that is systematic, rational and consistent with the broad principles of accounting for income taxes. The methodology allocates the valuation allowance to the principal subsidiaries based primarily on the entity's relative contribution to the growth of the HNAH consolidated deferred tax asset against which the valuation allowance is being recorded.

Further evaluation is performed at the HSBC USA legal entity level to evaluate the need for a valuation allowance where we file separate company state income tax returns. Foreign taxes paid are applied as credits to reduce federal income taxes payable, to the extent that such credits can be utilized.

Transactions with Related Parties In the normal course of business, we enter into transactions with HSBC and its subsidiaries. These transactions occur at prevailing market rates and terms and include funding arrangements, purchases of receivables, information technology services, administrative and operational support, and other miscellaneous services.

New Accounting Pronouncements Adopted

Accounting for Transfers of Financial Assets In June 2009, the FASB issued guidance which amended the accounting for transfers of financial assets by eliminating the concept of a qualifying special-purpose entity ("QSPE") and provided additional guidance with regard to the accounting for transfers of financial assets. The guidance became effective for all interim and annual periods beginning after November 15, 2009. The adoption of this guidance on January 1, 2010 did not have a material impact on our financial position or results of operations.

Accounting for Consolidation of Variable Interest Entities In June 2009, the FASB issued guidance which amended the accounting rules related to the consolidation of variable interest entities ("VIEs"). The guidance changed the approach for determining the primary beneficiary of a VIE from a quantitative risk and reward model to a qualitative model based on control and economics. Effective January 1, 2010, certain VIEs which were not currently being consolidated were required to be consolidated. Under this new guidance, we consolidated one asset- backed commercial paper conduit where we provide substantially all of the liquidity facilities and have the ability to direct most significant activities. The impact of consolidating this entity on January 1, 2010 resulted in an increase to our assets and liabilities of approximately $3.2 billion and $3.5 billion, respectively, which resulted in a decrease to the opening balance of common shareholder's equity which was recorded as an increase to retained earnings of $1 million and a reduction to other comprehensive income of $246 million. We have elected to adopt the transition mechanism for Risk Based Capital Requirements. Had we fully transitioned to the Risk Based Capital requirements at December 31, 2010, our risk weighted assets would have been higher by approximately $2.2 billion as a result of consolidating this VIE which would not have had a significant impact to our Tier 1 capital ratio. See Note 26, "Variable Interest Entities," in these consolidated financial statements for additional information.

Improving Disclosures about Fair Value Measurements In January 2010, the FASB issued guidance to improve disclosures about fair value measurements. The guidance requires entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair measurements and describe the reasons for those transfers. It also requires the Level 3 reconciliation to be presented on a gross basis, while disclosing purchases, sales, issuances and settlements separately. The guidance became effective for interim and annual financial periods beginning after December 15, 2009, except for the requirement to present the Level 3 reconciliation on a gross basis, which is effective for interim and annual periods beginning after December 15, 2010. We adopted the new disclosure requirements in their entirety effective January 1, 2010. See Note 28, "Fair Value Measurements," in these consolidated financial statements.

Subsequent Events In February 2010, the FASB amended certain recognition and disclosure requirements for subsequent events. The guidance clarified that an entity that is an Securities and Exchange Commission ("SEC") filer is required to evaluate subsequent events through the date the financial statements are issued and in all other cases through the date the financial statements are available to be issued. The guidance eliminated the requirement to disclose the date through which subsequent events are evaluated for an SEC filer. The guidance was effective upon issuance. Adoption did not have an impact on our financial position or results of operations.

Consolidation In February 2010, the FASB issued an update that amends the guidance for consolidation of certain investment funds. The revised guidance deferred the consolidation requirements for a reporting entity that has an interest in an entity (1) that has all the attributes of an investment company, (2) for which it is industry practice to apply measurement principles for financial reporting purposes that are consistent with that of investment company, or (3) which is a registered money market fund and is required to comply or operate in accordance with certain requirements of Investment Companies Act of 1940. An entity that qualified for deferral will have to comply with disclosure requirements applicable to reporting entities with variable interests in variable interest entities. The guidance was effective for all interim and annual periods beginning after November 15, 2009. Adoption did not have an impact on our financial position or results of operations.

Derivatives and Hedging In March 2010, the FASB issued a clarification on the scope exception for embedded credit derivatives. The guidance eliminated the scope exception for credit derivatives embedded in interests in securitized financial assets, unless the credit derivative is created solely by subordination of one financial debt instrument to another. The guidance is effective beginning in the first reporting period after June 15, 2010, with earlier adoption permitted for the quarter beginning after March 31, 2010. Adoption did not have a material impact to our financial position or results of operations.

Loan Modifications In April 2010, the FASB issued guidance affecting the accounting for loan modifications for those loans that are acquired with deteriorated credit quality and are accounted for on a pool basis. It clarified that the modifications of such loans do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The new guidance became effective prospectively for modifications to loans acquired with deteriorating credit quality and accounted for on a pool basis occurring in the first interim or annual period ending on or after July 15, 2010. Adoption did not have any impact on our financial position or results of operations.

Credit Quality and Allowance for Credit losses Disclosures In July 2010, the FASB issued guidance to provide more transparency about an entity's allowance for credit losses and the credit quality of its financing receivables. The guidance amends the existing disclosure requirements by requiring an entity to provide a greater level of disaggregated information to assist financial statement users in assessing its credit risk exposures and evaluating the adequacy of its allowance for credit losses. Additionally, the update requires an entity to disclose credit quality indicators, past due information, and modification of its financing receivables. The amendment is effective beginning interim and annual reporting periods ending on or after December 15, 2010. However, in January 2011, the FASB delayed the disclosures requirements regarding troubled debt restructurings. The new disclosures about troubled debt restructurings are anticipated to be effective for interim and annual periods ending after June 15, 2011. We adopted the new disclosures in the amendment, excluding the disclosures related to troubled debt restructurings which have been delayed, effective December 31, 2010. See Note 7, "Loans," and Note 8, "Allowance for Credit Losses," in these consolidated financial statements for the expanded disclosure.

3.  Discontinued Operations

In June 2010, we decided that the wholesale banknotes business ("Banknotes Business") within our Global Banking and Markets segment did not fit with our core strategy in the U.S. and, therefore, made the decision to exit this business. This business, which was managed out of the United States with operations in key locations worldwide, arranged for the physical distribution of banknotes globally to central banks, large commercial banks and currency exchanges. As a result of this decision, we recorded closure costs of $14 million during 2010, primarily relating to termination and other employee benefits. No significant additional closure costs are expected to be incurred. At December 31, 2010, the remaining liability associated with these costs totaled $8 million.

As part of the decision to exit the Banknotes Business, in October 2010 we sold the assets of our Asian banknotes operations ("Asian Banknotes Operations") to an unaffiliated third party for total consideration of approximately $11 million in cash. As a result, during the third quarter of 2010 we classified the assets of the Asian Banknotes Operations of $23 million, including an allocation of goodwill of $21 million, as held for sale which were included as a component of other assets at September 30, 2010. Because the carrying value of the assets being sold exceeded the agreed-upon sales price, we recorded a lower of cost or fair value adjustment of $12 million in the third quarter of 2010 which is reflected in income from discontinued operations in the consolidated statement of income (loss).

The exit of our Banknotes Business, including the sale of our Asian Banknotes Operations, was substantially completed in the fourth quarter of 2010 and as a result, we are reporting the results of our Banknotes Business as discontinued operations. The table below summarizes the operating results of our Banknotes Business for the periods presented.

Year Ended December 31,	2010	2009	2008
	(in millions)
Net interest income and other revenues	$102	$123	$127
Income from discontinued operations before income tax benefit	23	73	68

The following summarizes the assets and liabilities of our Banknotes Business which are now reported as assets of discontinued operations and liabilities of discontinued operations in our consolidated balance sheet.

December 31,	2010	2009
	(in millions)
Cash	$117	$1,060
Trading assets	-	12
Property and equipment, net	-	1
Goodwill	-	21
Other assets	2	26
Assets of discontinued operations	$119	$1,120
Deposits	$-	$103
Trading liabilities	-	100
Other liabilities	14	383
Liabilities of discontinued operations	$14	$586

4.  Exit from Taxpayer Financial Services Loan Program

During the third quarter of 2010, the Internal Revenue Service ("IRS") announced it would stop providing information regarding certain unpaid obligations of a taxpayer (the "Debt Indicator"), which has historically served as a significant part of the underwriting process for the Taxpayer Financial Services ("TFS") loan program. It was determined that, without use of the Debt Indicator, tax refund anticipation loans which have historically accounted for the substantial majority of the loan production in the TFS loan program, could no longer be offered in a safe and sound manner. As a result, in December 2010, it was determined that we would no longer offer any tax refund anticipation loans or related products going forward, beginning with the 2011 tax season and we exited the TFS loan program. The TFS loan program has not been presented within discontinued operations as its impact is not material to our results of operations.

The following summarizes the operating results of our TFS loan program for the periods presented:

Year Ended December 31,	2010	2009	2008
	(in millions)
Total revenues	$69	$11	$13
Income before income tax expense	11	11	13

5.  Trading Assets and Liabilities

Trading assets and liabilities are summarized in the following table.

At December 31,	2010	2009
	(in millions)
Trading assets:
U.S. Treasury	$1,874	$615
U.S. Government agency	62	34
U.S. Government sponsored enterprises (1)	632	16
Asset backed securities	1,148	1,815
Corporate and foreign bonds	5,897	2,369
Other securities	52	491
Precious metals	16,725	12,254
Derivatives	6,012	8,209
	$32,402	$25,803
Trading liabilities:
Securities sold, not yet purchased	$212	$131
Payables for precious metals	5,326	2,458
Derivatives	4,990	5,321
	$10,528	$7,910

____________

(1)	Includes mortgage backed securities of $598 million and $13 million issued or guaranteed by the Federal National Mortgage Association ("FNMA") and $34 million and $3 million issued or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC") at December 31, 2010 and 2009, respectively.

At December 31, 2010 and 2009, the fair value of derivatives included in trading assets has been reduced by $3.1 billion and $2.7 billion, respectively, relating to amounts recognized for the obligation to return cash collateral received under master netting agreements with derivative counterparties.

At December 31, 2010 and 2009, the fair value of derivatives included in trading liabilities has been reduced by $5.8 billion and $7.2 billion, respectively, relating to amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.

6.  Securities

The amortized cost and fair value of the securities available-for-sale and securities held-to-maturity portfolios are summarized in the following tables.

December 31, 2010	Amortized Cost	Non-Credit Loss Component of OTTI Securities	Unrealized Gains	Unrealized Losses	Fair Value
	(in millions)
Securities  available-for-sale:
U.S. Treasury	$19,300	$-	$200	$(402)	$19,098
U.S. Government sponsored enterprises: (1)
Mortgage-backed securities	47	-	-	(1)	46
Direct agency obligations	2,100	-	93	(9)	2,184
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	11,229	-	260	(27)	11,462
Collateralized mortgage obligations	7,566	-	160	(52)	7,674
Direct agency obligations	19	-	-	(1)	18
Obligations of U.S. states and political subdivisions	571	-	13	(5)	579
Asset backed securities collateralized by:
Residential mortgages	13	-	-	(2)	11
Commercial mortgages	537	-	17	(2)	552
Home equity	464	(1)	-	(111)	352
Auto	-	-	-	-	-
Student loans	29	-	-	(2)	27
Other	120	-	1	(17)	104
Corporate and other domestic debt securities (2)	676	-	7	-	683
Foreign debt  securities (2)(6)	2,540	-	65	-	2,605
Equity securities (3)	126	-	2	-	128
Total available-for-sale securities	$45,337	$(1)	$818	$(631)	$45,523
Securities held-to-maturity:
U.S. Government sponsored enterprises: (4)
Mortgage-backed securities	$1,586	$-	$151	$-	$1,737
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	94	-	15	-	109
Collateralized mortgage obligations	327	-	36	-	363
Obligations of U.S. states and political subdivisions	111	-	4	(1)	114
Asset backed securities collateralized by:
Residential mortgages	191	-	8	(3)	196
Asset-backed securities (predominantly credit card) and other debt securities held by consolidated VIE (5)	1,034	(153)	-	-	881
Total held-to-maturity securities	$3,343	$(153)	$214	$(4)	$3,400

December 31, 2009	Amortized Cost	Non-Credit Loss Component of OTTI Securities	Unrealized Gains	Unrealized Losses	Fair Value
	(in millions)
Securities  available-for-sale:
U.S. Treasury	$7,448	$-	$27	$(73)	$7,402
U.S. Government sponsored enterprises: (1)
Mortgage-backed securities	59	-	-	(1)	58
Direct agency obligations	1,948	-	5	(65)	1,888
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	4,081	-	93	(13)	4,161
Collateralized mortgage obligations	6,324	-	107	(7)	6,424
Obligations of U.S. states and political subdivisions	741	-	13	(5)	749
Asset backed securities collateralized by:
Residential mortgages	1,041	(55)	1	(122)	865
Commercial mortgages	573	-	7	(14)	566
Home equity	620	(29)	-	(219)	372
Auto	65	-	-	(1)	64
Student loans	35	-	-	(5)	30
Other	23	-	1	-	24
Corporate and other domestic debt securities (2)	872	-	7	(15)	864
Foreign debt  securities (2)(6)	3,035	-	44	(3)	3,076
Equity securities (3)	1,260	-	3	-	1,263
Total available-for-sale securities	$28,125	$(84)	$308	$(543)	$27,806
Securities held-to-maturity:
U.S. Government sponsored enterprises: (4)
Mortgage-backed securities	$1,854	$-	$103	$(5)	$1,952
U.S. Government agency issued or guaranteed:
Mortgage-backed securities	113	-	12	-	125
Collateralized mortgage obligations	341	-	25	(2)	364
Obligations of U.S. states and political subdivisions	161	-	6	(1)	166
Asset backed securities collateralized by:
Residential mortgages	192	-	1	(21)	172
Foreign debt securities	101	-	-	-	101
Total held-to-maturity securities	$2,762	$-	$147	$(29)	$2,880

____________

(1)	Includes securities at amortized cost of $30 million and $38 million issued or guaranteed by the FNMA at December 31, 2010 and 2009, respectively, and $17 million and $21 million issued or guaranteed by FHLMC at December 31, 2010 and 2009, respectively.
(2)	At December 31, 2010, other domestic debt securities included $676 million of securities at amortized cost fully backed by the Federal Deposit Insurance Corporation ("FDIC") and foreign debt securities consisted of $2.2 billion of securities fully backed by foreign
	governments. At December 31, 2009, other domestic debt securities included $677 million of securities at amortized cost fully backed by the FDIC and foreign debt securities consisted of $2.7 billion of securities fully backed by foreign governments.
(3)	Includes preferred equity securities at amortized cost issued by FNMA of $2 million at December 31, 2010 and 2009, respectively. Balances at December 31, 2010 and 2009 reflect cumulative other-than-temporary impairment charges of $203 million.
(4)	Includes securities at amortized cost of $622 million and $678 million issued or guaranteed by FNMA at December 31, 2010 and 2009, respectively, and $964 million and $1.2 billion issued and guaranteed by FHLMC at December 31, 2010 and 2009, respectively.
(5)	Relates to securities held by Bryant Park Funding LLC which has been consolidated effective January 1, 2010. See Note 26, "Variable Interest Entities," for additional information.
(6)	There were no foreign debt securities issued by the governments of Portugal, Ireland, Italy, Greece or Spain at December 31, 2010 and 2009, respectively.

A summary of gross unrealized losses and related fair values as of December 31, 2010 and 2009 classified as to the length of time the losses have existed follows:

	One Year or Less			Greater Than One Year
December 31, 2010	Number of Securities	Gross Unrealized Losses	Aggregate Fair Value of Investment	Number of Securities	Gross Unrealized Losses	Aggregate Fair Value of Investment
	(dollars are in millions)
Securities  available-for-sale:
U.S. Treasury	40	$(402)	$7,911	-	$-	$-
U.S. Government sponsored enterprises	14	(9)	131	13	(1)	10
U.S. Government agency issued or guaranteed	70	(80)	4,409	2	-	2
Obligations of U.S. states and political subdivisions	27	(3)	127	5	(2)	36
Asset backed securities	3	-	-	51	(134)	506
Corporate and other domestic debt securities	3	-	200	-	-	-
Foreign debt securities	-	-	-	1	-	25
Securities  available-for-sale	157	$(494)	$12,778	72	$(137)	$579
Securities held-to-maturity:
U.S. Government sponsored enterprises	21	$-	$-	1	$-	$-
U.S. Government agency issued or guaranteed	570	-	2	2	-	-
Obligations of U.S. states and political subdivisions	14	-	7	12	(1)	14
Asset backed securities	-	-	-	6	(3)	44
Securities  held-to-maturity	605	$-	$9	21	$(4)	$58

	One Year or Less			Greater Than One Year
December 31, 2009	Number of Securities	Gross Unrealized Losses	Aggregate Fair Value of Investment	Number of Securities	Gross Unrealized Losses	Aggregate Fair Value of Investment
	(dollars are in millions)
Securities  available-for-sale:
U.S. Treasury	16	$(55)	$2,978	1	$(18)	$94
U.S. Government sponsored enterprises	30	(50)	1,441	27	(16)	262
U.S. Government agency issued or guaranteed	85	(19)	1,509	18	(1)	43
Obligations of U.S. states and political subdivisions	26	(3)	166	11	(2)	79
Asset backed securities	5	(1)	35	109	(360)	1,137
Corporate and other domestic debt securities	3	(8)	83	2	(7)	43
Foreign debt securities	5	(3)	384	1	-	25
Equity securities	2	-	-	-	-	-
Securities  available-for-sale	172	$(139)	$6,596	169	$(404)	$1,683
Securities held-to-maturity:
U.S. Government sponsored enterprises	10	$(5)	$261	1	$-	$-
U.S. Government agency issued or guaranteed	7	(2)	39	6	-	-
Obligations of U.S. states and political subdivisions	22	(1)	12	12	-	19
Asset backed securities	1	(1)	6	11	(20)	121
Securities  held-to-maturity	40	$(9)	$318	30	$(20)	$140

Gross unrealized losses within the available-for-sale portfolio increased overall in 2010 primarily due to a significant rise in yields during the fourth quarter, driven by inflationary fears and uncertainty about the quantity and timing of the Federal Reserve's bond buying program. We have reviewed the securities for which there is an unrealized loss in accordance with our accounting policies for other-than-temporary impairment. During 2010, 39 debt securities were determined to have either initial other-than-temporary impairment or changes to previous other-than-temporary impairment estimates. The credit loss component of the applicable debt securities totaling a loss of $79 million was recorded as a component of net other-than-temporary impairment losses in the accompanying consolidated statement of income (loss) during 2010, while the non-credit portion representing a net reversal of a portion of previously recorded impairment losses was recognized in other comprehensive income. During 2009, 28 debt securities were determined to have either initial other-than-temporary impairment or changes to previous other-than-temporary impairment estimates. As a result, we recorded other-than-temporary impairment charges of $208 million during 2009 on these investments. The credit loss component of the applicable debt securities totaling $124 million was recorded as a component of net other-than-temporary impairment losses in the accompanying consolidated statement of income (loss) during 2009 while the remaining non-credit portion of the impairment loss was recognized in other comprehensive income.

We do not consider any other securities to be other-than-temporarily impaired as we expect to recover the amortized cost basis of these securities and we neither intend nor expect to be required to sell these securities prior to recovery, even if that equates to holding securities until their individual maturities. However, additional other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

On-going Assessment for Other-Than-Temporary Impairment  On a quarterly basis, we perform an assessment to determine whether there have been any events or economic circumstances to indicate that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security is considered impaired if its fair value is less than its amortized cost at the reporting date. If impaired, we assess whether the unrealized loss is other-than-temporary.

An unrealized loss is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss is recognized, net of tax, in other comprehensive income provided we do not intend to sell the underlying debt security and it is more-likely-than-not that we would not have to sell the debt security prior to recovery.

For all securities held in the available-for-sale or held-to-maturity portfolio for which unrealized losses have existed for a period of time, we do not have the intention to sell and believe we will not be required to sell the securities for contractual, regulatory or liquidity reasons as of the reporting date. As debt securities issued by U.S. Treasury, U.S. Government agencies and government sponsored entities accounted for 89 percent and 72 percent of total available-for-sale and held-to-maturity securities as of December 31, 2010 and 2009, respectively, our assessment for credit loss was concentrated on private label asset-backed securities. Substantially all of the private label asset-backed securities are supported by residential mortgages, home equity loans or commercial mortgages. Our assessment for credit loss was concentrated on this particular asset class because of the following inherent risk factors:

•  The recovery of the U.S. economy remains sluggish;

•  The continued weakness in the U.S. housing markets with high levels of delinquency and foreclosure;

•  A lack of traction in government sponsored programs in loan modifications;

•  A lack of refinancing activities within certain segments of the mortgage market, even at the current low interest rate environment, and the re-default rate for refinanced loans;

•  The unemployment rate remains high despite recent modest improvement, and consumer confidence remains low;

•  The decline in the occupancy rate in commercial properties; and

•  The severity and duration of unrealized loss.

   In determining whether a credit loss exists and the period over which the debt security is expected to recover, we considered the following factors:

•  The length of time and the extent to which the fair value has been less than the amortized cost basis;

•  The level of credit enhancement provided by the structure, which includes but is not limited to credit subordination positions, over collateralization, protective triggers and financial guarantees provided by monoline wraps;

•  Changes in the near term prospects of the issuer or underlying collateral of a security such as changes in default rates, loss severities given default and significant changes in prepayment assumptions;

•  The level of excess cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

•  Any adverse change to the credit conditions of the issuer, the monoline insurer or the security such as credit downgrades by the rating agencies.

We use a standard valuation model to measure the credit loss for available-for-sale and held-to-maturity securities. The valuation model captures the composition of the underlying collateral and the cash flow structure of the security. Management develops inputs to the model based on external analyst reports and forecasts and internal credit assessments. Significant inputs to the model include delinquencies, collateral types and related contractual features, estimated rates of default, loss given default and prepayment assumptions. Using the inputs, the model estimates cash flows generated from the underlying collateral and distributes those cash flows to respective tranches of securities considering credit subordination and other credit enhancement features. The projected future cash flows attributable to the debt security held are discounted using the effective interest rates determined at the original acquisition date if the security bears a fixed rate of return. The discount rate is adjusted for the floating index rate for securities which bear a variable rate of return, such as LIBOR-based instruments.

As of December 31, 2010, substantially all available-for-sale debt securities with other-than-temporary impairment for which a portion of the impairment loss remains in accumulated other comprehensive income consisted of asset-backed securities collateralized by residential mortgages or home equity loans. Specific market based assumptions were used to appropriately model and value the credit component of each individual prime, Alt-A and second lien/home equity mortgage-backed security due to the diversified geographical, FICO and vintage (2005-2007) characteristics of the underlying loans. This has resulted in a wide range of assumptions across the analyzed securities as presented in the table below. Prime and Alt-A mortgage collateral types comprise approximately 57 percent and 16 percent, respectively, of the other-than-temporary impairments we have recognized during 2010. The assumptions were as follows:

December 31, 2010	Prime	Alt-A	Second liens/Home equity mortgages
Constant default rate	1-6%	1-11%	1-18%
Loss severity	25-60%	36-75%	65-100%
Prepayment speeds	2-16%	1-23%	1-24%

The dollar amounts of asset-backed and equity securities for which other-than-temporary impairment losses were recognized in 2010 are as follows:

				Impairment
	Balance as of December 31, 2010			Loss Charged to
	Amortized	Unrealized		Profit and Loss
	Cost	Impairment Loss	Fair Value	in 2010
	(in millions)
Available-for-sale:
Asset-backed securities:
Residential mortgages	$8	$(1)	$7	$1
Home equity loans	6	-	6	1
Subtotal	14	(1)	13	2
Equity securities	3	-	3	7
Total available-for-sale	17	(1)	16	9
Held-to-maturity:
Asset-backed securities (predominately Credit Card)	256	-	256	31
Total	$273	$(1)	$272	$40

Additionally, there was $39 million of other-than-temporary impairment realized on securities sold during 2010.

The dollar amounts of asset-backed securities for which other-than-temporary impairment losses were recognized in 2009 are as follows:

				Impairment
	Balance as of December 31, 2009			Loss Charged to
	Amortized	Unrealized		Profit and Loss
	Cost	Impairment Loss	Fair Value	in 2009
	(in millions)
Available-for-sale:
Asset-backed securities:
Residential mortgages	$316	$(32)	$284	$51
Home equity loans	27	-	27	25
Total	$343	$(32)	$311	$76

Additionally, there was $48 million of other-than-temporary impairment realized on securities sold during 2009.

The amortized cost and fair value of those asset-backed securities with unrealized loss of more than 12 months for which no other-than-temporary-impairment has been recognized at December 31, 2010 and 2009 are as follows:

	Balance as of December 31, 2010
	Amortized Cost	Unrealized Losses for More Than 12 Months	Fair Value
	(in millions)
Available-for-sale:
Asset-backed securities:
Residential mortgages	$3	$(1)	$2
Commercial mortgages	39	(2)	37
Home equity loans	457	(112)	345
Auto loans	-	-	-
Student loans	29	(2)	27
Other	103	(16)	87
Subtotal	631	(133)	498
Held-to-maturity:
Asset-backed securities - residential mortgages	47	(3)	44
Total	$678	$(136)	$542

	Balance as of December 31, 2009
	Amortized Cost	Unrealized Losses for More Than 12 Months	Fair Value
	(in millions)
Available-for-sale:
Asset-backed securities:
Residential mortgages	$551	$(89)	$462
Commercial mortgages	219	(14)	205
Home equity loans	563	(220)	343
Auto loans	50	(1)	49
Student loans	35	(5)	30
Other	-	-	-
Subtotal	1,418	(329)	1,089
Held-to-maturity:
Asset-backed securities - residential mortgages	141	(20)	121
Total	$1,559	$(349)	$1,210

Although the fair value of a particular security is below its amortized cost for more than 12 months, it does not necessarily result in a credit loss and hence other-than-temporary impairment. The decline in fair value may be caused by, among other things, illiquidity in the market. To the extent we do not intend to sell the debt security and it is more-likely-than-not we will not be required to sell the security before the recovery of the amortized cost basis, no other-than-temporary impairment is deemed to have occurred. The fair value of most of the asset-backed securities has recovered significantly as the economy recovers from the financial crisis.

The excess of amortized cost over the present value of expected future cash flows recognized during 2010 and 2009 on our other-than-temporarily impaired debt securities, which represents the credit loss associated with these securities, was $79 million and $124 million, respectively. The excess of the present value of expected future cash flows over fair value, representing the non-credit component of the unrealized loss associated with all other-than-temporarily impaired securities, was $154 million and $84 million at December 31, 2010 and 2009, respectively. Since we do not have the intention to sell the securities and have sufficient capital and liquidity to hold these securities until a full recovery of the fair value occurs, only the credit loss component is reflected in the consolidated statement of income (loss). The non-credit component of the unrealized loss is recorded, net of taxes, in other comprehensive income (loss).

The following table summarizes the rollforward of credit losses on debt securities that were other-than-temporarily impaired which would have been recognized in income:

Year Ended December 31,	2010	2009
	(in millions)
Credit losses at the beginning of the period	$81	$5
Credit losses related to securities for which an  other-than-temporary impairment was not previously recognized	20	110
Increase in credit losses for which an other-than-temporary impairment was previously recognized	59	14
Reduction for credit losses previously recognized on sold securities	(115)	(48)
Reduction of credit losses for increases in cash flows expected to be collected that are recognized over the remaining life of the security	(30)	-
Ending balance of credit losses on debt securities held for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss)	$15	$81

At December 31, 2010, we held 78 individual asset-backed securities in the available-for-sale portfolio, of which 24 were also wrapped by a monoline insurance company. The asset-backed securities backed by a monoline wrap comprised $437 million of the total aggregate fair value of asset-backed securities of $1.0 billion at December 31, 2010. The gross unrealized losses on these securities were $127 million at December 31, 2010. We did not take into consideration the value of the monoline wrap of any non-investment grade monoline insurers as of December 31, 2010 and, therefore, we only considered the financial guarantee of monoline insurers on securities for purposes of evaluating other-than-temporary impairment with a fair value of $156 million. Two securities wrapped by below investment grade monoline insurance companies with an aggregate fair value of $5 million were deemed to be other-than-temporarily impaired at December 31, 2010.

At December 31, 2009, we held 159 individual asset-backed securities in the available-for-sale portfolio, of which 32 were also wrapped by a monoline insurance company. The asset-backed securities backed by a monoline wrap comprised $441 million of the total aggregate fair value of asset-backed securities of $1.9 billion at December 31, 2009. The gross unrealized losses on these securities were $219 million at December 31, 2009. During 2009, three monoline insurers were downgraded to below investment grade. As a result, we did not take into consideration the financial guarantee from two of those monoline insurers and placed only limited reliance of the financial guarantee of the third monoline insurer. As of December 31, 2009, we considered the financial guarantee of monoline insurers on securities with a fair value of $235 million. Four of the securities wrapped by the downgraded monoline insurance companies with an aggregate fair value of $35 million were deemed to be other-than-temporarily impaired at December 31, 2009.

As discussed above, certain asset-backed securities have an embedded financial guarantee provided by monoline insurers. Because the financial guarantee is not a separate and distinct contract from the asset-backed security, they are considered as a single unit of account for fair value measurement and impairment assessment purposes. The monoline insurers are regulated by the insurance commissioners of the relevant states and certain monoline insurers that write the financial guarantee contracts are public companies. In evaluating the extent of our reliance on investment grade monoline insurance companies, consideration is given to our assessment of the creditworthiness of the monoline and other market factors. We perform both a credit as well as a liquidity analysis on the monoline insurers each quarter. Our analysis also compares market-based credit default spreads, when available, to assess the appropriateness of our monoline insurer's creditworthiness. Based on the public information available, including the regulatory reviews and actions undertaken by the state insurance commissions and the published financial results, we determine the degree of reliance to be placed on the financial guarantee policy in estimating the cash flows to be collected for the purpose of recognizing and measuring impairment loss.

A credit downgrade to non-investment grade is a key but not the only factor in determining the credit risk or the monoline insurer's ability to fulfill its contractual obligation under the financial guarantee arrangement. Although a monoline may have been down-graded by the credit rating agencies or have been ordered to commute its operations by the insurance commissioners, it may retain the ability and the obligation to continue to pay claims in the near term. We evaluate the short-term liquidity of and the ability to pay claims by the monoline insurers in estimating the amounts of cash flows expected to be collected from specific asset-backed securities for the purpose of assessing and measuring credit loss.

The following table summarizes realized gains and losses on investment securities transactions attributable to available-for-sale and held-to-maturity securities.

	Gross Realized Gains	Gross Realized (Losses)	Net Realized (Losses) Gains
	(in millions)
Year ended December 31, 2010:
Securities  available-for-sale	$177	$(151)	$26
Securities held-to-maturity(1)	-	(31)	(31)
	$177	$(182)	$(5)
Year ended December 31, 2009:
Securities  available-for-sale	$312	$(180)	$132
Securities held-to-maturity(1)	-	-	-
	$312	$(180)	$132
Year ended December 31, 2008:
Securities  available-for-sale	$30	$(262)	$(232)
Securities held-to-maturity(1)	-	-	-
	$30	$(262)	$(232)

____________

(1)	Maturities, calls and mandatory redemptions.

The amortized cost and fair values of securities available-for-sale and securities held-to-maturity at December 31, 2010, are summarized in the table below by contractual maturity. Expected maturities differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties in certain cases. Securities available-for-sale amounts exclude equity securities as they do not have stated maturities. The table below also reflects the distribution of maturities of debt securities held at December 31, 2010, together with the approximate taxable equivalent yield of the portfolio. The yields shown are calculated by dividing annual interest income, including the accretion of discounts and the amortization of premiums, by the amortized cost of securities outstanding at December 31, 2010. Yields on tax-exempt obligations have been computed on a taxable equivalent basis using applicable statutory tax rates.

			After One		After Five
Taxable	Within		But Within		But Within		After Ten
Equivalent	One Year		Five Years		Ten Years		Years
Basis	Amount	Yield	Amount	Yield	Amount	Yield	Amount	Yield
	(dollars are in millions)
Available-for-sale:
U.S. Treasury	$-	-%	$5,613	1.21%	$9,049	2.59%	$4,638	4.33%
U.S. Government sponsored enterprises	-	-	-	-	1,810	4.05	337	4.23
U.S. Government agency issued or guaranteed	-	-	1	4.76	227	4.80	18,586	3.81
Obligations of U.S. states and political subdivisions	-	-	-	-	262	4.25	309	4.47
Asset backed securities	-	-	106	5.35	6	1.37	1,050	2.92
Other domestic debt securities	159	1.61	517	1.49	-	-	-	-
Foreign debt securities	291	1.91	2,239	2.57	10	5.36	-	-
Total amortized cost	$450	1.81%	$8,476	1.64%	$11,364	2.90%	$24,920	3.89%
Total fair value	$453		$8,586		$11,272		$25,084
Held-to-maturity:
U.S. Government sponsored enterprises	$-	-%	$23	7.95%	$2	6.94%	$1,561	6.16%
U.S. Government agency issued or guaranteed	-	-	-	-	6	7.65	415	6.55
Obligations of U.S. states and political subdivisions	10	5.42	26	5.51	16	4.61	59	5.19
Asset backed securities	-	-	-	-	-	-	191	6.13
Asset backed securities issued by consolidated VIE	881	1.11	-	-	-	-	-	-
Foreign debt securities	-	-	-	-	-	-	-	-
Total amortized cost	$891	1.16%	$49	6.67%	$24	5.54%	$2,226	6.21%
Total fair value	$891		$53		$25		$2,431

Investments in Federal Home Loan Bank ("FHLB") stock and Federal Reserve Bank ("FRB") stock of $119 million and $477 million, respectively, were included in other assets at December 31, 2010. Investments in FHLB stock and FRB stock of $152 million and $476 million, respectively, were included in other assets at December 31, 2009.

7.  Loans

Loans consisted of the following:

At December 31,	2010	2009
	(in millions)
Commercial loans:
Construction and other real estate	$8,228	$8,858
Business banking and middle market enterprises	7,942	7,518
Large corporate (1)	10,745	9,725
Other commercial	3,356	4,203
Total commercial	30,271	30,304
Consumer loans:
Home equity mortgages	3,820	4,164
Other residential mortgages	13,697	13,722
Private label cards	13,296	15,091
Credit cards	10,814	13,048
Auto finance	-	1,701
Other consumer	1,171	1,459
Total consumer	42,798	$49,185
Total loans	$73,069	$79,489

____________

(1)	Includes $1.2 billion of commercial loans at December 31, 2010 related to a VIE which has been consolidated effective January 1, 2010.

We have loans outstanding to certain executive officers and directors. The loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collectibility. The aggregate amount of such loans did not exceed 5% of shareholders' equity at either December 31, 2010 or 2009.

Net deferred origination costs, excluding MasterCard and Visa, totaled $90 million and $111 million at December 31, 2010 and 2009, respectively. MasterCard and Visa annual fees are netted with direct lending costs, deferred and amortized on a straight-line basis over one year. Deferred MasterCard and Visa annual fees, net of direct lending costs related to these loans totaled $24 million and $22 million at December 31, 2010 and 2009, respectively.

At December 31, 2010 and 2009, we had net unamortized premium on our loans of $436 million and $233 million, respectively. We amortized $452 million, $101 million and $155 million of net premiums on our loans in 2010, 2009 and 2008, respectively.

Purchased Loan Portfolios In January 2009, we purchased the General Motors MasterCard receivable portfolio ("GM Portfolio") and the AFL-CIO Union Plus MasterCard/Visa receivable portfolio ("UP Portfolio") with an aggregate outstanding principal balance of $6.3 billion and $6.1 billion, respectively from HSBC Finance Corporation ("HSBC Finance"). The aggregate purchase price for the GM and UP Portfolios was $12.2 billion, which included the transfer of approximately $6.1 billion of indebtedness, resulting in a cash consideration of $6.1 billion. The purchase price was determined based on independent valuation opinions based on the fair values of the pool of loans in late November and early December 2008, the dates the transaction terms were agreed upon, respectively. These portfolios were re-valued at year-end using an internally developed discounted cash flow model that was previously validated by a third party which reflected no material variations from the independent valuations received during the fourth quarter of 2008. HSBC Finance retained the customer relationships and by agreement we purchase additional loan originations generated under existing and future accounts from HSBC Finance on a daily basis at a sales price for each type of portfolio determined using a fair value which is calculated semi-annually. HSBC Finance continues to service the GM and UP Portfolios for us for a fee.

Purchased loans for which at the time of acquisition there was evidence of deterioration in credit quality since origination and for which it was probable that all contractually required payments would not be collected and that the associated line of credit has been closed were recorded upon acquisition at an amount based upon the cash flows expected to be collected. The difference between these expected cash flows and the purchase price represents accretable yield which is amortized to interest income over the life of the loan. The carrying amount of the Purchased Credit-Impaired Loans, net of credit loss reserves at December 31, 2010 totaled $23 million for the UP Portfolios, and is included in credit card loans. The outstanding contractual balances at December 31, 2010 for UP Portfolio was $36 million. The carrying amount of the Purchased Credit-Impaired Loans, net of credit loss reserves at December 31, 2009 totaled $63 million and $52 million for the GM and UP Portfolios, respectively. The outstanding contractual balances at December 31, 2009 for these receivables were $73 million and $86 million for the GM and UP Portfolios, respectively. Credit loss reserves of $3 million and $18 million as of December 31, 2010 and 2009, respectively, were held for the Purchased Credit-Impaired Loans due to a decrease in the expected future cash flows since the acquisition. The following summarizes the change in accretable yield associated with the Purchased Credit-Impaired Loans:

Year Ended December 31,	2010	2009
	(in millions)
Accretable yield at beginning of period	$(29)	$(95)
Accretable yield amortized to interest income during the period	15	48
Reclassification to non-accretable difference	6	18
Accretable yield at end of period	$(8)	$(29)

In January 2009, we also purchased auto finance loans from HSBC Finance with an aggregate outstanding principal balance of $3.0 billion for a purchase price of $2.8 billion. The purchase price was determined based on independent valuation opinions based on the fair value of the loans in September 2008 at the date the transaction terms were agreed upon. The auto finance portfolio was valued internally at year-end 2008 using an internally developed discounted cash flow model, which indicated no material change in the fair value from September 30, 2008. The remaining balance of these loans were subsequently sold to Santander Consumer USA in August 2010.

Collateralized Funding Transactions Involving Securitization Secured financings of $30 million and $120 million at December 31, 2010 are secured by $44 million and $189 million of private label cards and credit cards, respectively. Secured financings of $550 million and $2.5 billion at December 31, 2009 are secured by $180 million and $2.6 billion of private label cards and credit cards, respectively, as well as restricted available-for-sale investments of $417 million and $721 million, respectively.

Age Analysis of Past Due Loans The following table summarizes the past due status of our loans at December 31, 2010. The aging of past due amounts are determined based on the contractual delinquency status of payments under the loan. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status may be affected by customer account management policies and practices such as re-age or modification.

	Days Past Due
At December 31, 2010	1 - 29 days	30 - 89 days	>90 days	Total Past Due	Current	Total Loans
	(in millions)
Commercial loans:
Construction and other real estate	$72	$200	$433	$705	$7,523	$8,228
Business banking and middle market enterprises	367	84	63	514	7,428	7,942
Large corporate	902	90	74	1,066	9,679	10,745
Other commercial	80	86	24	190	3,166	3,356
Total commercial	1,421	460	594	2,475	27,796	30,271
Consumer loans:
HELOC and home equity mortgages	327	83	93	503	3,317	3,820
Other residential mortgages	123	525	900	1,548	12,149	13,697
Credit card receivables:
Private label cards	475	260	295	1,030	12,266	13,296
Credit cards	1,433	212	253	1,898	8,916	10,814
Auto finance	-	-	-	-	-	-
Other consumer	207	14	34	255	916	1,171
Total consumer	2,565	1,094	1,575	5,234	37,564	42,798
Total loans	$3,986	$1,554	$2,169	$7,709	$65,360	$73,069

Contractual Maturities Contractual maturities of loans were as follows:

	At December 31,
	2011	2012	2013	2014	2015	Thereafter	Total
	(in millions)
Commercial Loans:
Construction and other real estate	$4,669	$1,084	$955	$645	$415	$460	$8,228
Business banking and middle market enterprises	4,106	1,168	1,040	716	466	446	7,942
Large corporate	6,244	1,371	1,204	808	517	601	10,745
Other commercial	1,852	458	405	276	178	187	3,356
Consumer Loans:
Home equity mortgages	28	3,049	31	32	33	647	3,820
Other residential mortgages	1,361	333	303	291	300	11,109	13,697
Credit card receivables (1):
Private label cards	8,104	4,212	777	203	-	-	13,296
Credit cards	6,357	3,752	192	192	321	-	10,814
Other consumer	505	469	76	55	37	29	1,171
Total	$33,226	$15,896	$4,983	$3,218	$2,267	$13,479	$73,069

____________

(1)	As credit card and private label credit card receivables do not have stated maturities, the table reflects estimates based on historical payment patterns.

As substantial portion of consumer loans, based on our experience, will be renewed or repaid prior to contractual maturity, the above maturity schedule should not be regarded as a forecast of future cash collections. The following table summarizes contractual maturities of loans due after one year by repricing characteristic:

	At December 31, 2010
	Over 1 But Within 5 Years	Over 5 Years
	(in millions)
Receivables at predetermined interest rates	$5,998	$4,767
Receivables at floating or adjustable rates	20,366	8,712
Total	$26,364	$13,479

Nonaccrual Loans  Nonaccrual loans totaled $2.0 billion and $2.7 billion at December 31, 2010 and 2009, respectively. Interest income that would have been recorded if such nonaccrual loans had been current and in accordance with contractual terms was approximately $146 million in 2010 and $152 million in 2009. Interest income that was included in finance and other interest income on these loans was approximately $28 million in 2010 and $10 million in 2009. For an analysis of reserves for credit losses, see Note 8, "Allowance for Credit Losses."

Nonaccrual loans and accruing receivables 90 days or more delinquent are summarized in the following table:

At December 31,	2010	2009
	(in millions)
Nonaccrual loans:
Commercial:
Real Estate:
Construction and land loans	$70	$154
Other real estate	529	490
Business banking and middle markets enterprises	113	120
Large corporate	74	344
Other commercial	12	159
Total commercial	798	1,267
Consumer:
Residential mortgages, excluding home equity mortgages	900	818
Home equity mortgages	93	107
Total residential mortgages	993	925
Credit card receivables	3	3
Auto finance	-	40
Other consumer loans	9	9
Total consumer loans	1,005	977
Nonaccrual loans held for sale	186	446
Total nonaccruing loans	1,989	2,690
Accruing loans contractually past due 90 days or more:
Total commercial:
Real Estate:
Construction and land loans	-	-
Other real estate	137	51
Business banking and middle market enterprises	47	95
Large corporate	-	-
Other commercial	12	20
Total commercial	196	166
Consumer:
Private label card receivables	295	449
Credit card receivables	250	429
Other consumer	25	31
Total consumer loans	570	909
Accruing loans contractually past due 90 days or more held for sale	-	-
Total accruing loans contractually past due 90 days or more	766	1,075
Total nonperforming loans	$2,755	$3,765

Impaired Loans A loan is considered to be impaired when it is deemed probable that all principal and interest amounts due, according to the contractual terms of the loan agreement, will not be collected. Probable losses from impaired loans are quantified and recorded as a component of the overall allowance for credit losses. Commercial and consumer loans for which we have modified the loan terms as part of a troubled debt restructuring are considered to be impaired loans. Additionally, commercial loans in nonaccrual status, or that have been partially charged-off or assigned a specific allowance for credit losses are also considered impaired loans.

Troubled debt restructurings The following tables present information about our TDR Loans and the related credit loss reserves for TDR Loans:

At December 31,	2010	2009
	(in millions)
TDR Loans (1)(2):
Commercial loans:
Construction and other real estate	$308	$100
Business banking and middle market enterprises	64	7
Large corporate	-	-
Other commercial	57	61
Total commercial	429	168
Consumer loans:
Residential mortgages	402	173
Private label cards	230	216
Credit cards	250	102
Auto finance (3):	-	52
Total consumer	882	543
Total TDR Loans (5):	$1,311	$711

At December 31,	2010	2009
	(in millions)
Allowance for credit losses for TDR Loans (4):
Commercial loans:
Construction and other real estate	$44	$14
Business banking and middle market enterprises	8	2
Large corporate	-	-
Other commercial	1	1
Total commercial	53	17
Consumer loans:
Residential mortgages	53	34
Private label cards	78	51
Credit cards	88	24
Auto finance	-	11
Total consumer	219	120
Total Allowance for credit losses for TDR Loans	$272	$137

____________

(1)	TDR Loans are considered to be impaired loans. For consumer loans, all such loans are considered impaired loans regardless of accrual status. For commercial loans impaired loans include other loans in addition to TDRs which totaled $698 million and $1,365 million at December 31, 2010 and 2009, respectively.
(2)	The TDR Loan balances included in the table above reflect the current carrying amount of TDR Loans and includes all basis adjustments on the loan, such as unearned income, unamortized deferred fees and costs on originated loans and premiums or discounts on purchased loans. The following table reflects the unpaid principal balance of TDR Loans:

At December 31,	2010	2009
	(in millions)
Commercial loans:
Construction and other real estate	$335	$100
Business banking and middle market enterprises	96	12
Large corporate	-	-
Other commercial	60	64
Total commercial	491	176
Consumer loans:
Residential mortgages	352	177
Private label cards	227	216
Credit cards	276	261
Auto finance	-	52
Total consumer	855	706
Total	$1,346	$882

(3)	The TDR loan balance include $12 million of auto finance loans held for sale at December 31, 2009, for which there are no credit loss reserves as these loans are carried at the lower of cost or fair value.
(4)	Included in the allowance for credit losses.
(5)	Includes balances of $255 million and $65 million at December 31, 2010 and December 31, 2009, respectively, which are classified as nonaccrual loans.

Additional information relating to TDR Loans is presented in the table below.

Year Ended December 31,	2010	2009
	(in millions)
Average balance of TDR Loans
Commercial loans:
Construction and other real estate	$200	$33
Business banking and middle market enterprises	52	3
Large corporate	-	-
Other commercial	60	24
Total commercial	312	60
Consumer loans:
Residential mortgages	305	95
Private label cards	232	185
Credit cards	173	137
Auto finance	28	26
Total consumer	738	443
Total average balance of TDR Loans	$1,050	$503
Interest income recognized on TDR Loans
Commercial loans:
Construction and other real estate	$3	$2
Business banking and middle market enterprises	-	-
Large corporate	-	-
Other commercial	5	1
Total commercial	8	3
Consumer loans:
Residential mortgages	12	3
Private label cards	28	17
Credit cards	16	8
Auto finance	2	2
Total consumer	58	30
Total interest income recognized on TDR Loans	$66	$33

Impaired commercial loans Impaired commercial loan statistics are summarized in the following table:

	Amount with Impairment Reserves	Amount without Impairment Reserves	Total Impaired Commercial Loans (1)(2)	Impairment Reserve
	(in millions)
At December 31, 2010
Construction and other real estate	$378	$377	$755	$84
Business banking and middle market enterprises	113	39	152	26
Large corporate	103	2	105	72
Other commercial	26	89	115	6
Total	$620	$507	$1,127	$188
At December 31, 2009
Construction and other real estate	$535	$161	$696	$102
Business banking and middle market enterprises	108	38	146	30
Large corporate	341	104	445	111
Other commercial	143	103	246	93
Total	$1,127	$406	$1,533	$336

____________

(1)	Includes impaired commercial loans which are also considered TDR Loans as follows:

At December 31,	2010	2009
Construction and other real estate	$308	$100
Business banking and middle market enterprises	64	7
Large corporate	-	-
Other commercial	57	61
Total	$429	$168

(2)

The impaired commercial loan balances included in the table above reflect the current carrying amount of the loan and includes all basis adjustments, such as unamortized deferred fees and costs on originated loans and any premiums or discounts. The unpaid principal balance of impaired commercial loans included in the table above are as follows:

At December 31,	2010	2009
Construction and other real estate	$782	$696
Business banking and middle market enterprises	184	152
Large corporate	105	445
Other commercial	118	249
Total	$1,189	$1,542

The following table presents information about average impaired commercial loan balances and interest income recognized on the impaired commercial loans:

Year Ended December 31,	2010	2009	2008
	(in millions)
Average balance of impaired commercial loans:
Construction and other real estate	$638	$310	$24
Business banking and middle market enterprises	127	99	70
Large corporate	149	182	48
Other commercial	155	64	43
Total average balance of impaired commercial loans	$1,069	$655	$185
Interest income recognized on impaired commercial loans:
Construction and other real estate	$7	$(2)	$5
Business banking and middle market enterprises	3	(1)	1
Large corporate	7	1	-
Other commercial	3	1	1
Total interest income recognized on impaired commercial loans	$20	$(1)	$7

Commercial Loan Credit Quality Indicators The following credit quality indicators are utilized for our commercial loan portfolio:

Criticized asset classifications These classifications are based on the risk rating standards of our primary regulator. Problem loans are assigned various criticized facility grades. We also assign obligor grades which are used under our allowance for credit losses methodology. Criticized assets for commercial loans are summarized in the following table.

At December 31,	2010	2009
	(in millions)
Special mention	$2,284	$3,009
Substandard	2,260	3,523
Doubtful	202	504
Total criticized commercial loans	$4,746	$7,036

Additional detail with respect to criticized commercial loans at December 31, 2010 is presented in the following table:

	Special Mention	Substandard	Doubtful	Total
	(in millions)
At December 31, 2010
Construction and other real estate	$1,324	$1,230	$115	$2,669
Business banking and middle market enterprises	465	504	5	974
Large corporate	260	386	74	720
Other commercial	235	140	8	383
Total	$2,284	$2,260	$202	$4,746

Nonperforming The status of our commercial loan portfolio is summarized in the following table:

	Performing Loans	Nonaccrual Loans	Accruing Loans Contractually Past Due 90 days or More	Total
	(in millions)
At December 31, 2010
Commercial:
Construction and other real estate	$7,492	$599	$137	$8,228
Business banking and middle market enterprise	7,782	113	47	7,942
Large corporate	10,671	74	-	10,745
Other commercial	3,332	12	12	3,356
Total commercial	$29,277	$798	$196	$30,271
At December 31, 2009
Commercial:
Construction and other real estate	$8,163	$644	$51	$8,858
Business banking and middle market enterprise	7,303	120	95	7,518
Large corporate	9,381	344	-	9,725
Other commercial	4,024	159	20	4,203
Total commercial	$28,871	$1,267	$166	$30,304

Credit risk profile The following table shows the credit risk profile of our commercial loan portfolio at December 31, 2010:

At December 31, 2010	Investment Grade (1)	Non-Investment Grade	Total
	(in millions)
Construction and other real estate	$1,900	$6,328	$8,228
Business banking and middle market enterprises	2,866	5,076	7,942
Large corporate	6,808	3,937	10,745
Other commercial	855	2,501	3,356
Total commercial	$12,429	$17,842	$30,271

____________

(1)	Investment grade includes commercial loans with credit rates of at least BBB- or above or the equivalent based on our internal credit rating system.

Consumer Loan Credit Quality Indicators The following credit quality indicators are utilized for our consumer loan portfolio:

Delinquency The following table summarizes dollars of two-months-and-over contractual delinquency and as a percent of total loans and loans held for sale ("delinquency ratio") for our consumer loan portfolio:

	December 31, 2010		December 31, 2009
	Dollars of Delinquency	Delinquency Ratio	Dollars of Delinquency	Delinquency Ratio
	(dollars are in millions)
Consumer:
Residential mortgage, excluding home equity mortgages	$1,248	8.52%	$1,595	10.56%
Home equity mortgages	182	4.76	173	4.15
Total residential mortgages	1,430	7.74	1,768	9.17
Private label card receivables	403	3.03	622	4.12
Credit card receivables	339	3.13	587	4.50
Auto finance	-	-	48	2.34
Other consumer	36	2.88	45	3.00
Total consumer	$2,208	5.04%	$3,070	6.02%

Nonperforming The status of our consumer loan portfolio is summarized in the following table:

	Performing Loans	Nonaccrual Loans	Accruing Loans Contractually Past Due 90 days or More	Total
	(in millions)
At December 31, 2010
Consumer:
Residential mortgage, excluding home equity mortgages	$12,797	$900	$-	$13,697
Home equity mortgages	3,727	93	-	3,820
Total residential mortgages	16,524	993	-	17,517
Private label card receivables	13,001	-	295	13,296
Credit card receivables	10,561	3	250	10,814
Other consumer	1,137	9	25	1,171
Total consumer	$41,223	$1,005	$570	$42,798
At December 31, 2009
Consumer:
Residential mortgage, excluding home equity mortgages	$12,904	$818	$-	$13,722
Home equity mortgages	4,057	107	-	4,164
Total residential mortgages	16,961	925	-	17,886
Private label card receivables	14,642	-	449	15,091
Credit card receivables	12,616	3	429	13,048
Auto finance	1,661	40	-	1,701
Other consumer	1,419	9	31	1,459
Total consumer	$47,299	$977	$909	$49,185

Troubled debt restructurings See discussion of impaired loans above for further details on this credit quality indicator.

8.  Allowance for Credit Losses

An analysis of the allowance for credit losses is presented in the following table.

	2010	2009	2008
	(In millions)
Balance at beginning of year	$3,861	$2,397	$1,414
Provision for credit losses	1,133	4,144	2,543
Charge-offs	(3,140)	(3,414)	(1,837)
Recoveries	339	306	277
Allowance on loans transferred to held for sale	(33)	(12)	-
Allowance related to bulk loan purchase from HSBC Finance	-	437	-
Other	10	3	-
Balance at end of year	$2,170	$3,861	$2,397

Increased provision for credit losses for 2009 includes the impact of the GM and UP Portfolios as well as the auto finance loans that were purchased from HSBC Finance in January 2009.

The following table summarizes the changes in the allowance for credit losses by product and the related loan balance by product during the years ended December 31, 2010, 2009 and 2008:

	Commercial				Consumer
	Construction and Other Real Estate	Business Banking and Middle Market Enterprises	Large Corporate	Other Comm'l	Residential Mortgage, Excl Home Equity Mortgages	Home Equity Mortgages	Private Label Card	Credit Card	Auto Finance	Other Consumer	Total
	(in millions)
Year ended December 31, 2010:
Allowance for credit losses - beginning of period	$303	$184	$301	$150	$347	$185	$1,184	$1,106	$36	$65	$3,861
Provision charged to income	102	18	(163)	(23)	(14)	13	523	623	35	19	1,133
Charge offs	(171)	(90)	(24)	(92)	(170)	(121)	(1,129)	(1,239)	(37)	(67)	(3,140)
Recoveries	9	20	2	8	4	-	174	108	(1)	15	339
Net charge offs	(162)	(70)	(22)	(84)	(166)	(121)	(955)	(1,131)	(38)	(52)	(2,801)
Allowance on loans transferred to held for sale	-	-	-	-	-	-	-	-	(33)	-	(33)
Other	-	-	-	2	-	-	-	8	-	-	10
Allowance for credit losses - end of period	$243	$132	$116	$45	$167	$77	$752	$606	$-	$32	$2,170
Ending balance: collectively evaluated for impairment	$159	$106	$44	$39	$118	$73	$674	$515	$-	$32	$1,760
Ending balance: individually evaluated for impairment	84	26	72	6	49	4	78	88	-	-	407
Ending balance: loans acquired with deteriorated credit quality	-	-	-	-	-	-	-	3	-	-	3
Total allowance for credit losses	$243	$132	$116	$45	$167	$77	$752	$606	$-	$32	$2,170
Loans:
Collectively evaluated for impairment	$7,473	$7,790	$10,640	$3,241	$12,411	$3,812	$13,066	$10,538	$-	$1,171	$70,142
Individually evaluated for impairment	755	152	105	115	394	8	230	250	-	-	2,009
Loans carried at net realizable value	-	-	-	-	892	-	-	-	-	-	892
Loans acquired with deteriorated credit quality	-	-	-	-	-	-	-	26	-	-	26
Total loans	$8,228	$7,942	$10,745	$3,356	$13,697	$3,820	$13,296	$10,814	$-	$1,171	$73,069
Year ended December 31, 2009:
Balances at beginning of period	$186	$189	$131	$66	$207	$167	$1,171	$208	$5	$67	$2,397
Provision charged to income	179	135	214	137	364	195	1,280	1,450	104	86	4,144
Charge offs	(63)	(159)	(45)	(60)	(235)	(189)	(1,431)	(1,033)	(92)	(107)	(3,414)
Recoveries	1	19	1	7	11	12	164	54	18	19	306
Net charge offs	(62)	(140)	(44)	(53)	(224)	(177)	(1,267)	(979)	(74)	(88)	(3,108)
Allowance on loans transferred to held for sale	-	-	-	-	-	-	-	-	(12)	-	(12)
Allowance related to bulk loan purchases from HSBC Finance	-	-	-	-	-	-	-	424	13	-	437
Other	-	-	-	-	-	-	-	3	-	-	3
Balance at end of period	$303	$184	$301	$150	$347	$185	$1,184	$1,106	$36	$65	$3,861
Ending balance: collectively evaluated for impairment	$201	$154	$190	$57	$314	$184	$1,133	$1,064	$25	$65	$3,387
Ending balance: individually evaluated for impairment	102	30	111	93	33	1	51	24	11	-	456
Ending balance: loans acquired with deteriorated credit quality	-	-	-	-	-	-	-	18	-	-	18
Total allowance for credit losses	$303	$184	$301	$150	$347	$185	$1,184	$1,106	$36	$65	$3,861
Loans:
Collectively evaluated for impairment	$8,162	$7,372	$9,280	$3,957	$13,146	$4,159	$14,875	$12,813	$1,649	$1,459	$76,872
Individually evaluated for impairment	696	146	445	246	168	5	216	102	52	-	2,076
Loans carried at net realizable value	-	-	-	-	408	-	-	-	-	-	408
Loans acquired with deteriorated credit quality	-	-	-	-	-	-	-	133	-	-	133
Total loans	$8,858	$7,518	$9,725	$4,203	$13,722	$4,164	$15,091	$13,048	$1,701	$1,459	$79,489
Year ended December 31, 2008:
Balance at beginning of period	$81	$100	$52	$67	$53	$35	$844	$119	$8	$55	$1,414
Provision charged to income	105	187	86	50	286	219	1,282	223	4	101	2,543
Charge offs	-	(119)	(10)	(61)	(133)	(87)	(1,148)	(154)	(9)	(116)	(1,837)
Recoveries	-	21	3	10	1	-	193	20	2	27	277
Net charge offs	-	(98)	(7)	(51)	(132)	(87)	(955)	(134)	(7)	(89)	(1,560)
Balance at end of period	$186	$189	$131	$66	$207	$167	$1,171	$208	$5	$67	$2,397
Ending balance: collectively evaluated for impairment	$172	$163	$129	$66	$201	$167	$1,142	$205	$5	$67	$2,317
Ending balance: individually evaluated for impairment	14	26	2	-	6	-	29	3	-	-	80
Total allowance for credit losses	$186	$189	$131	$66	$207	$167	$1,171	$208	$5	$67	$2,397

9.  Loans Held for Sale

Loans held for sale consisted of the following:

At December 31,	2010	2009
	(in millions)
Commercial loans	$1,356	$1,126
Consumer loans:
Residential mortgages	954	1,386
Auto finance	-	353
Other consumer	80	43
Total consumer	1,034	1,782
Total loans held for sale	$2,390	$2,908

We originate commercial loans in connection with our participation in a number of leveraged acquisition finance syndicates. A substantial majority of these loans were originated with the intent of selling them to unaffiliated third parties and are classified as commercial loans held for sale at December 31, 2010 and 2009. The fair value of commercial loans held for sale under this program was $1.0 billion and $1.1 billion million at December 31, 2010 and 2009, respectively, all of which are recorded at fair value as we have elected to designate these loans under fair value option. In 2010, we provided foreign currency denominated loans to third parties which are classified as commercial loans held for sale and for which we also elected to apply fair value option. The fair value of these commercial loans under this program was $273 million at December 31, 2010. See Note 17, "Fair Value Option," for additional information.

Residential mortgage loans held for sale include sub-prime residential mortgage loans with a fair value of $391 million and $757 million at December 31, 2010 and 2009, respectively, which were acquired from unaffiliated third parties and from HSBC Finance with the intent of securitizing or selling the loans to third parties. Also included in residential mortgage loans held for sale are first mortgage loans originated and held for sale primarily to various government sponsored enterprises.

In addition to routine sales to government sponsored enterprises upon origination, we sold approximately $4.5 billion of prime adjustable and fixed rate residential mortgage loans in 2009 and recorded gain of $70 million. No such sales occurred in 2010. Gains and losses from the sale of residential mortgage loans are reflected as a component of residential mortgage banking revenue in the accompanying consolidated statement of income (loss). We retained the servicing rights in relation to the mortgages upon sale.

During the first quarter of 2010, auto finance loans held for sale with a carrying value of $353 million were sold to HSBC Finance to facilitate completion of a loan sale to a third party. Also as discussed above, during the third quarter of 2010 auto finance loans with a carrying value of $1.2 billion were transferred to loans held for sale and subsequently sold to SC USA.

Other consumer loans held for sale consist of student loans.

Excluding the commercial loans designated under fair value option discussed above, loans held for sale are recorded at the lower of cost or fair value. While the initial book value of loans held for sale continued to exceed fair value at December 31, 2010, we experienced a decrease in the valuation allowance during 2010 due primarily to loan sales. The valuation allowance on loans held for sale was $435 million and $910 million at December 31, 2010 and 2009, respectively.

Loans held for sale are subject to market risk, liquidity risk and interest rate risk, in that their value will fluctuate as a result of changes in market conditions, as well as the interest rate and credit environment. Interest rate risk for residential mortgage loans held for sale is partially mitigated through an economic hedging program to offset changes in the fair value of the mortgage loans held for sale. Trading related revenue associated with this economic hedging program, which is included in net interest income and trading revenue in the consolidated statement of income (loss), were gains of $3 million, $15 million and a loss of $46 million during 2010, 2009 and 2008, respectively.

10.  Properties and Equipment, Net

Properties and equipment, net of accumulated depreciation, is summarized in the following table.

At December 31,	2010	2009	Depreciable Life
	(in millions)
Land	$72	$72	-
Buildings and improvements	968	891	10-40 years
Furniture and equipment	363	370	3-30
Total	1,403	1,333
Accumulated depreciation and amortization	(854)	(801)
Properties and equipment, net	$549	$532

Depreciation and amortization expense totaled $79 million, $69 million and $70 million in 2010, 2009, and 2008, respectively.

11.  Intangible Assets

Intangible assets consisted of the following:

At December 31,	2010	2009
	(in millions)
Mortgage servicing rights	$403	$457
Other	21	27
Intangible assets	$424	$484

Mortgage Servicing Rights ("MSRs") A servicing asset is a contract under which estimated future revenues from contractually specified cash flows, such as servicing fees and other ancillary revenues, are expected to exceed the obligation to service the financial assets. We recognize the right to service mortgage loans as a separate and distinct asset at the time they are acquired or when originated loans are sold.

MSRs are subject to credit, prepayment and interest rate risk, in that their value will fluctuate as a result of changes in these economic variables. Interest rate risk is mitigated through an economic hedging program that uses securities and derivatives to offset changes in the fair value of MSRs. Since the hedging program involves trading activity, risk is quantified and managed using a number of risk assessment techniques.

Residential mortgage servicing rights Residential MSRs are initially measured at fair value at the time that the related loans are sold and are remeasured at fair value at each reporting date (the fair value measurement method). Changes in fair value of the asset are reflected in residential mortgage banking revenue in the period in which the changes occur. Fair value is determined based upon the application of valuation models and other inputs. The valuation models incorporate assumptions market participants would use in estimating future cash flows. The reasonableness of these valuation models is periodically validated by reference to external independent broker valuations and industry surveys.

Fair value of residential MSRs is calculated using the following critical assumptions:

At December 31,	2010	2009
Annualized constant prepayment rate ("CPR")	14.1%	14.6%
Constant discount rate	13.6%	17.9%
Weighted average life	4.9 years	4.8 years

Residential MSRs activity is summarized in the following table:

	2010	2009
	(in millions)
Fair value of MSRs:
Beginning balance	$450	$333
Additions related to loan sales	48	113
Changes in fair value due to:
Change in valuation inputs or assumptions used in the valuation models	(12)	60
Realization of cash flows	(92)	(56)
Ending balance	$394	$450

Information regarding residential mortgage loans serviced for others, which are not included in the consolidated balance sheet, is summarized in the following table:

At December 31,	2010	2009
	(in millions)
Outstanding principal balances at period end	$44,407	$50,390
Custodial balances maintained and included in noninterest bearing deposits at period end	$960	$923

Servicing fees collected are included in residential mortgage banking revenue (loss) and totaled $121 million, $129 million and $130 million during 2010, 2009 and 2008, respectively.

Commercial Mortgage Servicing Rights Commercial MSRs, which are accounted for using the lower of cost or fair value method, totaled $9 million and $7 million at December 31, 2010 and 2009, respectively.

Other Intangible Assets Other intangible assets, which result from purchase business combinations, are comprised of favorable lease arrangements of $16 million and $20 million at December 31, 2010 and 2009, respectively, and customer lists of $5 million and $7 million at December 31, 2010 and 2009, respectively.

12.  Goodwill

Goodwill was $2.6 billion at December 31, 2010 and 2009, and includes accumulated impairment losses of $54 million.

During the third quarter of 2010, we completed our annual impairment test of goodwill. At the testing date, we determined the fair value of all of our reporting units exceeded their carrying values, including goodwill. As a result of the continued focus on economic and credit conditions in the United States, we performed interim impairment tests of the goodwill associated with our Global Banking and Markets and Private Banking reporting units as of December 31, 2010, September 30, 2010, June 30, 2010 and March 31, 2010. As a result of these tests, the fair value of our Global Banking and Markets and Private Banking reporting units continue to exceed their carrying value, including goodwill. Our goodwill impairment testing, however, is highly sensitive to certain assumptions and estimates used. If significant deterioration in the economic and credit conditions occur, or changes in the strategy or performance of our business or product offerings occur, an interim impairment test will again be required.

As it relates to our discontinued operations, goodwill totaling $21 million was reclassified to the assets of our Asian Banknotes Operations. See Note 3, "Discontinued Operations," for further discussion.

13.  Deposits

The aggregate amounts of time deposit accounts (primarily certificates of deposits), each with a minimum of $100,000 included in domestic office deposits, were approximately $5 billion and $7 billion at December 31, 2010 and 2009, respectively. At December 31, 2010 and 2009, deposits totaling $7.4 billion and $4.2 billion, respectively, were carried at fair value. The scheduled maturities of all time deposits at December 31, 2010 are summarized in the following table.

	Domestic Offices	Foreign Offices	Total
	(in millions)
2011:
0-90 days	$3,901	$8,988	$12,889
91-180 days	1,818	264	2,082
181-365 days	2,054	146	2,200
	7,773	9,398	17,171
2012	777	6	783
2013	793	-	793
2014	573	16	589
2015	1,509	-	1,509
Later years	4,350	-	4,350
	$15,775	$9,420	$25,195

Overdraft deposits, which are classified as loans, were approximately $1.2 billion and $1.0 billion at December 31, 2010 and 2009, respectively.

14.  Short-Term Borrowings

Short-term borrowings consisted of the following:

	December 31
	2010		Rate	2009		Rate
	(dollars are in millions)
Federal funds purchased (day to day)	$78			$11
Securities sold under repurchase agreements (1)(2)	7,317		.20%	767		1.63%
Average during year		$7,865	.68		$2,155	1.63
Maximum month-end balance		11,862			4,960
Commercial paper (1)	6,049		.23	2,960		.22
Average during year		6,284	.25		3,396	.36
Maximum month-end balance		6,849			3,828
Precious metals	1,438			2,284
Other	305			490
Total short-term borrowings	$15,187			$6,512

____________

(1)	Exceeded 30 percent of shareholders' equity at December 31, 2010. Includes $3.0 billion of Commercial Paper at December 31, 2010 related to a VIE that is consolidated effective January 1, 2010.
(2)	The following table presents the quarter end and average quarterly balances of securities sold under repurchase agreements:

	2010				2009
	Fourth	Third	Second	First	Fourth	Third	Second	First
	(in millions)
Quarter end balance	$7,317	$10,330	$4,688	$1,103	$767	$2,929	$824	$2,212
Average quarterly balance	9,842	8,900	6,820	5,838	3,472	1,841	1,268	2,029

At December 31, 2010 and 2009, we had an unused line of credit from HSBC Bank plc of $2.5 billion. This line of credit does not require compensating balance arrangements and commitment fees are not significant. At December 31, 2010 and 2009, we also had an unused line of credit from our immediate parent, HSBC North America Inc. ("HNAI"), of $150 million.

As a member of the New York FHLB, we have a secured borrowing facility that is collateralized by real estate loans and investment securities. At December 31, 2010 and 2009, the facility included $1.0 billion of borrowings included in long-term debt. The facility also allows access to further short-term borrowings based upon the amount of residential mortgage loans and securities pledged as collateral with the FHLB, which were undrawn as of December 31, 2010 and 2009. See Note 15, "Long-Term Debt," for further information regarding these borrowings.

15.  Long-Term Debt

The composition of long-term debt is presented in the following table. Interest rates on floating rate notes are determined periodically by formulas based on certain money market rates or, in certain instances, by minimum interest rates as specified in the agreements governing the issues. Interest rates in effect at December 31, 2010 are shown in parentheses.

At December 31,	2010	2009
	(in millions)
Issued by HSBC USA:
Non-subordinated debt:
Medium-Term Floating Rate Notes due 2010-2023 (0.01% - 2.30%)	$2,998	$2,415
$250 million 2-Year Floating Rate Notes due 2010	-	250
$2,325 million 3.125% Guaranteed Notes due 2011	2,301	2,273
$350 million 3-Year Floating Rate Guaranteed Notes due 2011 (1.16%)	346	342
$250 million 2-Year Floating Rate Notes due 2011 (2.30%)	250	250
$1 billion 5-Year Floating Rate Note due 2014 (1.59%)	1,000	1,000
	6,895	6,530
Subordinated debt:
Fixed Rate Subordinated Notes due 2011-2097 (5.00% - 9.50%)	1,418	682
Perpetual Floating Rate Capital Notes (0.93%)	128	128
Junior Subordinated Debentures due 2026-2032 (7.75% - 8.38%)	868	867
	2,414	1,677
Total issued by HSBC USA	9,309	8,207
Issued or acquired by HSBC Bank USA and its subsidiaries:
Non-subordinated debt:
Global Bank Note Program:
Medium-Term Notes due 2010-2040 (0.19% - 0.80%)	804	657
4.95% Fixed Rate Senior Notes due 2012	25	25
	829	682
Federal Home Loan Bank of New York advances:
Fixed Rate FHLB advances due 2009-2037 (3.68% - 7.24%)	7	7
Floating Rate FHLB advance due 2036 (0.36%)	1,000	1,000
	1,007	1,007
Precious metal leases due 2010-2014 (1.50%)	46	632
Private label and credit card secured financings due 2010-2011 (0.26% - 2.91%)	120	2,965
Secured financings with Structured Note Vehicles (1)	320	529
Other	79	35
Total non-subordinated debt	2,401	5,850
Subordinated debt:
4.625% Global Subordinated Notes due 2014	997	997
Other	55	55
Global Bank Note Program:
Fixed Rate Global Bank Notes due 2017-2039 (4.86% - 7.00%)	4,176	2,889
Total subordinated debt	5,228	3,941
Total issued or acquired by HSBC Bank USA and its subsidiaries	7,629	9,791
Obligations under capital leases	292	10
Total long-term debt	$17,230	$18,008

____________

(1)	See Note 26, "Variable Interest Entities," for additional information.

The table excludes $900 million of long-term debt at December 31, 2010 and 2009, due to us from HSBC Bank USA and our subsidiaries. Of this amount, the earliest note is due to mature in 2012 and the latest note is due to mature in 2097. Foreign currency denominated long-term debt was immaterial at December 31, 2010 and 2009.

At December 31, 2010 and 2009, we have elected fair value option accounting for some of our medium-term floating rate notes and certain subordinated debt. See Note 17, "Fair Value Option," for further details. At December 31, 2010 and 2009, medium term notes totaling $3.7 billion and $2.9 billion, respectively, were carried at fair value. Subordinated debt of $1.7 billion and 1.7 billion was carried at fair value at December 31, 2010 and 2009.

The $1.3 billion 4.875% 10-Year Subordinated Notes issued in 2010 by HSBC Bank USA are due August 24, 2020. Interest on these notes is payable semi-annually commencing on February 24, 2011. These notes are included in the Fixed Rate Global Bank Notes caption in the table above.

The $750 million 5.00% 10-year Subordinated Notes issued in 2010 by HSBC USA are due September 27, 2020. Interest on these notes is payable semi-annually commencing on March 27, 2011. These notes are included in the Fixed Rate Subordinated Notes caption in the table above.

The $2.3 billion 3.125% Guaranteed Notes due December 16, 2011 are senior unsecured notes that are guaranteed by the FDIC pursuant to the Debt Guarantee Program. The net proceeds from the sale of these notes were used for general corporate purposes and not used to prepay debt that was not guaranteed by the FDIC. Interest on these notes is payable semi-annually in June and December of each year, commencing June 16, 2009.

The $350 million 3-Year Floating Rate Guaranteed Notes due December 19, 2011 are senior unsecured notes that are also guaranteed by the FDIC pursuant to the Debt Guarantee Program. The net proceeds from the sale of these notes were used for general corporate purposes and not used to prepay debt that was not guaranteed by the FDIC. Interest on these notes is payable monthly commencing January 19, 2009 at a floating rate equal to one-month LIBOR plus ninety basis points.

The $250 million 2-Year Floating Rate Notes issued in 2009 and due June 17, 2011 are senior unsecured notes that are not guaranteed under the FDIC's Debt Guarantee Program. Interest on these notes is paid quarterly in September, December, March and June of each year commencing September 17, 2009 at a floating rate equal to three-month LIBOR plus 200 basis points.

The $1 billion 5-Year Floating Rate Note issued in 2009 and due August 28, 2014 is a senior note due to HSBC North America. Interest on the note is paid quarterly in November, February, May and August of each year commencing November 28, 2009 at a floating rate equal to three-month LIBOR plus 130 basis points. We retain the right to repay part or all of the note at par on any interest payment date.

The Junior Subordinated Debentures due 2026-2032 are held by four capital funding trusts we established to issue guaranteed capital debt securities in the form of preferred stock backed by the debentures and which we guarantee. The trusts also issued common stock, all of which is held by us and recorded in other assets. The debentures issued to the capital funding trusts, less the amount of their common stock we hold, qualify as Tier 1 capital. Although the capital funding trusts are VIEs, our investment in their common stock is not deemed to be a variable interest because that stock is not deemed to be equity at risk. As we hold no other interests in the capital funding trusts and therefore are not their primary beneficiary, we do not consolidate them.

Maturities of long-term debt at December 31, 2010, including secured financings and conduit facility renewals, were as follows:

(in millions)
2011	$5,408
2012	1,163
2013	298
2014	2,311
2015	116
Thereafter	7,934
Total	$17,230

16.  Derivative Financial Instruments

In the normal course of business, we enter into derivative contracts for trading, market making and risk management purposes. For financial reporting purposes, a derivative instrument is designated in one of the following categories: (a) financial instruments held for trading, (b) hedging instruments designated as a qualifying hedge under derivative accounting principles or (c) a non-qualifying economic hedge. The derivative instruments held are predominantly swaps, futures, options and forward contracts. All freestanding derivatives, including bifurcated embedded derivatives, are stated at fair value. Where we enter into enforceable master netting arrangements with counterparties, the master netting arrangements permit us to net those derivative asset and liability positions and to offset cash collateral held and posted with the same counterparty.

Derivatives Held for Risk Management Purposes Our risk management policy requires us to identify, analyze and manage risks arising from the activities conducted during the normal course of business. We use derivative instruments as an asset and liability management tool to manage our exposures in interest rate, foreign currency and credit risks in existing assets and liabilities, commitments and forecasted transactions. The accounting for changes in fair value of a derivative instrument will depend on whether the derivative has been designated and qualifies for hedge accounting under derivative accounting principles.

Accounting principles for qualifying hedges require detailed documentation that describes the relationship between the hedging instrument and the hedged item, including, but not limited to, the risk management objectives and hedging strategy and the methods to assess the effectiveness of the hedging relationship. We designate derivative instruments to offset the fair value risk and cash flow risk arising from fixed-rate and floating-rate assets and liabilities as well as forecasted transactions. We assess the hedging relationships, both at the inception of the hedge and on an ongoing basis, using a regression approach to determine whether the designated hedging instrument is highly effective in offsetting changes in the fair value or cash flows of the hedged item. We discontinue hedge accounting when we determine that a derivative is not expected to be effective going forward or has ceased to be highly effective as a hedge, the hedging instrument is terminated, or when the designation is removed by us.

In the tables that follow below, the fair value disclosed does not include swap collateral that we either receive or deposit with our interest rate swap counterparties. Such swap collateral is recorded on our balance sheet at an amount which approximates fair value and is netted on the balance sheet with the fair value amount recognized for derivative instruments.

Fair Value Hedges In the normal course of business, we hold fixed-rate loans and securities and issue fixed-rate senior and subordinated debt obligations. The fair value of fixed-rate (USD and non-USD denominated) assets and liabilities fluctuates in response to changes in interest rates or foreign currency exchange rates. We utilize interest rate swaps, interest rate forward and futures contracts and foreign currency swaps to minimize the effect on earnings caused by interest rate and foreign currency volatility.

For reporting purposes, changes in fair value of a derivative designated in a qualifying fair value hedge, along with the changes in the fair value of the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings. We recognized net gains of $33 million during 2010 compared to net losses of $14 million during 2009 which are reported in other income (expense) in the consolidated statement of income (loss), which represents the ineffective portion of all fair value hedges. The interest accrual related to the derivative contract is recognized in interest income.

The changes in fair value of the hedged item designated in a qualifying hedge are captured as an adjustment to the carrying value of the hedged item (basis adjustment). If the hedging relationship is terminated and the hedged item continues to exist, the basis adjustment is amortized over the remaining term of the original hedge. We recorded basis adjustments for active fair value hedges which increased the carrying value of our debt by $32 million and decreased the carrying value of our debt by $252 million during 2010 and 2009, respectively. We amortized $10 million of basis adjustments related to terminated and/or re-designated fair value hedge relationships during 2010, compared to less than $1 million of basis adjustments during 2009. The total accumulated unamortized basis adjustment amounted to an increase in the carrying value of our debt of $73 million and $57 million as of December 31, 2010 and 2009, respectively.

The following table presents the fair value of derivative instruments that are designated and qualifying as fair value hedges and their location on the balance sheet.

	Derivative Assets (1)			Derivative Liabilities (1)
		Fair Value as of			Fair Value as of
	Balance Sheet	December 31,		Balance Sheet	December 31,
	Location	2010	2009	Location	2010	2009
	(in millions)
Interest rate contracts	Other assets	$140	$138	Interest, taxes and                       other liabilities	$164	$15

____________

(1)

The derivative asset and derivative liabilities presented above may be eligible for netting and consequently may be shown net against a different line item on the consolidated balance sheet. Balance sheet categories in the above table represent the location of the assets and liabilities absent the netting of the balances.

The following table presents the gains and losses on derivative instruments designated and qualifying as hedging instruments in fair value hedges and their locations on the consolidated statement of income (loss).

		Amount of Gain (Loss) Recognized
		in Income on Derivatives
	Location of Gain (Loss)	Year Ended
	Recognized in Income on	December 31,
	Derivatives	2010	2009
	(in millions)
Interest rate contracts	Other income (expense)	$(378)	$(23)
Interest rate contracts	Interest income	54	160
Total		$(324)	$137

The following table presents information on gains and losses on the hedged items in fair value hedges and their location on the consolidated statement of income (loss).

	Gain (Loss) on Derivative		Gain (Loss) on Hedged Items
	Interest Income (Expense)	Other Income (Expense)	Interest Income (Expense)	Other Income (Expense)
	(in millions)
Year Ended December 31, 2010:
Interest rate contracts/AFS Securities	$(22)	$(405)	$272	$413
Interest rate contracts/commercial loans	(2)	2	2	(2)
Interest rate contracts/subordinated debt	78	25	(100)	-
Total	$54	$(378)	$174	$411
Year Ended December 31, 2009:
Interest rate contracts/AFS Securities	$(27)	$243	$106	$(243)
Interest rate contracts/commercial loans	-	(1)	2	-
Interest rate contracts/subordinated debt	187	(265)	(283)	252
Total	$160	$(23)	$(175)	$9

Cash Flow Hedges We own or issue floating rate financial instruments and enter into forecasted transactions that give rise to variability in future cash flows. As a part of our risk management strategy, we use interest rate swaps, currency swaps and futures contracts to mitigate risk associated with variability in the cash flows. We also hedge the variability in interest cash flows arising from on-line savings deposits.

Changes in fair value associated with the effective portion of a derivative instrument designated as a qualifying cash flow hedge are recognized initially in accumulated other comprehensive income (loss). When the cash flows for which the derivative is hedging materialize and are recorded in income or expense, the associated gain or loss from the hedging derivative previously recorded in accumulated other comprehensive income (loss) is recognized in earnings. If a cash flow hedge of a forecasted transaction is de-designated because it is no longer highly effective, or if the hedge relationship is terminated, the cumulative gain or loss on the hedging derivative will continue to be reported in accumulated other comprehensive income (loss) unless the hedged forecasted transaction is no longer expected to occur, at which time the cumulative gain or loss is released into earnings. As of December 31, 2010 and 2009, active cash flow hedge relationships extend or mature through December 2012 and June 2010, respectively. During 2010 and 2009, $10 million and $44 million, respectively, of losses related to terminated and/or re-designated cash flow hedge relationships were amortized to earnings from accumulated other comprehensive income (loss). During the next twelve months, we expect to amortize $9 million of remaining losses to earnings resulting from these terminated and/or re-designated cash flow hedges. The interest accrual related to the derivative contract is recognized in interest income.

The following table presents the fair value of derivative instruments that are designated and qualifying as cash flow hedges and their location on the consolidated balance sheet.

	Derivative Assets(1)			Derivative Liabilities(1)
		Fair Value as of			Fair Value as of
	Balance Sheet	December 31,		Balance Sheet	December 31,
	Location	2010	2009	Location	2010	2009
	(in millions)
Interest rate contracts	Other assets	$-	$-	Interest, taxes and                       other liabilities	$18	$33

____________

(1)

The derivative asset and derivative liabilities presented above may be eligible for netting and consequently may be shown net against a different line item on the consolidated balance sheet. Balance sheet categories in the above table represent the location of the assets and liabilities absent the netting of the balances.

The following table presents information on gains and losses on derivative instruments designated and qualifying as hedging instruments in cash flow hedges and their locations on the consolidated statement of income (loss).

						Location of Gain
	Gain (Loss)			Gain (Loss)		(Loss)
	Recognized			Reclassed		Recognized	Gain (Loss)
	in AOCI on		Location of Gain	From AOCI		in Income	Recognized in Income
	Derivative		(Loss) Reclassified	into Income		on the Derivative	on the Derivative
	(Effective		from AOCI	(Effective		(Ineffective Portion and	(Ineffective
	Portion)		into Income (Effective	Portion)		Amount Excluded from	Portion)
	2010	2009	Portion)	2010	2009	Effectiveness Testing)	2010	2009
	(in millions)
Interest rate contracts	$11	$173	Other income (expense)	$(10)	$(44)	Other income (expense)	$(1)	$5

Trading and Other Derivatives In addition to risk management, we enter into derivative instruments for trading and market making purposes, to repackage risks and structure trades to facilitate clients' needs for various risk taking and risk modification purposes. We manage our risk exposure by entering into offsetting derivatives with other financial institutions to mitigate the market risks, in part or in full, arising from our trading activities with our clients. In addition, we also enter into buy protection credit derivatives with other market participants to manage our counterparty credit risk exposure. Where we enter into derivatives for trading purposes, realized and unrealized gains and losses are recognized as trading revenue. Credit losses arising from counterparty risk on over-the-counter derivative instruments and offsetting buy protection credit derivative positions are recognized as an adjustment to the fair value of the derivatives and are recorded in trading revenue.

Derivative instruments designated as economic hedges that do not qualify for hedge accounting are recorded at fair value through profit and loss. Realized and unrealized gains and losses are recognized in other income (expense) while the derivative asset or liability positions are reflected as other assets or other liabilities. As of December 31, 2010, we have entered into credit default swaps which are designated as economic hedges against the credit risks within our loan portfolio. In the event of an impairment loss occurring in a loan that is economically hedged, the impairment loss is recognized as provision for credit losses while the gain on the credit default swap is recorded as other income (expense). In addition, we also from time to time have designated certain forward purchase or sale of to-be-announced ("TBA") securities to economically hedge mortgage servicing rights. Changes in the fair value of TBA positions, which are considered derivatives, are recorded in residential mortgage banking revenue.

The following table presents the fair value of derivative instruments held for trading purposes and their location on the consolidated balance sheet.

	Derivative Assets (1)			Derivative Liabilities (1)
		Fair Value as of			Fair Value as of
	Balance Sheet	December 31,		Balance Sheet	December 31,
	Location	2010	2009	Location	2010	2009
	(in millions)
Interest rate contracts	Trading assets	$32,047	$27,085	Trading liabilities	$32,526	$27,546
Foreign exchange contracts	Trading assets	16,367	12,909	Trading liabilities	16,742	14,085
Equity contracts	Trading assets	950	2,281	Trading liabilities	986	2,297
Precious metals contracts	Trading assets	1,004	918	Trading liabilities	2,073	897
Credit contracts	Trading assets	12,766	17,772	Trading liabilities	12,506	17,687
Other	Trading assets	4	6	Trading liabilities	23	23
Total		$63,138	$60,971		$64,856	$62,535

____________

(1)

The derivative asset and derivative liabilities presented above may be eligible for netting and consequently may be shown net against a different line item on the consolidated balance sheet. Balance sheet categories in the above table represent the location of the assets and liabilities absent the netting of the balances.

The following table presents the fair value of derivative instruments held for other purposes and their location on the consolidated balance sheet.

	Derivative Assets (1)			Derivative Liabilities (1)
		Fair Value as of			Fair Value as of
	Balance Sheet	December 31,		Balance Sheet	December 31,
	Location	2010	2009	Location	2010	2009
	(in millions)
Interest rate contracts	Other assets	$420	$229	Interest, taxes and	$82	$15
				other liabilities
Foreign exchange contracts	Other assets	96	51	Interest, taxes and	4	2
				other liabilities
Equity contracts	Other assets	221	180	Interest, taxes and	10	16
				other liabilities
Credit contracts	Other assets	2	15	Interest, taxes and	17	16
				other liabilities
Total		$739	$475		$113	$49

____________

(1)

The derivative asset and derivative liabilities presented above may be eligible for netting and consequently may be shown net against a different line item on the consolidated balance sheet. Balance sheet categories in the above table represent the location of the assets and liabilities absent the netting of the balances.

The following table presents information on gains and losses on derivative instruments held for trading purposes and their locations on the consolidated statement of income (loss).

		Amount of Gain
		(Loss) Recognized in
		Income on
		Derivatives
	Location of Gain (Loss)	Year Ended
	Recognized in Income on	December 31,
	Derivatives	2010	2009
	(in millions)
Interest rate contracts	Trading revenue (loss)	$153	$(519)
Foreign exchange contracts	Trading revenue (loss)	354	725
Equity contracts	Trading revenue (loss)	21	314
Precious metals contracts	Trading revenue (loss)	109	103
Credit contracts	Trading revenue (loss)	(69)	(599)
Other	Trading revenue (loss)	25	63
Total		$593	$87

The following table presents information on gains and losses on derivative instruments held for other purposes and their locations on the consolidated statement of income (loss).

		Amount of Gain
		(Loss) Recognized in
		Income on
		Derivatives
		Year Ended
	Location of Gain (Loss)	December 31,
	Recognized in Income on Derivatives	2010	2009
	(in millions)
Interest rate contracts	Other income (expense)	$328	$(461)
Foreign exchange contracts	Other income (expense)	25	55
Equity contracts	Other income (expense)	451	464
Credit contracts	Other income (expense)	(17)	(172)
Other	Other income (expense)	2	11
Total		$789	$(103)

Credit-Risk Related Contingent Features  We enter into total return swap, interest rate swap, cross-currency swap and credit default swap contracts, amongst others which contain provisions that require us to maintain a specific credit rating from each of the major credit rating agencies. Sometimes the derivative instrument transactions are a part of broader structured product transactions. If HSBC Bank USA's credit ratings were to fall below the current ratings, the counterparties to our derivative instruments could demand additional collateral to be posted with them. The amount of additional collateral required to be posted will depend on whether HSBC Bank USA is downgraded by one or more notches as well as whether the downgrade is in relation to long-term or short-term ratings. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position as of December 31, 2010, is $7.3 billion for which we have posted collateral of $5.1 billion. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position as of December 31, 2009, is $9.3 billion for which we posted collateral of $8.6 billion. Substantially all of the collateral posted is in the form of cash which is reflected in either interest bearing deposits with banks or other assets. See Note 27, "Guarantee Arrangements," and Note 29, "Collateral, Commitments and Contingent Liabilities," for further details.

In the event of a credit downgrade, we do not expect HSBC Bank USA's long-term ratings to go below A2 and A+ or the short-term ratings to go below P-2 and A-1 by Moody's and S&P, respectively. The following tables summarize our obligation to post additional collateral (from the current collateral level) in certain hypothetical commercially reasonable downgrade scenarios. It is not appropriate to accumulate or extrapolate information presented in the table below to determine our total obligation because the information presented to determine the obligation in hypothetical rating scenarios is not mutually exclusive.

Moody's	Long-Term Ratings
Short-Term Ratings	Aa3	A1	A2
	(in millions)
P-1	$-	$4	$266
P-2	58	58	314

S&P	Long-Term Ratings
Short-Term Ratings	AA	AA-	A+
	(in millions)
A-1+	$-	$3	$301
A-1	81	83	382

We would be required to post $88 million of additional collateral on total return swaps if HSBC Bank USA is not rated by any two of the rating agencies at least A-1 (Moody's), A+ (Fitch), A+ (S&P), or not rated A (high) by DBRS.

Notional Value of Derivative Contracts  The following table summarizes the notional values of derivative contracts.

At December 31,	2010	2009
	(in billions)
Interest rate:
Futures and forwards	$356.9	$156.0
Swaps	1,773.0	1,221.5
Options written	62.9	59.5
Options purchased	63.9	66.0
	2,256.7	1,503.0
Foreign Exchange:
Swaps, futures and forwards	603.3	486.2
Options written	22.0	43.0
Options purchased	22.3	43.1
Spot	56.5	39.4
	704.1	611.7
Commodities, equities and precious metals:
Swaps, futures and forwards	36.1	26.4
Options written	9.1	10.3
Options purchased	16.4	15.3
	61.6	52.0
Credit derivatives	701.0	768.5
Total	$3,723.4	$2,935.2

17.  Fair Value Option

We report our results to HSBC in accordance with its reporting basis, International Financial Reporting Standards ("IFRSs"). We have elected to apply fair value option accounting to selected financial instruments in most cases to align the measurement attributes of those instruments under U.S. GAAP and IFRSs and to simplify the accounting model applied to those financial instruments. We elected to apply fair value option ("FVO") reporting to certain commercial loans including commercial leveraged acquisition finance loans and related unfunded commitments, certain fixed rate long-term debt issuances and hybrid instruments which include all structured notes and structured deposits. Changes in fair value for these assets and liabilities are reported as gain (loss) on instruments designated at fair value and related derivatives in the consolidated statement of income (loss).

Loans We elected to apply FVO to all commercial leveraged acquisition finance loans held for sale and related unfunded commitments. The election allows us to account for these loans and commitments at fair value which is consistent with the manner in which the instruments are managed. As of December 31, 2010, commercial leveraged acquisition finance loans held for sale and related unfunded commitments of $1.0 billion carried at fair value had an aggregate unpaid principal balance of $1.1 billion. As of December 31, 2009, commercial leveraged acquisition finance loans held for sale and related unfunded commitments of $1.1 billion carried at fair value had an aggregate unpaid principal balance of $1.3 billion.

In 2010, we provided foreign currency denominated loans to a third party for which we simultaneously entered into a series of derivative transactions to hedge certain risks associated with these loans. We elected to apply fair value option to these loans which allows us to account for them in a manner which is consistent with how the instruments are managed. At December 31, 2010, these commercial foreign currency denominated loans for which we elected fair value option had a fair value of $273 million and an unpaid principal balance of $270 million.

These loans are included in loans held for sale in the consolidated balance sheet. Interest from these loans is recorded as interest income in the consolidated statement of income (loss). Because a substantial majority of the loans elected for the fair value option are floating rate assets, changes in their fair value are primarily attributable to changes in loan-specific credit risk factors. The components of gain (loss) related to loans designated at fair value are summarized in the table below. As of December 31, 2010 and 2009, no loans for which the fair value option has been elected are 90 days or more past due or on nonaccrual status.

Long-Term Debt (Own Debt Issuances) We elected to apply FVO for certain fixed-rate long-term debt for which we had applied or otherwise would elect to apply fair value hedge accounting. The election allows us to achieve a similar accounting effect without meeting the rigorous hedge accounting requirements. We measure the fair value of these debt issuances based on inputs observed in the secondary market. Changes in fair value of these instruments are attributable to changes of our own credit risk and interest rates.

Fixed-rate debt accounted for under FVO at December 31, 2010 totaled $1.7 billion and had an aggregate unpaid principal balance of $1.8 billion. Fixed-rate debt accounted for under FVO at December 31, 2009 totaled $1.7 billion and had an aggregate unpaid principal balance of $1.8 billion. Interest on the fixed-rate debt accounted for under FVO is recorded as interest expense in the consolidated statement of income (loss). The components of gain (loss) related to long-term debt designated at fair value are summarized in the table below.

Hybrid Instruments We elected to apply fair value option accounting principles to all of our hybrid instruments, inclusive of structured notes and structured deposits, issued after January 1, 2006. As of December 31, 2010, interest bearing deposits in domestic offices included $7.4 billion of structured deposits accounted for under FVO which had an unpaid principal balance of $7.4 billion. As of December 31, 2009, interest bearing deposits in domestic offices included $4.2 billion of structured deposits accounted for under FVO which had an unpaid principal balance of $4.2 billion. Long-term debt at December 31, 2010 included structured notes of $3.7 billion accounted for under FVO which had an unpaid principal balance of $3.4 billion. Long-term debt at December 31, 2009 included structured notes of $2.9 billion accounted for under FVO which had an unpaid principal balance of $2.7 billion. Interest on this debt is recorded as interest expense in the consolidated statement of income (loss). The components of gain (loss) related to hybrid instruments designated at fair value which reflect the instruments described above are summarized in the table below.

Components of Gain on Instruments at Fair Value and Related Derivatives Gain (loss) on instruments designated at fair value and related derivatives includes the changes in fair value related to both interest and credit risk as well as the mark-to-market adjustment on derivatives related to the debt designated at fair value and net realized gains or losses on these derivatives. The components of gain (loss) on instruments designated at fair value and related derivatives related to the changes in fair value of fixed rate debt accounted for under FVO are as follows:

	Year Ended December 31,
	2010				2009
	Loans	Long- Term Debt	Hybrid Instruments	Total	Loans	Long- Term Debt	Hybrid Instruments	Total
	(in millions)
Interest rate component	$2	$(99)	$(556)	$(653)	$-	$333	$(611)	$(278)
Credit risk component	42	62	41	145	284	(327)	17	(26)
Total mark-to-market on financial instruments designated at fair value	44	(37)	(515)	(508)	284	6	(594)	(304)
Mark-to-market on the related derivatives	(3)	199	529	725	-	(571)	551	(20)
Net realized gain (loss) on the related long-term debt derivatives	-	77	-	77	-	71	-	71
Gain (loss) on instruments designated at fair value and related derivatives	$41	$239	$14	$294	$284	$(494)	$(43)	$(253)

18.  Income Taxes

Total income taxes for continuing operations were as follows.

Year Ended December 31,	2010	2009	2008
	(in millions)
Provision (benefit) for income taxes	$742	$(110)	$(943)
Income taxes related to adjustments included in common shareholder's equity:
Unrealized gains (losses) on securities available-for-sale, net	96	248	(151)
Unrealized gains (losses) on derivatives classified as cash flow hedges	10	101	(72)
Employer accounting for post-retirement plans	(2)	-	3
Other-than-temporary impairment	30	(31)	-
Foreign currency translation, net	-	-	(8)
Total	$876	$208	$(1,171)

The components of income tax expense (benefit) follow.

Year Ended December 31,	2010	2009	2008
	(in millions)
Current:
Federal	$175	$438	$(418)
State and local	35	35	26
Foreign	47	29	41
Total current	257	502	(351)
Deferred, primarily federal	485	(612)	(592)
Total income tax expense (benefit)	$742	$(110)	$(943)

The following table is an analysis of the difference between effective rates based on the total income tax provision attributable to pretax income and the statutory U.S. Federal income tax rate.

Year Ended December 31,	2010		2009		2008
	(dollars are in millions)
Tax expense (benefit) at the U.S. federal statutory income tax rate	$805	35.0%	$(105)	(35.0)%	$(936)	(35.0)%
Increase (decrease) in rate resulting from:
State and local taxes, net of Federal benefit	28	1.2	19	6.3	2	.2
Sale of minority stock interest	-	-	74	24.7	-	-
Adjustment of tax rate used to value deferred taxes	(83)	(3.5)	(2)	(.7)	(6)	(.2)
Valuation allowance	(26)	(1.1)	4	1.3	90	3.4
IRS audit settlement	-	-	(8)	(2.7)	-	-
Accrual (release) of tax reserves	75	3.3	2	.8	(12)	(.5)
Tax exempt interest income	(12)	(.5)	(14)	(4.7)	(17)	(.6)
Low income housing and miscellaneous other tax credits	(86)	(3.7)	(78)	(26.0)	(52)	(2.0)
Non-taxable income	(5)	(.2)	(6)	(2.0)	(7)	(.3)
Other	46	1.8	4	1.2	(5)	(.2)
Total income tax expense (benefit)	$742	32.3%	$(110)	(36.8)%	$(943)	(35.2)%

The effective tax rate from continuing operations for 2010 was significantly impacted by the substantially higher level of pre-tax income, an increased level of low income housing tax credits, an adjustment of uncertain tax positions, the release of valuation reserves on previously unrealizable deferred tax assets related to loss carryforwards and an adjustment of the tax rate used to record deferred taxes. The effective tax rate for 2009 was significantly impacted by the relative level of pre-tax income, the sale of a minority stock interest that was treated as a dividend for tax purposes and the effective settlement of an Internal Revenue Service audit of our 2004 and 2005 federal income tax returns with respect to agreed-upon items.

The components of the net deferred tax position are presented in the following table.

At December 31,	2010	2009
	(in millions)
Deferred tax assets:
Allowance for credit losses	$967	$1,377
Benefit accruals	120	113
Accrued expenses not currently deductible	277	213
Fair value adjustments	128	293
Tax credit carry-forwards	167	183
Other	148	179
Total deferred tax assets before valuation allowance	1,807	2,358
Valuation allowance	(217)	(178)
Total deferred tax assets	1,590	2,180
Less deferred tax liabilities:
Interest and discount income	245	336
Mortgage servicing rights	136	149
Total deferred tax liabilities	381	485
Net deferred tax asset	$1,209	$1,695

The deferred tax valuation allowance is attributed to the following deferred tax assets, that based on the available evidence, it is more-likely-than-not that the deferred tax asset will not be realized:

At December 31,	2010	2009
	(in millions)
State tax benefit loss limitations	$68	$76
Foreign tax credit carryforward	80	74
Foreign losses	-	24
State tax deferreds	69	-
Other	-	4
Total	$217	$178

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows.

	2010	2009	2008
	(in millions)
Balance at January 1,	$88	$136	$115
Additions based on tax positions related to the current year	62	3	32
Additions for tax positions of prior years	84	1	9
Reductions for tax positions of prior years	(24)	(52)	(18)
Reductions related to settlements with taxing authorities	-	-	(2)
Balance at December 31,	$210	$88	$136

The state tax portion of this amount is reflected gross and not reduced by Federal tax effect. The total amount of unrecognized tax benefits at December 31, 2010 that, if recognized, would affect the effective income tax rate is $113 million. Our major taxing jurisdictions and the related tax years for which each remain subject to examination are as follows.

U.S. Federal	2004 and later
New York State	2000 and later
New York City	2000 and later

We are currently under audit by the Internal Revenue Service as well as various state and local tax jurisdictions. Although one or more of these audits may be concluded within the next 12 months, it is not possible to reasonably estimate the impact of the results from the audits on our uncertain tax positions at this time.

We recognize accrued interest and penalties, if any, related to unrecognized tax benefits in interest expense and other operating expenses, respectively. As of January 1, 2010, we had accrued $25 million for the payment of interest associated with uncertain tax positions. During 2010 and 2009, we increased our accrual for the payment of interest associated with uncertain positions by $15 million and $2 million, respectively.

HSBC North America Consolidated Income Taxes We are included in HSBC North America's consolidated Federal income tax return and in various combined state income tax returns. As such, we have entered into a tax allocation agreement with HSBC North America and its subsidiary entities ("the HNAH Group") included in the consolidated returns which govern the current amount of taxes to be paid or received by the various entities included in the consolidated return filings. As a result, we have looked at the HNAH Group's consolidated deferred tax assets and various sources of taxable income, including the impact of HSBC and HNAH Group tax planning strategies, in reaching conclusions on recoverability of deferred tax assets. Where a valuation allowance is determined to be necessary at the HSBC North America consolidated level, such allowance is allocated to principal subsidiaries within the HNAH Group as described below in a manner that is systematic, rational and consistent with the broad principles of accounting for income taxes.

The HNAH Group evaluates deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, tax planning strategies and any available carryback capacity.

In evaluating the need for a valuation allowance, the HNAH Group estimates future taxable income based on management approved business plans, future capital requirements and ongoing tax planning strategies, including capital support from HSBC necessary as part of such plans and strategies. The HNAH Group has continued to consider the impact of the economic environment on the North American businesses and the expected growth of the deferred tax assets. This evaluation process involves significant management judgment about assumptions that are subject to change from period to period.

In conjunction with the HNAH Group deferred tax evaluation process, based on our forecasts of future taxable income, which include assumptions about the depth and severity of home price depreciation and the U.S. economic environment, including unemployment levels and their related impact on credit losses, we currently anticipate that our results of future operations will generate sufficient taxable income to allow us to realize our deferred tax assets. However, since these market conditions have created losses in the HNAH Group in recent periods and volatility on our pre-tax book income, our analysis of the realizability of the deferred tax assets significantly discounts any future taxable income expected from operations and relies to a greater extent on continued capital support from our parent, HSBC, including tax planning strategies implemented in relation to such support. HSBC has indicated they remain fully committed and have the capacity and willingness to provide capital as needed to run operations, maintain sufficient regulatory capital, and fund certain tax planning strategies.

Only those tax planning strategies that are both prudent and feasible, and which management has the ability and intent to implement, are incorporated into our analysis and assessment. The primary and most significant strategy is HSBC's commitment to reinvest excess HNAH Group capital to reduce debt funding or otherwise invest in assets to ensure that it is more likely than not that the deferred tax assets will be utilized.

Currently, it has been determined that the HNAH Group's primary tax planning strategy, in combination with other tax planning strategies, provides support for the realization of the net deferred tax assets recorded for the HNAH Group. Such determination is based on HSBC's business forecasts and assessment as to the most efficient and effective deployment of HSBC capital, most importantly including the length of time such capital will need to be maintained in the U.S. for purposes of the tax planning strategy.

Notwithstanding the above, the HNAH Group has valuation allowances against certain specific tax attributes such as foreign tax credits, certain state related deferred tax assets and certain tax loss carryforwards for which the aforementioned tax planning strategies do not provide appropriate support.

HNAH Group valuation allowances are allocated to the principal subsidiaries, including us. The methodology allocates the valuation allowance to the principal subsidiaries based primarily on the entity's relative contribution to the growth of the HSBC North America consolidated deferred tax asset against which the valuation allowance is being recorded.

If future results differ from the HNAH Group's current forecasts or the primary tax planning strategy were to change, a valuation allowance against the remaining net deferred tax assets may need to be established which could have a material adverse effect on our results of operations, financial condition and capital position. The HNAH Group will continue to update its assumptions and forecasts of future taxable income, including relevant tax planning strategies, and assess the need for such incremental valuation allowances.

Absent the capital support from HSBC and implementation of the related tax planning strategies, the HNAH Group, including us, would be required to record a valuation allowance against the remaining deferred tax assets.

HSBC USA Inc. Income Taxes We recognize deferred tax assets and liabilities for the future tax consequences related to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax credits and state net operating losses. Our net deferred tax assets, net of both deferred tax liabilities and valuation allowances, totaled $1.2 billion and $1.7 billion as of December 31, 2010 and 2009, respectively. The decrease in net deferred tax assets is primarily due to the reduction in the allowance for credit losses and a decrease in the overall net unrealized losses on available-for-sale securities.

The Internal Revenue Service began its audit of our 2006 and 2007 income tax returns in 2009, with an anticipated completion in early 2011. The Internal Revenue Service's audit of our 2004 and 2005 federal income tax returns was effectively settled with respect to agreed-upon items during the first quarter of 2009, resulting in an $8 million decrease in tax expense. We are currently under audit by various state and local tax jurisdictions, and although one or more of these audits may be concluded within the next 12 months, it is not possible to reasonably estimate the impact on our uncertain tax positions at this time.

In March 2009, as part of a corporate restructuring within HSBC's Private Banking business, our 5.24% indirect interest in HSBC Private Bank (Suisse) S.A. ("PBRS") was sold to HSBC Private Bank Holdings (Suisse) S.A., the majority shareholder, for cash proceeds of $350 million. A gain of $33 million was reported for book purposes during the first quarter of 2009. For U.S. tax purposes, the transaction is treated as a dividend in the amount of the sale proceeds to the extent of PBRS' earnings and profits.

At December 31, 2010, we had foreign tax credit carryforwards of $80 million for U.S. federal income tax purposes which expire as follows: $14 million in 2015, $18 million in 2016, $10 million in 2017, $23 million in 2018, $8 million in 2019 and $7 million in 2020.

At December 31, 2010, we had general business credit carryforwards of $87 million for U.S. federal income tax purposes which expire as follows: $4 million in 2026, $52 million in 2028 and $31 million in 2029.

At December 31, 2010 we had deferred tax assets recorded for the future benefit of various state net operating losses of $71 million, which primarily relates to New York State.

19.  Preferred Stock

The following table presents information related to the issues of HSBC USA preferred stock outstanding.

	Shares	Dividend	Amount
	Outstanding	Rate	Outstanding
At December 31,	2010	2010	2010	2009
	(dollars are in millions)
Floating Rate Non-Cumulative Preferred Stock, Series F ($25 stated value)	20,700,000	3.568%	$517	$517
14,950,000 Depositary Shares each representing a one-fortieth interest in a share of Floating Rate Non-Cumulative Preferred Stock, Series G ($1,000 stated value)	373,750	4.078	374	374
14,950,000 Depositary Shares each representing a one-fortieth interest in a share of 6.50% Non-Cumulative Preferred Stock, Series H ($1,000 stated value)	373,750	6.500	374	374
6,000,000 Depositary shares each representing a one-fourth interest in a share of Adjustable Rate Cumulative Preferred Stock, Series D ($100 stated value)	1,500,000	4.500	150	150
$2.8575 Cumulative Preferred Stock ($50 stated value)	3,000,000	5.715	150	150
			$1,565	$1,565

Dividends on the Floating Rate Non-Cumulative Series F Preferred Stock are non-cumulative and will be payable when and if declared by our Board of Directors quarterly on the first calendar day of January, April, July and October of each year. Dividends on the stated value per share are payable for each dividend period at a rate equal to a floating rate per annum of .75% above three month LIBOR, but in no event will the rate be less than 3.5% per annum. The Series F Preferred Stock may be redeemed at our option, in whole or in part, on or after April 7, 2010 at a redemption price equal to $25 per share, plus accrued and unpaid dividends for the then-current dividend period.

Dividends on the Floating Rate Non-Cumulative Series G Preferred Stock are non-cumulative and will be payable when and if declared by our Board of Directors quarterly on the first calendar day of January, April, July and October of each year. Dividends on the stated value per share are payable for each dividend period at a rate equal to a floating rate per annum of .75% above three month LIBOR, but in no event will the rate be less than 4% per annum. The Series G Preferred Stock may be redeemed at our option, in whole or in part, on or after January 1, 2011 at a redemption price equal to $1,000 per share, plus accrued and unpaid dividends for the then-current dividend period.

Dividends on the 6.50% Non-Cumulative Series H Preferred Stock are non-cumulative and will be payable when and if declared by our Board of Directors quarterly on the first calendar day of January, April, July and October of each year at the stated rate of 6.50%. The Series H Preferred Stock may be redeemed at our option, in whole or in part, on or after July 1, 2011 at $1,000 per share, plus accrued and unpaid dividends for the then-current dividend period.

The Adjustable Rate Cumulative Preferred Stock, Series D is redeemable, as a whole or in part, at our option at $100 per share (or $25 per depositary share), plus accrued and unpaid dividends. The dividend rate is determined quarterly, by reference to a formula based on certain benchmark market interest rates, but will not be less than 4.5% or more than 10.5% per annum for any applicable dividend period.

The $2.8575 Cumulative Preferred Stock may be redeemed at our option, in whole or in part, on or after October 1, 2007 at $50 per share, plus accrued and unpaid dividends. Dividends are paid quarterly.

20.  Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss includes certain items that are reported directly within a separate component of shareholders' equity. The following table presents changes in accumulated other comprehensive loss balances.

At December 31,	2010	2009	2008
	(in millions)
Unrealized gains (losses) on securities available-for-sale, not other-than temporarily impaired:
Balance at beginning of period	$(68)	$(512)	$(188)
Other comprehensive income for period:
Net unrealized holding gains (losses) arising during period, net of tax (provision) benefit of $(123) million, $(284) million and $237 million in 2010, 2009 and 2008, respectively	211	526	(471)
Reclassification adjustment for (gains) losses realized in net income, net of tax benefit (provision) of $27 million, $36 million and $(86) million in 2010, 2009 and 2008, respectively	(46)	(82)	147
Total other comprehensive income(loss) for period	165	444	(324)
Balance at end of period	97	(68)	(512)
Unrealized gains (losses) on other-than-temporarily impaired debt securities available-for-sale:
Balance at beginning of period	(56)	-	-
Adjustment to initially apply new other-than-temporarily impaired accounting guidance for debt securities  available-for-sale, net of tax benefit of $8 million in 2009	-	(15)	-
Balance at beginning of period, as adjusted	(56)	(15)	-
Other comprehensive income for period:
Net unrealized other-than-temporary impairment arising during period, net of tax (provision) benefit of $(21) million and $30 million in 2010 and 2009, respectively	38	(54)	-
Reclassification adjustment for (gains) losses realized in net income, net of tax (provision) of $(9) million and $(7) million in 2010 and 2009, respectively	17	13	-
Total other comprehensive income (loss) for period	55	(41)	-
Balance at end of period	(1)	(56)	-
Unrealized gains (losses) on other-than-temporarily impaired debt securities held-to-maturity:
Balance at beginning of period	-	-	-
Adjustment to initially apply new guidance for consolidation of VIE	(246)	-	-
Balance at beginning of period, as adjusted	(246)	-	-
Other comprehensive income for period:
Net unrealized other-than-temporary impairment arising during period	93	-	-
Total other comprehensive income for period	93	-	-
Balance at end of period	(153)	-	-
Unrealized (losses) gains on derivatives classified as cash flow hedges:
Balance at beginning of period	(100)	(271)	(173)
Other comprehensive loss for period:
Net gains (losses) arising during period, net of tax (provision) benefit of $(10) million, $(101) million and $72 million in 2010, 2009 and 2008, respectively	13	171	(98)
Total other comprehensive income(loss) for period	13	171	(98)
Balance at end of period	(87)	(100)	(271)
Foreign currency translation adjustments:
Balance at beginning of period	-	-	15
Other comprehensive loss for period:
Translation gains (losses), net of tax benefit of $8 million in 2008	-	-	(15)
Total other comprehensive (loss) for period	-	-	(15)
Balance at end of period	-	-	-
Postretirement benefit liability:
Balance at beginning of period	(4)	(4)	(6)
Other comprehensive income(loss) for period:
Change in unfunded postretirement liability, net of tax benefit (provision) of $2 million and $(3) million in 2010 and 2008, respectively	(5)	-	2
Total other comprehensive income(loss) for period	(5)	-	2
Balance at end of period	(9)	(4)	(4)
Total accumulated other comprehensive loss at end of period	$(153)	$(228)	$(787)

21.  Share-Based Plans

Sharesave Plans Options have been granted to employees under the HSBC Holdings Savings-Related Share Option Plan (Sharesave). Sharesave is an employee share option plan that enables eligible employees to enter into savings contracts of one, three or five year lengths, with the ability to decide at the end of the contract term to either use their accumulated savings to purchase HSBC ordinary shares at a discounted option price or have the savings plus interest repaid in cash. Employees can save up to $400 per month over all their Sharesave savings contracts. The option price is determined at the beginning of the offering period of each plan year and represents a 20% discount, for the three and five year savings contracts, and a 15% discount for the one year contract, from the average price in London on the HSBC ordinary shares over the five trading days preceding the offering. On contracts of three year or five year terms, the options are exercisable at the 20% discounted stock option price within six months following the third or fifth anniversary of the beginning of the relevant savings contracts. Upon the completion of a one year savings contract, if the share price is higher than the option price, the option will automatically be exercised and the shares will be purchased at the 15% discounted stock option price. The shares will then be transferred to a holding account where they will be held for one additional year, or until the employee decides to sell the shares. If the share price is below the option price, employees have the ability to exercise the option during the three months following the maturity date if the share price rises. Regardless of the length of the savings contract, employees can decide to have their accumulated savings refunded to them at the end of the contract period, rather than choosing to exercise their purchase option.

The following table presents information for the Sharesave plan.

At December 31,	2010	2009	2008
	(dollars are in millions)
Sharesave (5 year vesting period):
Total options granted	67,000	943,000	127,000
Fair value per option granted	$2.76	$2.08	$4.08
Total compensation expense recognized	$1	$1	$-
Significant assumptions used to calculate fair value:
Risk free interest rate	2.63%	2.10%	3.03%
Expected life (years)	5	5	5
Expected volatility	30%	30%	25%
Sharesave (3 year vesting period):
Total options granted	268,000	1,447,000	395,000
Fair value per option granted	$2.57	$2.21	$3.85
Total compensation expense recognized	$1	$1	$1
Significant assumptions used to calculate fair value:
Risk free interest rate	1.65%	1.47%	2.49%
Expected life (years)	3	3	3
Expected volatility	30%	35%	25%
Sharesave (1 year vesting period):
Total options granted	168,000	334,000	142,000
Fair value per option granted	$2.00	$2.06	$3.05
Total compensation expense recognized	$-	$1	$-
Significant assumptions used to calculate fair value:
Risk free interest rate	.47%	.52%	1.85%
Expected life (years)	1	1	1
Expected volatility	30%	50%	25%

Restricted Share Plans Awards are granted to key individuals in the form of performance and non-performance restricted shares ("RSRs") and restricted stock units ("RSUs"). The awards are based on an individual's demonstrated performance and future potential. Performance related RSRs and RSUs generally vest after three years from date of grant, based on HSBC's Total Shareholder Return ("TSR") relative to a benchmark TSR during the performance period. TSR is defined as the growth in share value and declared dividend income during the period and the benchmark is composed of HSBC's peer group of financial institutions. If the performance conditions are met, the shares vest and are released to the recipients two years later. Non-performance related RSRs and RSUs are released to the recipients based on continued service, typically at the end of a three year vesting period. Compensation expense for these restricted share plans totaled $40 million in 2010, $51 million in 2009 and $66 million in 2008.

22.  Pension and Other Postretirement Benefits

Defined Benefit Pension Plans Effective January 1, 2005, our previously separate qualified defined benefit pension plan was combined with that of HSBC Finance into a single HSBC North America qualified defined benefit pension plan (either the "HSBC North America Pension Plan" or the "Plan") which facilitates the development of a unified employee benefit policy and unified employee benefit plan administration for HSBC companies operating in the U.S.

The table below reflects the portion of pension expense and its related components of the HSBC North America Pension Plan which has been allocated to us and is recorded in our consolidated statement of income (loss).

Year Ended December 31,	2010	2009	2008
	(in millions)
Service cost - benefits earned during the period	$23	$24	$29
Interest cost on projected benefit obligation	72	77	77
Expected return on assets	(71)	(54)	(89)
Amortization of prior service cost	(5)	-	1
Recognized losses	46	40	1
Partial plan termination (1)	-	5	-
Pension expense	$65	$92	$19

____________

(1)

Effective September 30, 2009, HSBC North America voluntarily chose to allow all plan participants whose employment was terminated as a result of the strategic restructuring of its businesses between 2007 and 2009 to become fully vested in their accrued pension benefit, resulting in a partial termination of the plan. In accordance with interpretations of the Internal Revenue Service relating to partial plan terminations, plan participants who voluntarily left the employment of HSBC North America or its subsidiaries during this period were also deemed to have vested in their accrued pension benefit through the date their employment ended. As a result, incremental pension expense of $5 million, representing our share of the partial plan termination cost, was recognized during 2009.

Pension expense declined during 2010 due to lower service cost and interest cost as a result of reduced headcount. Also contributing to lower pension expense was an increase in the expected return of plan assets primarily due to higher asset levels.

During the first quarter of 2010, we announced that the Board of Directors of HSBC North America had approved a plan to cease all future benefit accruals for legacy participants under the final average pay formula components of the HSBC North America Pension Plan effective January 1, 2011. Future accruals to legacy participants under the Plan will thereafter be provided under the cash balance based formula which is now used to calculate benefits for employees hired after December 31, 1999.

The aforementioned changes to the Plan have been accounted for as a negative plan amendment and, therefore, the reduction in our share of HSBC North America's projected benefit obligation as a result of this decision will be amortized to net periodic pension cost over the future service periods of the affected employees.

The assumptions used in determining pension expense of the HSBC North America Pension Plan are as follows:

	2010	2009	2008
Discount rate	5.60%	7.15%	6.55%
Salary increase assumption	2.90	3.50	3.75
Expected long-term rate of return on Plan assets	7.70	8.00	8.00

Long-term historical rates of return in conjunction with our current outlook of return rates over the term of the pension obligation are considered in determining an appropriate long-term rate of return on Plan assets. In this regard, a "best estimate range" of expected rates of return on Plan assets is established by actuaries based on a portfolio of passive investments considering asset mix upon which a distribution of compound average returns for such portfolio is calculated over a 20 year horizon. This approach, however, ignores the characteristics and performance of the specific investments the pension plan is invested in, their historical returns and their performance against industry benchmarks. In evaluating the range of potential outcomes, a "best estimate range" is established between the 25th and 75th percentile. In addition to this analysis, we also seek the input of the firm which provides us pension advisory services. This firm performs an analysis similar to that done by our actuaries, but instead uses real investment types and considers historical fund manager performance. In this regard, we also focus on the range of possible outcomes between the 25th and 75th percentile, with a focus on the 50th percentile. The combination of these analyses creates a range of potential long-term rate of return assumptions from which we determine an appropriate rate.

Given the Plan's current allocation of equity and fixed income securities and using investment return assumptions which are based on long term historical data, the long term expected return for plan assets is reasonable.

Investment strategy for Plan Assets The primary objective of the HSBC North America Pension Plan is to provide eligible employees with regular pension benefits. Since the plan is governed by the Employee Retirement Security Act of 1974 ("ERISA"), ERISA regulations serve as guidance for the management of plan assets. In this regard, an Investment Committee (the "Committee") for the Plan has been established and its members have been appointed by the Chief Executive Officer as authorized by the Board of Directors of HSBC North America. The Committee is responsible for establishing the funding policy and investment objectives supporting the Plan including allocating the assets of the Plan, monitoring the diversification of the Plan's investments and investment performance, assuring the Plan does not violate any provisions of ERISA and the appointment, removal and monitoring of investment advisers and the trustee. Consistent with prudent standards for preservation of capital and maintenance of liquidity, the goal of the Plan is to earn the highest possible total rate of return consistent with the Plan's tolerance for risk as periodically determined by the Committee. A key factor shaping the Committee's attitude towards risk is the generally long term nature of the underlying benefit obligations. The asset allocation decision reflects this long term horizon as well as the ability and willingness to accept some short-term variability in the performance of the portfolio in exchange for the expectation of competitive long-term investment results for its participants.

The Plan's investment committee utilizes a proactive approach to managing the Plan's overall investment strategy. During the past year, this resulted in the Committee conducting four quarterly meetings including two strategic reviews and two in-depth manager performance reviews. These quarterly meetings are supplemented by the pension support staff tracking actual investment manager performance versus the relevant benchmark and absolute return expectations on a monthly basis. The pension support staff also monitors adherence to individual investment manager guidelines via a quarterly compliance certification process. A sub-committee consisting of the pension support staff and two members of the investment committee, including the chairman, are delegated responsibility for conducting in-depth reviews of managers performing below expectation. This sub-committee also provides replacement recommendations to the Committee when manager performance fails to meet expectations for an extended period. During the two strategic reviews in 2010, the Committee re-examined the Plan's asset allocation levels, interest rate hedging strategy and investment menu options. In October 2010, the Committee unanimously agreed to maintain the Plan's target asset allocation mix in 2010 at 60 percent equity securities, 39 percent fixed income securities and 1 percent cash. Further, the Committee agreed to gradually shift to 40 percent equity securities, 59 percent fixed income securities and 1 percent cash over a 24 month period. Should interest rates rise faster than currently projected by the Committee, the shift to a higher percentage of fixed income securities will be accelerated.

In order to achieve the return objectives of the Plan, investment diversification is employed to ensure that adverse results from one security or security class will not have an unduly detrimental effect on the entire portfolio. Diversification is interpreted to include diversification by type, characteristic, and number of investments as well as investment style of investment managers and number of investment managers for a particular investment style. Equity securities are invested in large, mid and small capitalization domestic stocks as well as international, global and emerging market stocks. Fixed income securities are invested in U.S. Treasuries (including Treasury Inflation Protected Securities), agencies, corporate bonds, and mortgage and other asset backed securities. Without sacrificing returns or increasing risk, the Committee prefers a limited number of investment manager relationships which improves efficiency of administration while providing economies of scale with respect to fees.

Prior to 2009, both third party and affiliate investment consultants were used to provide investment consulting services such as recommendations on the type of funds to be utilized, appropriate fund managers, and the monitoring of the performance of those fund managers. In 2009, the Committee approved the use of a third party investment consultant exclusively. Fund performance is measured against absolute and relative return objectives. Results are reviewed from both a short-term (less than 1 year) and intermediate term (three to five year i.e. a full market cycle) perspective. Separate account fund managers are prohibited from investing in all HSBC Securities, restricted stock (except Rule 144(a) securities which are not prohibited investments), short-sale contracts, non-financial commodities, investments in private companies, leveraged investments and any futures or options (unless used for hedging purposes and approved by the Committee). Commingled account and limited partnership fund managers however are allowed to invest in the preceding to the extent allowed in each of their offering memoranda. As a result of the current low interest rate environment and expectation that interest rates will rise in the future, the Committee mandated the suspension of its previously approved interest rate hedging strategy in June 2009. Outside of the approved interest rate hedging strategy, the use of derivative strategies by investment managers must be explicitly authorized by the Committee. Such derivatives may be used only to hedge an account's investment risk or to replicate an investment that would otherwise be made directly in the cash market.

The Committee expects total investment performance to exceed the following long-term performance objectives:

•  A long-term return of 7.25 percent;

•  A passive, blended index comprised of 19.5 percent S&P 500, 12 percent Russell 2000, 11 percent EAFE, 8 percent MSCI AC World Free Index, 2 percent S&P/Citigroup Extended Market World Ex-US, 7.5 percent MSCI Emerging Markets, 29 percent Barclays Long Gov/Credit, 10 percent Barclays Treasury Inflation Protected Securities and 1 percent 90-day T-Bills; and

•  Above median performance of peer corporate pension plans.

HSBC North America's overall investment strategy for Plan assets is to achieve a mix of at least 95 percent of investments for long-term growth and up to 5 percent for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target sector allocations of Plan assets at December 31, 2010 are as follows:

	Percentage of Plan Assets at December 31, 2010
Domestic Large/Mid-Cap Equity	17.9%
Domestic Small Cap Equity	11.0
International Equity	11.9
Global Equity	7.3
Emerging Market Equity	6.9
Fixed Income Securities	44.0
Cash or Cash Equivalents	1.0
Total	100.0%

Plan Assets A reconciliation of beginning and ending balances of the fair value of net assets associated with the HSBC North America Pension Plan is shown below.

Year Ended December 31,	2010	2009
	(in millions)
Fair value of net Plan assets at beginning of year	$2,141	$1,978
Cash contributions by HSBC North America	187	241
Actual return on Plan assets	397	129
Benefits paid	(161)	(207)
Fair value of net Plan assets at end of year	$2,564	$2,141

As a result of the capital markets improving since December 2009, as well as the $187 million contribution to the Plan during 2010, the fair value of Plan assets at December 31, 2010 increased approximately 20 percent compared to 2009.

The Pension Protection Act of 2006 requires companies to meet certain pension funding requirements by January 1, 2015. As a result, during the third quarter of 2009, the Committee revised the Pension Funding Policy to better reflect current marketplace conditions and ensure the Plan's ability to continue to make lump sum payments to retiring participants. The revised Pension Funding Policy requires HSBC North America to annually contribute the greater of:

•  The minimum contribution required under ERISA guidelines;

•  An amount necessary to ensure the ratio of the Plan's assets at the end of the year as compared to the Plan's accrued benefit obligation is equal to or greater than 90 percent;

•  Pension expense for the year as determined under current accounting guidance; or

•  $100 million which approximates the actuarial present value of benefits earned by Plan participants on an annual basis.

As a result, during 2010 HSBC North America made a contribution to the Plan of $187 million. Additional contributions during 2011 are anticipated.

Accounting principles related to fair value measurements provide a framework for measuring fair value and focuses on an exit price in the principal (or alternatively, the most advantageous) market accessible in an orderly transaction between willing market participants (the "Fair Value Framework"). The Fair Value Framework establishes a three-tiered fair value hierarchy with Level 1 representing quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs are inputs that are observable for the identical asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are inactive, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. Transfers between leveling categories are recognized at the end of each reporting period.

The following table presents the fair values associated with the major categories of Plan assets and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair values as of December 31, 2010 and 2009.

	Fair Value Measurement at December 31, 2010
	Total	(Level 1)	(Level 2)	(Level 3)
	(in millions)
Investments at Fair Value:
Cash and short term investments	$128	$128	$-	$-
Equity Securities
U.S. Large-cap Growth (1)	485	478	7	-
U.S. Small-cap Growth (2)	295	215	80	-
International Equity (3)	280	119	161	-
Global Equity	203	84	119	-
Emerging Market Equity	203	-	203	-
U.S. Treasury	519	519	-	-
U.S. Government agency issued or guaranteed	35	4	31	-
Obligations of U.S. states and political subdivisions	30	-	30	-
Asset-backed securities	34	-	6	28
U.S. corporate debt securities (4)	287	-	287	-
Corporate stocks - preferred	6	5	1	-
Foreign debt securities	116	-	99	17
Other investments	59	-	59	-
Accrued interest	13	5	8	-
Total investments	2,693	1,557	1,091	45
Receivables:
Receivables from sale of investments in process of settlement	36	36	-	-
Derivative financial assets	17	-	17	-
Total receivables	53	36	17	-
Total Assets	2,746	1,593	1,108	45
Liabilities	(182)	(80)	(102)	-
Total Net Assets	$2,564	$1,513	$1,006	$45

	Fair Value Measurement at December 31, 2009
	Total	(Level 1)	(Level 2)	(Level 3)
	(in millions)
Investments at Fair Value:
Cash and short term investments	$78	$78	$-	$-
Equity Securities				-
U.S. Large-cap Growth (1)	518	510	8	-
U.S. Small-cap Growth (2)	317	205	112	-
International Equity (3)	287	158	129	-
Global Equity	180	166	14	-
Emerging Market Equity	46	-	46	-
U.S. Treasury	382	382	-	-
U.S. Government agency issued or guaranteed	41	2	39	-
Obligations of U.S. states and political subdivisions	13	-	11	2
Asset-backed securities	28	-	11	17
U.S. corporate debt securities (4)	274	-	273	1
Corporate stocks - preferred	3	2	1	-
Foreign debt securities	96	-	95	1
Accrued interest	13	5	8	-
Total investments	2,276	1,508	747	21
Receivables:
Receivables from sale of investments in process of settlement	20	20	-	-
Derivative financial asset (5)	21	-	21	-
Total receivables	41	20	21	-
Total Assets	2,317	1,528	768	21
Liabilities	(176)	(22)	(154)	-
Total Net Assets	$2,141	$1,506	$614	$21

____________

(1)	This category comprises actively managed enhanced index investments that track the S&P 500 and actively managed U.S. investments that track the Russell 1000.
(2)	This category comprises actively managed U.S. investments that track the Russell 2000.
(3)	This category comprises actively managed equity investments in non-U.S. and Canada developed markets that generally track the MSCI EAFE index. MSCI EAFE is an equity market index of 22 developed market countries in Europe, Australia, Asia and the Far East including Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
(4)	This category represents predominantly investment grade bonds of U.S. issuers from diverse industries.
(5)	This category is comprised completely of interest rate swaps.

The following table provides additional detail regarding the rating of our U.S. corporate debt securities at December 31, 2010:

	Level 2	Level 3	Total
	(in millions)
AAA to AA (1)	$23	$-	$23
A+ to A- (1)	106	-	106
BBB+ to Unrated (1)	158	-	158
Total	$287	$-	$287

____________

(1)	We obtain ratings on our U.S. corporate debt securities from both Moody's Investor Services and Standard and Poor's Corporation. In the event the ratings we obtain from these agencies differ, we utilize the lower of the two ratings.

Significant Transfers Into/Out of Levels 1 and 2 for Plan Assets There were no significant transfers between Levels 1 and 2 during 2010.

Information on Level 3 Assets and Liabilities The following table summarizes additional information about changes in the fair value of Level 3 assets during 2010 and 2009.

		Total Gains and
		(Losses) Included in							Current
			Other			Transfers	Transfers		Period
	Jan 1,		Comp.			Into	Out of	Dec. 31,	Unrealized
	2010	Income	Income	Purchases	Settlement	Level 3	Level 3	2010	Gains (Losses)
	(in millions)
Obligations of U.S. states and political subdivisions	$2	$-	$-	$-	$-	$-	$(2)	$-	$-
Asset-backed securities	18	-	2	-	(1)	9	-	28	6
Foreign debt securities	1	-	-	16	-	-	-	17	1
Total assets	$21	$-	$2	$16	$(1)	$9	$(2)	$45	$7

		Total Gains and							Current
		(Losses) Included in							Period
			Other			Transfers	Transfers		Unrealized
	Jan 1,		Comp.			Into	Out of	Dec. 31,	Gains
	2009	Income	Income	Purchases	Settlement	Level 3	Level 3	2009	(Losses)
	(in millions)
International equity	$12	$-	$-	$-	$(2)	$-	$(10)	$-	$-
Global equity	18	-	-	-	(3)	-	(15)	-	-
U.S. Treasury	13	-	-	-	(1)	-	(12)	-	-
U.S. governmental agency issued or guaranteed	2	-	-	-	-	-	(2)	-	-
Obligations of U.S. states and political subdivisions	2	-	-	2	-	-	(2)	2	-
Asset-backed securities	9	-	-	7	(1)	8	(5)	18	3
U.S. corporate debt securities	10	-	-	-	(10)	-	-	-	-
Foreign debt securities	1	-	1	-	(1)	-	-	1	1
Total assets	$67	$-	$1	$9	$(18)	$8	$(46)	$21	$4

Valuation techniques for Plan Assets Following is a description of valuation methodologies used for significant categories of Plan assets recorded at fair value.

Securities:  Fair value of securities is generally determined by a third party valuation source. The pricing services generally source fair value measurements from quoted market prices and if not available, the security is valued based on quotes from similar securities using broker quotes and other information obtained from dealers and market participants. For securities which do not trade in active markets, such as fixed income securities, the pricing services generally utilize various pricing applications, including models, to measure fair value. The pricing applications are based on market convention and use inputs that are derived principally from or corroborated by observable market data by correlation or other means. The following summarizes the valuation methodology used for the major security types of our pension plan assets:

•  Equity securities - Since most of our securities are transacted in active markets, fair value measurements are determined based on quoted prices for the identical security. Equity securities and derivative contracts that are non-exchange traded are primarily investments in common stock funds. The funds permit investors to redeem the ownership interests back to the issuer at end-of-day for the net asset value ("NAV") per share and there are no significant redemption restrictions. Thus the end-of-day NAV is considered observable.

•  U.S. Treasury, U.S. government agency issued or guaranteed and Obligations of U.S. States and political subdivisions - As these securities transact in an active market, the pricing services source fair value measurements from quoted prices for the identical security or quoted prices for similar securities with adjustments as necessary made using observable inputs which are market corroborated.

•  U.S. government sponsored enterprises - For certain government sponsored mortgage-backed securities which transact in an active market, the pricing services source fair value measurements from quoted prices for the identical security or quoted prices for similar securities with adjustments as necessary made using observable inputs which are market corroborated. For government sponsored mortgage-backed securities which do not transact in an active market, fair value is determined using discounted cash flow models and inputs related to interest rates, prepayment speeds, loss curves and market discount rates that would be required by investors in the current market given the specific characteristics and inherent credit risk of the underlying collateral.

•  Asset-backed securities - Fair value is determined using discounted cash flow models and inputs related to interest rates, prepayment speeds, loss curves and market discount rates that would be required by investors in the current market given the specific characteristics and inherent credit risk of the underlying collateral.

•  U.S. corporate and foreign debt securities - For non-callable corporate securities, a credit spread scale is created for each issuer. These spreads are then added to the equivalent maturity U.S. Treasury yield to determine current pricing. Credit spreads are obtained from the new issue market, secondary trading levels and dealer quotes. For securities with early redemption features, an option adjusted spread ("OAS") model is incorporated to adjust the spreads determined above. Additionally, the pricing services will survey the broker/dealer community to obtain relevant trade data including benchmark quotes and updated spreads.

•  Corporate stocks - preferred - In general, fair value for preferred securities is calculated using an appropriate spread over a comparable U.S. Treasury security for each issue. These spreads represent the additional yield required to account for risk including credit, refunding and liquidity. The inputs are derived principally from or corroborated by observable market data.

•  Derivatives - Derivatives are recorded at fair value. Asset and liability positions in individual derivatives that are covered by legally enforceable master netting agreements, including cash collateral are offset and presented net in accordance accounting principles which allow the offsetting of amounts relating to certain contracts. Derivatives traded on an exchange are valued using quoted prices. OTC derivatives, which comprise a majority of derivative contract positions, are valued using valuation techniques. The fair value for the majority of our derivative instruments are determined based on internally developed models that utilize independently-sourced market parameters, including interest rate yield curves, option volatilities, and currency rates. For complex or long-dated derivative products where market data is not available, fair value may be affected by the choice of valuation model and the underlying assumptions about, among other things, the timing of cash flows and credit spreads. The fair values of certain structured derivative products are sensitive to unobservable inputs such as default correlations and volatilities. These estimates are susceptible to significant change in future periods as market conditions change.

Projected benefit obligation A reconciliation of beginning and ending balances of the projected benefit obligation of the defined benefit pension plan is shown below and reflects the projected benefit obligation of the merged HSBC North American plan.

	2010	2009
	(in millions)
Projected benefit obligation at beginning of year	$3,113	$3,018
Service cost	76	83
Interest cost	174	182
Gain on curtailment	-	(24)
Actuarial losses	326	43
Special termination benefits	-	18
Plan amendment (1)	(144)	-
Benefits paid	(161)	(207)
Projected benefit obligation at end of year	$3,384	$3,113

____________

(1)	The Plan amendment relates to the approval in the first quarter of 2010 to cease all future benefit accruals for legacy participants under the final average pay formula as previously discussed.

The accumulated benefit obligation for the HSBC North America Pension Plan was $3.4 billion and $2.9 billion at December 31, 2010 and 2009, respectively. As the projected benefit obligation and the accumulated benefit obligation relate to the HSBC North America Pension Plan, only a portion of this deficit should be considered our responsibility.

The assumptions used in determining the projected benefit obligation of the HSBC North America Pension Plan at December 31 are as follows:

	2010	2009	2008
Discount rate	5.45%	5.95%	6.05%
Salary increase assumption	2.75	3.50	3.50

Estimated future benefit payments for the HSBC North America Pension Plan are as follows:

	HSBC North America
	(in millions)
2011	$167
2012	175
2013	182
2014	189
2015	195
2016-2020	1,053

Defined Contribution Plans We maintain a 401(k) plan covering substantially all employees. Employer contributions to the plan are based on employee contributions. Total expense recognized for this plan was approximately $30 million, $31 million and $35 million in 2010, 2009 and 2008, respectively.

Certain employees are participants in various defined contribution and other non-qualified supplemental retirement plans. Total expense recognized for these plans was less than $1 million in 2010, 2009 and 2008.

Postretirement Plans Other Than Pensions Our employees also participate in plans which provide medical, dental and life insurance benefits to retirees and eligible dependents. These plans cover substantially all employees who meet certain age and vested service requirements. We have instituted dollar limits on payments under the plans to control the cost of future medical benefits.

The net postretirement benefit cost included the following components.

Year Ended December 31,	2010	2009	2008
	(in millions)
Service cost - benefits earned during the period	$1	$1	$1
Interest cost	4	5	5
Amortization of transition obligation	2	2	3
Amortization of recognized actuarial gain	-	(1)	(1)
Curtailment gain	-	(1)	-
Net periodic postretirement benefit cost	$7	$6	$8

The assumptions used in determining the net periodic postretirement benefit cost for our postretirement benefit plans are as follows:

	2010	2009	2008
Discount rate	5.20%	7.15%	6.55%
Salary increase assumption	2.90	3.50	3.75

A reconciliation of the beginning and ending balances of the accumulated postretirement benefit obligation is as follows:

	2009	2008
	(in millions)
Accumulated benefit obligation at beginning of year	$72	$84
Service cost	1	-
Interest cost	4	5
Actuarial losses (gains)	10	(3)
Transfers	(2)	(7)
Benefits paid	(6)	(6)
Curtailment gain	-	(1)
Accumulated benefit obligation at end of year	$79	$72

Our postretirement benefit plans are funded on a pay-as-you-go basis. We currently estimate that we will pay benefits of approximately $7 million relating to our postretirement benefit plans in 2011. The funded status of our postretirement benefit plans was a liability of $79 million at December 31, 2010.

Estimated future benefit payments for our postretirement benefit plans are summarized in the following table.

(in millions)
2011	$7
2012	7
2013	7
2014	7
2015	7
2016-2020	31

The assumptions used in determining the benefit obligation of our postretirement benefit plans at December 31 are as follows:

	2010	2009
Discount rate	4.95%	5.60%
Salary increase assumption	2.75	3.50

For measurement purposes, 7.7 percent (pre-65) and 7.2 percent (post-65) annual rates of increase in the per capita costs of covered health care benefits were assumed for 2010. These rates are assumed to decrease gradually reaching the ultimate rate of 4.50 percent in 2027, and remain at that level thereafter.

Assumed health care cost trend rates have an effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would increase (decrease) service and interest costs and the postretirement benefit obligation as follows:

	One Percent Increase	One Percent Decrease
	(in millions)
Effect on total of service and interest cost components	$-	$-
Effect on accumulated postretirement benefit obligation	1.0	(1.0)

23.  Related Party Transactions

In the normal course of business, we conduct transactions with HSBC and its subsidiaries. These transactions occur at prevailing market rates and terms and include funding arrangements, derivative execution, purchases and sales of receivables, servicing arrangements, information technology and some centralized services, item and statement processing services, banking and other miscellaneous services. All extensions of credit by HSBC Bank USA to other HSBC affiliates (other than FDIC-insured banks) are legally required to be secured by eligible collateral. The following table presents related party balances and the income and expense generated by related party transactions:

At December 31,	2010	2009	2008
	(in millions)
Assets:
Cash and due from banks	$137	$359	$153
Interest bearing deposits with banks	1,287	198	138
Federal funds sold and securities purchased under agreements to resell	534	294	346
Trading assets (1)	16,575	12,811	32,445
Loans	1,060	1,476	2,586
Other	655	855	737
Total assets	$20,248	$15,993	$36,405
Liabilities:
Deposits	$10,337	$9,437	$10,229
Trading liabilities (1)	19,211	16,848	36,588
Short-term borrowings	3,326	445	1,831
Other	1,553	1,760	278
Total liabilities	$34,427	$28,490	$48,926

____________

(1)	Trading assets and liabilities exclude the impact of netting which allow the offsetting of amounts relating to certain contracts if certain conditions are met.

	Year Ended December 31,
	2010	2009	2008
	(in millions)
Income/(Expense):
Interest income	$91	$178	$195
Interest expense	(44)	(26)	(183)
Net interest income (loss)	$47	$152	$12
HSBC affiliate income:
HSBC Finance	$45	$12	$10
HSBC Markets (USA) Inc. ("HMUS")	13	23	14
Other HSBC affiliates	72	83	71
Fees on transfers of refund anticipation loans to HSBC Finance	4	11	13
Other HSBC affiliates income	22	11	20
Total affiliate income	$156	$140	$128
Support services from HSBC affiliates:
HSBC Finance	$(715)	$(725)	$(473)
HMUS	(288)	(247)	(210)
HSBC Technology & Services (USA) ("HTSU")	(780)	(471)	(255)
Other HSBC affiliates	(117)	(144)	(210)
Total support services from HSBC affiliates	$(1,900)	$(1,587)	$(1,148)
Stock based compensation expense with HSBC	$(42)	$(54)	$(67)

Transactions Conducted with HSBC Finance Corporation In connection with its acquisition of HSBC Finance, HSBC announced its expectation that funding costs for the HSBC Finance business would be lower as a result of the funding diversity of HSBC. As a result, we work with our affiliates under the oversight of HSBC North America to maximize opportunities and efficiencies in HSBC's operations in the U.S., including funding efficiencies. The purchases of the private label portfolio, the GM and UP Portfolios and certain auto finance loans from HSBC Finance as discussed in more detail below are indicative of such efficiencies contemplated.

• In January 2009, we purchased the GM and UP Portfolios from HSBC Finance, with an outstanding principal balance of $12.4 billion at the time of sale, at a total net premium of $113 million. Premiums paid are amortized to interest income over the estimated life of the receivables purchased. HSBC Finance retained the customer account relationships associated with these credit card portfolios. On a daily basis we purchase all new credit card loan originations for the GM and UP Portfolios from HSBC Finance. HSBC Finance continues to service these credit card loans for us for a fee. Information regarding these loans is summarized in the table below.

• In January 2009, we also purchased certain auto finance loans, with an outstanding principal balance of $3.0 billion from HSBC Finance at the time of sale, at a total net discount of $226 million. Discounts are amortized to interest income over the estimated life of the receivables purchased. In March 2010, we sold $379 million of auto finance receivables to HSBC Finance, including $353 million previously classified as held for sale, a substantial majority of which were comprised of the loans previously purchased from HSBC Finance, who immediately sold them to a third party. The remaining loans, which were previously serviced by HSBC Finance, were serviced by this third party provider until they were sold in August 2010. Information regarding these loans is summarized in the table below.

• In July 2004, we sold the account relationships associated with $970 million of credit card receivables to HSBC Finance and on a daily basis, we purchase new originations on these credit card receivables. HSBC Finance continues to service these loans for us for a fee. Information regarding these loans is summarized in the table below.

• In December 2004, we purchased the private label credit card receivable portfolio as well as private label commercial and closed end loans from HSBC Finance. HSBC Finance retained the customer account relationships and by agreement we purchase on a daily basis substantially all new private label originations from HSBC Finance. HSBC Finance continues to service these loans for us for a fee. Information regarding these loans is summarized in the table below.

• In 2003 and 2004, we purchased approximately $3.7 billion of residential mortgage loans from HSBC Finance. HSBC Finance continues to service these loans for us for a fee. Information regarding these loans is summarized in the table below.

The following table summarizes the private label card, private label commercial and closed end loans, credit card (including the GM and UP credit card portfolios), auto finance and real estate secured loans serviced for us by HSBC Finance as well as the daily loans purchased during 2010, 2009 and 2008:

	Private Label		Credit Cards
	Cards	Comm'l & Closed End Loans (1)	General Motors	Union Privilege	Other	Auto Finance	Residential Mortgage	Total
	(in billions)
Loans serviced by HSBC Finance:
December 31, 2010	$13.1	$.4	$4.5	$4.1	$2.0	$-	$1.5	$25.6
December 31, 2009	15.0	.6	5.4	5.3	2.1	2.1	1.8	32.3
Total receivables purchased on a daily basis from HSBC Finance during:
2010	14.6	-	13.5	3.2	4.1	-	-	35.4
2009	15.7	-	14.5	3.5	4.3	-	-	38.0
2008	19.6	-	-	-	4.8	-	-	24.4

____________

(1)	Private label commercial are included in other commercial loans and private label closed end loans are included in other consumer loans in Note 7, "Loans."

Fees paid for servicing these loan portfolios totaled $630 million, $697 million and $444 million during 2010, 2009 and 2008, respectively.

• The GM and UP credit card receivables as well as the private label credit card receivables that are purchased from HSBC Finance on a daily basis at a sales price for each type of portfolio determined using a fair value calculated semi-annually in April and October by an independent third party based on the projected future cash flows of the receivables. The projected future cash flows are developed using various assumptions reflecting the historical performance of the receivables and adjusting for key factors such as the anticipated economic and regulatory environment. The independent third party uses these projected future cash flows and a discount rate to determine a range of fair values. We use the mid-point of this range as the sales price.

• In the fourth quarter of 2009, an initiative was begun to streamline the servicing of real estate secured receivables across North America. As a result, certain functions that we had previously performed for our mortgage customers are now being performed by HSBC Finance for all North America mortgage customers, including our mortgage customers. Additionally, we are currently performing certain functions for all North America mortgage customers where these functions had been previously provided separately by each entity. During 2010 and 2009, we paid $7 million and $1 million, respectively, for services we received from HSBC Finance and received $8 million and $5 million, respectively, for services we provided to HSBC Finance.

• In July 2010, certain employees in the real estate receivable default servicing department of HSBC Finance were transferred to the mortgage loan servicing department of a subsidiary of HSBC Bank USA. These employees continue to service defaulted real estate secured receivables for HSBC Finance and we receive a fee for providing these services. During 2010, we received servicing revenue from HSBC Finance of $37 million.

• Excluding the servicing fees paid for the loan portfolios discussed above, support services from HSBC affiliates also includes charges by HSBC Finance under various service level agreements for the servicing of certain tax refund anticipation loans as more fully discussed below, as well as other operational and administrative support. Fees paid for these services totaled $85 million, $28 million and $29 million during 2010, 2009 and 2008, respectively.

• Our wholly-owned subsidiaries, HSBC Bank USA and HSBC Trust Company (Delaware), N.A. ("HTCD"), historically have been the originating lenders on behalf of HSBC Finance for a federal income tax refund anticipation loan program for clients of a single third party tax preparer which is managed by HSBC Finance. By agreement, HSBC Bank USA and HTCD historically processed applications, funded and subsequently transferred a portion of these loans to HSBC Finance. Prior to 2010, all loans were transferred to HSBC Finance. Beginning in 2010, we began keeping a portion of these loans on our balance sheet and earn a fee. The loans kept were transferred to HSBC Finance at par only upon reaching a defined delinquency status. We paid HSBC Finance a fee to service the loans we retain on our balance sheet and to assume the credit risk associated with these receivables. HSBC Bank USA and HTCD originated approximately $9.4 billion and $9.0 billion of loans during 2010 and 2009, respectively, of which $3.1 billion and $9.0 billion, respectively, were transferred to HSBC Finance during these periods. During 2010, 2009 and 2008, we received fees of $4 million, $11 million and $13 million, respectively, for the loans we originated and sold to HSBC Finance. Fees earned on the loans retained on balance sheet and fees paid to HSBC Finance for servicing and assuming the credit risk for these loans totaled $69 million and $58 million, respectively, during 2010.

In December 2010, as a result of recent Internal Revenue Service decisions to stop providing information regarding certain unpaid taxpayer obligations which historically served as a significant part of the underwriting process, it was determined that tax refund anticipation loans could no longer be offered in a safe and sound manner and, therefore, we would no longer offer these loans and other related products going forward. These products have historically had an insignificant impact to our results of operations. See Note 4, "Exit from Taxpayer Financial Services Loan Program," for further discussion.

• Certain of our consolidated subsidiaries have revolving lines of credit totaling $1.0 billion with HSBC Finance. There were no balances outstanding under any of these lines of credit at December 31, 2010 and 2009.

• We extended a secured $1.5 billion uncommitted 364 day credit facility to certain subsidiaries of HSBC Finance in December 2009. This facility was renewed for an additional 364 days in December 2010. There were no balances outstanding at December 31, 2010 and 2009.

• We extended a $1.0 billion committed unsecured 364 day credit facility to HSBC Bank Nevada, a subsidiary of HSBC Finance, in December 2009. This facility was renewed for an additional 364 days in December 2010. There were no balances outstanding at December 31, 2010 and 2009.

• We serviced a portfolio of residential mortgage loans owned by HSBC Finance with an outstanding principal balance of $1.5 billion at December 31, 2009. During 2010, we transferred servicing of this portfolio back to HSBC Finance and, as a result, no longer service any loans for HSBC Finance. The servicing fee income for servicing this portfolio was $1 million in 2010, $6 million in 2009 and $12 million in 2008 which is included in residential mortgage banking revenue in the consolidated statement of income (loss).

• In the third quarter of 2009, we purchased $106 million of Low Income Housing Tax Credit Investment Funds from HSBC Finance.

• In the second quarter of 2008, HSBC Finance launched a new program with HSBC Bank USA to sell loans originated in accordance with the Federal Home Loan Mortgage Corporation's ("Freddie Mac") underwriting criteria to HSBC Bank USA who then sells them to Freddie Mac under its existing Freddie Mac program. During 2009, $51 million of real estate secured loans were purchased by HSBC Bank USA under this program.

This program was discontinued in February 2009 as a result of the decision to discontinue new receivable originations in HSBC Finance's Consumer Lending business.

Transactions Conducted with HMUS and Subsidiaries

• We utilize HSBC Securities (USA) Inc. ("HSI") for broker dealer, debt and preferred stock underwriting, customer referrals, loan syndication and other treasury and traded markets related services, pursuant to service level agreements. Fees charged by HSI for broker dealer, loan syndication services, treasury and traded markets related services are included in support services from HSBC affiliates. Debt underwriting fees charged by HSI are deferred as a reduction of long-term debt and amortized to interest expense over the life of the related debt. Preferred stock issuance costs charged by HSI are recorded as a reduction of capital surplus. Customer referral fees paid to HSI are netted against customer fee income, which is included in other fees and commissions.

• We have extended loans and lines, some of them uncommitted, to HMUS and its subsidiaries in the amount of $3.3 billion and $4.1 billion at December 31, 2010 and 2009, respectively. At December 31, 2010 and 2009, $867 million and $1.0 billion, respectively, was outstanding on these loans and lines. Interest income on these loans and lines totaled $15 million in 2010, $34 million in 2009 and $44 million during 2008.

Other Transactions with HSBC Affiliates

• In June 2010, we sold certain securities with a book value of $302 million to HSBC Bank plc and recognized a pre-tax loss of $40 million.

• HNAI extended a $1.0 billion senior note to us in August 2009. This is a five year floating rate note which matures on August 28, 2014 with interest due quarterly beginning in November 2009. Interest expense on this note totaled $17 million in 2010 and $6 million in 2009.

• In March 2009, we sold an equity investment in HSBC Private Bank (Suisse) SA to another HSBC affiliate for cash, resulting in a gain of $33 million.

• We have a committed unused line of credit with HSBC Bank plc of $2.5 billion at December 31, 2010 and 2009.

• We have an uncommitted unused line of credit with HNAI of $150 million at December 31, 2010 and 2009.

• We have extended loans and lines of credit to various other HSBC affiliates totaling $460 million and $1.7 billion at December 31, 2010 and 2009, respectively. At December 31, 2010, there were no amounts outstanding under these loans or lines of credit. At December 31, 2009, $527 million was outstanding on these loans and lines of credit. Interest income on these lines totaled $5 million in 2010, $13 million in 2009 and $16 million in 2008.

• Historically, we have provided support to several HSBC affiliate sponsored asset-backed commercial paper ("ABCP") conduits by purchasing A-1/P-1 rated commercial paper issued by them. At December 31, 2010, we held $75 million of commercial paper issued by an HSBC affiliate sponsored ABCP conduit. At December 31, 2009, no ABCP issued by such conduits was held.

• We routinely enter into derivative transactions with HSBC Finance and other HSBC affiliates as part of a global HSBC strategy to offset interest rate or other market risks associated with debt issues and derivative contracts with unaffiliated third parties. The notional value of derivative contracts related to these contracts was approximately $774.1 billion and $673.3 billion at December 31, 2010 and 2009, respectively. The net credit exposure (defined as the recorded fair value of derivative receivables) related to the contracts was approximately $16.6 billion and $12.8 billion at December 31, 2010 and 2009, respectively. Our Global Banking and Markets business accounts for these transactions on a mark to market basis, with the change in value of contracts with HSBC affiliates substantially offset by the change in value of related contracts entered into with unaffiliated third parties.

• In December 2008, HSBC Bank USA entered into derivative transactions with another HSBC affiliate to offset the risk associated with the contingent "loss trigger" options embedded in certain leveraged super senior ("LSS") tranched credit default swaps. These transactions are expected to significantly reduce income volatility for HSBC Bank USA by transferring the volatility to the affiliate. The recorded fair value of derivative assets related to these derivative transactions was approximately $25 million and $70 million at December 31, 2010 and 2009, respectively.

• Technology and some centralized operational services including human resources, finance, treasury, corporate affairs, compliance, legal, tax and other shared services in North America are centralized within HTSU. Technology related assets and software purchased are generally purchased and owned by HTSU. HTSU also provides certain item processing and statement processing activities which are included in Support services from HSBC affiliates in the consolidated statement of income (loss).

• Our domestic employees participate in a defined benefit pension plan sponsored by HSBC North America. Additional information regarding pensions is provided in Note 22, "Pension and Other Post-retirement Benefits."

• Employees participate in one or more stock compensation plans sponsored by HSBC. Our share of the expense of these plans on a pre-tax basis was $42 million in 2010, $54 million in 2009 and $67 million in 2008. As of December 31, 2010, our share of compensation cost related to nonvested stock compensation plans was approximately $51 million, which is expected to be recognized over a weighted-average period of 1.2 years. A description of these stock compensation plans can be found in Note 21, "Share-based Plans."

• We use HSBC Global Resourcing (UK) Ltd., an HSBC affiliate located outside of the United States, to provide various support services to our operations including among other areas customer service, systems, collection and accounting functions. The expenses related to these services of $28 million in 2010, are included as a component of Support services from HSBC affiliates in the table above. Billing for these services was processed by HTSU.

• An HSBC affiliate acquired from a third party certain structured notes with embedded derivative contracts in which we were the counterparty buying protection. We settled the credit derivative contracts with the affiliate in September 2008 and realized a trading gain of $25 million.

• We did not pay any dividends to our parent company, HNAI, in 2010, 2009 or 2008.

24.  Business Segments

We have five distinct segments that we utilize for management reporting and analysis purposes, which are generally based upon customer groupings, as well as products and services offered. Our segment results are reported on a continuing operations basis.

Net interest income of each segment represents the difference between actual interest earned on assets and interest paid on liabilities of the segment, adjusted for a funding charge or credit. Segments are charged a cost to fund assets (e.g. customer loans) and receive a funding credit for funds provided (e.g. customer deposits) based on equivalent market rates. The objective of these charges/credits is to transfer interest rate risk from the segments to one centralized unit in Global Banking and Markets and more appropriately reflect the profitability of segments.

Certain other revenue and operating expense amounts are also apportioned among the business segments based upon the benefits derived from this activity or the relationship of this activity to other segment activity. These inter-segment transactions are accounted for as if they were with third parties.

As discussed in Note 3, "Discontinued Operations," our wholesale banknotes business, which was previously reported in our Global Banking and Markets segment, is now reported as discontinued operations and is no longer included in our segment presentation.

Our segment results are presented under IFRSs (a non-U.S. GAAP financial measure) as operating results are monitored and reviewed, trends are evaluated and decisions about allocating resources, such as employees are made almost exclusively on an IFRSs basis since we report results to our parent, HSBC in accordance with its reporting basis, IFRSs. We continue to monitor capital adequacy, establish dividend policy and report to regulatory agencies on a U.S. GAAP legal entity basis.

We are currently in the process of re-evaluating the scope and content of the financial data being reported to our management and Board of Directors. To the extent we make changes to this reporting in 2011, we will evaluate any impact such changes may have to our segment reporting.

A summary of the significant differences between U.S. GAAP and IFRSs as they impact our results are summarized below:

Net Interest Income

Effective interest rate - The calculation of effective interest rates under IFRS 39, "Financial Instruments: Recognition and Measurement ("IAS 39"), requires an estimate of "all fees and points paid or recovered between parties to the contract" that are an integral part of the effective interest rate be included. U.S. GAAP generally prohibits recognition of interest income to the extent the net interest in the loan would increase to an amount greater than the amount at which the borrower could settle the obligation. Under U.S. GAAP, prepayment penalties are generally recognized as received. U.S. GAAP also includes interest income on loans originated as held for sale which is included in other revenues for IFRSs.

Deferred loan origination costs and fees - Certain loan fees and incremental direct loan costs, which would not have been incurred but for the origination of loans, are deferred and amortized to earnings over the life of the loan under IFRSs. Certain loan fees and direct incremental loan origination costs, including internal costs directly attributable to the origination of loans in addition to direct salaries, are deferred and amortized to earnings under U.S. GAAP.

Loan origination deferrals under IFRSs are more stringent and result in lower costs being deferred than permitted under U.S. GAAP. In addition, all deferred loan origination fees, costs and loan premiums must be recognized based on the expected life of the receivables under IFRSs as part of the effective interest calculation while under U.S. GAAP they may be recognized on either a contractual or expected life basis.

Derivative interest expense Under IFRSs, net interest income includes the interest element for derivatives which corresponds to debt designated at fair value. For U.S. GAAP, this is included in gain on financial instruments designated at fair value and related derivatives which is a component of other revenues.

Other Operating Income (Total Other Revenues (Losses))

Derivatives - Effective January 1, 2008, U.S. GAAP removed the observability requirement of valuation inputs to recognize the difference between transaction price and fair value as profit at inception in the consolidated statement of (loss) income. Under IFRSs, recognition is permissible only if the inputs used in calculating fair value are based on observable inputs. If the inputs are not observable, profit and loss is deferred and is recognized: (1) over the period of contract, (2) when the data becomes observable, or (3) when the contract is settled. This causes the net income under U.S. GAAP to be different than under IFRSs.

Unquoted equity securities - Under IFRSs, equity securities which are not quoted on a recognized exchange (MasterCard Class B shares and Visa Class B shares), but for which fair value can be reliably measured, are required to be measured at fair value. Securities measured at fair value under IFRSs are classified as either available-for-sale securities, with changes in fair value recognized in shareholders' equity, or as trading securities, with changes in fair value recognized in income. Under U.S. GAAP, equity securities that are not quoted on a recognized exchange are not considered to have a readily determinable fair value and are required to be measured at cost, less any provisions for known impairment, and classified in other assets.

Loans held for sale - IFRSs requires loans originated with the intent to sell to be classified as trading assets and recorded at their fair market value. Under U.S. GAAP, loans designated as held for sale are reflected as loans and recorded at the lower of amortized cost or fair value. Under IFRSs, the income related to loans held for sale are reported in net interest income or trading revenue. Under U.S. GAAP, the income related to loans held for sale are reported similarly to loans held for investment.

For loans transferred to held for sale subsequent to origination, IFRSs requires these receivables to be reported separately on the balance sheet but does not change the measurement criteria. Accordingly, for IFRSs purposes such loans continue to be accounted for in accordance with IAS 39, with any gain or loss recorded at the time of sale.

U.S. GAAP requires loans that management intends to sell to be transferred to a held for sale category at the lower of cost or fair value. Under U.S. GAAP, the initial component of the lower of cost or fair value adjustment related to credit risk is recorded in the consolidated statement of income (loss) as provision for credit losses while the component related to interest rates and liquidity factors is reported in the consolidated statement of income (loss) in other revenues (losses).

Reclassification of financial assets - Certain securities were reclassified from "trading assets" to "loans and receivables" under IFRSs as of July 1, 2008 pursuant to an amendment to IAS 39 and are no longer marked to market. In November 2008, additional securities were similarly transferred to loans and receivables. These securities continue to be classified as "trading assets" under U.S. GAAP.

Additionally, certain Leverage Acquisition Finance ("LAF") loans were classified as trading assets for IFRSs and to be consistent, an irrevocable fair value option was elected on these loans under U.S. GAAP on January 1, 2008. These loans were reclassified to "loans and advances" as of July 1, 2008 pursuant to the IAS 39 amendment discussed above. Under U.S. GAAP, these loans are classified as "held for sale" and carried at fair value due to the irrevocable nature of the fair value option.

Servicing assets - Under IAS 38, servicing assets are initially recorded on the balance sheet at cost and amortized over the projected life of the assets. Servicing assets are periodically tested for impairment with impairment adjustments charged against current earnings. Under U.S. GAAP, servicing assets are initially recorded on the balance sheet at fair value. All subsequent adjustments to fair value are reflected in current period earnings.

Securities - Effective January 1, 2009 under U.S. GAAP, the credit loss component of an other-than-temporary impairment of a debt security is recognized in earnings while the remaining portion of the impairment loss is recognized in accumulated other comprehensive income provided we have concluded we do not intend to sell the security and it is more-likely-than-not that we will not have to sell the security prior to recovery. Under IFRSs, there is no bifurcation of other-than temporary impairment and the entire decline in value is recognized in earnings. Also under IFRSs, recoveries in other-than-temporary impairment related to improvement in the underlying credit characteristics of the investment are recognized immediately in earnings while under U.S. GAAP, they are amortized to income over the remaining life of the security. There are also other less significant differences in measuring other-than-temporary impairment under IFRSs versus U.S. GAAP.

Under IFRSs, securities include HSBC shares held for stock plans at fair value. These shares held for stock plans are recorded at fair value through other comprehensive income. If it is determined these shares have become impaired, the fair value loss is recognized in profit and loss and any fair value loss recorded in other comprehensive income is reversed. There is no similar requirement under U.S. GAAP.

Loan Impairment Charges (Provision for Credit Losses)

IFRSs requires a discounted cash flow methodology for estimating impairment on pools of homogeneous customer loans which requires the incorporation of the time value of money relating to recovery estimates. Also under IFRSs, future recoveries on charged-off loans are accrued for on a discounted basis and a recovery asset is recorded. Subsequent recoveries are recorded to earnings under U.S. GAAP, but are adjusted against the recovery asset under IFRSs. Interest is recorded based on collectability under IFRSs.

As discussed above, under U.S. GAAP, the credit risk component of the lower of cost or fair value adjustment related to the transfer of receivables to held for sale is recorded in the consolidated statement of income (loss) as provision for credit losses. There is no similar requirement under IFRSs.

Operating Expenses

Pension costs - Costs under U.S. GAAP are higher than under IFRSs as a result of the amortization of the amount by which actuarial losses exceed gains beyond the 10 percent "corridor." Furthermore, in 2010, changes to future accruals for legacy participants under the HSBC North America Pension Plan were accounted for as a plan curtailment under IFRSs, which resulted in immediate income recognition. Under US GAAP, these changes were considered to be a negative plan amendment which resulted in no immediate income recognition.

Property - Under IFRSs, the value of property held for own use reflects revaluation surpluses recorded prior to January 1, 2004. Consequently, the values of tangible fixed assets and shareholders' equity are lower under U.S. GAAP than under IFRSs. There is a correspondingly lower depreciation charge and higher net income as well as higher gains (or smaller losses) on the disposal of fixed assets under U.S. GAAP. For investment properties, net income under U.S. GAAP does not reflect the unrealized gain or loss recorded under IFRSs for the period.

Assets

Customer loans (Loans) - On an IFRSs basis loans designated as held for sale at the time of origination and accrued interest are classified as trading assets. However, the accounting requirements governing when receivables previously held for investment are transferred to a held for sale category are more stringent under IFRSs than under U.S. GAAP.

Derivatives - Under U.S. GAAP, derivative receivables and payables with the same counterparty may be reported on a net basis in the balance sheet when there is an executed International Swaps and Derivatives Association, Inc. ("ISDA") Master Netting Arrangement. In addition, under U.S. GAAP, fair value amounts recognized for the obligation to return cash collateral received or the right to reclaim cash collateral paid are offset against the fair value of derivative instruments. Under IFRSs, these agreements do not necessarily meet the requirements for offset, and therefore such derivative receivables and payables are presented gross on the balance sheet.

Goodwill - IFRSs and U.S. GAAP require goodwill to be tested for impairment at least annually, or more frequently if circumstances indicate that goodwill may be impaired. For IFRSs, goodwill was amortized until 2005, however goodwill was amortized under U.S. GAAP until 2002, which resulted in a lower carrying amount of goodwill under IFRSs.

VIEs - The requirements for consolidation of variable interest entities under U.S. GAAP are based more on the power to control significant activities as opposed to the variability in cash flows. As a result, we have been determined to be the primary beneficiary and have consolidated the Bryant Park commercial paper conduit under U.S. GAAP, while under IFRSs this conduit is not consolidated.

Results for each segment on an IFRSs basis, as well as a reconciliation of total results under IFRSs to U.S. GAAP consolidated totals, are provided in the following tables.

	IFRS Consolidated Amounts
										(5)
							Adjustments/		(4)	IFRS	U.S. GAAP
				Global Banking			Reconciling		IFRS	Reclass-	Consolidated
	PFS	CF	CMB	and Markets	PB	Other	Items	Total	Adjustments	ifications	Totals
	(in millions)
December 31, 2010
Net interest income (1)	$976	$1,865	$704	$638	$184	$(11)	$(30)	$4,326	$34	$159	$4,519
Other operating income	164	171	455	1,048	132	193	30	2,193	137	617	2,947
Total operating income	1,140	2,036	1,159	1,686	316	182	-	6,519	171	776	7,466
Loan impairment charges (3)	50	972	115	(180)	(38)	-	-	919	185	29	1,133
	1,090	1,064	1,044	1,866	354	182	-	5,600	(14)	747	6,333
Operating expenses (2)	1,277	162	681	760	242	70	-	3,192	94	747	4,033
Profit (loss) before income tax expense	$(187)	$902	$363	$1,106	$112	$112	$-	$2,408	$(108)	$-	$2,300
Balances at end of period:
Total assets	$20,715	$24,098	$16,470	$177,244	$5,380	$24	$-	$243,931	$(60,147)	$(90)	$183,694
Total loans, net	16,411	23,127	14,530	25,443	4,683	-	-	84,194	(1,817)	(11,478)	70,899
Goodwill	876	-	368	480	326	-	-	2,050	576	-	2,626
Total deposits	48,373	45	24,481	33,511	11,337	-	-	117,747	(3,725)	6,629	120,651
December 31, 2009
Net interest income (1)	$916	$2,101	$725	$812	$172	$17	$(22)	$4,721	$133	$282	$5,136
Other operating income	262	353	353	543	106	(515)	22	1,124	1,196	269	2,589
Total operating income	1,178	2,454	1,078	1,355	278	(498)	-	5,845	1,329	551	7,725
Loan impairment charges (3)	616	2,073	309	591	98	-	-	3,687	685	(228)	4,144
	562	381	769	764	180	(498)	-	2,158	644	779	3,581
Operating expenses (2)	1,255	88	634	761	232	87	-	3,057	44	779	3,880
Profit (loss) before income tax expense	$(693)	$293	$135	$3	$(52)	$(585)	$-	$(899)	$600	$-	$(299)
Balances at end of period:
Total assets	$21,485	$30,953	$16,600	$156,665	$6,055	$13	$-	$231,771	$(59,865)	$(1,947)	$169,959
Total loans, net	16,845	28,118	14,849	17,360	5,355	-	-	82,527	(3,438)	(3,461)	75,628
Goodwill	876	-	368	480	326	-	-	2,050	576	-	2,626
Total deposits	48,228	43	24,107	29,897	11,566	-	-	113,841	(2,749)	7,142	118,234
December 31, 2008
Net interest income (1)	$849	$1,250	$753	$1,005	$192	$(5)	$(204)	$3,840	$(146)	$639	$4,333
Other operating income	327	325	322	(2,011)	156	547	204	(130)	(589)	(202)	(921)
Total operating income	1,176	1,575	1,075	(1,006)	348	542	-	3,710	(735)	437	3,412
Loan impairment charges (3)	520	1,650	288	165	17	-	-	2,640	12	(109)	2,543
	656	(75)	787	(1,171)	331	542	-	1,070	(747)	546	869
Operating expenses (2)	1,353	46	594	733	268	-	-	2,994	5	546	3,545
Profit (loss) before income tax expense	$(697)	$(121)	$193	$(1,904)	$63	$542	$-	$(1,924)	$(752)	$-	$(2,676)
Balances at end of period:
Total assets	$28,440	$20,047	$19,923	$259,722	$5,511	$388	$-	$334,031	$(145,656)	$(4,058)	$184,317
Total loans, net	22,950	19,496	18,301	37,201	4,664	-	-	102,612	(5,230)	(18,666)	78,716
Goodwill	876	-	368	480	326	-	-	2,050	576	-	2,626
Total deposits	45,512	27	22,824	39,216	12,306	2	-	119,887	(5,779)	4,871	118,979

____________

(1) Net interest income of each segment represents the difference between actual interest earned on assets and interest paid on liabilities of the segment adjusted for a funding charge or credit. Segments are charged a cost to fund assets (e.g. customer loans) and receive a funding credit for funds provided (e.g. customer deposits) based on equivalent market rates. The objective of these charges/credits is to transfer interest rate risk from the segments to one centralized unit in Treasury and more appropriately reflect the profitability of segments.

(2) Expenses for the segments include fully apportioned corporate overhead expenses.

(3) The provision assigned to the segments is based on the segments' net charge offs and the change in allowance for credit losses.

(4) Represents adjustments associated with differences between IFRSs and U.S. GAAP bases of accounting. These adjustments, which are more fully described above, consist of the following:

	Net Interest Income	Other Revenues	Provision for Credit Losses	Operating Expenses	(Loss) Income before Income Tax Expense	Total Assets
	(in millions)
December 31, 2010
Unquoted equity securities	$-	$-	$-	$-	$-	$(73)
Reclassification of financial assets	(148)	320	19	-	153	187
Securities	-	(103)	10	-	(113)	(78)
Derivatives	(5)	(7)	-	2	(14)	(63,005)
Loan impairment	(56)	-	(46)	(1)	(9)	(29)
Property	(4)	(56)	-	(17)	(43)	199
Pension costs	-	-	-	120	(120)	(120)
Purchased loan portfolios	256	61	235	(1)	83	(46)
Servicing assets	-	-	-	1	(1)	8
Return of capital	-	3	-	-	3	-
Interest recognition	(5)	-	-	-	(5)	(6)
Gain on sale of auto finance loans	-	(38)	-	-	(38)	-
Other	(4)	(43)	(33)	(10)	(4)	2,816
Total	$34	$137	$185	$94	$(108)	$(60,147)
December 31, 2009
Unquoted equity securities	$-	$35	$-	$-	$35	$(82)
Reclassification of financial assets	(384)	859	(143)	-	618	30
Securities	-	58	-	-	58	(56)
Derivatives	(2)	(11)	-	-	(13)	(60,094)
Loan impairment	3	-	15	-	(12)	(24)
Property	-	-	-	-	-	-
Pension costs	-	-	-	43	(43)	(50)
Purchased loan portfolios	522	188	813	1	(104)	(102)
Servicing assets	-	(6)	-	-	(6)	(10)
Return of capital	-	55	-	-	55	-
Interest recognition	2	-	-	-	2	(2)
Other	(8)	18	-	-	10	525
Total	$133	$1,196	$685	$44	$600	$(59,865)
December 31, 2008
Unquoted equity securities	$-	$100	$-	$-	$100	$(131)
Reclassification of financial assets	(142)	(752)	-	-	(894)	(863)
Securities	-	95	-	-	95	(46)
Derivatives	(1)	(14)	-	-	(15)	(145,030)
Loan impairment	11	-	12	-	(1)	(25)
Property	-	-	-	-	-	-
Pension costs	-	-	-	2	(2)	(33)
Purchased loan portfolios	-	-	-	-	-	-
Servicing assets	-	(19)	-	(3)	(16)	(20)
Return of capital	-	-	-	-	-	-
Interest recognition	(4)	-	-	-	(4)	(6)
Other	(10)	1	-	6	(15)	498
Total	$(146)	$(589)	$12	$5	$(752)	$(145,656)

(5)  Represents differences in financial statement presentation between IFRSs and U.S. GAAP.

25.  Retained Earnings and Regulatory Capital Requirements

Bank dividends are a major source of funds for payment by us of shareholder dividends, and along with interest earned on investments, cover our operating expenses which consist primarily of interest on outstanding debt. Under 12 USC 60, the approval of the OCC is required if the total of all dividends we declare in any year exceeds the cumulative net profits for that year, combined with the profits for the two preceding years reduced by dividends attributable to those years. Under a separate restriction, payment of dividends is prohibited in amounts greater than undivided profits then on hand, after deducting actual losses and bad debts. Bad debts are debts due and unpaid for a period of six months unless well secured, as defined, and in the process of collection. These rules restrict HSBC Bank USA from paying dividends to us as of December 31, 2010, as cumulative net profits for 2010, 2009 and 2008 are less than dividends attributable to those years.

The capital amounts and ratios of HSBC USA and HSBC Bank USA, calculated in accordance with current banking regulations, are summarized in the following table.

	December 31, 2010				December 31, 2009
	Capital Amount		Well-Capitalized Minimum Ratio(1)	Actual Ratio	Capital Amount	Well-Capitalized Minimum Ratio(1)	Actual Ratio
	(dollars are in millions)
Total capital ratio:
HSBC USA Inc.	$22,070	10.00%		18.14%	$19,087	10.00%	14.19%
HSBC Bank USA	22,177	10.00		18.41	19,532	10.00	14.81
Tier 1 capital ratio:
HSBC USA Inc.	14,355	6.00		11.80(3)	12,934	6.00	9.61
HSBC Bank USA	14,970	6.00		12.43(3)	13,354	6.00	10.13
Tier 1 leverage ratio:
HSBC USA Inc.	14,355	3.00(2)		7.87	12,934	3.00(2)	7.59
HSBC Bank USA	14,970	5.00		8.28	13,354	5.00	8.07
Risk weighted assets:
HSBC USA Inc.	121,645(3)				134,553
HSBC Bank USA	120,473(3)				131,854

____________

(1) HSBC USA Inc and HSBC Bank USA are categorized as "well-capitalized", as defined by their principal regulators. To be categorized as well-capitalized under regulatory guidelines, a banking institution must have the minimum ratios reflected in the above table, and must not be subject to a directive, order, or written agreement to meet and maintain specific capital levels.

(2) There is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company. The ratio shown is the minimum required ratio.

(3) Effective January 1, 2010, we began consolidating a commercial paper conduit managed by HSBC Bank USA as a result of adopting new guidance related to the consolidation of variable interest entities as more fully discussed in Note 26, "Variable Interest Entities." We elected to adopt the transition mechanism for Risk Based Capital Requirements and, as a result, there was no change to the risk weighted assets or the Tier 1 capital ratios for the first half of 2010. As of September 30, 2010 we have begun the transition to the Risk Based Capital requirements for our Tier 1 capital ratio which will be complete at March 31, 2011. Had we fully transitioned to the Risk Based Capital requirements at December 31, 2010, our risk weighted assets would have been higher by approximately $2.2 billion which would not have had a significant impact on our Tier 1 capital ratios.

We did not receive any capital contributions from our immediate parent, HNAI during 2010. During 2010, we contributed $60 million to our subsidiary, HSBC Bank USA, in part to provide capital support for receivables purchased from our affiliate, HSBC Finance Corporation. See Note 23, "Related Party Transactions," for additional information.

As part of the regulatory approvals with respect to the aforementioned receivable purchases completed in January 2009, HSBC Bank USA and HSBC made certain additional capital commitments to ensure that HSBC Bank USA holds sufficient capital with respect to the purchased receivables that are or may become "low-quality assets," as defined by the Federal Reserve Act. These capital requirements, which require a risk-based capital charge of 100 percent for each "low-quality asset" transferred or arising in the purchased portfolios rather than the eight percent capital charge applied to similar assets that are not part of the transferred portfolios, are applied both for purposes of satisfying the terms of the commitments and for purposes of measuring and reporting HSBC Bank USA's risk-based capital and related ratios. This treatment applies as long as the low-quality assets are owned by an insured bank. During 2010, HSBC Bank USA sold low-quality auto finance loans with a net book value of approximately $178 million to a non-bank subsidiary of HSBC USA Inc. to reduce the capital requirement associated with these assets. In 2009, the net book value of such sales totaled $455 million. These loans were subsequently sold to SC USA in August 2010. Capital ratios and amounts at December 31, 2010 and 2009 in the table above reflect this reporting. At December 31, 2010, the remaining purchased receivables subject to this requirement totaled $3.2 billion of which $651 million are considered to be low-quality assets.

Regulatory guidelines impose certain restrictions that may limit the inclusion of deferred tax assets in the computation of regulatory capital. We closely monitor the deferred tax assets for potential limitations or exclusions. At December 31, 2010 and 2009, deferred tax assets of $360 million and $331 million, respectively, were excluded in the computation of regulatory capital.

26.  Variable Interest Entities

On January 1, 2010, we adopted new guidance issued by the Financial Accounting Standards Board in June 2009 which amends the accounting for the consolidation of variable interest entities ("VIEs"). The new guidance changed the approach for determining the primary beneficiary of a VIE from a quantitative approach focusing on risk and reward to a qualitative approach focusing on (a) the power to direct the activities of the VIE and (b) the obligation to absorb losses and/or the right to receive benefits that could be significant to the VIE. The adoption of the new guidance has resulted in the consolidation of one commercial paper conduit managed by HSBC Bank USA as discussed more fully below. The impact of consolidating this entity beginning on January 1, 2010 resulted in an increase to our assets and liabilities of $3.2 billion and $3.5 billion, respectively, which resulted in a $1 million increase to the opening balance of retained earnings in common shareholder's equity and a $246 million reduction to the opening balance of other comprehensive income in common shareholder's equity. Since we elected to adopt the transition mechanism for Risk Based Capital requirements, there was no change to the way we calculate risk weighted assets against this facility for the first half of 2010. As of December 31, 2010, we have begun the transition to the Risk Based Capital requirements which will be complete at March 31, 2011. Had we fully transitioned to the Risk Based Capital requirements at December 31, 2010, our risk weighted assets would have been higher by approximately $2.2 billion which would not have had a significant impact on our Tier 1 capital ratios. See the asset-backed commercial paper conduit portion of the table "Consolidated VIE's" presented below for additional details of the assets and liabilities relating to this newly consolidated entity.

In the ordinary course of business, we have organized special purpose entities ("SPEs") primarily to structure financial products to meet our clients' investment needs and to securitize financial assets held to meet our own funding needs. For disclosure purposes, we aggregate SPEs based on the purpose, risk characteristics and business activities of the SPEs. A Special purpose entity can be a VIE, which is an entity that lacks sufficient equity investment at risk to finance its activities without additional subordinated financial support or, as a group, the holders of the equity investment at risk lack either a) the power to direct the activities of an entity that most significantly impacts the entity's economic performance; b) the obligation to absorb the expected losses of the entity, the right to receive the expected residual returns of the entity, or both.

Variable Interest Entities We consolidate VIEs in which we hold a controlling financial interest as evidenced by the power to direct the activities of a VIE that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive benefits from, the VIE that could be potentially significant to the VIE and therefore are deemed to be the primary beneficiary. We take into account our entire involvement in a VIE (explicit or implicit) in identifying variable interests that individually or in the aggregate could be significant enough to warrant our designation as the primary beneficiary and hence require us to consolidate the VIE or otherwise require us to make appropriate disclosures. We consider our involvement to be significant where we, among other things, (i) provide liquidity put options or other liquidity facilities to support the VIE's debt issuances; (ii) enter into derivative contracts to absorb the risks and benefits from the VIE or from the assets held by the VIE; (iii) provide a financial guarantee that covers assets held or liabilities issued; (iv) design, organize and structure the transaction; and (v) retain a financial or servicing interest in the VIE.

We are required to evaluate whether to consolidate a VIE when we first become involved and on an ongoing basis. In almost all cases, a qualitative analysis of our involvement in the entity provides sufficient evidence to determine whether we are the primary beneficiary. In rare cases, a more detailed analysis to quantify the extent of variability to be absorbed by each variable interest holder is required to determine the primary beneficiary.

Consolidated VIEs The following table summarizes assets and liabilities related to our consolidated VIEs as of December 31, 2010 and 2009 which are consolidated on our balance sheet. Assets and liabilities exclude intercompany balances that eliminate in consolidation:

	December 31, 2010		December 31, 2009
	Consolidated Assets	Consolidated Liabilities	Consolidated Assets	Consolidated Liabilities
	(in millions)
Asset-backed commercial paper conduit:
Interest bearing deposits with banks	$676	$-	$-	$-
Held-to-maturity securities	881	-	-	-
Loans, net	1,220	-	-	-
Other assets	3	-	-	-
Short-term borrowings	-	3,022	-	-
Other liabilities	-	3	-	-
Subtotal	2,780	3,025	-	-
Securitization vehicles:
Available-for-sale securities	-	-	1,138	-
Loans, net	12,963	-	15,953	-
Other assets	(1,055)	-	(915)	-
Long-term debt	-	150	-	2,965
Deposits	-	20	-	20
Other liabilities	-	261	-	200
Subtotal	11,908	431	16,176	3,185
Low income housing limited liability partnership:
Interest bearing deposits with banks	83	-	72	-
Other assets	509	-	585	-
Long term debt	-	55	-	55
Other liabilities	-	109	-	135
Subtotal	592	164	657	190
Total	$15,280	$3,620	$16,833	$3,375

Asset-backed commercial paper conduit As discussed in more detail below, we provide liquidity facilities to a number of multi-seller and single-seller asset-backed commercial paper conduits ("ABCP conduits") sponsored by HSBC affiliates and third parties. These conduits support the financing needs of customers by facilitating the customers' access to commercial paper markets.

One of these commercial paper conduits, otherwise known as Bryant Park Funding LLC ("Bryant Park"), was sponsored, organized and managed to facilitate clients in securing asset-backed financing collateralized by diverse pools of loan and lease receivables or investment securities. Bryant Park funds the purchase of the eligible assets by issuing short-term commercial paper notes to third party investors. One of our affiliates provides a program wide letter of credit enhancement ("PWE") to support the creditworthiness of the commercial paper issued up to a certain amount. We also entered into various liquidity asset purchase agreements ("LAPAs"), to provide liquidity support for the commercial paper notes issued to fund the asset purchases. Prior to the adoption of the new VIE consolidation guidance in 2010, determination of the primary beneficiary was predominantly based on a quantitative risk and reward analysis and, because our affiliate held the PWE that absorbs (receives) a majority of the expected losses (residual returns), the affiliate was considered to be the primary beneficiary. However, under the new guidance adopted January 1, 2010, we are considered to be the primary beneficiary because we have the power to direct the activities of the conduit that most significantly impact its economic performance including a) determining which eligible assets to acquire; b) risk managing the portfolio held; and c) managing the refinancing of commercial paper.

The liquidity facilities we provide in the form of LAPAs can be drawn upon by the conduit in the event it cannot issue commercial paper notes or does not have sufficient funds available to pay maturing commercial paper. Under the LAPAs, we are obligated, subject to certain conditions, to purchase the eligible assets previously funded for an amount not to exceed the face value of the commercial paper in order to provide the conduit with funds to repay the maturing notes. As such, we are exposed to the market risk and the credit risk of the underlying assets held by Bryant Park only to the extent the liquidity facility is drawn.

In order to consolidate and streamline conduit administration across HSBC to reduce risk and achieve operational efficiencies, we have decided to assign substantially all of our LAPAs to HSBC Bank plc. Upon completion of this assignment, we will no longer have a controlling financial interest in Bryant Park and, therefore, we will no longer consolidate Bryant Park Funding LLC. We expect the assignments will be completed by March 31, 2011.

Securitization vehicles We utilize entities that are structured as trusts to securitize certain private label and other credit card receivables where securitization provides an attractive source of low cost funding. We transfer certain private label and other credit card receivables to these trusts which in turn issue debt instruments collateralized by the transferred receivables. As our affiliate is the servicer of the assets of these trusts we performed a detailed analysis and determined that we retain the benefits and risks and are the primary beneficiary of the trusts and, as a result, consolidate them.

Certain assets of the consolidated VIEs serve as collateral for the obligations of the VIE. These assets include loans of $233 million and $2.8 billion at December 31, 2010 and 2009, respectively, and available-for-sale securities of $1.1 billion at December 31, 2009. Debt securities issued by these VIEs are reported as secured financings in long-term debt. The holders of the debt securities issued by these vehicles have no recourse to our general credit. The securitization vehicles also held obligations to repay intercompany loans totaling $8.8 billion and $10.6 billion at December 31, 2010 and 2009, respectively, related to the transfer of receivables to the securitization vehicles which are eliminated in consolidation and therefore are not presented in the table above.

Low income housing limited liability partnership During the third quarter of 2009, all low income housing investments held by us were transferred to a Limited Liability Partnership ("LLP") in exchange for debt and equity while a non-affiliated third party invested cash for an equity interest that is mandatorily redeemable at a future date. The LLP was created in order to ensure the utilization of future tax benefits from these low income housing tax projects. The LLP was deemed to be a VIE as it does not have sufficient equity investment at risk to finance its activities. Upon entering into this transaction, we concluded that we are the primary beneficiary of the LLP due to the nature of our continuing involvement and, as a result, consolidate the LLP and report the equity interest issued to the third party investor as other liabilities and the consolidated assets of the LLP in other assets in our consolidated financial statements. The investments held by the LLP represent equity investments in the underlying low income housing partnerships for which the LLP applies equity-method accounting. The LLP does not consolidate the underlying partnerships because it does not have the power to direct the activities of the partnerships that most significantly impact the economic performance of the partnerships.

Unconsolidated VIEs We also have variable interests with other VIEs that were not consolidated at December 31, 2010 and 2009 because we were not the primary beneficiary. The following table provides additional information on those unconsolidated VIEs, the variable interests held by us and our maximum exposure to loss arising from our involvements in those VIEs as of December 31, 2010 and 2009:

	December 31, 2010				December 31, 2009
	Variable Interests Held Classified as Assets	Variable Interests Held Classified as Liabilities	Total Assets in Unconsolidated VIEs	Maximum Exposure to Loss	Total Assets in Unconsolidated VIEs	Maximum Exposure to Loss
	(in millions)
Asset-backed commercial paper conduits	$-	$-	$13,516	$1,856	$10,485	$5,050
Structured note vehicles	537	87	6,734	900	7,890	569
Total	$537	$87	$20,250	$2,756	$18,375	$5,619

Information on the types of variable interest entities with which we are involved, the nature of our involvement and the variable interests held in those entities is presented below.

Asset-backed commercial paper conduits Separately from the facility discussed above, we provide liquidity facilities to a number of multi-seller and single-seller asset-backed commercial paper conduits ("ABCP conduits") sponsored by HSBC affiliates and by third parties. These conduits support the financing needs of customers by facilitating the customers' access to commercial paper markets.

Customers sell financial assets, such as trade receivables, to ABCP conduits, which fund the purchases by issuing short-term highly-rated commercial paper collateralized by the assets acquired. In a multi-seller conduit, any number of companies may be originating and selling assets to the conduit whereas a single-seller conduit acquires assets from a single company. We, along with other financial institutions, provide liquidity facilities to ABCP conduits in the form of lines of credit or asset purchase commitments. Liquidity facilities provided to multi-seller conduits support transactions associated with a specific seller of assets to the conduit and we would only be required to provide support in the event of certain triggers associated with those transactions and assets. Liquidity facilities provided to single-seller conduits are not identified with specific transactions or assets and we would be required to provide support upon occurrence of certain triggers that generally affect the conduit as a whole. Our obligations are generally pari passu with those of other institutions that also provide liquidity support to the same conduit or for the same transactions. We do not provide any program-wide credit enhancements to ABCP conduits.

Each seller of assets to an ABCP conduit typically provides collateral in the form of excess assets and, therefore, bears the risk of first loss related to the specific assets transferred. We do not transfer our own assets to the conduits. We have no ownership interests in, perform no administrative duties for, and do not service any of the assets held by the conduits. We are not the primary beneficiary and do not consolidate any of the ABCP conduits to which we provide liquidity facilities, other than Bryant Park as discussed above. Credit risk related to the liquidity facilities provided is managed by subjecting them to our normal underwriting and risk management processes. The $1.3 billion maximum exposure to loss presented in the table above represents the maximum amount of loans and asset purchases we could be required to fund under the liquidity facilities. The maximum loss exposure is estimated assuming the facilities are fully drawn and the underlying collateralized assets are in default with zero recovery value. The reduction in amounts outstanding since December 31, 2009 reflects the consolidation of Bryant Park effective January 1, 2010, as more fully described above.

Structured note vehicles Our involvement in structured note vehicles includes entering into derivative transactions such as interest rate and currency swaps, and investing in their debt instruments. With respect to several of these VIEs, we hold variable interests in the form of total return swaps entered into in connection with the transfer of certain assets to the VIEs. In these transactions, we transferred financial assets from our trading portfolio to the VIEs and entered into total return swaps under which we receive the total return on the transferred assets and pay a market rate of return. The transfers of assets in these transactions do not qualify as sales under the applicable accounting literature and are accounted for as secured borrowings. Accordingly, the transferred assets continue to be recognized as trading assets on our balance sheet and the funds received are recorded as liabilities in long-term debt. As of December 31, 2010, we recorded approximately $126 million of trading assets and $147 million of long- term liabilities on our balance sheet as a result of "failed sale" accounting treatment for certain transfers of financial assets. As of December 31, 2009, we recorded approximately $169 million of trading assets and $205 million of long-term liabilities on our balance sheet as a result of "failed sale" accounting treatment. The financial assets and financial liabilities were not legally ours and we have no control over the financial assets which are restricted solely to satisfy the liability.

In addition to our variable interests, we also hold credit default swaps with these structured note VIEs under which we receive credit protection on specified reference assets in exchange for the payment of a premium. Through these derivatives, the VIEs assume the credit risk associated with the reference assets which are then passed on to the holders of the debt instruments they issue. Because they create rather than absorb variability, the credit default swaps we hold are not considered variable interests.

We record all investments in, and derivative contracts with, unconsolidated structured note vehicles at fair value on our consolidated balance sheet. Our maximum exposure to loss is limited to the recorded amounts of these instruments.

Beneficial interests issued by third-party sponsored securitization entities We hold certain beneficial interests issued by third-party sponsored securitization entities which may be considered VIEs. The investments are transacted at arm's-length and decisions to invest are based on credit analysis on underlying collateral assets or the issuer. We are a passive investor in these issuers and do not have the power to direct the activities of these issuers. As such, we do not consolidate these securitization entities. Additionally, we do not have other involvements in servicing or managing the collateral assets or provide financial or liquidity support to these issuers that potentially give rise to risk of loss exposure. These investments are an integral part of the disclosure in Note 6, "Securities" and Note 28, "Fair Value Measurements" and, therefore, were not disclosed in this note to avoid redundancy.

27.  Guarantee Arrangements

As part of our normal operations, we enter into credit derivatives and various off-balance sheet guarantee arrangements with affiliates and third parties. These arrangements arise principally in connection with our lending and client intermediation activities and include standby letters of credit and certain credit derivative transactions. The contractual amounts of these arrangements represent our maximum possible credit exposure in the event that we are required to fulfill the maximum obligation under the contractual terms of the guarantee.

The following table presents total carrying value and contractual amounts of our sell protection credit derivatives and major off-balance sheet guarantee arrangements as of December 31, 2010 and 2009. Following the table is a description of the various arrangements.

	December 31, 2010		December 31, 2009
	Carrying Value	Notional/Maximum Exposure to Loss	Carrying Value	Notional/Maximum Exposure to Loss
	(in millions)
Credit derivatives (1)(4)	$(831)	$354,780	$(5,751)	$387,225
Financial standby letters of credit, net of participations (2)(3)	-	4,264	-	4,545
Performance (non-financial) guarantees (3)	-	2,895	-	3,100
Liquidity asset purchase agreements (3)	-	1,856	-	6,791
Total	$(831)	$363,795	$(5,751)	$401,661

____________

(1) Includes $49.4 billion and $57.3 billion issued for the benefit of HSBC affiliates at December 31, 2010 and 2009, respectively.

(2) Includes $486 million and $774 million issued for the benefit of HSBC affiliates at December 31, 2010 and 2009, respectively.

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

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

Credit-Risk Related Guarantees

Credit derivatives Credit derivatives are financial instruments that transfer the credit risk of a reference obligation from the credit protection buyer to the credit protection seller who is exposed to the credit risk without buying the reference obligation. We sell credit protection on underlying reference obligations (such as loans or securities) by entering into credit derivatives, primarily in the form of credit default swaps, with various institutions. We account for all credit derivatives at fair value. Where we sell credit protection to a counterparty that holds the reference obligation, the arrangement is effectively a financial guarantee on the reference obligation. Under a credit derivative contract, the credit protection seller will reimburse the credit protection buyer upon occurrence of a credit event (such as bankruptcy, insolvency, restructuring or failure to meet payment obligations when due) as defined in the derivative contract, in return for a periodic premium. Upon occurrence of a credit event, we will pay the counterparty the stated notional amount of the derivative contract and receive the underlying reference obligation. The recovery value of the reference obligation received could be significantly lower than its notional principal amount when a credit event occurs.

Certain derivative contracts are subject to master netting arrangements and related collateral agreements. A party to a derivative contract may demand that the counterparty post additional collateral in the event its net exposure exceeds certain predetermined limits and when the credit rating falls below a certain grade. We set the collateral requirements by counterparty such that the collateral covers various transactions and products, and is not allocated to specific individual contracts.

We manage our exposure to credit derivatives using a variety of risk mitigation strategies where we enter into offsetting hedge positions or transfer the economic risks, in part or in entirety, to investors through the issuance of structured credit products. We actively manage the credit and market risk exposure in the credit derivative portfolios on a net basis and, as such, retain no or a limited net sell protection position at any time. The following table summarizes our net credit derivative positions as of December 31, 2010 and 2009:

	December 31, 2010		December 31, 2009
	Carrying (Fair) Value	Notional	Carrying (Fair) Value	Notional
	(in millions)
Sell-protection credit derivative positions	$(831)	$354,780	$(5,751)	$387,225
Buy-protection credit derivative positions	1,631	346,246	6,693	381,258
Net position (1)	$800	$8,534	$942	$5,967

____________

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

Standby letters of credit A standby letter of credit is issued to a third party for the benefit of a customer and is a guarantee that the customer will perform or satisfy certain obligations under a contract. It irrevocably obligates us to pay a specified amount to the third party beneficiary if the customer fails to perform the contractual obligation. We issue two types of standby letters of credit: performance and financial. A performance standby letter of credit is issued where the customer is required to perform some nonfinancial contractual obligation, such as the performance of a specific act, whereas a financial standby letter of credit is issued where the customer's contractual obligation is of a financial nature, such as the repayment of a loan or debt instrument. As of December 31, 2010, the total amount of outstanding financial standby letters of credit (net of participations) and performance guarantees were $4.3 billion and $2.9 billion, respectively. As of December 31, 2009, the total amount of outstanding financial standby letters of credit (net of participations) and performance guarantees were $4.5 billion and $3.1 billion, respectively.

The issuance of a standby letter of credit is subject to our credit approval process and collateral requirements. We charge fees for issuing letters of credit commensurate with the customer's credit evaluation and the nature of any collateral. Included in other liabilities are deferred fees on standby letters of credit, which represent the fair value of the stand-ready obligation to perform under these guarantees, amounting to $47 million and $48 million at December 31, 2010 and 2009, respectively. Also included in other liabilities is an allowance for credit losses on unfunded standby letters of credit of $26 million and $27 million at December 31, 2010 and 2009, respectively.

Below is a summary of the credit ratings of credit risk related guarantees including the credit ratings of counterparties against which we sold credit protection and financial standby letters of credit as of December 31, 2010 as an indicative proxy of payment risk:

	Average	Credit Ratings of the Obligors or the Transactions
	Life	Investment	Non-Investment
Notional/Contractual Amounts	(in years)	Grade	Grade	Total
	(dollars are in millions)
Sell-protection Credit Derivatives (1)
Single name CDS	3.0	$149,712	$66,978	$216,690
Structured CDS	2.7	63,133	9,337	72,470
Index credit derivatives	3.3	50,391	2,885	53,276
Total return swaps	8.5	11,915	429	12,344
Subtotal		275,151	79,629	354,780
Standby Letters of Credit (2)	1.4	7,021	138	7,159
Total		$282,172	$79,767	$361,939

____________

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

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

Our internal groupings are determined based on HSBC's risk rating systems and processes which assign a credit grade based on a scale which ranks the risk of default of a customer. The groupings are determined and used for managing risk and determining level of credit exposure appetite based on the customer's operating performance, liquidity, capital structure and debt service ability. In addition, we also incorporate subjective judgments into the risk rating process concerning such things as industry trends, comparison of performance to industry peers and perceived quality of management. We compare our internal risk ratings to outside external rating agency benchmarks, where possible, at the time of formal review and regularly monitor whether our risk ratings are comparable to the external ratings benchmark data.

A non-investment grade rating of a referenced obligor has a negative impact to the fair value of the credit derivative and increases the likelihood that we will be required to perform under the credit derivative contract. We employ market-based parameters and, where possible, use the observable credit spreads of the referenced obligors as measurement inputs in determining the fair value of the credit derivatives. We believe that such market parameters are more indicative of the current status of payment/performance risk than external ratings by the rating agencies which may not be forward-looking in nature and, as a result, lag behind those market-based indicators.

Mortgage Loan Repurchase Obligations

Sale of mortgage loans In the ordinary course of business, we originate and sell mortgage loans primarily to government sponsored entities ("GSEs") and provide various representations and warranties related to, among other things, the ownership of the loans, the validity of the liens, the loan selection and origination process, and the compliance to the origination criteria established by the agencies. In the event of a breach of our representations and warranties, we may be obligated to repurchase the loans with identified defects or to indemnify the buyers. Our contractual obligation arises only when the breach of representations and warranties are discovered and repurchase is demanded.

We typically first become aware that a GSE or other third party is evaluating a particular loan for repurchase when we receive a request to review the underlying loan file. Generally, the reviews focus on severely delinquent loans to identify alleged fraud or misrepresentation. Upon completing its review, the GSE or other third party may submit a repurchase demand. Historically, most file requests have not resulted in repurchase demands. After receipt of a repurchase demand, we perform a detailed evaluation of the substance of the request and appeal any claim that we believe is either unsubstantiated or contains errors, leveraging both dedicated internal as well as retained external counsel. In many cases, we ultimately are not required to repurchase a loan as we are able to resolve the purported defect. From initial inquiry to ultimate resolution, a typical case takes roughly 12 months. Acceptance of a repurchase demand will involve either a) repurchase of the loan at the unpaid principal balance plus accrued interest or b) reimbursement for any realized loss on a liquidated property ("make-whole" payment).

To date, repurchase demands we have received primarily relate to prime loans sourced during 2004 through 2008 from the legacy broker channel which we exited from in late 2008. Loans sold to GSEs and other third parties originated in 2004 through 2008 subject to representations and warranties for which we may be liable had an outstanding principal balance of approximately $23.0 billion at December 31, 2010, including $14.3 billion of loans sourced from our legacy broker channel.

The following table shows the trend in repurchase demands received on loans sold to GSEs and other third parties by loan origination vintage at December 31, 2010, 2009 and 2008:

	2010	2009	2008
	(in millions)
Pre- 2004	$14	$8	$3
2004	31	9	5
2005	24	10	16
2006	41	21	21
2007	161	59	40
2008	112	53	4
Post 2008	34	5	-
Total repurchase demands received (1)	$417	$165	$89

____________

(1)	Includes repurchase demands on loans sourced from our legacy broker channel of $339 million, $147 million and $82 million at December 2010, 2009 and 2008, respectively.

The following table provides information about outstanding repurchase demands received from GSEs and other third parties at December 31, 2010, 2009 and 2008:

	2010	2009	2008
	(in millions)
GSEs	$92	$104	$21
Others	23	19	9
Total(1)	$115	$123	$30

____________

(1)	Includes repurchase demands on loans sourced from our legacy broker channel of $87 million, $110 million and $28 million at December 2010, 2009 and 2008, respectively.

In estimating our repurchase liability arising from breaches of representations and warranties, we consider the following:

•  The level of outstanding repurchase demands in inventory and our historical defense rate;

•  The level of outstanding requests for loan files and the related historical repurchase request conversion rate and defense rate on such loans; and

•  The level of potential future demands based on historical conversion rates of loans which we have not received a loan file request but are two or more payments delinquent or expected to become delinquent at an estimated conversion rate.

The following table summarizes the change in our estimated repurchase liability for loans sold to the GSEs and other third parties during 2010, 2009 and 2008 for obligations arising from the breach of representations and warranties associated with the sale of these loans:

	2010	2009	2008
	(in millions)
Balance at beginning of period	$66	$13	$2
Increase in liability recorded through earnings	341	65	16
Realized losses	(145)	(12)	(5)
Balance at end of period	$262	$66	$13

The increase from December 31, 2009 was due to an increase in the reserve for potential repurchase liability exposures related primarily to previously originated mortgages through broker channels. Our mortgage repurchase liability of $262 million at December 31, 2010 represents our best estimate of the loss that has been incurred resulting from various representations and warranties in the contractual provisions of our mortgage loan sales. Because the level of mortgage loan repurchase losses are dependent upon economic factors, investor demand strategies and other external risk factors such as housing market trends that may change, the level of the liability for mortgage loan repurchase losses requires significant judgment. As these estimates are influenced by factors outside our control, there is uncertainty inherent in these estimates making it reasonably possible that they could change.

Written Put Options and Indemnity Arrangements

Liquidity asset purchase agreements We provide liquidity facilities to a number of multi-seller and single-seller asset-backed commercial paper conduits sponsored by affiliates and third parties. The conduits finance the purchase of individual assets by issuing commercial paper to third party investors. Each liquidity facility is transaction specific and has a maximum limit. Pursuant to the liquidity agreements, we are obligated, subject to certain limitations, to purchase the eligible assets from the conduit at an amount not to exceed the face value of the commercial paper in the event the conduit is unable to refinance its commercial paper. A liquidity asset purchase agreement is essentially a conditional written put option issued to the conduit where the exercise price is the face value of the commercial paper. As of December 31, 2010 and 2009, we have issued $1.9 billion and $6.8 billion, respectively, of liquidity facilities to provide liquidity support to the commercial paper issued by various conduits. The decline since December 31, 2009 reflects our consolidation of the Bryant Park commercial paper conduit effective January 1, 2010. See Note 26, "Variable Interest Entities," for further information.

Principal protected products We structure and sell products that provide for the return of principal to investors on a future date. These structured products have various reference assets and we are obligated to cover any shortfall between the market value of the underlying reference portfolio and the principal amount at maturity. We manage such shortfall risk by, among other things, establishing structural and investment constraints. Additionally, the structures require liquidation of the underlying reference portfolio when certain pre-determined triggers are breached and the proceeds from liquidation are required to be invested in zero-coupon bonds that would generate sufficient funds to repay the principal amount upon maturity. We may be exposed to market (gap) risk at liquidation and, as such, may be required to make up the shortfall between the liquidation proceeds and the purchase price of the zero coupon bonds. These principal protected products are accounted for on a fair value basis. The notional amounts of these principal protected products were not material as of December 31, 2010 and 2009. We have not made any payments under the terms of these structured products and we consider the probability of such payments to be remote.

Visa Covered Litigations We are an equity member of Visa Inc. ("Visa"). Prior to its initial public offering ("IPO") on March 19, 2008, Visa completed a series of transactions to reorganize and restructure its operations and to convert membership interests into equity interests. Pursuant to the restructuring, we, along with all the Class B shareholders, agreed to indemnify Visa for the claims and obligations arising from certain specific covered litigations. Class B shares are convertible into listed Class A shares upon (i) settlement of the covered litigations or (ii) the third anniversary of the IPO, whichever is earlier. The indemnification is subject to the accounting and disclosure requirements. Visa used a portion of the IPO proceeds to establish a $3.0 billion escrow account to fund future claims arising from those covered litigations (the escrow was subsequently increased to $4.1 billion). In July 2009, Visa exercised its rights to sell shares of existing Class B shareholders in order to increase the escrow account and announced that it had deposited an additional $700 million into the escrow account. As a result, we re-evaluated the contingent liability we have recorded relating to this litigation and reduced our liability by $9 million during 2009. In May 2010, Visa funded an additional $500 million into the escrow account and we reduced our liability by $6 million. In October 2010, Visa announced that it had deposited an additional $800 million into the escrow account, which resulted in a decrease in the conversion rate at which our Visa Class B shares can be converted into Class A shares. As a result, we re-evaluated the contingent liability we have recorded relating to this litigation and reduced our liability by an additional $10 million. At December 31, 2010, the net contingent liability recorded was $9 million. We do not expect these changes to result in a material adverse effect on our results of operations.

Clearinghouses and exchanges We are a member of various exchanges and clearinghouses that trade and clear securities and/or futures contracts. As a member, we may be required to pay a proportionate share of the financial obligations of another member who defaults on its obligations to the exchange or the clearinghouse. Our guarantee obligations would arise only if the exchange or clearinghouse had exhausted its resources. Any potential contingent liability under these membership agreements cannot be estimated. However, we believe that any potential requirement to make payments under these agreements is remote.

28.  Fair Value Measurements

Accounting principles related to fair value measurements provide a framework for measuring fair value and focuses on an exit price in the principal (or alternatively, the most advantageous) market accessible in an orderly transaction between willing market participants (the "Fair Value Framework"). The Fair Value Framework establishes a three-tiered fair value hierarchy with Level 1 representing quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs are inputs that are observable for the identical asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are inactive, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. Transfers between leveling categories are recognized at the end of each reporting period.

Fair Value of Financial Instruments The fair value estimates, methods and assumptions set forth below for our financial instruments, including those financial instruments carried at cost, are made solely to comply with disclosures required by generally accepted accounting principles in the United States and should be read in conjunction with the financial statements and notes included in this Form 10-K.

The following table summarizes the carrying value and estimated fair value of our financial instruments at December 31, 2010 and 2009.

	December 31, 2010		December 31, 2009
	Carrying Value	Fair Value	Carrying Value	Fair Value
	(in millions)
Financial assets:
Short-term financial assets	$10,665	$10,665	$23,034	$23,034
Federal funds sold and securities purchased under resale agreements	8,236	8,236	1,046	1,046
Non-derivative trading assets	26,390	26,390	17,594	17,594
Derivatives	6,891	6,891	8,821	8,821
Securities	48,713	48,923	30,568	30,686
Commercial loans, net of allowance for credit losses	29,735	30,154	29,366	29,298
Commercial loans designated under fair value option and held for sale	1,356	1,356	1,126	1,126
Consumer loans, net of allowance for credit losses	41,164	36,238	46,262	41,877
Consumer loans held for sale:
Residential mortgages	954	957	1,386	1,389
Auto finance	-	-	353	353
Other consumer	80	80	43	43
Financial liabilities:
Short-term financial liabilities	$18,031	$18,031	$10,750	$10,750
Deposits:
Without fixed maturities	112,570	112,570	106,804	106,804
Fixed maturities	695	698	7,198	7,226
Deposits designated under fair value option	7,386	7,386	4,232	4,232
Non-derivative trading liabilities	5,538	5,538	2,589	2,589
Derivatives	5,285	5,285	5,418	5,418
Long-term debt	11,862	12,026	13,440	13,693
Long-term debt designated under fair value option	5,368	5,368	4,568	4,568

Loan values presented in the table above were determined using the Fair Value Framework for measuring fair value, which is based on our best estimate of the amount within a range of value we believe would be received in a sale as of the balance sheet date (i.e. exit price). The secondary market demand and estimated value for our loans has been heavily influenced by the prevailing economic conditions during the past few years, including house price depreciation, rising unemployment, changes in consumer behavior, and changes in discount rates. Many investors are non-bank financial institutions or hedge funds with high equity levels and a high cost of debt. For certain consumer loans, investors incorporate numerous assumptions in predicting cash flows, such as higher charge-off levels and/or slower voluntary prepayment speeds than we, as the servicer of these loans, believe will ultimately be the case. The investor discount rates reflect this difference in overall cost of capital as well as the potential volatility in the underlying cash flow assumptions, the combination of which may yield a significant pricing discount from our intrinsic value. The estimated fair values at December 31, 2010 and 2009 reflect these market conditions.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

	Fair Value Measurements on a Recurring Basis as of December 31, 2010
	Level 1	Level 2	Level 3	Gross Balance	Netting (1)	Net Balance
	(in millions)
Assets:
Trading Securities, excluding derivatives:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	$1,874	$694	$-	$2,568	$-	$2,568
Collateralized debt obligations	-	-	793	793	-	793
Asset-backed securities:
Residential mortgages	-	344	-	344	-	344
Home equity	-	6	-	6	-	6
Student loans	-	5	-	5	-	5
Corporate and other domestic debt securities	-	4,257	833	5,090	-	5,090
Debt Securities issued by foreign entities:
Corporate	-	133	243	376	-	376
Government	-	430	-	430	-	430
Equity securities	-	36	17	53	-	53
Precious metals trading	-	16,725	-	16,725	-	16,725
Derivatives (2):
Interest rate contracts	214	32,393	-	32,607	-	32,607
Foreign exchange contracts	23	16,233	207	16,463	-	16,463
Equity contracts	-	997	174	1,171	-	1,171
Precious metals contracts	-	982	22	1,004	-	1,004
Credit contracts	-	10,682	2,086	12,768	-	12,768
Other	-	-	4	4	-	4
Derivatives netting	-	-	-	-	(57,126)	(57,126)
Total derivatives	237	61,287	2,493	64,017	(57,126)	6,891
Securities  available-for-sale:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	25,632	14,850	-	40,482	-	40,482
Obligations of U.S. states and political subdivisions	-	579	-	579	-	579
Asset-backed securities:
Residential mortgages	-	11	-	11	-	11
Commercial mortgages	-	552	-	552	-	552
Home equity	-	352	-	352	-	352
Student loans	-	27	-	27	-	27
Other	-	104	-	104	-	104
Corporate and other domestic debt securities	-	683	-	683	-	683
Debt Securities issued by foreign entities:
Government	41	2,564	-	2,605	-	2,605
Equity securities	-	128	-	128	-	128
Loans (3)	-	1,277	11	1,288	-	1,288
Intangible (4)	-	-	394	394	-	394
Total assets	$27,784	$105,044	$4,784	$137,612	$(57,126)	$80,486
Liabilities:
Deposits in domestic offices (5)	$-	$3,774	$3,612	$7,386	$-	$7,386
Trading liabilities, excluding derivatives	173	5,365	-	5,538	-	5,538
Derivatives (2):
Interest rate contracts	90	32,701	-	32,791	-	32,791
Foreign exchange contracts	15	16,520	211	16,746	-	16,746
Equity contracts	-	833	163	996	-	996
Precious metals contracts	101	1,951	21	2,073	-	2,073
Credit contracts	-	11,639	884	12,523	-	12,523
Other	8	10	5	23	-	23
Derivatives netting	-	-	-	-	(59,867)	(59,867)
Total derivatives	214	63,654	1,284	65,152	(59,867)	5,285
Long-term debt (6)	-	5,067	301	5,368	-	5,368
Total liabilities	$387	$77,860	$5,197	$83,444	$(59,867)	$23,577

	Fair Value Measurements on a Recurring Basis as of December 31, 2009
	Level 1	Level 2	Level 3	Gross Balance	Netting(1)	Net Balance
	(in millions)
Assets:
Trading Securities, excluding derivatives:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	$615	$50	$-	$665	$-	$665
Residential mortgage-backed securities	-	129	821	950	-	950
Collateralized debt obligations	-	-	831	831	-	831
Other asset-backed securities	-	9	25	34	-	34
Other domestic debt securities	-	792	1,202	1,994	-	1,994
Debt Securities issued by foreign entities	-	213	196	409	-	409
Equity securities	-	436	21	457	-	457
Precious metals trading	-	12,254	-	12,254	-	12,254
Derivatives (2)	285	58,225	3,074	61,584	(52,763)	8,821
Securities  available-for-sale:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	9,291	10,639	3	19,933	-	19,933
Obligations of U.S. states and political subdivisions	-	749	-	749	-	749
Residential mortgage-backed securities	-	350	515	865	-	865
Commercial mortgage-backed securities	-	558	8	566	-	566
Other asset-backed securities	-	273	217	490	-	490
Other domestic debt securities	-	864	-	864	-	864
Debt Securities issued by foreign entities	-	3,076	-	3,076	-	3,076
Equity securities	-	1,263	-	1,263	-	1,263
Loans (3)	-	1,122	4	1,126	-	1,126
Intangible (4)	-	-	450	450	-	450
Total assets	$10,191	$91,002	$7,367	$108,560	$(52,763)	$55,797
Liabilities:
Deposits in domestic offices (5)	$-	$2,589	$1,643	$4,232	$-	$4,232
Trading liabilities, excluding derivatives	34	2,555	-	2,589	-	2,589
Derivatives (2)	213	60,638	1,781	62,632	(57,214)	5,418
Long-term debt (6)	-	4,149	419	4,568	-	4,568
Total liabilities	$247	$69,931	$3,843	$74,021	$(57,214)	$16,807

____________

(1) Represents counterparty and cash collateral netting which allow the offsetting of amounts relating to certain contracts if certain conditions are met.

(2) Includes trading derivative assets of $6.0 billion and $8.2 billion and trading derivative liabilities of $5.0 billion and $5.3 billion as of December 31, 2010 and 2009, respectively, as well as derivatives held for hedging and commitments accounted for as derivatives.

(3) Includes leveraged acquisition finance and other commercial loans held for sale or risk-managed on a fair value basis for which we have elected to apply the fair value option. See Note 9, "Loans Held for Sale," for further information.

(4) Represents residential mortgage servicing rights. See Note 11, "Intangible Assets," for further information on residential mortgage servicing rights.

(5) Represents structured deposits risk-managed on a fair value basis for which we have elected to apply the fair value option.

(6) Includes structured notes and own debt issuances which we have elected to measure on a fair value basis.

Transfers between leveling categories are recognized at the end of each reporting period.

Significant transfers between Levels 1 and 2 There were no significant transfers between Levels 1 and 2 during 2010 and 2009.

Information on Level 3 assets and liabilities The following table summarizes additional information about changes in the fair value of Level 3 assets and liabilities during year ended December 31, 2010 and 2009. As a risk management practice, we may risk manage the Level 3 assets and liabilities, in whole or in part, using securities and derivative positions that are classified as Level 1 or Level 2 measurements within the fair value hierarchy. Since those Level 1 and Level 2 risk management positions are not included in the table below, the information provided does not reflect the effect of such risk management activities related to the Level 3 assets and liabilities.

		Total Gains and (Losses) Included in (1)
	Jan 1, 2010	Trading Revenue (Loss)	Other Revenue	Other Comprehensive Income	Purchases	Issuances	Settlements	Transfers Into Level 3	Transfers Out of Level 3	Dec. 31 2010	Current Period Unrealized Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives:
Collateralized debt obligations	$831	$(11)	$-	$-	$292	$-	$(319)	$-	$-	$793	$(80)
Asset-backed securities:
Residential mortgages	817	103	-	-	55	-	(671)	21	(325)	-	-
Commercial mortgages	4	(4)	-	-	-	-	-	-	-	-	-
Home equity	25	(65)	-	-	228	-	(200)	20	(8)	-	-
Other	-	-	-	-	-	-	-	13	(13)	-	-
Corporate and other domestic debt securities	1,202	(15)	-	-	443	-	(613)	-	(184)	833	24
Corporate debt securities issued by foreign entities	196	48	-	-	-	-	(1)	-	-	243	48
Equity securities	21	(2)	-	-	-	-	(2)	-	-	17	(2)
Derivatives (2):
Foreign exchange contracts	(95)	(35)	-	-	-	(3)	130	(1)	-	(4)	(1)
Equity contracts	81	198	-	-	-	-	(192)	(71)	(4)	12	53
Credit contracts	1,311	(338)	-	-	-	-	(39)	157	111	1,202	(365)
Other	(4)	-	2	-	-	-	1	-	-	(1)	(1)
Securities  available-for-sale:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	3	-	-	1	-	-	-	2	(6)	-	-
Asset-backed securities:
Residential mortgages	515	-	-	17	-	-	(602)	85	(15)	-	-
Commercial mortgages	8	-	-	3	-	-	-	-	(11)	-	-
Home equity	175	-	-	78	-	-	(57)	-	(196)	-	-
Auto	42	-	-	-	-	-	(42)	-	-	-	-
Student loans	-	-	-	1	-	-	(1)	12	(12)	-	-
Other	-	-	-	-	-	-	(1)	87	(86)	-	-
Loans (3)	4	-	-	-	-	-	(1)	11	(3)	11	1
Other assets, excluding derivatives (4)	450	-	37	-	-	-	(93)	-	-	394	37
Total assets	$5,586	$(121)	$39	$100	$1,018	$(3)	$(2,703)	$336	$(752)	$3,500	$(286)
Liabilities:
Deposits in domestic offices	$(1,643)	$(194)	$-	$-	$-	$(2,062)	$288	$(212)	$211	(3,612)	$(125)
Long-term debt	(419)	(12)	-	-	-	(333)	144	(47)	366	(301)	(24)
Total liabilities	$(2,062)	$(206)	$-	$-	$-	$(2,395)	$432	$(259)	$577	$(3,913)	$(149)

		Total Gains and (Losses) Included in (1)
					Net
		Trading		Other	Purchases	Transfers		Current Periods
	Jan. 1,	(Loss)	Other	Comprehensive	Issuances and	Into or Out	Dec. 31,	Unrealized
	2009	Revenue	Revenue	Income	Settlements	of Level 3	2009	Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives
Residential mortgage-backed securities	$475	$46	$-	$-	$29	$271	$821	$38
Collateralized debt obligations	668	(281)	-	-	444	-	831	(123)
Other asset-backed securities	36	11	-	-	(31)	9	25	4
Other domestic debt securities	480	384	-	-	(7)	345	1,202	298
Debt securities issued by foreign entities	87	109	-	-	-	-	196	109
Equity securities	147	(95)	-	-	(31)	-	21	(95)
Precious metals	-	-	-	-	-	-	-	-
Derivatives, net (2)	5,283	(4,214)	(18)	-	310	(68)	1,293	(2,078)
Securities  available-for-sale
U.S. Treasury, U.S. Government agencies and sponsored enterprises	-	-	-	1	-	2	3	-
Residential mortgage-backed securities	164	-	-	91	(112)	372	515	74
Commercial mortgage-backed securities	-	-	-	3	-	5	8	3
Collateralized debt obligations	-	-	-	-	-	-	-	-
Other asset-backed securities	307	-	-	76	(143)	(23)	217	38
Loans (3)	136	-	6	-	(138)	-	4	2
Other assets, excluding derivatives (4)	333	-	4	-	113	-	450	60
Total assets	$8,116	$(4,040)	$(8)	$171	$434	$913	$5,586	$(1,670)
Liabilities:
Deposits in domestic offices	$(234)	$(52)	$-	$-	$(1,342)	$(15)	$(1,643)	$(46)
Long-term debt	(57)	(68)	-	-	(311)	17	(419)	(46)
Total liabilities	$(291)	$(120)	$-	$-	$(1,653)	$2	$(2,062)	$(92)

____________

(1) Includes realized and unrealized gains and losses.

(2) Level 3 net derivatives included derivative assets of $2.5 billion and $3.1 billion and derivative liabilities of $1.3 billion and $1.8 billion as of December 31, 2010 and 2009, respectively.

(3) Includes Level 3 corporate lending activities risk-managed on a fair value basis for which we have elected the fair value option.

(4) Represents residential mortgage servicing activities. See Note 11, "Intangible Assets," for additional information.

Material Additions to and Transfers Into (Out of) Level 3 Measurements During 2010, we transferred $238 million of mortgage and other asset-backed securities from Level 2 to Level 3 as the availability of observable inputs declined and the discrepancy in valuation per independent pricing services increased. In addition, we transferred $157 million of credit derivatives from Level 2 to Level 3 as a result of a qualitative analysis of the foreign exchange and credit correlation attributes of our model used for certain credit default swaps.

During 2010, we transferred $666 million of mortgage and other asset-backed securities and $184 million of corporate bonds from Level 3 to Level 2 due to the availability of observable inputs in the market including broker and independent pricing service valuations. In addition, we transferred $366 million of long-term debt from Level 3 to Level 2. The long-term debt relates to medium term debt issuances where the embedded equity derivative is no longer unobservable as the derivative option is closer to maturity and there is more observability in short term volatility.

During 2009, we transferred $634 million of mortgage and other asset-backed securities and $345 million of corporate bonds from Level 2 to Level 3 as the availability of observable inputs continued to decline. In addition, we transferred $69 million of credit derivatives from Level 2 to Level 3.

Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis Certain financial and non-financial assets are measured at fair value on a non-recurring basis and therefore, are not included in the tables above. These assets include (a) mortgage and consumer loans classified as held for sale reported at the lower of cost or fair value and (b) impaired loans or assets that are written down to fair value based on the valuation of underlying collateral during the period. These instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustment in certain circumstances (e.g., impairment). The following table presents the fair value hierarchy level within which the fair value of the financial and non-financial assets has been recorded as of December 31, 2010 and 2009. The gains (losses) in 2010 and 2009 are also included.

	Non-Recurring Fair Value Measurements				Total Gains (Losses)
	as of December 31, 2010				For Year Ended
	Level 1	Level 2	Level 3	Total	Dec. 31 2010
	(in millions)
Residential mortgage loans held for sale (1)	$-	$262	$413	$675	$(54)
Other consumer loans held for sale (1)	-	-	80	80	(1)
Impaired loans (2)	-	-	409	409	157
Real estate owned (3)	-	63	-	63	12
Commercial loans held for sale	-	31	-	31	(2)
Held-to-maturity asset-backed securities held by consolidated VIE (4)	-	179	77	256	(31)
Building held for use	-	-	13	13	(2)
Total assets at fair value on a non-recurring basis	$-	$535	$992	$1,527	$79

	Non-Recurring Fair Value Measurements				Total Gains (Losses)
	as of December 31, 2009				For Year Ended
	Level 1	Level 2	Level 3	Total	Dec. 31 2009
	(in millions)
Residential mortgage loans held for sale (1)	$-	$330	$793	$1,123	$(216)
Auto finance loans held for sale (1)	-	353	-	353	-
Repossessed vehicles	-	8	-	8	-
Other consumer loans held for sale (1)	-	-	43	43	(13)
Impaired loans (2)	96	-	961	1,057	215
Real estate owned (3)	-	60	-	60	3
Building held for use	-	-	15	15	(20)
Total assets at fair value on a non-recurring basis	$96	$751	$1,812	$2,659	$(31)

____________

(1) As of December 31, 2010 and 2009, the fair value of the loans held for sale was below cost. Certain residential mortgage loans held for sale have been classified as a Level 3 fair value measurement within the fair value hierarchy as the underlying real estate properties which determine fair value are illiquid assets as a result of market conditions and significant inputs in estimating fair value were unobservable. Additionally, the fair value of these properties is affected by, among other things, the location, the payment history and the completeness of the loan documentation.

(2) Represents impaired commercial loans. Certain commercial loans have undergone troubled debt restructurings and are considered impaired. As a matter of practical expedient, we measure the credit impairment of a collateral-dependent loan based on the fair value of the collateral asset. The collateral often involves real estate properties that are illiquid due to market conditions. As a result, these commercial loans are classified as a Level 3 fair value measurement within the fair value hierarchy.

(3) Real estate owned is required to be reported on the balance sheet net of transactions costs. The real estate owned amounts in the table above reflect the fair value unadjusted for transaction costs.

(4) Represent held-to-maturity securities which were held at fair value at December 31, 2010. See Note 26, "Variable Interest Entities," for additional information.

Valuation Techniques Following is a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for those financial instruments not recorded at fair value for which fair value disclosure is required.

Short-term financial assets and liabilities - The carrying value of certain financial assets and liabilities recorded at cost is considered to approximate fair value because they are short-term in nature, bear interest rates that approximate market rates, and generally have negligible credit risk. These items include cash and due from banks, interest bearing deposits with banks, accrued interest receivable, customer acceptance assets and liabilities and short-term borrowings.

Federal funds sold and purchased and securities purchased and sold under resale and repurchase agreements - Federal funds sold and purchased and securities purchased and sold under resale and repurchase agreements are recorded at cost. A significant majority of these transactions are short-term in nature and, as such, the recorded amounts approximate fair value. For transactions with long-dated maturities, fair value is based on dealer quotes for instruments with similar terms and collateral.

Loans - Except for leveraged loans, selected residential mortgage loans and certain foreign currency denominated commercial loans, we do not record loans at fair value on a recurring basis. From time to time, we record on a non-recurring basis negative adjustment to loans. The write-downs can be based on observable market price of the loan or the underlying collateral value. In addition, fair value estimates are determined based on the product type, financial characteristics, pricing features and maturity. Where applicable, similar loans are grouped based on loan types and maturities and fair values are estimated on a portfolio basis.

• Mortgage Loans Held for Sale - Certain residential mortgage loans are classified as held for sale and are recorded at the lower of cost or fair value. As of December 31, 2010, the fair value of these loans is below their amortized cost. The fair value of these mortgage loans is determined based on the valuation information observed in alternative exit markets, such as the whole loan market, adjusted for portfolio specific factors. These factors include the location of the collateral, the loan-to-value ratio, the estimated rate and timing of default, the probability of default or foreclosure and loss severity if foreclosure does occur.

• Leveraged Loans - We record leveraged loans and revolvers held for sale at fair value. Where available, market consensus pricing obtained from independent sources is used to estimate the fair value of the leveraged loans and revolvers. In determining the fair value, we take into consideration the number of participants submitting pricing information, the range of pricing information and distribution, the methodology applied by the pricing services to cleanse the data and market liquidity. Where consensus pricing information is not available, fair value is estimated using observable market prices of similar instruments or inputs, including bonds, credit derivatives, and loans with similar characteristics. Where observable market parameters are not available, fair value is determined based on contractual cash flows, adjusted for the probability of default and estimated recoveries where applicable, discounted at the rate demanded by market participants under current market conditions. In those cases, we also consider the loan specific attributes and inherent credit risk and risk mitigating factors such as collateral arrangements in determining fair value.

• Commercial Loans - Commercial loans and commercial real estate loans are valued by discounting the contractual cash flows, adjusted for prepayments and the borrower's credit risk, using a discount rate that reflects the current rates offered to borrowers of similar credit standing for the remaining term to maturity and our own estimate of liquidity premium.

• Commercial impaired loans - Fair value is determined based on the pricing quotes obtained from an independent third party appraisal.

• Consumer Loans - The estimated fair value of our consumer loans were determined by developing an approximate range of value from a mix of various sources as appropriate for the respective pool of assets. These sources included, among other things, value estimates from an HSBC affiliate which reflect over-the-counter trading activity, forward looking discounted cash flow models using assumptions we believe are consistent with those which would be used by market participants in valuing such receivables; trading input from other market participants which includes observed primary and secondary trades; where appropriate, the impact of current estimated rating agency credit tranching levels with the associated benchmark credit spreads; and general discussions held directly with potential investors.

Model inputs include estimates of future interest rates, prepayment speeds, loss curves and market discount rates reflecting management's estimate of the rate that would be required by investors in the current market given the specific characteristics and inherent credit risk of the receivables. Some of these inputs are influenced by home price changes and unemployment rates. To the extent available, such inputs are derived principally from or corroborated by observable market data by correlation and other means. We perform periodic validations of our valuation methodologies and assumptions based on the results of actual sales of such receivables. In addition, from time to time, we may engage a third party valuation specialist to measure the fair value of a pool of receivables. Portfolio risk management personnel provide further validation through discussions with third party brokers and other market participants. Since an active market for these receivables does not exist, the fair value measurement process uses unobservable significant inputs specific to the performance characteristics of the various receivable portfolios.

Lending-related commitments - The fair value of commitments to extend credit, standby letters of credit and financial guarantees are not included in the table. The majority of the lending related commitments are not carried at fair value on a recurring basis nor are they actively traded. These instruments generate fees, which approximate those currently charged to originate similar commitments, which are recognized over the term of the commitment period. Deferred fees on commitments and standby letters of credit totaled $47 million and $48 million at December 31, 2010 and December 31, 2009, respectively.

Precious metals trading - Precious metals trading primarily include physical inventory which are valued using spot prices.

Securities - Where available, debt and equity securities are valued based on quoted market prices. If a quoted market price for the identical security is not available, the security is valued based on quotes from similar securities, where possible. For certain securities, internally developed valuation models are used to determine fair values or validate quotes obtained from pricing services. The following summarizes the valuation methodology used for our major security classes:

•  U.S. Treasury, U.S. Government agency issued or guaranteed and Obligations of U.S. state and political subdivisions - As these securities transact in an active market, fair value measurements are based on quoted prices for the identical security or quoted prices for similar securities with adjustments as necessary made using observable inputs which are market corroborated.

•  U.S. Government sponsored enterprises - For certain government sponsored mortgage-backed securities which transact in an active market, fair value measurements are based on quoted prices for the identical security or quoted prices for similar securities with adjustments as necessary made using observable inputs which are market corroborated. For government sponsored mortgage-backed securities which do not transact in an active market, fair value is determined primarily based on pricing information obtained from pricing services and is verified by internal review processes.

• Asset-backed securities, including collateralized debt obligations - Fair value is primarily determined based on pricing information obtained from independent pricing services adjusted for the characteristics and the performance of the underlying collateral.

Additional information relating to asset-backed securities and collateralized debt obligations is presented in the following tables:

Trading asset-backed securities and related collateral:

		Prime		Alt-A		Sub-prime
Rating of Securities:	Collateral Type:	Level 2	Level 3	Level 2	Level 3	Level 2	Level 3	Total
	(in millions)
AAA -A	Residential mortgages	$3	$-	$84	$-	$250	$-	$337
	Home equity	-	-	2	-	-	-	2
	Student loans	-	-	5	-	-	-	5
	Other	-	-	-	-	-	-	-
	Total AAA -A	3	-	91	-	250	-	344
BBB -B	Residential mortgages	-	-	-	-	-	-	-
	Home equity	-	-	-	-	-	-	-
	Total BBB -B	-	-	-	-	-	-	-
CCC-Unrated	Residential mortgages	-	-	4	-	3	-	7
	Home equity	-	-	4	-	-	-	4
	Other	-	-	-	-	-	-	-
	Total CCC -Unrated	-	-	8	-	3	-	11
		$3	$-	$99	$-	$253	$-	$355

Trading collateralized debt obligations and related collateral: 

Rating of Securities:	Collateral Type:	Level 3
	(in millions)
AAA -A	Commercial mortgages	$-
	Corporate loans	-
	Other	-
	Total AAA -A	-
BBB -B	Commercial mortgages	182
	Corporate loans	322
	Other	157
	Total BBB -B	661
CCC -Unrated	Commercial mortgages	63
	Corporate loans	-
	Residential mortgages	6
	Other	63
	Total CCC -Unrated	132
		$793

Available-for-sale securities backed by collateral: 

		Commercial Mortgages		Prime		Alt-A		Sub-prime
Rating of Securities:	Collateral Type:	Level 2	Level 3	Level 2	Level 3	Level 2	Level 3	Level 2	Level 3	Total
	(in millions)
AAA -A	Residential mortgages	$-	$-	$-	$-	$7	$-	$-	$-	$7
	Commercial mortgages	552	-	-	-	-	-	-	-	552
	Home equity	-	-	-	-	157	-	2	-	159
	Student loans	-	-	-	-	27	-	-	-	27
	Other	-	-	-	-	104	-	-	-	104
	Total AAA -A	552	-	-	-	295	-	2	-	849
BBB -B	Residential mortgages	-	-	-	-	-	-	-	-	-
	Home equity	-	-	-	-	105	-	-	-	105
	Total BBB -B	-	-	-	-	105	-	-	-	105
CCC -Unrated	Residential mortgages	-	-	-	-	4	-	-	-	4
	Home equity	-	-	-	-	88	-	-	-	88
	Total CCC -Unrated	-	-	-	-	92	-	-	-	92
		$552	$-	$-	$-	$492	$-	$2	$-	$1,046

• Other domestic debt and foreign debt securities (corporate and government) - For non-callable corporate securities, a credit spread scale is created for each issuer. These spreads are then added to the equivalent maturity U.S. Treasury yield to determine current pricing. Credit spreads are obtained from the new market, secondary trading levels and dealer quotes. For securities with early redemption features, an option adjusted spread ("OAS") model is incorporated to adjust the spreads determined above. Additionally, we survey the broker/dealer community to obtain relevant trade data including benchmark quotes and updated spreads.

• Equity securities - Since most of our securities are transacted in active markets, fair value measurements are determined based on quoted prices for the identical security. For mutual fund investments, we receive monthly statements from the investment manager with the estimated fair value.

We perform validations of the fair values obtained from independent pricing services. Such validations primarily include sourcing security prices from other independent pricing services or broker quotes. As the pricing for mortgage and other asset-backed securities became less transparent during the credit crisis, we further developed internal valuation techniques to validate the fair value. The internal validation techniques utilize inputs derived from observable market data, incorporate external analysts' estimates of probability of default, loss recovery and prepayments speeds and apply the discount rates that would be demanded by market participants under the current market conditions. Depending on the results of the validation, additional information may be gathered from other market participants to support the fair value measurements. A determination is made as to whether adjustments to the observable inputs are necessary after investigations and inquiries about the reasonableness of the inputs used and the methodologies employed by the independent pricing services.

Derivatives - Derivatives are recorded at fair value. Asset and liability positions in individual derivatives that are covered by legally enforceable master netting agreements, including cash collateral are offset and presented net in accordance with accounting principles which allow the offsetting of amounts relating to certain contracts.

Derivatives traded on an exchange are valued using quoted prices. OTC derivatives, which comprise a majority of derivative contract positions, are valued using valuation techniques. The fair value for the majority of our derivative instruments are determined based on internally developed models that utilize independently corroborated market parameters, including interest rate yield curves, option volatilities, and currency rates. For complex or long-dated derivative products where market data is not available, fair value may be affected by the choice of valuation model and the underlying assumptions about, among other things, the timing of cash flows and credit spreads. The fair values of certain structured derivative products are sensitive to unobservable inputs such as default correlations of the referenced credit and volatilities of embedded options. These estimates are susceptible to significant change in future periods as market conditions change.

Significant inputs related to derivative classes are broken down as follows:

• Credit Derivatives - Use credit default curves and recovery rates which are generally provided by broker quotes and various pricing services. Certain credit derivatives may also use correlation inputs in their model valuation. Correlation is derived using market quotes from brokers and various pricing services.

• Interest Rate Derivatives - Swaps use interest rate curves based on currency that are actively quoted by brokers and other pricing services. Options will also use volatility inputs which are also quoted in the broker market.

•  Foreign Exchange ("FX") Derivatives - FX transactions use spot and forward FX rates which are quoted in the broker market.

•  Equity Derivatives - Use listed equity security pricing and implied volatilities from equity traded options position.

•  Precious Metal Derivative - Use spot and forward metal rates which are quoted in the broker market.

We may adjust valuations derived using the methods described above in order to ensure that those values represent appropriate estimates of fair value. These adjustments, which are applied consistently over time, are generally required to reflect factors such as bid-ask spreads and counterparty credit risk that can affect prices in arms-length transactions with unrelated third parties. Such adjustments are based on management judgment and may not be observable.

Real estate owned - Fair value is determined based on third party appraisals obtained at the time we take title to the property and, if less than the carrying value of the loan, the carrying value of the loan is adjusted to the fair value. The carrying value is further reduced, if necessary, on a quarterly basis to reflect observable local market data including local area sales data.

Repossessed autos - Fair value is determined based on current Black Book values, which represent current observable prices in the wholesale auto auction market.

Mortgage servicing rights - We elected to measure residential mortgage servicing rights, which are classified as intangible assets, at fair value. The fair value for the residential mortgage servicing rights is determined based on an option adjusted approach which involves discounting servicing cash flows under various interest rate projections at risk-adjusted rates. The valuation model also incorporates our best estimate of the prepayment speed of the mortgage loans, cost to service and discount rates which are unobservable. As changes in interest rates is a key factor affecting the prepayment speed and hence the fair value of the mortgage servicing rights, we use various interest rate derivatives and forward purchase contracts of mortgage-backed securities to risk-manage the mortgage servicing rights.

Structured notes - Certain structured notes were elected to be measured at fair value in their entirety under fair value option accounting principles. As a result, derivative features embedded in the structured notes are included in the valuation of fair value. The valuation of embedded derivatives may include significant unobservable inputs such as correlation of the referenced credit names or volatility of the embedded option. Other significant inputs include interest rates (yield curve), time to maturity, expected loss and loss severity.

Cash flows of the funded notes are discounted at the appropriate rate for the applicable duration of the instrument adjusted for our own credit spreads. The credit spreads applied to these instruments are derived from the spreads at which institutions of similar credit standing would offer for issuing similar structured instruments as of the measurement date. The market spreads for structured notes are generally lower than the credit spreads observed for plain vanilla debt or in the credit default swap market.

Long-term debt - We elected to apply fair value option to certain own debt issuances for which fair value hedge accounting otherwise would have been applied. These own debt issuances elected under FVO are traded in secondary markets and, as such, the fair value is determined based on observed prices for the specific instrument. The observed market price of these instruments reflects the effect of our own credit spreads. The credit spreads applied to these instruments were derived from the spreads recognized in the secondary market for similar debt as of the measurement date.

For long-term debt recorded at cost, fair value is determined based on quoted market prices where available. If quoted market prices are not available, fair value is based on dealer quotes, quoted prices of similar instruments, or internally developed valuation models adjusted for own credit risks.

Deposits - For fair value disclosure purposes, the carrying amount of deposits with no stated maturity (e.g., demand, savings, and certain money market deposits), which represents the amount payable upon demand, is considered to approximate fair value. For deposits with fixed maturities, fair value is estimated by discounting cash flows using market interest rates currently offered on deposits with similar characteristics and maturities.

Valuation adjustments - Where applicable, we make valuation adjustments to the measurements of financial instruments to ensure that they are recorded at fair value. Management judgment is required in determining the appropriate level of valuation adjustments. The level of valuation adjustments reflects the risks and the characteristics of a specific type of product, related contractual terms and the liquidity associated with the product and the market in which the product transacts. Valuation adjustments for complex instruments are unobservable. Such valuation adjustments, which have been consistently applied, include the following:

•  Credit risk adjustment - an adjustment to reflect the creditworthiness of the counterparty for OTC products where the market parameters may not be indicative of the creditworthiness of the counterparty. For derivative instruments, the market price implies parties to the transaction have credit ratings equivalent to AA. Therefore, we will make an appropriate credit risk adjustment to reflect the counterparty credit risk if different from an AA credit rating.

•  Market data/model uncertainty - an adjustment to reflect uncertainties in the fair value measurements determined based on unobservable market data inputs. Since one or more significant parameters may be unobservable and must be estimated, the resultant fair value estimates have inherent measurement risk. In addition, the values derived from valuation techniques are affected by the choice of valuation model. When different valuation techniques are available, the choice of valuation model can be subjective and in those cases, an additional valuation adjustment may be applied to mitigate the potential risk of measurement error. In most cases, we perform analysis on key unobservable inputs to determine the appropriate parameters to use in estimating the fair value adjustments.

•  Liquidity adjustment - a type of bid-offer adjustment to reflect the difference between the mark-to-market valuation of all open positions in the portfolio and the close out cost. The liquidity adjustment is a portfolio level adjustment and is a function of the liquidity and volatility of the underlying risk positions.

29.  Collateral, Commitments and Contingent Liabilities

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

At December 31,	2010	2009
	(in millions)
Interest bearing deposits with banks	$1,463	$1,496
Trading assets (1)	319	708
Securities available- for-sale (2)	19,765	11,416
Securities  held-to-maturity	1,004	457
Loans (3)	2,691	3,933
Other assets (4)	5,598	6,459
Total	$30,840	$24,469

____________

(1)	Trading assets are primarily pledged against liabilities associated with consolidated variable interest entities.
(2)	Securities available-for-sale are primarily pledged against public fund deposits and various short-term and long term borrowings, as well as providing capacity for potential secured borrowings from the Federal Home Loan Bank and the Federal Reserve Bank.
(3)	Loans are primarily private label card and credit card receivables in 2010 and 2009 pledged against long-term secured borrowings and residential mortgage loans pledged against long-term borrowings from the Federal Home Loan Bank. At December 31, 2010, loans also include the loans of a consolidated commercial paper conduit that collateralize the conduit's outstanding commercial paper.
(4)	Other assets represent cash on deposit with non-banks related to derivative collateral support agreements.

Debt securities pledged as collateral that can be sold or repledged by the secured party continue to be reported on the consolidated balance sheet. The fair value of securities available-for-sale that can be sold or repledged was $11.4 billion and $2.0 billion at December 31, 2010 and 2009, respectively.

The fair value of collateral we accepted but not reported on the consolidated balance sheet that can be sold or repledged was $14.5 billion and $2.9 billion at December 31, 2010 and 2009, respectively. This collateral was obtained under security resale agreements. Of this collateral, $2.1 million and $598 million has been sold or repledged as collateral under repurchase agreements or to cover short sales at December 31, 2010 and 2009, respectively.

Lease Obligations We are obligated under a number of noncancellable leases for premises and equipment. Certain leases contain renewal options and escalation clauses. Office space leases generally require us to pay certain operating expenses. Net rental expense under operating leases was $144 million in 2010, $143 million in 2009 and $137 million in 2008.

We have lease obligations on certain office space which has been subleased through the end of the lease period. Under these agreements, the sublessee has assumed future rental obligations on the lease.

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

Year Ending December 31,	Minimum Rental Payments	Minimum Sublease Income	Net
	(in millions)
2011	$161	$(4)	$157
2012	148	(4)	144
2013	142	(3)	139
2014	135	(3)	132
2015	119	(3)	116
Thereafter	397	(5)	392
Net minimum lease commitments	$1,102	$(22)	$1,080

Securitization Activity In addition to the repurchase risk described in Note 27, "Guarantee Arrangements," we have also been involved as a sponsor/seller of loans used to facilitate whole loan securitizations underwritten by our affiliate, HSBC Securities (USA) Inc. ("HSI"). In this regard, we began acquiring residential mortgage loans beginning in 2005 which were warehoused on our balance sheet with the intent of selling them to HSI to facilitate HSI's whole loan securitization program which was discontinued in the second half of 2007. During 2005-2007, we purchased and sold $24 billion of such loans to HSI which were subsequently securitized and sold by HSI to third parties. Based on the specifics of these transactions, the obligation to repurchase loans in the event of a breach of loan level representations and warranties resides predominantly with the organization that originated the loan. While certain of these originators are or may become financially impaired and, therefore, unable to fulfill their repurchase obligations, we do not believe we have significant exposure for repurchases on these loans.

We have received two subpoenas from the SEC seeking production of documents and information relating to our involvement, and the involvement of our affiliates, in specified private-label residential mortgage-backed securities ("RMBS") transactions as a issuer, sponsor, underwriter, depositor, trustee, servicer or custodian as well as our involvement as a servicer. The first subpoena was received in December 2010 and the second was received in February 2011. In February 2011, we also received a subpoena from the U.S. Department of Justice (U.S. Attorneys Office, Southern District of New York) seeking production of documents and information relating to loss mitigation efforts with respect to HUD-insured mortgages on residential properties located in the State of New York.

Litigation and Regulatory Matters In addition to the matters described below, in the ordinary course of business, we are routinely named as defendants in, or as parties to, various legal actions and proceedings relating to activities of our current and/or former operations. These actual or threatened legal actions and proceedings may include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief. In the ordinary course of business, we also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In connection with formal and informal inquiries by these regulators, we receive numerous requests, subpoenas and orders seeking documents, testimony and other information in connection with various aspects of our regulated activities.

In view of the inherent unpredictability of litigation and regulatory matters, particularly where the damages sought are substantial or indeterminate or the proceedings or investigations are in the early stages, we cannot determine with any degree of certainty the timing or ultimate resolution of litigation and regulatory matters or the eventual loss, fines, penalties or business impact, if any, that may result. We established reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. The actual costs of resolving litigation and regulatory matters, however, may be substantially higher or lower than the amounts reserved for those matters.

We believe that the eventual outcome of litigation and regulatory matters, unless otherwise noted below, would not be likely to have a material adverse effect on our consolidated financial condition. However, given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could have a material adverse effect on our consolidated results of operations or cash flows in particular quarterly or annual periods.

Litigation

Credit Card Litigation Since June 2005, HSBC Bank USA, HSBC Finance Corporation, HSBC North America and HSBC, as well as other banks and Visa Inc. and MasterCard Incorporated, were named as defendants in four class actions filed in Connecticut and the Eastern District of New York: Photos Etc. Corp. et al. v. Visa U.S.A., Inc., et al.(D. Conn. No. 3:05-CV-01007 (WWE)); National Association of Convenience Stores, et al. v. Visa U.S.A., Inc., et al.(E.D.N.Y. No. 05-CV 4520 (JG)); Jethro Holdings, Inc., et al. v. Visa U.S.A., Inc. et al. (E.D.N.Y. No. 05-CV-4521(JG)); and American Booksellers Asps' v. Visa U.S.A., Inc. et al. (E.D.N.Y. No. 05-CV-5391 (JG)). Numerous other complaints containing similar allegations (in which no HSBC entity is named) were filed across the country against Visa Inc., MasterCard Incorporated and other banks. These actions principally allege that the imposition of a no-surcharge rule by the associations and/or the establishment of the interchange fee charged for credit card transactions causes the merchant discount fee paid by retailers to be set at supracompetitive levels in violation of the Federal antitrust laws. These suits have been consolidated and transferred to the Eastern District of New York. The consolidated case is: In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, MDL 1720, E.D.N.Y. ("MDL 1720"). A consolidated, amended complaint was filed by the plaintiffs on April 24, 2006 and a second consolidated amended complaint was filed on January 29, 2009. The parties are engaged in discovery, motion practice and mediation. On February 7, 2011, MasterCard Incorporated, Visa Inc., the other defendants, including HSBC Bank USA, and certain affiliates of the defendants entered into settlement and judgment sharing agreements (the "Agreements") that provide for the apportionment of certain defined costs and liabilities that the defendants, including HSBC Bank USA and our affiliates, may incur, jointly and/or severally, in the event of an adverse judgment or global settlement of one or all of these actions. The Agreements also cover any other potential or future actions that are transferred for coordinated pre-trial proceedings with MDL 1720. We continue to defend the claims in this action vigorously and our entry into the Agreements in no way serves as an admission as to the validity of the allegations in the complaints. Similarly, the Agreements have had no impact on our ability to quantify the potential impact from this action, if any, and we are unable to do so at this time.

Account Overdraft Litigation In February 2011, an action captioned Ofra Levin et al. v. HSBC Bank USA, N.A. et al.  (E.D.N.Y. 11-CV-0701) was filed in the Eastern District of New York against HSBC Bank USA, HSBC USA and HSBC North America on behalf of putative nationwide class and New York sub-class of customers who allegedly incurred overdraft fees due to the posting of debit card transactions to deposit accounts in high-to-low order. Levin asserts claims for breach of contract and the implied covenant of good faith and fair dealing, conversion, unjust enrichment, and violation of the New York deceptive acts and practices statute. At this time we are unable to reasonably estimate the liability, if any, that might arise as a result of this action and will defend the claims vigorously.

Madoff Litigation In December 2008, Bernard L. Madoff ("Madoff") was arrested for running a Ponzi scheme and a trustee was appointed for the liquidation of his firm, Bernard L. Madoff Investment Securities LLC ("Madoff Securities"), an SEC-registered broker-dealer and investment adviser. In December 2010, the Madoff Securities trustee commenced suits against various HSBC companies in U.S. bankruptcy court and in the English High Court. The U.S. action, captioned Picard v. HSBC et al (Bankr, S.D.N.Y. No. 09-01364), which also names certain funds, investment managers, and other entities and individuals, seeks $9 billion in damages and additional recoveries from HSBC Bank USA, certain of our foreign affiliates and the various other codefendants. It seeks damages against the HSBC defendants for allegedly aiding and abetting Madoff's fraud and breach of fiduciary duty. It also seeks, pursuant to U.S. bankruptcy law, recovery of unspecified amounts received by the HSBC defendants from funds invested with Madoff, including amounts that the HSBC defendants received when they redeemed units held in the various funds. The HSBC defendants acquired those fund units in connection with financing transactions the HSBC defendants had entered into with various clients. The trustee's U.S. bankruptcy law claims also seek recovery of fees earned by the HSBC defendants for providing custodial, administration and similar services to the funds. The trustee's English action seeks recovery of unspecified transfers of money from Madoff Securities to or through HSBC on the ground that the HSBC defendants actually or constructively knew of Madoff's fraud.

Between October 2009 and July 2010, Fairfield Sentry Limited and Fairfield Sigma Limited ("Fairfield"), funds whose assets were directly or indirectly invested with Madoff Securities, commenced multiple suits in the British Virgin Islands and the U.S. against numerous fund shareholders, including various HSBC companies that acted as nominees for clients of HSBC's private banking business and other clients who invested in the Fairfield funds. The Fairfield actions, including an action captioned Fairfield Sentry Ltd. v. Zurich Capital Markets et al. (Bankr. S.D.N.Y. No. 10-03634), in which HSBC Bank USA is a defendant, seek restitution of amounts paid to the defendants in connection with share redemptions, on the ground that such payments were made by mistake, based on inflated values resulting from Madoff's fraud.

These actions are at an early stage. There are many factors that may the affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings including, but not limited to, the circumstances of the fraud, the multiple jurisdictions in which proceeding have been brought and the number of different plaintiffs and defendants in such proceedings. For these reasons, among others, we are unable to reasonably estimate the aggregate liability or ranges of liability that might arise as a result of these claims but it could be significant. In any event, we consider that we have good defenses to these claims and will continue to defend them vigorously.

Governmental and Regulatory Matters

State and federal officials are investigating the procedures followed by mortgage servicing companies and banks, including HSBC Bank USA and certain of our affiliates, relating to foreclosures. We and our affiliates have responded to all related inquiries and cooperated with all applicable investigations, including a joint examination by staffs of the Office of the Comptroller of the Currency (the "OCC") and the Federal Reserve Board (the "Federal Reserve") as part of their broad horizontal review of industry foreclosure practices. Following the examination, the OCC issued a supervisory letter to HSBC Bank USA noting certain deficiencies in the processing, preparation and signing of affidavits and other documents supporting foreclosures and in governance of and resources devoted to our foreclosure processes, including the evaluation and monitoring of third party law firms retained to effect our foreclosures. Certain other processes were deemed adequate. The Federal Reserve issued a similar supervisory letter to HSBC Finance and HSBC North America. We have suspended foreclosures until such time as we have substantially addressed the noted deficiencies in our processes. We are also reviewing foreclosures where judgment has not yet been entered and will correct deficient documentation and re-file affidavits where necessary.

We and our affiliates are engaged in discussions with the OCC and the Federal Reserve regarding the terms of consent cease and desist orders, which will prescribe actions to address the deficiencies noted in the joint examination. We expect the consent orders will be finalized shortly after the date this Form 10-K is filed. While the impact of the OCC consent order on HSBC Bank USA depends on the final terms, we believe it has the potential to increase our operational, reputational and legal risk profiles and expect implementation of its provisions will require significant financial and managerial resources. In addition, the consent orders will not preclude further actions against HSBC Bank USA or our affiliates by bank regulatory or other agencies, including the imposition of fines and civil money penalties. We are unable at this time, however, to determine the likelihood of any further action or the amount of penalties or fines, if any, that may be imposed by the regulators or agencies.

As previously disclosed, HSBC Bank USA entered into a consent cease and desist order with the Office of the Comptroller of the Currency and our indirect parent, HSBC North America, entered into a consent cease and desist order with the Federal Reserve Board in the first week of October 2010. These actions require improvements for an effective compliance risk management program across our U.S. businesses, including Bank Secrecy Act ("BSA") and Anti-Money Laundering ("AML") compliance. Steps continue to be taken to address the requirements of these Orders and to ensure that compliance and effective policies and procedures are maintained.

We are the subject of ongoing investigations, including Grand Jury subpoenas and other requests for information, by U.S. Government agencies, including the U.S. Attorney's Office, the U.S. Department of Justice and the New York County District Attorney's Office. These investigations pertain to, among other matters, our bank note and foreign correspondent banking businesses and its compliance with BSA and AML controls, as well as our compliance with Office of Foreign Assets Control ("OFAC") requirements, and adherence by certain customers to U.S. tax reporting requirements.

The consent cease and desist orders do not preclude additional enforcement actions against HSBC Bank USA or HSBC North America by bank regulatory or law enforcement agencies, including actions to recover civil money penalties, fines and other financial penalties relating to activities which were the subject of the cease and desist orders and these could be significant. In addition, it is likely that there could be some form of formal enforcement action in respect to some or all of the ongoing investigations. Actual or threatened enforcement actions against other financial institutions for breaches of BSA, AML and OFAC requirements have resulted in settlements involving fines and penalties, some of which have been significant depending upon the individual circumstances of each action. The ongoing investigations are at an early stage. Based on the facts currently known, we are unable at this time to determine the terms on which the ongoing investigations will be resolved or the timing of such resolution or for us to estimate reliably the amounts, or range of possible amounts, of any fines and/or penalties. As matters progress, it is possible that any fines and/or penalties could be material to our financial statements.

30.  Concentration of Credit Risk

A concentration of credit risk is defined as a significant credit exposure with an individual or group engaged in similar activities or affected similarly by economic conditions. We enter into a variety of transactions in the normal course of business that involve both on and off-balance sheet credit risk. Principal among these activities is lending to various commercial, institutional, governmental and individual customers. We participate in lending activity throughout the United States and internationally. In general, we manage the varying degrees of credit risk involved in on and off-balance sheet transactions through specific credit policies. These policies and procedures provide for a strict approval, monitoring and reporting process. It is our policy to require collateral when it is deemed appropriate. Varying degrees and types of collateral are secured depending upon management's credit evaluation. As with any nonconforming and non-prime loan products, we utilize high underwriting standards and price these loans in a manner that is appropriate to compensate for higher risk.

Our loan portfolio includes the following types of loans:

•  High loan-to-value ("LTV") loans - Certain residential mortgages on primary residences with LTV ratios equal to or exceeding 90 percent at the time of origination and no mortgage insurance, which could result in the potential inability to recover the entire investment in loans involving foreclosed or damaged properties.

•  Interest-only loans - A loan which allows a customer to pay the interest-only portion of the monthly payment for a period of time which results in lower payments during the initial loan period. However, subsequent events affecting a customer's financial position could affect the ability of customers to repay the loan in the future when the principal payments are required.

• Adjustable rate mortgage ("ARM") loans - A loan which allows us to adjust pricing on the loan in line with market movements. A customer's financial situation and the general interest rate environment at the time of the interest rate reset could affect the customer's ability to repay or refinance the loan after the adjustment.

The following table summarizes the balances of high LTV, interest-only and ARM loans in our loan portfolios, including loans held for sale, at December 31, 2010 and 2009.

At December 31,	2010	2009
	(in billions)
Residential mortgage loans with high LTV and no mortgage insurance (1)	$1.2	$1.2
Interest-only residential mortgage loans	2.7	3.3
ARM loans (2)	7.8	7.7

____________

(1)	Residential mortgage loans with high LTV and no mortgage insurance includes both fixed rate and adjustable rate mortgages. Excludes $125 million and $232 million of sub-prime residential mortgage loans held for sale at December 31, 2010 and 2009, respectively.
(2)	ARM loan balances above exclude $99 million and $209 million of sub-prime residential mortgage loans held for sale at December 31, 2010 and 2009, respectively. In 2011 and 2012, approximately $379 million and $429 million, respectively of ARM loans will experience their first interest rate reset.

Concentrations of first and second liens within the outstanding residential mortgage loan portfolio are summarized in the following table. Amounts in the table exclude closed end first lien loans held for sale of $1.0 billion and $1.4 billion at December 31, 2010 and 2009, respectively.

At December, 31	2010	2009
	(in millions)
Closed end:
First lien	$13,697	$13,722
Second lien	437	570
Revolving:
Second lien	3,383	3,594
Total	$17,517	$17,886

Regional exposure at December 31, 2010 for certain loan portfolios is summarized in the following table.

	Commercial Construction and Other Real Estate Loans	Residential Mortgage Loans	Credit Card Receivables
New York State	47.4%	38.5%	10.9%
North Central United States	4.2	8.0	27.5
North Eastern United States	10.4	9.2	14.9
Southern United States	20.7	17.6	26.8
Western United States	17.3	26.7	19.5
Others	-	-	.4
Total	100.0%	100.0%	100.0%

31.  Financial Statements of HSBC USA Inc. (Parent)

Condensed parent company financial statements follow.

Balance Sheet At December 31,	2010	2009
	(in millions)
Assets:
Cash and due from banks	$-	$-
Interest bearing deposits with banks	-	64
Trading assets	794	490
Securities  available-for-sale	259	358
Securities held-to-maturity (fair value $40 and $51)	39	50
Loans	43	338
Receivables from subsidiaries	9,476	7,182
Receivables from other HSBC affiliates	1,149	1,540
Investment in subsidiaries at amount of their net assets:
Banking	17,682	15,929
Other	205	224
Goodwill	589	589
Other assets	404	486
Total assets	$30,640	$27,250
Liabilities:
Interest, taxes and other liabilities	$255	$231
Payables due to subsidiaries	1,051	534
Payables due to other HSBC affiliates	265	142
Short-term borrowings	3,027	2,960
Long-term debt (1)	7,438	6,334
Long-term debt due to subsidiary and other HSBC affiliates (1)	1,871	1,872
Total liabilities	13,907	12,073
Shareholders' equity	16,733	15,177
Total liabilities and shareholders' equity	$30,640	$27,250

____________

(1)	Contractual scheduled maturities for the debt over the next five years are as follows: 2011 - $5.1 billion; 2012 - $543 million; 2013 - $191 million; 2014 - $1.2 billion; 2015 - $91 million; and thereafter - $2.2 billion.

Statement of Income (Loss) Year Ended December 31,	2010	2009	2008
	(in millions)
Income:
Dividends from banking subsidiaries	$5	$7	$7
Dividends from other subsidiaries	2	2	40
Interest from subsidiaries	74	70	130
Interest from other HSBC affiliates	20	46	56
Other interest income	22	27	31
Securities transactions	1	2	-
Other income from subsidiaries	(89)	(20)	168
Other income from other HSBC Affiliates	217	173	344
Other income	(30)	(189)	(495)
Total income	222	118	281
Expenses:
Interest to subsidiaries	70	70	70
Interest to other HSBC Affiliates	19	9	2
Other Interest Expense	216	241	353
Other expenses with subsidiaries	-	9	5
Other expenses with Other HSBC Affiliates	4	4	5
Other expenses	3	4	-
Total expenses	312	337	435
Loss before taxes and equity in undistributed income of subsidiaries	(90)	(219)	(154)
Income tax benefit	47	96	87
Loss before equity in undistributed income of subsidiaries	(43)	(123)	(67)
Equity in undistributed income (loss) of subsidiaries	1,607	(19)	(1,622)
Net income (loss)	$1,564	$(142)	$(1,689)

Statement of Cash Flows Year Ended December 31,	2010	2009	2008
	(in millions)
Cash flows from operating activities:
Net income	$1,564	$(142)	$(1,689)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and deferred taxes	141	152	186
Net change in other accrued accounts	708	297	(1,470)
Net change in fair value of non-trading derivatives	(176)	130	63
Undistributed loss (gain) of subsidiaries	(1,607)	19	1,622
Other, net	(291)	359	1,210
Net cash provided by operating activities	339	815	(78)
Cash flows from investing activities:
Net change in interest bearing deposits with banks	64	1	75
Purchases of securities	-	(9,948)	(26)
Sales and maturities of securities	107	9,912	11
Net originations and maturities of loans	295	(190)	65
Net change in investments in and advances to subsidiaries	(1,833)	(1,428)	(7,138)
Other, net	105	(14)	(9)
Net cash used in investing activities	(1,262)	(1,667)	(7,022)
Cash flows from financing activities:
Net change in short-term borrowings	67	(996)	31
Issuance of long-term debt, net of issuance costs	2,357	3,457	6,051
Repayment of long-term debt	(1,417)	(3,637)	(2,473)
Dividends paid	(74)	(73)	(80)
Additions (reductions) of capital surplus	(10)	(66)	8
Preferred stock issuance, net of redemptions	-	-	-
Capital contribution from HNAI	-	2,167	3,563
Net cash provided by financing activities	923	852	7,100
Net change in cash and due from banks	-	-	-
Cash and due from banks at beginning of year	-	-	-
Cash and due from banks at end of year	$-	$-	$-
Cash paid for:
Interest	$295	$352	$410

HSBC Bank USA is subject to legal restrictions on certain transactions with its nonbank affiliates in addition to the restrictions on the payment of dividends to us. See Note 25, "Retained Earnings and Regulatory Capital Requirements," for further discussion.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents a quarterly summary of selected financial information.

	2010				2009
	Fourth	Third	Second	First	Fourth	Third	Second	First
	(in millions)
Net interest income	$1,094	$1,091	$1,134	$1,200	$1,250	$1,260	$1,277	$1,349
Provision for credit losses	221	245	456	211	897	1,006	1,067	1,174
Net interest income after provision for credit losses	873	846	678	989	353	254	210	175
Other revenues (losses)	525	786	713	923	450	863	550	726
Operating expenses	1,008	1,007	964	1,054	938	905	1,078	959
Income (loss) from continuing operations before income tax expense (benefit)	390	625	427	858	(135)	212	(318)	(58)
Income tax expense (benefit)	90	213	125	314	(151)	62	(59)	38
Income (loss) from continuing operations	300	412	302	544	16	150	(259)	(96)
Income (loss) from discontinued operations, net of tax	(8)	5	(1)	10	19	11	10	7
Net income (loss)	$292	$417	$301	$554	$35	$161	$(249)	$(89)

PART III

Item 9. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure

There were no disagreements on accounting and financial disclosure matters between HSBC USA and its independent accountants during 2010.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures We maintain a system of internal and disclosure controls and procedures designed to ensure that information required to be disclosed by HSBC USA in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported on a timely basis. Our Board of Directors, operating through its audit committee, which is composed entirely of independent outside directors, provides oversight to our financial reporting process.

We conducted an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report so as to alert them in a timely fashion to material information required to be disclosed in reports we file under the Exchange Act.

Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management's Assessment of Internal Control over Financial Reporting Management is responsible for establishing and maintaining an adequate internal control structure and procedures over financial reporting as defined in Rule 13a-15(f) of the Securities and Exchange Act of 1934, and has completed an assessment of the effectiveness of HSBC USA's internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria related to internal control over financial reporting described in "Internal Control - Integrated Framework" established by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on the assessment performed, management concluded that as of December 31, 2010, HSBC USA's internal control over financial reporting was effective.

The effectiveness of HSBC USA's internal control over financial reporting as of December 31, 2010 has been audited by HSBC USA's independent registered public accounting firm, KPMG LLP, as stated in their report appearing on page 111, which expressed an unqualified opinion on the effectiveness of HSBC USA's internal control over financial reporting as of December 31, 2010.

Item 9B. Other Information

None.

Item 10.  Directors, Executive Officers and Corporate Governance

Directors Set forth below is certain biographical information relating to the members of HSBC USA's Board of Directors, including descriptions of the specific experience, qualifications, attributes and skills that support each such person's service as a Director of HSBC USA. We have also set forth below the minimum director qualifications reviewed by HSBC and the Board in choosing Board members.

All of our Directors are or have been either chief executive officers or senior executives in specific functional areas at other companies or firms, with significant general and specific corporate experience and knowledge that promotes the successful implementation of the strategic plans of HSBC USA and its parent, HSBC North America, for which each of our Directors also serve as a Director. Our Directors also have high levels of personal and professional integrity and unquestionable ethical character. Each possesses the ability to be collaborative but also assertive in expressing his or her views and opinions to the Board and management. Based upon his or her management experience each Director has demonstrated sound judgment and the ability to function in an oversight role.

Each director is elected annually. There are no family relationships among the directors.

Niall S. K. Booker, age 52, was appointed a director and Chairman of the Board of HSBC USA in July 2010. He is also a member of HSBC Finance Corporation's Board since August 2007, and was previously Chief Executive Officer of HSBC Finance Corporation from February 2008 to July 2010. He has been a Director of HSBC North America Holdings Inc. since February 2008 and Chief Executive Officer of HSBC North America Holdings Inc. since August 2010. Prior to that, he was Deputy Chief Executive Officer from February 2008 to July 2010 and Chief Operating Officer from April 2007 to February 2008 of HSBC North America Holdings Inc. Mr. Booker was Deputy Chairman and Chief Executive Officer of HSBC Bank Middle East Limited from May 2006 to March 2007 and has served as a Group Managing Director of HSBC since August 2010 and a Group General Manager of HSBC since January 2004. Mr. Booker joined the HSBC Group in 1981 as an International Manager and has held several positions within the HSBC organization, acquiring extensive international experience and skills building specific businesses in various positions in the HSBC Group. In those tenures, he gained experience in building specific businesses and general management operations, including responsibility for HSBC's business in Thailand following the 1997 Asia financial crises and in three positions in the United States.

Mr. Booker is Chair of the Executive Committee and a member of the HSBC Bank USA Compliance Committee.

As Chief Executive Officer of HSBC North America Holdings Inc., Mr. Booker's insight and particular knowledge of HSBC North America's operations are critical to an effective Board of Directors. The presence of the Chief Executive Officer is also critical to efficient and effective communication of the Board's direction to management. He also has many years of experience in leadership and extensive global experience with HSBC, which is very relevant to the core businesses of HSBC USA as part of the global strategic businesses of HSBC.

William R. P. Dalton, age 67, joined the HSBC USA Board in May 2008. He was a member of HSBC Finance's Board from April 2003 to May 2008. Mr. Dalton retired in May 2004 as an Executive Director of HSBC Holdings plc, a position he held from April 1998. He also served HSBC as Global Head of Personal Financial Services from August 2000 to May 2004. From April 1998 to January 2004 he was Chief Executive of HSBC Bank plc. Mr. Dalton held positions with various HSBC entities for 25 years. Mr. Dalton currently serves as a director of TUI Travel plc, Associated Electric and Gas Insurance Services ("AEGIS"), AEGIS Managing Agency for Lloyds of London Syndicate 1225, United States Cold Storage Inc., and Talisman Energy Inc. He is a Governor of the Center for the Study of Financial Innovation, London.

Mr. Dalton is a member of the Audit and Risk Committee.

Mr. Dalton was the Chief Executive Officer of HSBC Bank plc from 1998 until 2004. With 43 years of banking experience, he brings banking industry knowledge and insight to HSBC USA's strategies and operations as part of HSBC's global organization. Mr. Dalton has held several leadership roles with HSBC, including as Executive Director of HSBC from 1998 to 2004 and Global Head of Personal Financial Services from 2000 to 2004. His extensive global experience with HSBC is highly relevant as we seek to operate our core businesses in support of HSBC's global strategy.

Anthea Disney, age 66, joined the HSBC USA Board in May 2008 and has been a member of the HSBC North America Board since 2005. She was a member of HSBC Finance's Board from 2001 to 2005. Ms. Disney is a Partner and Co-Founder of Women's Enterprise Initiative, Northwest Connecticut since January 2010. She was formerly Executive Vice President for Content at News Corporation from 1999 to 2009, and a member of its worldwide Executive Management Committee. She held various positions with The NewsCorporation Limited from 1989 to 2009. From 2004 to 2008 she was also Executive Chairman Gemstar-TV Guide International. She has also been a director of the Center for Communication from 2001 to 2008 and served as a director of The CIT Group from 1998 to 2001. Currently she serves on the board of Western Connecticut Healthcare.

Ms. Disney is a member of the Audit and Risk, Executive and HSBC Bank USA Compliance Committees.

Ms. Disney has 21 years of experience in the communications industry as an executive at News Corporation and Gemstar-TV Guide International. Ms. Disney's leadership roles in the communications and marketing areas bring particular expertise to HSBC's efforts to promote HSBC's brand values and standards. In these leadership roles, Ms. Disney has also had extensive experience in running complex organizations. With her experience at Gemstar-TV Guide International, Ms. Disney obtained a strong understanding of the important issues for international businesses. In addition, Ms. Disney has served on the Board of Directors for HSBC Finance, which was previously Household International, from 2001 until 2005, which provides a historical insight into HSBC's operations in North America more generally.

Irene M. Dorner, age 56, joined the HSBC USA, HSBC Bank USA and HSBC North America Boards and was appointed President and Chief Executive Officer of HSBC USA and HSBC Bank USA effective in January 2010. Ms. Dorner joined HSBC in 1986 and has held numerous positions in the United Kingdom and Asia. She previously held the position of Deputy Chairman and Chief Executive Officer of HSBC Bank Malaysia Berhard, Chairman of HSBC Amanah and Chairman of HSBC Amanah Takaful from 2007 to 2009. From 2006 to 2007, she was General Manager Premier and Wealth, and from 2003 to 2006 she was General Manager, North, Scotland and Northern Ireland, of HSBC Bank plc. Ms. Dorner has been a Group General Manager since 2007. Ms. Dorner also serves on the Board of The Doe Fund and the British-American Business Council.

Ms. Dorner is a member of the Executive and HSBC Bank USA Compliance Committees.

As Chief Executive Officer of HSBC USA, Ms. Dorner's insight and particular knowledge of HSBC USA's operations are critical to an effective Board of Directors. The presence of the Chief Executive Officer is also critical to efficient and effective communication of the Board's direction to management of HSBC USA. She also has many years of experience in leadership positions with HSBC and extensive global experience with HSBC, which is highly relevant as we seek to operate our core businesses in support of HSBC's global strategy.

Robert K. Herdman, age 62, joined HSBC USA's Board in May 2010. He has also been a member of HSBC Finance Corporation's Board since January 2004. Since March 2005, he has served as a member of the Board of Directors of HSBC North America Holdings Inc. and as Chair of its Audit Committee. Mr. Herdman has also served on the Board of Directors of Cummins Inc. since February 2008. Since January 2004, Mr. Herdman has been a Managing Director of Kalorama Partners LLC, a Washington, D.C. consulting firm specializing in providing advice regarding corporate governance, risk assessment, crisis management and related matters. Mr. Herdman was the Chief Accountant of the U.S. Securities and Exchange Commission ("SEC") from October 2001 to November 2002. The Chief Accountant serves as the principal advisor to the SEC on accounting and auditing matters, and is responsible for formulating and administering the accounting program and policies of the SEC. Prior to joining the SEC, Mr. Herdman was Ernst & Young's Vice Chairman of Professional Practice for its Assurance and Advisory Business Services ("AABS") practice in the Americas and the Global Director of AABS Professional Practice for Ernst & Young International. Mr. Herdman was the senior Ernst & Young partner responsible for the firms' relationships with the SEC, Financial Accounting Standards Board ("FASB") and American Institute of Certified Public Accountants ("AICPA"). He served on the AICPA's SEC Practice Section Executive Committee from 1995 to 2001 and as a member of the AICPA's Board of Directors from 2000 to 2001. He also served as a director Westwood One, Inc. from 2005 to 2006.

Mr. Herdman is Chair of the Audit and Risk Committee and HSBC Bank USA Compliance Committee.

Mr. Herdman's membership on the Board is supported by his particular financial expertise, which is particularly valued as Chairman of the Audit Committee. His experience with the SEC and in the public accounting profession provided Mr. Herdman with broad insight into the business operations and financial performance of a significant number of public and private companies.

Louis Hernandez, Jr., age 44, joined the HSBC USA Board in May 2008. He was a member of HSBC Finance's Board from April 2007 to May 2008. Mr. Hernandez serves as Chief Executive Officer of Open Solutions Inc., a leading provider of software and services to financial institutions, since 1999. He also became Chairman of Open Solutions Inc. in 2000. Open Solutions converted from a publicly traded company to a privately owned entity in 2007. Mr. Hernandez serves on the board of directors of Avid Technology, Inc., a publicly traded company, as well as Unica Corporation, a publicly traded company. He served on the board of Mobius Management Systems, Inc., a publicly traded company, which was sold during 2007. Mr. Hernandez is a member of the board of trustees of the Connecticut Center for Science & Exploration, a member of the board of the Connecticut Children's Medical Center. Additionally, Mr. Hernandez serves in an Advisory role to the SoccerPlus Education Center, a Connecticut based non-profit utilizing educational opportunities to enrich the development of youth soccer players. Mr. Hernandez began his career as a certified public accountant with Price Waterhouse.

Mr. Hernandez is Co-Chair of the Fiduciary Committee and a member of the Audit and Risk Committee.

Mr. Hernandez's knowledge and experience as the Chief Executive Officer of Open Solutions Inc., a company which provides software and services to financial institutions, provides a particular expertise in evaluating and advising HSBC USA on technology issues with specific relevance to financial institutions. In addition, as a technology provider to financial institutions, Mr. Hernandez is exposed to the regulatory and compliance environment surrounding the banking industry on a regular basis. In his role as Chief Executive Officer, Mr. Hernandez is responsible for all aspects of the operations of a company, affording him broad experience in developing and executing strategic plans and motivating and managing high performance of his management team and the organization as a whole.

Richard A. Jalkut, age 66, joined the HSBC USA Board in 2000 and the HSBC Bank USA Board in 1992. Mr. Jalkut is the President and Chief Executive Officer of Telepacific Communications. He was a director of Birch Telecom, Inc. until June 2006. Formerly, he was the President and Chief Executive of Pathnet and, prior to that, President and Group Executive, NYNEX Telecommunications. Mr. Jalkut was also a director of IKON Office Solutions and Covad until 2008 and is currently the Chair of the Board of Hawaii Telecom. Mr. Jalkut is a Trustee of Lesley University in Cambridge, Massachusetts.

Mr. Jalkut is Co-Chair of the Fiduciary Committee and a member of the Audit and Risk, Executive and HSBC Bank USA Compliance Committees.

Mr. Jalkut has many years of experience in the communications industry as a chief executive officer of Telepacific Communications, Pathnet and NYNEX Telecommunications. As a chief executive officer, Mr. Jalkut brings experience in managing the operations of a large company. In addition, his leadership roles in the communications area bring particular knowledge that supports HSBC's efforts to enhance its internal and external communications. In addition, Mr. Jalkut has served on the Board of Directors for HSBC USA since 2000 and HSBC Bank USA since 1992, and, accordingly, he is able to provide a historical perspective to the Board.

Executive Officers Information regarding the executive officers of HSBC USA as of February 28, 2011 is presented in the following table.

Name	Age	Year Appointed	Present Position
Irene M. Dorner	56	2010	President and Chief Executive Officer
John T. McGinnis	44	2010	Executive Vice President and Chief Financial Officer
Andrew Armishaw	48	2008	Senior Executive Vice President, Chief Technology & Services Officer
Patrick A. Cozza	55	2010	Senior Executive Vice President & Regional Head of Insurance
Christopher Davies	48	2007	Senior Executive Vice President, Head of Commercial Banking
C. Mark Gunton	54	2008	Senior Executive Vice President, Chief Risk Officer
Mark A. Hershey	58	2007	Senior Executive Vice President & Chief Credit Officer
Eric L. Larson	53	2011	Senior Executive Vice President & Chief Compliance Officer
Kevin R. Martin	50	2009	Senior Executive Vice President, Personal Financial Services and Marketing
Mark Martinelli	51	2007	Senior Executive Vice President, Chief Auditor
Patrick M. Nolan	45	2010	Senior Executive Vice President, Head of Global Banking and Markets USA
Matthew Smith	51	2009	Senior Executive Vice President, Head of Strategy and Planning
Jon R. Bottorff	59	2010	Executive Vice President and Chief Financial Officer, Global Banking and Markets, USA
Suzanne Brienza	53	2008	Executive Vice President, Human Resources
Michael W. Emerson	55	2010	Executive Vice President and General Counsel
Eric K. Ferren	37	2010	Executive Vice President and Chief Accounting Officer
Marlon Young	55	2006	Managing Director, Private Banking Americas

Irene M. Dorner, Director and President and Chief Executive Officer of HSBC USA and HSBC Bank USA. See Directors for Ms. Dorner's biography.

John T. McGinnis, Executive Vice President and Chief Financial Officer since July 2010. Prior to this appointment, he was Executive Vice President and Chief Accounting Officer of HSBC USA from August 2009 to July 2010, and Executive Vice President and Controller of HSBC North America Holdings Inc. from March 2006 to July 2010. Mr. McGinnis also served as Executive Vice President and Chief Accounting Officer of HSBC Finance from July 2008 to July 2010. Prior to joining HSBC, Mr. McGinnis was a partner at Ernst & Young LLP. Mr. McGinnis worked for Ernst & Young from August 1989 to March 2006 and practiced in the Chicago, San Francisco and Toronto offices. At Ernst & Young, he specialized in serving large financial services and banking clients. He is a C.P.A. and a member of the American Institute of Certified Public Accountants. While in Toronto, Mr. McGinnis also became a Chartered Accountant (Canada).

Andrew C. Armishaw, Senior Executive Vice President, Chief Technology and Services Officer, of HSBC USA since December 2008 and of HSBC North America Holdings Inc. since May 2008. From May 2008 to November 2008 he was Senior Executive Vice President, Chief Technology Officer of HSBC USA and was Chief Information Officer-North America of HSBC Finance and of HSBC North America from February 2008 to May 2008. From January 2004 to February 2008 he was Group Executive and Chief Information Officer of HSBC Finance and of HSBC North America. From January 2001 to December 2003 Mr. Armishaw was Head of Global Resourcing for HSBC and from 1994 to 1999 was Chief Executive Officer of First Direct (a subsidiary of HSBC) and Chief Information Officer of First Direct.

Patrick A. Cozza, Senior Executive Vice President & Regional Head of Insurance since July 2010. Since February 2008, Mr. Cozza has also been Senior Executive Vice President - Insurance of HSBC Finance Corporation. From May 2004 to February 2008 he was Group Executive of HSBC Finance Corporation. Mr. Cozza became President - Refund Lending and Insurance Services in 2002 and Managing Director and Chief Executive Officer - Refund Lending in 2000. Mr. Cozza serves as a board member and Chairman, Chief Executive Officer of Household Life Insurance Company, First Central National Life Insurance Company of New York and HSBC Insurance Company of Delaware, all subsidiaries of HSBC Finance Corporation. He serves on the board of directors of Junior Achievement in New Jersey (Chairman), Cancer Hope Network, Hudson County Chamber of Commerce, The American Council of Life Insurers and The American Bankers Insurance Association.

Christopher Davies, Senior Executive Vice President, Head of Commercial Banking since February 2007. Prior to this appointment, Mr. Davies was Head of Corporate and Institutional Banking with HSBC Securities (USA) Inc. from 2004 to February 2007. From 2003 to 2004, he was Head of Client Service and Marketing, Global CIB with HSBC Bank plc, and from 2000 to 2003 he was Credit & Banking Services Director with First Direct, Leeds. Mr. Davies has held various senior officer positions in credit, treasury and retail and commercial banking since joining Midland Bank plc, now known as HSBC Bank plc, in 1985.

C. Mark Gunton, Senior Executive Vice President, Chief Risk Officer of HSBC USA and HSBC North America Holdings Inc. since January 2009. He is responsible for all Risk functions in North America, including Credit Risk, Operational Risk and Market Risk, as well as the enterprise-wide implementation of Basel II. Prior to January 2009, he served as Chief Risk Officer, HSBC Latin America. Mr. Gunton joined HSBC in 1977 and held numerous HSBC risk management positions including: Director of International Credit for Trinkaus and Burkhardt; General Manager of Credit and Risk for Saudi British Bank; and Chief Risk Officer, HSBC Mexico. He also managed a number of risk related projects for HSBC, including the implementation of the Group Basel II risk framework.

Mark A. Hershey, Senior Executive Vice President & Chief Credit Officer since May 2007. Prior to this appointment, Mr. Hershey was Senior Executive Vice President, Co-Head Chief Credit Officer, from February to May 2007, and previously Senior Executive Vice President, Commercial Banking from 2005 to 2007, and Executive Vice President, Commercial Banking from 2000 to 2005. Mr. Hershey was a senior officer of Republic National Bank of New York when it was acquired by HSBC in December 1999.

Eric L. Larson, Senior Executive Vice President & Chief Compliance Officer since January 2011. Prior to joining HSBC he was Head of Legal, Compliance & Assurance for Standard Chartered Bank from 2007 through January 2011. Previously he was Senior Counsel, Compliance Director, for Willis, N.A. from 2003 to 2006. From 2000 to 2003, he worked for Citigroup where he held positions as Chief Compliance Officer, Citigroup Emerging Markets - Consumer and Corporate Banking, General Counsel for Investments and Insurance and General Counsel for Primerica Financial Services. Prior to that he was Regional Counsel for Prudential Securities from 1994 to 1995, and a Legal Officer with Smith Barney from 1982 to 1994.

Kevin R. Martin, Senior Executive Vice President, Personal Financial Services and Marketing since September 2009, after serving as Executive Vice President, Personal Financial Services from November 2008 to September 2009. From 2007 to 2008, he was Executive Vice President, Head of Customer Marketing, and from 2004 to 2007, he was Senior Vice President, Head of Customer Marketing. From 1998 to 2004, he was Head of Personal Financial Services, HSBC Bank Australia Limited. From 1997 to 1998, he was Senior Manager, Personal Financial Services, HSBC Bank Canada. From 1994 to 1996, he was a Senior Corporate Banking Trainer for HSBC. Mr. Martin joined HSBC in 1987.

Mark Martinelli, Senior Executive Vice President, Chief Auditor since March 2007. He has also been the Chief Auditor of HSBC North America Holdings Inc. since November 2009. Prior to that time, Mr. Martinelli was President and Chief Executive Officer of hsbc.com from 2006 to 2007, and Chief Financial Officer of hsbc.com from 2002 to 2006. Mr. Martinelli joined HSBC USA as part of Republic National Bank of New York in 1991, and has held various senior officer positions in Audit, Planning and Finance. Prior to joining HSBC USA, he was a senior manager with the public accounting firm of KPMG LLP.

Patrick M. Nolan, Senior Executive Vice President, Head of Global Banking & Markets Americas since May 2010. Prior to that he was in the Global Banking and Markets division of HSBC Bank plc from 2004 to 2009, most recently as Global Head of Credit Lending from 2009 to May 2010, and previously as Managing Director, Head of Coverage Europe from 2008 to 2009, and Head of Corporate Banking UK from 2004 to 2008. From 2002 to 2004 he was Executive Vice President and Managing Director, Head of Corporate Finance and Advisory for HSBC Securities (Canada) Inc. He joined the HSBC Group in 1987 as an employee of Midland Bank plc.

Matthew Smith, Senior Executive Vice President, Head of Strategy and Planning since September 2009. Previously he was Senior Executive Vice President, Head of Network Strategy of HSBC North America from July 2008 to September 2009. Prior to that he was Chief Operating Officer, HSBC France from November 2005 to June 2008, and before that he was Regional Chief Operating Officer, HSBC Bank Middle East from January 2004 to November 2005. He joined HSBC in 1982 and has served in a number of international positions including international resourcing, retail banking and branch management. Currently, Mr. Smith serves on the board of the Council for Economic Education.

Jon R. Bottorff, Executive Vice President and Chief Financial Officer, Global Banking and Markets, USA since July 2010. Previously, he was Executive Vice President, Portfolio Management for HSBC North America Holdings Inc. and HSBC Finance Corporation from 2007 to July 2010. Previously he was Managing Director, Global Head of MBS/ABS Origination for the Global Banking and Markets division from 2003 to 2007. He joined HSBC in 2002 from Dresdner Kleinwort Wasserstein, where he was responsible for the North American term ABS and ABCP conduit activities. Prior to that he was Senior Vice President - Asset Securitization with ABN AMRO Bank.

Suzanne Brienza, Executive Vice President, Human Resources since November 2008. Senior Vice President, Group Human Resources Director from 2006 to 2008. From 2000 to 2006, Ms. Brienza was Managing Director-Human Resources, Global Private Bank-Americas. Previously, she held various roles in Human Resources since joining HSBC as part of Republic National Bank of New York in 1988. Prior to joining HSBC, she was a Human Resources manager for Citigroup from 1975 to 1987.

Michael Emerson, Executive Vice President and General Counsel since April 2010. Previously he was Managing Director and General Counsel for HSBC Securities (USA) Inc. from 2005 to April 2010. Prior to joining HSBC in 2005 he served as a lawyer with Credit Suisse First Boston from 1988 to 1990 and subsequently from 1992 to 2005, most recently as Managing Director and Deputy General Counsel. From 1990 to 1992 he was Vice President and Counsel for Bankers Trust Company. He was also an Associate with Cadwalader, Wickersham and Taft from 1986 to 1988 and with Sage, Gray, Todd and Simms from 1984 to 1986.

Eric K. Ferren, Executive Vice President and Chief Accounting Officer since July 2010. Mr. Ferren has also served as Executive Vice President and Controller of HSBC North America Holdings Inc. and as Executive Vice President and Chief Accounting Officer of HSBC Finance Corporation since July 2010. Prior to Mr. Ferren's appointment as Chief Accounting Officer, Mr. Ferren was responsible for several accounting areas across HSBC North America Holdings, Inc. and its subsidiaries. Prior to joining HSBC, Mr. Ferren was the Controller for UBS's North American Asset Management business from May 2005 to June 2006. Prior to that, Mr. Ferren was the Controller for Washington Mutual's Home Loans Capital Market's business and several finance roles within the Servicing business from January 2002 through May 2005. Prior to January 2002, Mr. Ferren was a Senior Manager at Ernst & Young LLP in Chicago where he focused on global banking, commercial banking, and securitizations. He is a Certified Public Accountant registered in the United States of America and a member of the American Institute of Certified Public Accountants.

Marlon Young, Managing Director, Private Banking Americas since October 2006. Mr. Young joined HSBC as Managing Director and Head of Domestic Private Banking for HSBC Bank USA in March 2006. He served as Managing Director and Head of Private Client Lending for Smith Barney from 2004 through 2006. Prior to that, Mr. Young held various positions with Citigroup from 1979, most recently as Managing Director and Head of Citigroup Private Bank (Northeast Region) from 2000 through 2004.

Corporate Governance

Board of Directors - Board Structure The business of HSBC USA is managed under the direction of the Board of Directors, whose principal responsibility is to enhance the long-term value of HSBC USA to HSBC. The affairs of HSBC USA are governed by the Board of Directors, in conformity with the Corporate Governance Standards, in the following ways:

•  providing input and endorsing business strategy formulated by management and HSBC;

•  providing input and approving the annual operating, funding and capital plans prepared by management;

• monitoring the implementation of strategy by management and HSBC USA's performance relative to approved operating, funding and capital plans;

• reviewing and advising as to the adequacy of the succession plans for the Chief Executive Officer and senior executive management;

•  reviewing and providing input to HSBC concerning evaluation of the Chief Executive Officer's performance;

•  reviewing and approving the Corporate Governance Standards and monitoring compliance with the standards;

• assessing and monitoring the major risks facing HSBC USA consistent with the Board of Director's responsibilities to HSBC; and

•  monitoring the risk management structure designed by management to ensure compliance with HSBC policies, ethical standards and business strategies.

The Board of Directors has determined that it is in the best interest of HSBC USA for the roles of the Chairman and Chief Executive Officer to be separated, and these positions are held by Mr. Booker and Ms. Dorner, respectively. As a member of the Board of Directors and Chief Executive Officer of HSBC North America, and a Group Managing Director of HSBC, Mr. Booker provides not only an HSBC North America perspective and guidance to the Board of Directors, but also a global strategic perspective to HSBC USA. These perspectives promote the broader global nature of HSBC USA's core businesses within HSBC and HSBC's particular strategic initiatives within North America. As Chief Executive Officer, Ms. Dorner provides in-depth knowledge of the specific operational strengths and challenges of HSBC USA.

Board of Directors - Committees and Charters The Board of Directors of HSBC USA has four standing committees: the Audit and Risk Committee, the Compliance Committee, the Executive Committee and the Fiduciary Committee. The charters of the Audit and Risk Committee, the Compliance Committee and the Fiduciary Committee, as well as our Corporate Governance Standards, are available on our website at www.us.hsbc.com or upon written request made to HSBC USA Inc., 26565 North Riverwoods Boulevard, Mettawa, Illinois 60045 Attention: Corporate Secretary. The Executive Committee does not have a separate charter and operates pursuant to authority granted in our Bylaws.

Audit and Risk Committee The Audit and Risk Committee is responsible, on behalf of the Board of Directors, for oversight and advice to the Board of Directors with respect to:

•  the integrity of HSBC USA's financial reporting processes and systems of internal controls over financial reporting;

•  compliance with legal and regulatory requirements that may have a material impact on our financial statements;

•  the qualifications, independence, performance and remuneration of the independent auditors;

•  HSBC USA's risk appetite, tolerance and strategy;

•  our systems of management, internal control and compliance to identify, measure, aggregate, control and report risk;

•  management of capital levels and regulatory ratios, related targets, limits and thresholds and the composition of our capital;

•  alignment of strategy with our risk appetite, as defined by the Board of Directors; and

• maintenance and development of a supportive risk management culture that is appropriately embedded through procedures, training and leadership actions so that all employees are alert to the wider impact on the whole organization of their actions and decisions.

The Audit and Risk Committee is currently comprised of the following independent directors (as defined by our Corporate Governance Standards, which are based upon the rules of the New York Stock Exchange): Robert K. Herdman (Chair), William R. P. Dalton, Anthea Disney, Louis Hernandez, Jr. and Richard A. Jalkut. The Board of Directors has determined that each of these individuals is financially literate. The Board of Directors has also determined that Mr. Herdman qualifies as an audit committee financial expert.

Compliance Committee The Compliance Committee was established in August 2010 to monitor and oversee corrective actions in HSBC Bank USA's compliance and anti-money laundering functions. The responsibilities and authority of the committee were expanded following the issuance of the consent cease and desist order with the OCC to include oversight of management with respect to the responsibilities and deliverables of the Board of Directors as specified in the order. In November and December 2010, the Board of Directors approved revisions to the Audit and Risk Committee charter to enhance oversight of the Compliance function and, in February 2011, delegated oversight of all compliance-related matters to the Compliance Committee. Pursuant to this delegated oversight, the Compliance Committee has the additional responsibilities, powers, direction and authorities to:

•  receive regular reports from the Chief Compliance Officer that enable the Committee to assess major compliance exposures and the steps management has taken to monitor and control such exposures, including the manner in which the regulatory and legal requirements of pertinent jurisdictions are evaluated and addressed;

•  approve the appointment and replacement of the Chief Compliance Officer and other statutory compliance officers (e.g., BSA Officer, Bank Security Officer) and review and approve the annual key objectives and performance review of the Chief Compliance Officer;

•  review the budget, plan, changes in plan, activities, organization and qualifications of the Compliance Department as necessary or advisable in the Committee's judgment;

• review and monitor the effectiveness of the Compliance Department and the Compliance Program, including testing and monitoring functions, and obtain assurances that the Compliance Department, including testing and monitoring functions, is appropriately resourced, has appropriate standing within the organization and is free from management or other restrictions;

• seek such assurance as it may deem appropriate that the Chief Compliance Officer participates in the risk management and oversight process at the highest level on an enterprise-wide basis; has total independence from individual business units; reports to the Compliance Committee and has internal functional reporting lines to the HSBC Head of Group Compliance; and has direct access to the Chairman of the Compliance Committee, as needed; and

•  upon request of the Board or the Audit and Risk Committee, provide the Board or the Audit and Risk Committee with negative assurance as to such regulatory and legal requirements as the Compliance Committee deems possible.

Robert K Herdman (Chair), Niall S. K. Booker, Irene M. Dorner, Anthea Disney and Richard A. Jalkut are members of the Compliance Committee.

Executive Committee The Executive Committee may exercise the powers and authority of the Board of Directors in the management of HSBC USA's business and affairs during the intervals between meetings of the Board of Directors. Richard A. Jalkut, Anthea Disney and Irene M. Dorner are members of the Executive Committee.

Fiduciary Committee The primary purpose of the Fiduciary Committee is to supervise the fiduciary activities of HSBC Bank USA to ensure the proper exercise of its fiduciary powers in accordance with 12 U.S.C. § 92a - Trust Powers of National Banks and related regulations promulgated by the Office of the Comptroller of the Currency, which define fiduciary activities to include serving traditional fiduciary duties, such as trustee, executor, administrator, registrar of stocks and bonds, guardian, receiver or assignee; providing investment advice for a fee; and processing investment discretion on behalf of another.

The duties and responsibilities of the Fiduciary Committee include ongoing evaluation and oversight of:

•  the proper exercise of fiduciary powers;

•  the adequacy of management, staffing, systems and facilities;

•  the adequacy of ethical standards, strategic plans, policies, and control procedures;

•  investment performance;

•  the adequacy of risk management and compliance programs as they relate to fiduciary activities; and

•  regulatory examination and internal and external audit reports of fiduciary activities.

Louis Hernandez, Jr. (Co-Chair) and Richard A. Jalkut (Co-Chair) are members of the Fiduciary Committee. All members of the Fiduciary Committee are independent directors under our Corporate Governance Standards.

Board of Directors - Director Qualifications HSBC and the Board of Directors believe a Board comprised of members from diverse professional and personal backgrounds who provide a broad spectrum of experience in different fields and expertise best promotes the strategic objectives of HSBC USA. HSBC and the Board of Directors evaluate the skills and characteristics of prospective Board members in the context of the current makeup of the Board of Directors. This assessment includes an examination of whether a candidate is independent, as well as consideration of diversity, skills and experience in the context of the needs of the Board of Directors, including experience as a chief executive officer or other senior executive or in fields such financial services, finance, technology, communications and marketing, and an understanding of and experience in a global business. Although there is no formal written diversity policy, the Board considers a broad range of attributes, including experience, professional and personal backgrounds and skills, to ensure there is a diverse Board. A majority of the non-executive Directors are expected to be active or retired senior executives of large companies, educational institutions, governmental agencies, service providers or non-profit organizations. Advice and recommendations from others, such as executive search firms, may be considered, as the Board of Directors deems appropriate.

The Board of Directors reviews all of these factors, and others considered pertinent by HSBC and the Board of Directors, in the context of an assessment of the perceived needs of the Board of Directors at particular points in time. Consideration of new Board candidates typically involves a series of internal discussions, development of a potential candidate list, review of information concerning candidates, and interviews with selected candidates. Under our Corporate Governance Standards, in the event of a major change in a Director's career position or status, including a change in employer or a significant change in job responsibilities or a change in the Director's status as an "independent director," the Director is expected to offer to resign. The Chairman of the Board, in consultation with the Chief Executive Officer and senior executive management, will determine whether to present the resignation to the Board of Directors. If presented, the Board of Directors has discretion after consultation with management to either accept or reject the resignation. In addition, the Board of Directors discusses the effectiveness of the Board and its committees on an annual basis, which discussion includes a review of the composition of the Board.

As set forth in our Corporate Governance Standards, while representing the best interests of HSBC and HSBC USA, each Director is expected to:

•  promote HSBC's brand values and standards in performing their responsibilities;

•  have the ability to spend the necessary time required to function effectively as a Director;

•  develop and maintain a sound understanding of the strategies, business and senior executive succession planning of HSBC USA;

•  carefully study all Board materials and provide active, objective and constructive participation at meetings of the Board and its committees;

•  assist in affirmatively representing HSBC to the world;

•  be available to advise and consult on key organizational changes and to counsel on corporate issues;

•  develop and maintain a good understanding of global economic issues and trends; and

•  seek clarification from experts retained by HSBC USA (including employees of HSBC USA) to better understand legal, financial or business issues affecting HSBC USA.

Under the Corporate Governance Standards, Directors have full access to senior management and other employees of HSBC USA. Additionally, the Board and its committees have the right at any time to retain independent outside financial, legal and other advisors, at the expense of HSBC USA.

Board of Directors - Risk Oversight by Board HSBC USA has a comprehensive risk management framework designed to ensure all risks, including credit, liquidity, interest rate, market, operational, reputational and strategic risk, are appropriately identified, measured, monitored, controlled and reported. The risk management function oversees, directs and integrates the various risk-related functions, processes, policies, initiatives and information systems into a coherent and consistent risk management framework. Our risk management policies are primarily implemented in accordance with the practices and limits by the HSBC Group Management Board. Oversight of all risks specific to HSBC USA commences with the Board of Directors, which has delegated principal responsibility for a number of these matters to the Audit and Risk Committee and the Compliance Committee.

Audit and Risk Committee As set forth in our Audit and Risk Committee charter, the Audit and Risk Committee has the responsibility, power, direction and authority to:

•  receive regular reports from the Chief Risk Officer that enable the Audit and Risk Committee to assess the risks involved in the business and how risks are monitored and controlled by management;

•  review and discuss with the Chief Risk Officer the adequacy and effectiveness of our risk management framework and related reporting;

•  advise the Board of Directors on all high-level risks;

•  approve with HSBC the appointment and replacement of the Chief Risk Officer (who also serves as the North America Regional Chief Risk Officer for HSBC);

•  review and approval the annual key objectives and performance review of the Chief Risk Officer;

•  seek appropriate assurance as to the Chief Risk Officer's authority, access, independence and reporting lines;

•  review the effectiveness of our internal control and risk management framework in relation to our core strategic objectives;

•  consider the risks associated with proposed strategic acquisitions or dispositions;

•  meet periodically with representatives of HSBC USA's Asset Liability Management Committee ("ALCO") to discuss major financial risk exposures and the steps management has taken to monitor and control such exposures;

•  review with senior management the process for identifying material tax issues, uncertain tax positions and the adequacy of related reserves; and

•  review with senior management guidelines and policies to govern the process for assessing and managing various risk topics, including regulatory compliance risk, litigation risk and reputation risk.

At each quarterly Audit and Risk Committee meeting, the Chief Risk Officer makes a presentation to the committee describing key risks for HSBC USA, including operational and internal controls, market, credit, information security, capital management, liquidity and litigation. In addition the head of each Risk functional area is available to provide the Audit and Risk Committee a review of particular potential risks to HSBC USA and management's plan for mitigating these risks.

HSBC USA maintains a Risk Management Committee that provides strategic and tactical direction to risk management functions throughout HSBC USA, focusing on: credit, funding and liquidity, capital, market, operational, security, fraud, reputational and compliance risks. The Risk Management Committee is comprised of the function heads of each of these areas, as well as other control functions within the organization. Irene Dorner, the Chief Executive Officer and a Director, is the Chair of this committee. On an annual basis, the Board reviews the Risk Management Committee's charter and framework. ALCO, the Operational Risk & Internal Control Committee (the "ORIC Committee"), the Fiduciary Risk Management Committee and the HSBC USA Disclosure Committee report to the Risk Management Committee and, together, define the risk appetite, policies and limits; monitor excessive exposures, trends and effectiveness of risk management; and promulgate a suitable risk management culture, focused within the parameters of their specific areas of risk.

ALCO provides oversight and strategic guidance concerning the composition of the balance sheet and pricing as it affects net interest income. It establishes limits of acceptable risk and oversees maintenance and improvement of the management tools and framework used to identify, report, assess and mitigate market, interest rate and liquidity risks.

The ORIC Committee is responsible for oversight of the identification, assessment, monitoring, appetite for, and proactive management and control of, operational risk for HSBC USA, which is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The ORIC Committee is designed to ensure that senior management fully considers and effectively manages our operational risk in a cost-effective manner so as to reduce the level of operational risk losses and to protect the organization from foreseeable future operational losses.

The Fiduciary Risk Management Committee is responsible for oversight of all fiduciary activities within HSBC USA.

The HSBC USA Disclosure Committee is responsible for maintenance and evaluation of our disclosure controls and procedures and for assessing the materiality of information required to be disclosed in periodic reports filed with the SEC. Among its responsibilities is the review of quarterly certifications of business and financial officers throughout HSBC USA as to the integrity of our financial reporting process, the adequacy of our internal and disclosure control practices and the accuracy of our financial statements.

Compliance Committee The responsibilities, powers, direction and authorities of the Compliance Committee are set forth above under "Board of Directors - Committees and Charters - Compliance Committee." In support of these responsibilities, HSBC Bank USA maintains an Executive Compliance Steering Committee, which is a management committee established to provide overall strategic direction and oversight to HSBC Bank USA's response to the consent cease and desist order issued by the OCC and significant HSBC Bank USA compliance issues. Irene Dorner, the Chief Executive Officer and a Director, is the Chair of this committee, the membership of which also includes the heads of our business segments, our Chief Compliance Officer and senior management of our Compliance, Legal and other control functions. The Executive Compliance Steering Committee reports to both the Compliance Committee of the Board of Directors and the HSBC North America Holdings Inc. Executive Compliance Steering Committee, which serves a similar role for HSBC North America with respect to both the consent cease and desist orders issued by the Federal Reserve and the OCC. The Executive Compliance Steering Committee is supported by the HSBC North America Project Management Office, which is a management committee established as the HSBC North America Regional Compliance Officer's forum for developing and overseeing the response to the consent cease and desist orders. This committee defines deliverables, provides ongoing direction to project teams, approves all regulatory submissions and prepares materials for presentation to the Board of Directors. The Project Steering Committee also provides oversight to individual project managers, compliance and BSA/AML subject matter experts, and external consultants to ensure Federal Reserve and OCC deliverables are met.

For further discussion of risk management generally, see the "Risk Management" section of the MD&A.

Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires certain of our Directors, executive officers and any persons who own more than 10 percent of a registered class of our equity securities to report their initial ownership and any subsequent change to the SEC and the New York Stock Exchange ("NYSE"). With respect to the issues of HSBC USA preferred stock outstanding, we reviewed copies of all reports furnished to us and obtained written representations from our Directors and executive officers that no other reports were required. Based solely on a review of copies of such forms furnished to us and written representations from the applicable Directors and executive officers, all required reports of changes in beneficial ownership were filed on a timely basis for the 2010 fiscal year.

Code of Ethics HSBC USA has adopted a Code of Ethics that is applicable to its chief executive officer, chief financial officer, chief accounting officer and controller, which Code of Ethics is incorporated by reference in Exhibit 14 to this Annual Report on Form 10-K. HSBC USA also has a general code of ethics applicable to all employees, which is referred to as its Statement of Business Principles and Code of Ethics. That document is available on our website at www.us.hsbc.com or upon written request made to HSBC USA Inc., 26525 North Riverwoods Boulevard, Mettawa, Illinois 60045, Attention: Corporate Secretary.

Item 11. Executive Compensation

Compensation Discussion and Analysis

The following compensation discussion and analysis (the "2010 CD&A") summarizes the principles, objectives and factors considered in evaluating and determining the compensation of HSBC USA's executive officers in 2010. Specific compensation information relating to HSBC USA's Chief Executive Officer (the "HSBC USA CEO"), Chief Financial Officer, former Chief Financial Officer, and the next three most highly compensated executives is contained in this portion of the Form 10-K (these officers are referred to collectively as the "Named Executive Officers").

Oversight of Compensation Decisions The Board of Directors of HSBC USA did not play a role in establishing remuneration policy or determining executive officer compensation for 2010 or any of the comparative periods discussed in this 2010 CD&A.

Role of HSBC's Remuneration Committee and HSBC CEO The Board of Directors of HSBC Holdings plc ("HSBC") has the authority to delegate any of its powers, authorities and judgments to any committee consisting of one or more directors and has established a Remuneration Committee ("REMCO") which meets regularly to consider Human Resources issues, particularly terms and conditions of employment, remuneration and retirement benefits. Within the authority delegated by the HSBC Board, REMCO is responsible for approving the remuneration policy of HSBC, including the terms of bonus plans, share plans and other long-term incentive plans and for agreeing to the individual remuneration packages for the most senior HSBC executives, generally those having an impact on HSBC's risk profile ("senior executives").

As an indirect wholly owned subsidiary of HSBC, HSBC USA is subject to the remuneration policy established by HSBC, and the Chief Executive Officer of HSBC USA is one of the senior executives whose compensation is reviewed and endorsed by REMCO. Unless an executive is a "senior executive" as described above, REMCO delegates its authority for endorsement of base salaries and annual cash incentive awards to Stuart T. Gulliver, the HSBC Group Chief Executive ("Mr. Gulliver"). Pursuant to a further delegation of authority from Mr. Gulliver, Samir Assaf ("Mr. Assaf"), the Chief Executive for Global Banking and Markets, has approval authority over executives within the Global Banking and Markets businesses and Patrick Nolan ("Mr. Nolan") has approval authority over executives within the Global Banking and Markets Americas business. As the Chief Executive Officer of HSBC North America, Niall Booker ("Mr. Booker") has oversight and recommendation responsibility for HSBC North America and its subsidiaries, including HSBC USA, but he shares oversight and recommendation responsibility with Mr. Nolan for the Global Banking and Markets businesses of HSBC USA in North America. As of January 1, 2010, Ms. Irene M. Dorner ("Ms. Dorner") is the Chief Executive Officer of HSBC USA.

The members of REMCO are J L Thornton (Chairman), J D Coombe, W S H Laidlaw and G Morgan. All REMCO members are non-executive directors of HSBC. REMCO received independent advice on executive compensation issues from Deloitte LLP and compensation data from Towers Watson during the year.

Role of HSBC USA's Senior Management In February 2010, Michael F. Geoghegan ("Mr. Geoghegan"), the former HSBC Group Chief Executive, reviewed the recommendation for 2009 total compensation for Ms. Dorner in her former role as Deputy Chairman and CEO of HSBC Bank Malaysia Berhad. The recommendation was submitted to and endorsed by REMCO. Mr. Geoghegan also reviewed the 2009 total compensation recommendation provided by Mr. Paul J. Lawrence, the former Chief Executive Officer of HSBC USA, with respect to Mr. Davies, whose recommendation was developed in conjunction with HSBC's Executive Director and Chairman for Group Personal Financial Services and Commercial Banking and HSBC's Group Managing Director of Human Resources. In addition, Brendan McDonagh ("Mr. McDonagh"), the former Chief Executive Officer of HSBC North America, reviewed the 2009 total compensation recommendation with respect to Mr. Gunton with HSBC's Group Managing Director of Human Resources. Furthermore, Mr. McDonagh reviewed the 2009 total compensation for Messrs. Mattia and Young, whose recommendations were developed in consultation with HSBC's Chief Executive for Global Banking and Markets.

In February 2011, Mr. Gulliver reviewed the recommendation for total 2010 compensation for Ms. Dorner as provided by Mr. Booker in consultation with HSBC's Group Managing Director of Human Resources. Further, Mr. Gulliver also reviewed the 2010 total compensation recommendation provided by Ms. Dorner with respect to Mr. Davies, whose recommendation was developed in conjunction with HSBC's Executive Director and Chairman for Group Personal Financial Services and Commercial Banking and HSBC's Group Managing Director of Human Resources. All recommendations reviewed by Mr. Gulliver were then submitted to REMCO for endorsement. Mr. Booker reviewed the 2010 total compensation recommendations, in consultation with Ms. Dorner, with respect to Messrs. McGinnis, Gunton and Young.

The total compensation review included year-over-year comparison for individual executives, together with comparative competitor information. For the Named Executive Officers, excluding Mr. McGinnis, comparative competitor information was provided by Towers Watson based on a "Comparator Group" which is comprised of both U.S.-based organizations and our global peers with comparable business operations located within U.S. borders. Most of these organizations are publicly held companies that compete with us for business, customers and executive talent. The Comparator Group is reviewed annually with the assistance of Towers Watson. Accordingly, our compensation program is designed to provide the flexibility to offer compensation that is competitive with the Comparator Group so that we may attract and retain the highest performing executives. The Comparator Group for 2010 consisted of:

Global Peers	U.S.-Based Organizations
Bank of America	American Express
Barclays	Capital One Financial
BNP Paribas	Fifth Third Bancorp
Citigroup	PNC Bank
Deutsche Bank	Regions Bank
JPMorgan Chase	Suntrust
Santander	US Bancorp
Standard Chartered	Wells Fargo
UBS

The total compensation review for Mr. McGinnis included comparative competitor information based on broader financial services industry data and general industry data. This data was compiled from compensation surveys prepared by third-party consulting firms Hewitt, McLagan, Mercer and Towers Watson.

Comparative competitor information was provided to Messrs. Gulliver and Booker to evaluate the competitiveness of proposed executive compensation. As the determination of the variable pay awards relative to 2010 performance considered the overall satisfaction of objectives that could not be evaluated until the end of 2010, the final determination on total 2010 compensation was not made until February 2011. Common objectives for the Named Executive Officers included: improvement in cost efficiency; enhancement in customer service; decrease in operational losses; and increase in employee engagement. Each Named Executive Officer also had other individual financial, process, customer focus and employee related objectives specific to his or her role. To make that evaluation, Messrs. Gulliver and Booker received reports from management concerning satisfaction of 2010 corporate, business unit and individual objectives, as more fully described below. REMCO, Mr. Gulliver or Mr. Booker, as appropriate, approved or revised the original recommendations.

Compensation and Performance Management Governance Sub-Committee In 2010, HSBC North America established the Compensation and Performance Management Governance Sub-Committee ("CPMG Sub-Committee") under the existing HSBC North America Human Resources Steering Committee. The CPMG Sub-Committee was created to provide a more systematic approach to incentive compensation governance and ensure the involvement of the appropriate levels of leadership, while providing a comprehensive view of compensation practices and associated risks. The CPMG Sub-Committee is comprised of senior executive representatives from HSBC North America's control functions, consisting of Risk, Compliance, Legal, Finance, Audit, and Human Resources. The CPMG Sub-Committee has responsibility for oversight of compensation for covered populations (those employees identified as being capable of exposing HSBC USA to excessive risk taking); compensation related regulatory and audit findings and recommendations related to such findings; incentive plan review; review of guaranteed bonuses, sign-on bonuses and equity grants, including any exceptions to established policies; and recommendations to REMCO of clawback of previous grants of incentive compensation based on actual results and risk outcomes. Additionally, compensation processes for employees are evaluated by the CPMG Sub-Committee to ensure adequate controls are in place, while reinforcing the performance expectations for employees. The CPMG Sub-Committee makes recommendations to REMCO based on reviews of the total compensation for employees. The CPMG Sub-Committee held two formal meetings and one informal meeting in 2010, as well as one formal meeting in February 2011.

Role of Compensation Consultants In 2010, REMCO retained Towers Watson to perform executive compensation services with regard to the highest level executives in HSBC, including the Named Executive Officers with the exception of Mr McGinnis. Specifically, Towers Watson was requested to provide REMCO with market trend information for use during the annual pay review process and advise REMCO as to the competitive position of HSBC's total direct compensation levels in relation to its peers. The aggregate fee paid to Towers Watson for services provided was $475,000. While the fee for services provided was paid by HSBC, the amount that may be apportioned to HSBC USA is approximately $23,300.

Separately, the management of HSBC North America retained Towers Watson to perform non-executive compensation consulting services. The aggregate fee paid to Towers Watson by HSBC North America for these other services was $642,284.

Objectives of HSBC USA's Compensation Program HSBC USA's compensation program is based upon the specific direction of HSBC management and REMCO in support of the implementation of an HSBC uniform compensation philosophy, by employing common standards and practices throughout HSBC's global operation. A global reward strategy for HSBC was approved by REMCO in November 2007. This strategy provides a framework for REMCO in carrying out its responsibilities and includes the following elements as applied to HSBC USA:

•  A focus on total compensation (base salary, variable cash and long-term equity incentives) with the level of variable pay (namely, variable cash and the value of long-term equity incentives) differentiated by performance;

•  An assessment of reward with reference to clear and relevant objectives set within a balanced scorecard framework. This framework facilitates a rounded approach to objective setting. Under this framework, objectives are established under four categories - financial, process (including risk mitigation), customer and people. The individual financial objectives are established considering prior year's business performance, expectations for the upcoming year for business and individual goals, HSBC USA's annual business plan, HSBC's business strategies, and objectives related to building value for HSBC shareholders. Process objectives include consideration of risk mitigation and achievement of sustainable cost reductions. Customer objectives include standards for superior service and responsiveness and enhancement of HSBC's brand. People objectives include employee engagement measures, development of skills and knowledge of our teams to sustain HSBC over the short and medium term and retention of key talent. Certain objectives have quantitative standards that may include meeting designated financial performance targets for the company or the executive's respective business unit and increasing employee engagement metrics. Qualitative objectives may include key strategic business initiatives or projects for the executive's respective business unit. For 2010, HSBC USA's qualitative objectives included implementation of systematic processes to support key financial reporting and risk management controls, and improvements to customer experience. Each Named Executive Officer was evaluated against his or her respective individual objectives in each of these areas. Quantitative and qualitative objectives only provide some guidance with respect to 2010 compensation. Furthermore, in keeping with HSBC's compensation strategy, discretion played a considerable role in establishing the variable pay awards for HSBC USA's senior executives;

•  The use of considered discretion to assess the extent to which performance has been achieved, rather than applying a formulaic approach which, by its nature, may encourage inappropriate risk taking and cannot consider results not necessarily attributable to the executive and is inherently incapable of considering all factors affecting results. In addition, environmental factors and strategic organizational goals that would otherwise not be considered by applying absolute financial metrics may be taken into consideration. While there are specific quantitative goals as outlined above, achievement of one or all of the objectives are just considerations in the final reward decision;

•  Delivery of a significant proportion of variable pay in deferred HSBC shares to align recipient interests to the future performance of HSBC and to retain key talent; and

•  A total compensation package (base salary, variable cash, long-term equity incentives and other benefits) that is competitive in relation to comparable organizations in each of the markets in which HSBC operates.

REMCO also takes into account environmental, social and governance aspects when determining executive officers' remuneration and oversees senior management incentive structures to ensure that such structures take into account possible inadvertent consequences from these aspects.

Internal Equity HSBC USA's executive officer compensation is analyzed internally at the direction of HSBC's Group Managing Director of Human Resources with a view to align treatment globally and across business lines and functions, taking into consideration individual responsibilities, size and scale of the businesses the executives lead, and contributions of each executive, along with geography and local labor markets. These factors are then calibrated for business and individual performance within the context of their business environment against their respective comparator group.

Link to Company Performance HSBC's compensation plans are designed to motivate its executives to improve the overall performance and profitability of HSBC as well as the specific region, unit or function to which they are assigned. Each executive's individual performance and contribution is considered in determining the amount of discretionary variable pay to be paid in cash and in long-term equity incentive awards each year.

HSBC seeks to offer competitive base salaries with a significant portion of variable compensation components determined by measuring overall performance of the executive, his or her respective business unit, legal entity and HSBC overall. The discretionary variable pay awards are based on individual and business performance, as more fully described under Elements of Compensation - Annual Discretionary Variable Cash Awards and Elements of Compensation - Long-term Equity Incentive Awards, emphasizing efficiency, profits and key financial and non-financial performance measures.

Competitive Compensation Levels and Benchmarking HSBC USA endeavors to maintain a compensation program that is competitive but utilizes the complete range of total compensation received by similarly-situated executives in our Comparator Group. Executives may be rewarded with higher levels of compensation for differentiated performance.

When making compensation decisions, HSBC looks at the compensation paid to similarly-situated executives in our Comparator Group, a practice referred to as "benchmarking." Benchmarking provides a point of reference for measurement, but does not replace analyses of internal pay equity and individual performance of the executive officers that HSBC also considers when making compensation decisions.

The comparative compensation information is just one of several data points used in making compensation decisions. Mr. Booker, Ms. Dorner and Mr. Nolan also exercise judgment and discretion in recommending executive compensation packages. We have a strong orientation to use variable pay to pay for performance. Consequently, variable pay makes up a significant proportion of total compensation, while maintaining an appropriate balance between fixed and variable elements. Actual compensation paid will increase or decrease based on the executive's individual performance and business results.

Elements of Compensation The primary elements of executive compensation, which are described in further detail below, are base salary ("fixed pay") and annual discretionary variable pay awards ("variable pay") paid in cash and in share deferrals that vest based upon continued employment.

In addition, executives are eligible to receive company funded retirement benefits that are offered to employees at all levels who meet the eligibility requirements of such qualified and non-qualified plans. Although perquisites are provided to certain executives, they typically are not a significant component of compensation.

Base Salary Base salary helps HSBC attract and retain executive talent. It provides a degree of financial certainty and is less subject to risk than most other pay elements. In establishing individual executive salary levels, consideration is given to market pay, as well as the specific responsibilities and experience of the Named Executive Officer. Base salary is reviewed annually and may be adjusted based on performance and changes in the competitive market. When establishing base salaries for executives, consideration is given to compensation paid for similar positions at companies included in the Comparator Group, targeting the 50th percentile. Other factors such as potential for future advancement, specific job responsibilities, length of time in current position, individual pay history, and comparison to comparable internal positions (internal equity) influences the final base salary recommendations for individual executives. Salary increases proposed by senior management are prioritized towards high performing employees and those who have demonstrated rapid development. Additionally, consideration is given to maintaining an appropriate ratio between fixed pay and variable pay as components of total compensation.

Annual Discretionary Variable Cash Awards Annual discretionary variable cash awards vary from year to year and are offered as part of the total compensation package to Named Executive Officers to motivate and reward strong performance. In limited circumstances, annual discretionary variable cash awards may be granted in the form of deferred cash, which the employee will become fully entitled to over a three year vesting period. Superior performance is encouraged by placing a part of the executive's total compensation at risk. In the event certain quantitative or qualitative performance goals are not met, cash awards may be reduced or not paid at all.

Long-term Equity Incentive Awards Long-term awards are made in the form of equity-based compensation, including stock options, restricted shares, and restricted share units. The purpose of equity-based compensation is to help HSBC attract and retain outstanding employees and to promote the growth and success of HSBC USA's business over a period of time by aligning the financial interests of these employees with those of HSBC's shareholders. Historically, prior to 2005, equity awards were primarily made in the form of stock options within the retail businesses and both options and restricted share grants in the wholesale businesses. The stock options have a "total shareholder return" performance vesting condition and only vested, subject to continued employment, if and when the condition was satisfied. No stock options have been granted to executive officers after 2004.

In 2005, HSBC shifted its equity-based compensation awards to restricted shares ("Restricted Shares") with a time vesting condition, in lieu of stock options. Dividend equivalents are paid or accrue on all underlying share or share unit awards at the same rate paid to ordinary shareholders. Starting in 2009, units of Restricted Shares ("Restricted Share Units") have been awarded as the long-term incentive or deferred compensation component of variable discretionary pay. The Restricted Shares and Restricted Share Units granted by HSBC also carry rights over dividend equivalents.

Restricted Share awards comprise a number of shares to which the employee will become fully entitled, generally over a three year vesting period, subject to the individual remaining in employment. The amount granted is based on general guidelines reviewed each year by Mr. Gulliver and endorsed by REMCO and in consideration of the individual executive's total compensation package, individual performance, goal achievement and potential for growth.

Reduction or Cancellation of Restricted Share Units and Deferred Cash Awards, including "Clawbacks" Restricted Share Units granted after January 1, 2010 and deferred cash granted after January 1, 2011 may be amended, reduced or cancelled by REMCO at any time at its sole discretion, before an award has vested. Amendments may include amending any performance conditions associated with the award or imposing additional conditions on the award. Further, the number of Restricted Share Units or the amount of deferred cash awarded may be reduced or the entire award of shares or cash may be cancelled outright.

Circumstances which may prompt such action by REMCO include, but are not limited to: participant conduct considered to be detrimental or bringing the business into disrepute; evidence that past performance was materially worse than originally understood; prior financial statements are materially restated, corrected or amended; or evidence that the employee or the employee's business unit engaged in improper or inadequate risk analysis or failed to raise related concerns.

Additionally, all employees with unvested share awards or awards subject to a retention period will be required to certify annually that they have not used personal hedging strategies or remuneration contracts of insurance to mitigate the risk alignment of the unvested awards.

Perquisites HSBC USA's philosophy is to provide perquisites that are intended to help executives be more productive and efficient or to protect HSBC USA and its executives from certain business risks and potential threats. Our review of competitive market data indicates that the perquisites provided to executives are reasonable and within market practice. Perquisites are generally not a significant component of compensation, except as described below.

Ms. Dorner and Messrs. Gunton and Davies participated in general benefits available to executives of HSBC USA and certain additional benefits and perquisites available to executives on international assignments. Compensation packages for international assignees are modeled to be competitive globally and within the country of assignment, and attractive to the executive in relation to the significant commitment that must be made in connection with a global posting. The additional benefits and perquisites that were significant when compared to other compensation received by other executive officers of HSBC USA can consist of housing expenses, children's education costs, car allowance, travel expenses and tax equalization. These benefits and perquisites are, however, consistent with those paid to similarly-situated international assignees who are subject to appointment to HSBC locations globally as deemed appropriate by HSBC senior management. The additional perquisites and benefits are further described in the Summary Compensation Table.

Retirement Benefits HSBC North America offers a defined benefit retirement plan in which HSBC USA executives may participate that provides a benefit equal to that provided to all eligible employees of HSBC USA with similar dates of hire. At present, both qualified and non-qualified defined benefit plans are maintained so that the level of pension benefit may be continued without regard to certain Internal Revenue Service limits. We also maintain a qualified defined contribution plan with a 401(K) feature and company matching contributions. Executives and certain other highly compensated employees can elect to participate in a non-qualified deferred compensation plan, in which such employees can elect to defer the receipt of earned compensation to a future date. HSBC USA does not pay any above-market or preferential interest in connection with deferred amounts. As international assignees, Ms. Dorner and Messrs. Gunton and Davies are accruing pension benefits under foreign-based defined benefit plans. Additional information concerning these plans is contained below in this 2010 CD&A in the table entitled "Pension Benefits."

Mix of Elements of Compensation HSBC and its subsidiary HSBC USA aim to have a compensation policy that adheres to the governance initiatives of all relevant regulatory bodies and appropriately considers the risks associated with elements of total compensation. As such, multiple efforts were made in 2010 to ensure that the total compensation of the Named Executive Officers reflected an appropriate ratio between fixed pay and variable pay as elements of total compensation.

Salary increases proposed by senior management are generally prioritized towards high performing employees and those who have demonstrated rapid development. In 2010, salaries were reviewed and management determined that, in most instances, the market did not warrant adjustments to the salaries of the Named Executive Officers, except in the case of Mr. McGinnis. Mr. McGinnis received a base salary increase from $400,000 to $440,000 effective July 12, 2010, upon his appointment as Chief Financial Officer.

During 2010, HSBC completed a rebalancing of total compensation, which shifted a portion of total compensation from variable pay to fixed pay for certain executives. The rebalancing decreases the degree of leverage inherent to the delivery of total compensation. Rebalance adjustments were effective June 28, 2010, and pro-rated portions of the rebalance adjustments are reflected in the Base Salary column in the Summary Compensation Table. As a result of the rebalancing, Ms. Dorner received an increase in her annual base salary from $450,000 to $700,000, Mr. Young received an increase in his annual base salary from $375,000 to $500,000, and Mr. Davies received an increase in his annual base salary from $325,000 to $390,000. Mr. Mattia also received a rebalance adjustment, and a portion of his rebalance adjustment, pro-rated for his time as an executive officer of HSBC USA, is reflected in the Base Salary column in the Summary Compensation Table.

Further, variable pay awarded to most employees in respect of 2010 performance is subject to deferral requirements under the 2010 HSBC Minimum Deferral Policy, which requires 10% to 50% of variable pay be awarded in the form of Restricted Share Units for HSBC USA that are subject to a three year vesting period. The deferral percentage increases in a graduated manner in relation to the total variable pay awarded. Generally, amounts paid in respect of the rebalancing activity to employees during 2010 are regarded as fixed pay (i.e., base salary) and are not taken into account for the purposes of applying the deferral rates for the 2010 performance year.

Some executives, however, are subject to a different set of deferral requirements because they are designated as Code Staff ("Code Staff"), as defined by the United Kingdom's Financial Services Authority ("FSA") Remuneration Code ("the Code"). HSBC USA, as a subsidiary of HSBC, must have remuneration practices for executive officers comply with the Code, which requires firms to identify Code Staff employees. Code Staff are defined as all employees that have a material impact on the firm's risk profile, including individuals who perform significant influence functions for a firm, executives, senior managers, and risk takers, as defined by the Code.

Variable pay awarded to Code Staff in respect of 2010 performance is subject to different deferral rates under the 2010 HSBC Minimum Deferral Policy than other employees. Variable pay awards in excess of $750,000 are subject to a 60% deferral rate. For HSBC USA, the deferrals are split equally between deferred cash and Restricted Share Units. Thirty-three percent (33%) of the deferred cash and Restricted Shares Units vest on the first anniversary of the grant date, thirty-three percent (33%) on the second anniversary, and the thirty-four percent (34%) on the third anniversary of the grant date. Restricted Share Units are subject to an additional six-month retention period upon becoming vested, with provision made for the release of shares as required to meet associated income tax obligations. The deferred cash is credited with a notional return, basis and rate as approved by REMCO. For HSBC USA, amounts not deferred are also split equally between non-deferred cash and shares. Non-deferred share awards granted are immediately vested, yet subject to a six-month retention period with a provision made for the release of shares as required to meet associated income tax obligations. Amounts paid in respect of the rebalancing exercise to Code Staff employees during 2010 are regarded as variable pay and are included in the application of the deferral rates appropriate for Code Staff for the 2010 performance year.

During 2010, Ms. Dorner was identified as Code Staff and had her total compensation rebalanced. As a result of the rebalancing, Ms. Dorner received an incremental amount of $104,167 in December 2010 to account for her rebalancing adjustment for the prior five months. Ms. Dorner also earned a variable pay award of $1,530,000 for performance in 2010 and was awarded with an additional $95,000 CEO Award for performance demonstrated during the year. The 60% deferral rate was applied to the sum of Ms. Dorner's variable pay award, the CEO Award and the incremental amount paid during 2010 in relation to the rebalancing. Therefore, $518,750 was granted in the form of deferred cash, and $518,750 was deferred in the form of Restricted Share Units. The remaining 40% of Ms. Dorner's variable pay was delivered in equal parts non-deferred cash ($345,833) and immediately-vested shares ($345,833). Of the $345,833 in non-deferred cash to be paid currently, $104,167 was delivered during the rebalancing in 2010 and the $241,667 remaining cash payment will be made on March 25, 2011.

During 2010, Mr. Young was also identified as Code Staff and had his total compensation rebalanced. As a result of the rebalancing, Mr. Young' received an incremental amount of $52,083 in December 2010 to account for his rebalancing adjustment for the prior five months. Mr. Young also earned a variable pay award of $1,187,500 for performance in 2010. The 60% deferral rate was applied to the sum of Mr. Young's variable pay award and the incremental amount paid during 2010 in relation to the rebalancing. Therefore, $371,875 was granted in the form of deferred cash, and $371,875 was deferred in the form of Restricted Share Units. The remaining 40% of Mr. Young's variable pay was delivered in equal parts non-deferred cash ($247,917) and immediately-vested shares ($247,917). Of the $247,917 in non-deferred cash to be paid currently, $52,083 was delivered during the rebalancing in 2010 and the $195,833 remaining cash payment will be made on March 25, 2011.

Messrs. McGinnis, Gunton, and Davies are not recognized as Code Staff employees and are not subject to the deferral rates applicable only to Code Staff. Under the 2010 HSBC Minimum Deferral Policy applicable to those not recognized as Code Staff, Messrs. McGinnis, Gunton, and Davies each will receive 35%, 35% and 40%, respectively, in Restricted Share Units as a percent of their total variable pay award for performance in 2010. Because he is not recognized as Code Staff, the amount paid to Mr. Davies in respect of the rebalancing exercise is not regarded as variable pay and is not included in the application of the deferral rates for the 2010 performance year.

Non-deferred share awards granted are immediately vested, although subject to a six-month retention period with a provision made for the release of shares as required to meet associated tax obligations. Non-deferred cash awarded for 2010 performance will be paid on March 25, 2011. Deferred cash and deferred Restricted Share Units will be granted on March 15, 2011.

For most HSBC USA executives, including executives in our Global Banking & Markets segment, variable pay recommendations for 2010 performance were higher than in 2009. Increases in variable pay recommendations were driven by HSBC USA's financial performance in 2010, which exceeded planned expectations. HSBC USA's results were complimented by strong performance in the Commercial Banking, Personal Financial Services and Private Bank businesses. We believe the strength of our strategic objectives and the direction of our executive officers are united to support HSBC's interests and that of HSBC's shareholders. Recommended variable pay awards for HSBC USA were approved to be awarded to Ms. Dorner and each of the other Named Executive Officers, except for Mr. Mattia since he was not an executive officer of HSBC USA at the end of December 31, 2010.

Employment Contracts and Severance Protection There are no employment agreements between HSBC USA and its executive officers.

The HSBC-North America (U.S.) Severance Pay Plan and the HSBC-North America (U.S.) Supplemental Severance Pay Plan provide any eligible employees with severance pay for a specified period of time in the event that his or her employment is involuntarily terminated for certain reasons, including displacement or lack of work or rearrangement of work. Regular U.S. full-time or part-time employees who are scheduled to work 20 or more hours per week are eligible. Employees are required to sign an employment release as a condition for receiving severance benefits. Benefit amounts vary according to position. However, the benefit is limited for all employees to a 52-week maximum.

Repricing of Stock Options and Timing of Option Grants For HSBC equity option plans, the exercise price of awards made in 2003 and 2004 was the higher of the average market value for HSBC ordinary shares on the five business days preceding the grant date or the market value on the date of the grant.

HSBC also offers all employees a stock purchase plan in which options to acquire HSBC ordinary shares are awarded when an employee commits to contribute up to 250 GBP (or approximately $400) each month for one, three or five years under its Sharesave Plan. At the end of the term, the accumulated amount, plus interest, if any, may be used to purchase shares under the option, if the employee chooses to do so. The exercise price for each such option is the average market value of HSBC ordinary shares on the five business days preceding the date of the invitation to participate, less a 15 to 20 percent discount (depending on the term).

HSBC USA does not, and our parent, HSBC, does not, reprice stock option grants. In addition, neither HSBC USA nor HSBC has ever engaged in the practice known as "back-dating" of stock option grants, nor have we attempted to time the granting of historical stock options in order to gain a lower exercise price.

Dilution from Equity-Based Compensation While dilution is not a primary factor in determining award amounts, there are limits to the number of shares that can be issued under HSBC equity-based compensation programs. These limits, more fully described in the various HSBC Share Plans, were established by vote of HSBC's shareholders.

Accounting Considerations We account for all of our stock-based compensation awards including share options, Restricted Share and Restricted Share Unit awards and the employee stock purchase plan, using the fair value method of accounting under Financial Accounting Standards Board's Accounting Standards Codification 718 ("FASB ASC 718").

The fair value of the rewards granted is recognized as expense over the vesting period. The fair value of each option granted, measured at the grant date, is calculated using a binomial lattice methodology that is based on the underlying assumptions of the Black-Scholes option pricing model. Compensation expense relating to Restricted Share and Restricted Share Unit awards is based upon the market value of the share on the date of grant.

Tax Considerations Limitations on the deductibility of compensation paid to executive officers under Section 162(m) of the Internal Revenue Code are not applicable to HSBC USA, as it is not a public corporation as defined by Section 162(m). As such, all compensation to our executive officers is deductible for federal income tax purposes, unless there are excess golden parachute payments under Section 4999 of the Internal Revenue Code following a change in control.

Compensation of Officers Reported in the Summary Compensation Table In determining compensation for each of our executives, senior management, Mr. Gulliver, HSBC Group Chief Executive, and Mr. Booker, Chief Executive Officer of HSBC North America, carefully considered the individual contributions of each executive to promote HSBC's interests and those of its shareholders. The relevant comparisons considered for each executive were year-over-year company performance relative to year-over-year total compensation, individual performance against balanced score card objectives, and current trends in the market place. Another consideration was the current positioning of the executive and the role he or she would be expected to fulfill in the current challenging business environment. We believe incentives and rewards play a critical role, and that outstanding leadership as evidenced by positive results must be recognized. Consequently, variable pay recommendations were submitted for our executives to reward strong performance by HSBC USA relative to plan and in effectively managing risk in the challenging economic environment.

VARIABLE COMPENSATION

			Discretionary		Long Term Equity				Year over
	Base Salary (1)		Annual Bonus (2)		Award (3)		Total Compensation		Year %
	2009	2010	2009	2010	2009	2010	2009	2010	Change
Irene M. Dorner	$394,008	$566,346	$329,262	$760,417	$493,120	$864,583	$1,216,390	$2,191,346	80%
President and Chief Executive Officer
John T. McGinnis	N/A	$418,462	N/A	$487,500	N/A	$262,500	N/A	$1,168,462	-%
Executive Vice President and Chief Financial Officer
Gerard Mattia	$264,808	$170,114	$560,000	$-	$840,000	$-	$1,664,808	$170,114	-%
Former Senior Executive Vice President and Chief Financial Officer
C. Mark Gunton(4)	N/A	$514,157	N/A	$422,500	N/A	$227,500	N/A	$1,164,157	-%
Senior Executive Vice President, Chief Risk Officer
Marlon Young	$389,423	$437,500	$-	$567,708	$750,000	$619,792	$1,139,423	$1,625,000	43%
Managing Director, Private Banking  Americas
Christopher P. Davies	$337,500	$357,500	$412,500	$570,000	$412,500	$380,000	$1,162,500	$1,307,500	12%
Senior Executive Vice President, Head of Commercial Banking

____________

(1)	No base salaries were increased for 2009. However, since HSBC USA administered twenty-seven (27) pay periods during 2009, base salary amounts above include cash paid for the additional pay period. Amounts for 2010 are reflective of rebalance adjustments, effective June 28, 2010, as discussed under "Mix of Elements of Compensation." Effective July 12, 2010 upon his appointment as Chief Financial Officer, Mr. McGinnis received a base salary increase from $400,000 to $440,000, which was unrelated to the rebalancing.
(2)	Discretionary Annual Bonus amount pertains to the performance year indicated and is paid in the first quarter of the subsequent calendar year.
(3)	Long-term Equity Award amount disclosed above pertains to the performance year indicated and is awarded in the first quarter of the subsequent calendar year. For example, the Long-Term Equity Award indicated above for 2010 is earned in performance year 2010 but will be granted in March 2011. However, as required in the Summary Compensation Table, the grant date fair market value of equity granted in March 2010 is disclosed for the 2010 fiscal year under the column of Stock Awards in that table. The grant date fair value of equity granted in March 2011 will be disclosed for the 2011 fiscal year under the column of Stock Awards in the Summary Compensation Table reported in 2011.
(4)	In his role as Chief Risk Officer, Mr. Gunton has risk oversight over HSBC USA, as well as HSBC Finance Corporation and HSBC North America. Amounts discussed within the 2010 CD&A and the accompanying executive compensation tables represent the full compensation paid to Mr. Gunton for his role as Senior Executive Vice President, Chief Risk Officer for all three companies. Mr. Gunton has also been disclosed as a Named Executive Officer in the HSBC Finance Corporation Form 10-K for the year ended December 31, 2010.

Compensation Committee Interlocks and Insider Participation As described in the 2010 CD&A, HSBC USA is subject to the remuneration policy established by REMCO and the delegations of authority with respect to executive officer compensation described above under "Oversight of Compensation Decisions."

Compensation Committee Report HSBC USA does not have a Compensation Committee. The Board of Directors did not play a role in establishing remuneration policy or determining executive officer compensation for 2010. We, the members of the Board of Directors of HSBC USA, have reviewed the 2010 CD&A and discussed it with management, and have been advised that management of HSBC has reviewed the 2010 CD&A and believes it accurately reflects the policies and practices applicable to HSBC USA executive compensation in 2010. HSBC USA senior management has advised us that they believe the 2010 CD&A should be included in this Annual Report on Form 10-K. Based upon the information available to us, we have no reason to believe that the 2010 CD&A should not be included in this Annual Report on Form 10-K and therefore recommend that it should be included.

Board of Directors of HSBC USA Inc.

Niall S. K. Booker

William R. P. Dalton

Anthea Disney

Irene M. Dorner

Robert K. Herdman

Louis Hernandez. Jr.

Richard A. Jalkut

Executive Compensation The following tables and narrative text discuss the compensation awarded to, earned by or paid as of December 31, 2010 to (i) Ms. Irene M. Dorner who served as HSBC USA's Chief Executive Officer beginning January 1, 2010, (ii) Mr. John T. McGinnis, who served as HSBC USA's Chief Financial Officer since July 12, 2010, (iii) Mr. Gerard Mattia, who served as HSBC USA's Chief Financial Officer through July 12, 2010, (iv) the next three most highly compensated executive officers (other than the chief executive officer and chief financial officer) who were serving as executive officers as of December 31, 2010.

Summary Compensation Table

Name and Principal Position	Year	Salary (1)	Bonus (2)	Stock Awards (3)	Option Awards	Non- Equity Incentive Plan Compensation	Change in Pension Value and Non- Qualified Deferred Compensation Earnings (4)	All Other Compensation (5)	Total
Irene M. Dorner (6)	2010	$566,346	$760,417	$493,120	$-	$-	$364,959	$121,881	$2,306,723
President and Chief Executive Officer
John T. McGinnis (6)	2010	$418,462	$487,500	$200,000	$-	$-	$47,166	$40,521	$1,193,649
Executive Vice  President and Chief Financial Officer
Gerard Mattia (7)	2010	$170,114	$-	$840,000	$-	$-	$57,636	$24,123	$1,091,873
Former Senior Executive	2009	$264,808	$560,000	$750,000	$-	$-	$83,766	$14,700	$1,673,274
Vice President and Chief	2008	$255,000	$450,000	$490,000	$-	$-	$5,219	$10,334	$1,210,553
Financial Officer
C. Mark Gunton (6)	2010	$514,157	$422,500	$300,000	$-	$-	$159,083	$797,513	$2,193,253
Senior Executive Vice President, Chief Risk Officer
Marlon Young	2010	$437,500	$567,708	$750,000	$-	$-	$5,564	$10,385	$1,771,157
Managing Director,	2009	$389,423	$-	$960,000	$-	$-	$5,421	$10,385	$1,365,229
Private Banking Americas	2008	$375,000	$490,000	$1,065,000	$-	$-	$5,012	$36,305	$1,971,317
Christopher P. Davies	2010	$357,500	$570,000	$412,500	$-	$-	$148,576	$263,785	$1,752,361
Senior Executive Vice	2009	$337,500	$412,500	$400,000	$-	$-	$173,308	$375,972	$1,699,280
President, Head of	2008	$325,000	$400,000	$700,000	$-	$-	$-	$275,171	$1,700,171
Commercial Banking

____________

(1)	No base salaries were increased for 2009. However, since HSBC USA administered twenty-seven (27) pay periods during 2009, base salary amounts disclosed above reflect cash flow paid during the year.
	Amounts for 2010 are reflective of rebalance adjustments, effective June 28, 2010, as discussed under Mix of Elements of Compensation. Separately, Mr. McGinnis received a base salary increase from $400,000 to $440,000 effective July 12, 2010 upon his appointment as Chief Financial Officer.
(2)	The amounts disclosed represent the discretionary annual bonus relating to 2010 performance but paid in March 2011. For Ms. Dorner and Mr. Young, annual discretionary variable cash awards include a portion granted in the form of deferred cash, as disclosed under the Mix of Elements of Compensation. Ms. Dorner and Mr. Young will become fully entitled to the deferred cash over a three year vesting period, and during the period, the deferred cash will be credited with a notional return, basis and rate as approved by REMCO.
(3)	Reflects the aggregate grant date fair value of awards granted during the year. The grants are subject to various time vesting conditions as disclosed in the footnotes to the Outstanding Equity Awards at Fiscal Year End Table and will be released as long as the Named Executive Officer is still in the employ of HSBC USA at the time of vesting. HSBC USA records expense based on the fair value over the vesting period, which is 100 percent of the face value on the date of the award. Dividend equivalents, in the form of cash or additional shares, are paid on all underlying shares of restricted shares or restricted share units at the same rate as paid to ordinary share shareholders.
(4)	The HSBC - North America (U.S.) Pension Plan ("Pension Plan"), the HSBC - North America Non-Qualified Deferred Compensation Plan ("NQDCP"), the Household Supplemental Retirement Income Plan ("SRIP"), the HSBC Bank (UK) Pension Scheme - Defined Benefit Section ("DBS Scheme"), the Unfunded Unapproved Retirement Benefit Scheme ("UURBS"), and the HSBC International Retirement Benefits Scheme ("ISRBS") are described under Savings and Pension Plans.
	Increase in values by plan for each participant are: Ms. Dorner - $143,713 (UURBS), $221,246 (DBS Scheme, Samuel Montagu Section); Mr. McGinnis - $5,564 (Pension Plan), $9,900 (SRIP), $31,702 (NQDCP); Mr. Mattia - $5,733 (Pension Plan), $51,903 (NQDCP); Mr. Gunton - $159,083 (ISRBS); Mr. Young - $5,564 (Pension Plan); Mr. Davies - $148,576 (DBS Scheme, Midland Section).
(5)	Components of All Other Compensation are disclosed in the aggregate. All Other Compensation includes perquisites and other personal benefits received by each Named Executive Officer, such as tax preparation services and expatriate benefits to the extent such perquisites and other personal benefits exceeded $10,000 in 2010. The following itemizes perquisites and other benefits for each Named Executive Officer who received perquisites and other benefits in excess of $10,000: Financial Planning and Executive Tax Services for Ms. Dorner and Messrs. Davies and Gunton were $560, $827, and $567, respectively; Executive Travel Allowances for Ms. Dorner and Messrs. Gunton and Davies were $40,637, $55,857 and $45,283, respectively; Housing and Furniture Allowances for Ms. Dorner and Messrs. Gunton and Davies were $24,195, $123,051 and $202,056, respectively; Relocation Expenses for Ms. Dorner were $39,399; Executive Physical and Medical Expenses for Ms. Dorner and Messrs. Davies and Gunton were $3,754, $1,580, and $6,723, respectively; Tax Equalization for Ms. Dorner resulted in a net refund to HSBC of $817 and payments to Messrs. Gunton and Davies of $482,272 and $13,351, respectively; Mortgage Subsidies for Mr. Gunton were $8,488; Children's Educational Allowances for Mr. Gunton were $60,831; Additional Compensation for Ms. Dorner and Messrs. Gunton and Davies were $14,152, $8,612 and $688, respectively; Club Dues and Membership Fees for Mr. Gunton were $7,250.
	All Other Compensation also includes HSBC USA's contribution for the Named Executive Officer's participation in the HSBC - North America (U.S.) Tax Reduction Investment Plan ("TRIP") in 2010, as follows: Messrs. McGinnis and Mattia each had a $14,700 contribution and Mr. Young had a $10,385 contribution. In addition, a company contribution in the Supplemental HSBC Finance Corporation Tax Reduction Investment Plan ("STRIP") was made for Mr. McGinnis of $25,821 in 2010. In addition, Mr. Gunton had a company contribution in the HSBC International Retirement Benefit Plan ("IRBP") in amount of $43,862. The value of Mr. Gunton's company contribution in the IRBP was calculated using an exchange rate of GBP to U.S. dollars of 1.5612. TRIP, STRIP and IRBP are described under Savings and Pension Plans - Deferred Compensation Plans.
(6)	This table only reflects officers who were Named Executive Officers for the particular referenced years above. Ms. Dorner and Messrs. McGinnis and Gunton were not Named Executive Officers in fiscal years 2008 and 2009 so the table only reflects each of their compensation for fiscal years 2010. Amounts shown for Mr. Gunton represent compensation earned for his service as Chief Risk Officer for HSBC USA, HSBC Finance Corporation and HSBC North America. Mr. Gunton has also been disclosed as a Named Executive Officer in the HSBC Finance Corporation Form 10-K for the year ended December 31, 2010.
(7)	For Mr. Mattia, amounts shown in salary, bonus, stock awards, and all other compensation columns only reflects compensation received from HSBC USA through July 2010 and is not reflective of compensation received for fulfilling other roles within HSBC but outside of HSBC USA.

Grants Of Plan-Based Awards Table

								All Other	All Other
		Estimated Future						Stock	Option
		Payouts Under			Estimated Future			Awards:	Awards:	Exercise	Grant Date
		Non-Equity Incentive			Payouts Under			Number	Number of	or Base	Fair Value
		Plan Awards			Equity Incentive Plan Awards			of Shares	Securities	Price of	of Stock
								of Stock	Underlying	Option	and Option
	Grant	Threshold	Target	Maximum	Threshold	Target	Maximum	or Units	Options	Awards	Awards
Name	Date	($)	($)	($)	(#)	(#)	(#)	(#)	(#)	($/Sh)	($)(1)
Irene M. Dorner	03/01/2010							47,494			$493,120
President and Chief Executive Officer
John T. McGinnis	03/01/2010							19,262			$200,000
Executive Vice  President and Chief Financial Officer
Gerard Mattia	03/01/2010							80,903			$840,000
Former Senior Executive Vice President and Chief Financial Officer
C. Mark Gunton	03/01/2010							28,894			$300,000
Senior Executive Vice President, Chief Risk Officer
Marlon Young	03/01/2010							72,235			$750,000
Managing Director, Private Banking Americas
Christopher P. Davies	03/01/2010							39,729			$412,500
Senior Executive Vice President, Head of Commercial Banking

____________

(1)	The total grant date fair value reflected is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 1, 2010 (the date of grant) of GBP 6.82 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.5224.

Outstanding Equity Awards At Fiscal Year-End Table

	Option Awards					Stock Awards
								Equity
								Incentive	Equity
								Plan	Incentive
			Equity					Awards:	Plan Awards:
			Incentive					Number of	Market or
			Plan			Number	Market	Unearned	Payout Value
			Awards:			of Shares	Value of	Shares,	of Unearned
	Number of	Number of	Number of			or Units	Shares or	Units or	Shares,
	Securities	Securities	Securities			of Stock	Units of	Other	Units or
	Underlying	Underlying	Underlying			That	Stock that	Rights	Other Rights
	Unexercised	Unexercised	Unexercised	Option	Option	Have Not	Have Not	That Have	That Have
	Options (#)	Options (#)	Unearned	Exercise	Expiration	Vested	Vested	Not Vested	Not Vested
Name	Exercisable	Unexercisable	Options (#)	Price	Date	(#)(1)	($)(2)	(#)	($)
Irene M. Dorner						44,169(3)	$448,977
President and Chief Executive						102,245(4)	$1,039,318
Officer						49,152(5)	$499,629
John T. McGinnis						38,839(3)	$394,797
Executive Vice President						36,038(4)	$366,325
and Chief Financial Officer						22,534(6)	$229,058
						19,934(5)	$202,629
Gerard Mattia						41,705(3)	$423,930
Former Senior Executive Vice President						161,293(4)	$1,639,539
and Chief Financial Officer						83,728(5)	$851,093
C. Mark Gunton						23,120(3)	$235,014
Senior Executive Vice President, Chief						17,107(4)	$173,892
Risk Officer						29,903(5)	$303,963
Marlon Young						29,227(7)	$297,092
Managing Director,						206,454(4)	$2,098,599
Private Banking Americas						74,757(8)	$759,903
Christopher Davies	5,164(9)			GBP 7.5919	04/23/2011	54,374(3)	$552,710
Senior Executive Vice President,	5,738(9)			GBP 7.3244	05/07/2012	86,022(4)	$874,411
Head of Commercial Banking						41,116(5)	$417,943

____________

(1)	Share amounts include additional awards accumulated over the vesting periods, including any adjustments for the rights issue completed in April 2009. During the rights issue, HSBC raised capital by offering the opportunity to purchase new shares at a fixed price to all qualifying shareholders on the basis of five new shares for every twelve existing shares. The number of unvested Restricted Shares and Restricted Share Units held by employees was automatically increased, without any action required on the part of employees, in an effort to not disadvantage employees by the rights issue. Similarly, the number of unexercised stock options held by employees was automatically increased and a corresponding decrease was made in the option exercise price, without any action required on the part of employees and such that the employee will pay the same total amount to exercise the adjusted stock option award as before the rights issue. The adjustments to stock options, Restricted Shares and Restricted Share Units were made based on a formula that HSBC's auditors, KPMG, confirmed was fair and reasonable.
(2)	The HSBC share market value of the shares on December 31, 2010 was GBP 6.511 and the exchange rate from GBP to U.S. dollars was 1.5612.
(3)	This award will vest in full on March 31, 2011.
(4)	This award will vest in full on March 5, 2012.
(5)	One third of this award will vest on February 28, 2011 (33%), one third will vest on February 27, 2012 (33%), and one third will vest on February 25, 2013 (34%).
(6)	This award will vest in full on April 30, 2012.
(7)	One third of this award vested on March 2, 2009 (33%) and one third will vest on March 5, 2010 (33%). One third will vest on February 28, 2011 (34%).
(8)	One half of this award will vest on February 27, 2012 and one half on February 25, 2013.
(9)	Reflects fully vested options adjusted for the HSBC share rights issue completed in April 2009.

Option Exercises and Stock Vested Table

	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)(1)	Number of Shares Acquired on Vesting (#)(2)	Value Realized on Vesting ($)(1)
Irene M. Dorner			11,866(3)	$123,209
President and Chief Executive Officer
John T. McGinnis			37,793(4)	$392,418
Executive Vice President and Chief Financial Officer
Gerard Mattia			7,985(5)	$83,826
Former Senior Executive Vice President and Chief Financial Officer
C. Mark Gunton			11,866(6)	$123,209
Senior Executive Vice President, Chief Risk Officer
Marlon Young			5,314(7)	$55,786
Managing Director, Private Banking Americas			57,084(8)	$599,266
			30,538(9)	$320,587
Christopher Davies			4,309(10)	$45,236
Senior Executive Vice President, Head of Commercial Banking

____________

(1)	Value realized on exercise or vesting uses the GBP fair market value on the date of exercise or release and the exchange rage from GBP to USD on the date of settlement.
(2)	Includes the release of additional awards accumulated over the vesting period and resulting from the rights issue completed in April 2009.
(3)	Includes the release of 8,981 shares granted on March 30, 2007.
(4)	Includes the release of 28,630 shares granted on March 30, 2007.
(5)	Includes the release of a portion of 5,948 shares granted on March 5, 2007.
(6)	Includes the release of 11,227 shares granted on March 30, 2007.
(7)	Includes the partial release of 86,304 shares granted on April 28, 2006.
(8)	Includes the release of 42,746 shares granted on March 5, 2007.
(9)	Includes the partial release of 69,011 shares granted on March 3, 2008
(10)	Includes the release of a portion of 3,230 shares granted on March 5, 2007.

Pension Benefits

Name	Plan Name (1)	Number of Years Credited Service (#)	Present Value of Accumulated Benefit ($)	Payments During Last Fiscal Year ($)
Irene M. Dorner	DBS Scheme	24.5	$2,050,919(2)	$-
President and Chief Executive Officer	UURBS	24.5	$480,550	$-
John T. McGinnis	Pension Plan - Account Based	4.8	$25,105	$-
Executive Vice President and Chief Financial  Officer	SRIP - Account Based	4.8	$47,929	$-
Gerard Mattia	Pension Plan - Account Based	6.3	$30,240	$-
Former Senior Executive Vice President and Chief Financial Officer
C. Mark Gunton	ISRBS	32.0	$3,297,078(2)	$-
Senior Executive Vice President, Chief Risk Officer
Marlon Young	Pension Plan - Account Based	4.8	$25,105	$-
Managing Director, Private Banking Americas
Christopher Davies	DBS Scheme	25.3	$757,489(2)	$-
Senior Executive Vice President, Head of  Commercial Banking

____________

(1)	Plan described under Savings and Pension Plans.
(2)	The amount was converted from GBP to USD using the exchange rate of 1.5612 as of December 31, 2010.

Savings and Pension Plans

Pension Plan The HSBC - North America (U.S.) Pension Plan ("Pension Plan"), formerly known as the HSBC - North America (U.S.) Retirement Income Plan, is a non-contributory, defined benefit pension plan for employees of HSBC North America and its U.S. subsidiaries who are at least 21 years of age with one year of service and not part of a collective bargaining unit. Benefits are determined under a number of different formulas that vary based on year of hire and employer.

Supplemental Retirement Income Plan (SRIP) The Supplemental HSBC Finance Corporation Retirement Income Plan ("SRIP") is a non-qualified defined benefit retirement plan that is designed to provide benefits that are precluded from being paid to legacy Household employees by the Pension Plan due to legal constraints applicable to all qualified plans. For example, the maximum amount of compensation during 2010 that can be used to determine a qualified plan benefit is $245,000 and the maximum annual benefit commencing at age 65 in 2010 is $195,000. SRIP benefits are calculated without regard to these limits but are reduced effective January 1, 2008, for compensation deferred to the HSBC - North America Non-Qualified Deferred Compensation Plan ("NQDCP"). The resulting benefit is then reduced by the value of qualified benefits payable by the Pension Plan so that there is no duplication of payments. Benefits are paid in a lump sum to executives covered by a Household or Account Based Formula between July and December in the calendar year following the year of termination. No additional benefits will accrue under SRIP after December 31, 2010.

Formulas for Calculating Benefits

Account Based Formula: Applies to executives who were hired by Household International, Inc. after December 31, 1999. It also applies to executives who were hired by HSBC Bank USA after December 31, 1996 and became participants in the Pension Plan on January 1, 2005, or were hired by HSBC after March 28, 2003. The formula provides for a notional account that accumulates 2% of annual salary for each calendar year of employment. For this purpose, compensation includes total base wages and cash incentives (as paid) (effective January 1, 2008, compensation is reduced by any amount deferred under the NQDCP.) At the end of each calendar year, interest is credited on the notional account using the value of the account at the beginning of the year. The interest rate is based on the lesser of average yields for 10-year and 30-year Treasury bonds during September of the preceding calendar year. The notional account is payable at termination of employment for any reason after three years of service although payment may be deferred to age 65.

Provisions Applicable to All Formulas: The amount of compensation used to determine benefits is subject to an annual maximum that varies by calendar year. The limit for 2010 is $245,000. The limit for years after 2010 will increase from time-to-time as specified by IRS regulations. Benefits are payable as a life annuity, or for married participants, a reduced life annuity with 50% continued to a surviving spouse. Participants (with spousal consent, if married) may choose from a variety of other optional forms of payment, which are all designed to be equivalent in value if paid over an average lifetime. Retired executives covered by a Household or Account Based Formula may elect a lump sum form of payment (spousal consent is required for married executives).

HSBC Bank (UK) Pension Scheme - Defined Benefit Section ("DBS Scheme") The HSBC Bank (UK) Pension Scheme - Defined Benefit Section ("DBS") is a non-contributory, defined benefit pension plan for employees of HSBC Bank plc. Benefits are determined under a number of different formulas that vary based on year of hire and employer. The Samuel Montagu Section of the DBS was merged into the DBS on January 17, 2000, and applies to executives who were hired by Samuel Montagu & Co. Ltd. prior to January 16, 2000. The normal retirement benefit at age 60 for members of the Executive section is 2/3rd of final pensionable salary plus a one-time 3% increase under the terms of the agreement that transferred the assets and liabilities of the Samuel Montagu Pension Scheme to the HSBC Bank (UK) Pension Scheme - Defined Benefit Section. For executives earning over GBP100,000 at retirement, final pensionable salary is the average basic annual salary over the last three years before retirement. Executives who wish to retire before age 60 are eligible for an actuarially reduced benefit if they receive the consent of HSBC Bank (UK) and the DBS Trustee. The Midland Section for Post 74 Joiners of the DBS applies to executives who were hired after December 31, 1974, but prior to July 1, 1996, by HSBC Bank plc. The normal retirement benefit at age 60 is 1/60th of final salary multiplied by number of years and complete months of Midland Section membership plus pensionable service credits up to a maximum of 40, reduced by 1/80th of the single person's Basic State Pension for the 52 weeks prior to leaving pensionable service multiplied by number of years and complete months of Midland Section membership. For this purpose, final salary is the actual salary paid during the final 12 months of service for those earning an annualized salary that is less than or equal to GBP100,000 at the time of retirement and the average salary for the last three years before retirement for those earning an annualized salary that is greater than GBP100,000 at the time of retirement. Executives who are at least age 50 may retire before age 60 in which case the retirement benefit is reduced actuarially.

Unapproved Unfunded Retirement Benefits Scheme ("UURBS") Unapproved Unfunded Retirement Benefits Scheme ("UURBS") is an unfunded defined benefit plan that is designed to provide executives who opt out of their tax advantaged UK pension plan with aggregate benefits that are equivalent to the benefits the executive would have received if they had remained active participants in the relevant pension plan. Benefits paid by the UURBS are not paid by a pension trust but are paid directly by the employer and are not subject to additional UK taxes on amounts in excess of the Lifetime Allowance, GBP1,800,000 for 2010/2011.

HSBC International Retirement Benefits Scheme ("ISRBS") The HSBC International Staff Retirement Benefits Scheme (Jersey) ("ISRBS") is a defined benefit plan maintained for certain international managers. Each member must contribute five percent of his salary to the plan during his service, but each member who has completed 20 years of service or who enters the senior management or general management sections during his service shall contribute 6 2/3 percent of his salary. In addition, a member may make voluntary contributions, but the total of voluntary and mandatory contributions cannot exceed 15 percent of his total compensation. Upon leaving service, the value of the member's voluntary contribution fund, if any, shall be commuted for a retirement benefit.

The annual pension payable at normal retirement is 1/480 of the member's final salary for each completed month in the executive section, 1.25/480 of his final salary for each completed month in the senior management section, and 1.50/480 of his final salary for each completed month in the general management section. A member's normal retirement date is the first day of the month coincident with or next following his 53rd birthday. Payments may be deferred or suspended but not beyond age 75.

If a member leaves before normal retirement with at least 15 years of service, he will receive a pension which is reduced by 0.25 percent for each complete month by which termination precedes normal retirement. If he terminates with at least 5 years of service, he will receive an immediate lump sum equivalent of his reduced pension.

If a member dies before age 53 while he is still accruing benefits in the ISRBS then both a lump sum and a widow's pension will be payable immediately.

The lump sum payable would be the cash sum equivalent of the member's Anticipated Pension, where the Anticipated Pension is the notional pension to which the member would have been entitled if he had continued in service until age 53, computed on the assumption that his Final Salary remains unaltered. In addition, where applicable, the member's voluntary contributions fund will be paid as a lump sum.

In general, the widow's pension payable would be equal to one half of the member's Anticipated Pension. As well as this, where applicable, a children's allowance is payable on the death of the Member equal to 25% of the amount of the widow's pension.

If the member retires before age 53 on the grounds of infirmity he will be entitled to a pension as from the date of his leaving service equal to his Anticipated Pension, where Anticipated Pension has the same definition as in the previous section.

Present Value of Accumulated Benefits

For the Account Based formula: The value of the notional account balances currently available on December 31, 2010.

For other formulas: The present value of benefit payable at assumed retirement using interest and mortality assumptions consistent with those used for financial reporting purposes under SFAS 87 with respect to the company's audited financial statements for the period ending December 31, 2010. However, no discount has been assumed for separation prior to retirement due to death, disability or termination of employment. Further, the amount of the benefit so valued is the portion of the benefit at assumed retirement that has accrued in proportion to service earned on December 31, 2010.

Deferred Compensation Plans

Tax Reduction Investment Plan HSBC North America maintains the HSBC - North America (U.S.) Tax Reduction Investment Plan ("TRIP"), which is a deferred profit-sharing and savings plan for its eligible employees. With certain exceptions, a U.S. employee who has been employed for 30 days and who is not part of a collective bargaining unit may contribute into TRIP, on a pre-tax and after-tax basis (after-tax contributions are limited to employees classified as non-highly compensated), up to 40 percent of the participant's cash compensation (subject to a maximum annual pre-tax contribution by a participant of $16,500 (plus an additional $5,500 catch-up contribution for participants age 50 and over), as adjusted for cost of living increases, and certain other limitations imposed by the Internal Revenue Code) and invest such contributions in separate equity or income funds.

If the employee has been employed for at least one year, HSBC USA contributes three percent of compensation on behalf of each participant who contributes one percent and matches any additional participant contributions up to four percent of compensation. However, matching contributions will not exceed six percent of a participant's compensation if the participant contributes four percent or more of compensation. The plan provides for immediate vesting of all contributions. With certain exceptions, a participant's after-tax contributions that have not been matched by us can be withdrawn at any time. Both our matching contributions made prior to 1999 and the participant's after-tax contributions that have been matched may be withdrawn after five years of participation in the plan. A participant's pre-tax contributions and our matching contributions after 1998 may not be withdrawn except for an immediate financial hardship, upon termination of employment, or after attaining age 59 ½. Participants may borrow from their TRIP accounts under certain circumstances.

Supplemental Tax Reduction Investment Plan HSBC North America also maintains the Supplemental HSBC Finance Corporation Tax Reduction Investment Plan ("STRIP"), which is an unfunded plan for eligible employees of HSBC USA and its participating subsidiaries who are legacy Household employees and whose compensation exceeds limits imposed by the Internal Revenue Code. Beginning January 1, 2008, STRIP participants receive a 6% contribution for such excess compensation, reduced by any amount deferred under the NQDCP, invested in STRIP through a credit to a bookkeeping account maintained by us which deems such contributions to be invested in equity or income funds selected by the participant.

Non-Qualified Deferred Compensation Plan HSBC North America maintains the NQDCP for the highly compensated employees in the organization, including executives of HSBC USA. The Named Executive Officers, excluding Ms. Dorner and Messrs. Gunton and Davies, are eligible to contribute up to 80 percent of their salary and/or cash bonus compensation in any plan year. Participants are required to make an irrevocable election with regard to the percentage of compensation to be deferred and the timing and manner of future payout. Two types of distributions are permitted under the plan, either a scheduled in-service withdrawal which must be scheduled at least 2 years after the end of the plan year in which the deferral is made, or payment upon termination of employment.

For either the scheduled in-service withdrawal or payment upon termination, the participant may elect either a lump sum payment, or if the participant has over 10 years of service, installment payments over 10 years. Due to the unfunded nature of the plan, participant elections are deemed investments whose gains or losses are calculated by reference to actual earnings of the investment choices. In order to provide the participants with the maximum amount of protection under an unfunded plan, a Rabbi Trust has been established where the participant contributions are segregated from the general assets of HSBC USA. The Investment Committee for the plan endeavors to invest the contributions in a manner consistent with the participant's deemed elections reducing the likelihood of an underfunded plan.

HSBC International Retirement Benefit Plan ("IRBP") The HSBC International Retirement Benefit Plan ("IRBP") is a defined contribution retirement savings plan maintained for certain international managers who have attained the maximum number of years of service for participation in other plans covering international managers, including the ISRBS. Participants receive an employer paid contribution equal to 15% of base salary and may elect to contribute 2.5% of base salary as non-mandatory employee contributions, which contributions are matched by employer contributions. Additionally, participants can make unlimited additional voluntary contributions of base salary. The plan provides for participant direction of account balances in a wide range of investment funds and immediate vesting of all contributions.

Non-Qualified Defined Contribution and Other Non-Qualified Deferred Compensation Plans

Name	Non-Qualified Deferred Compensation Plan (1) Executive Contributions in 2010	Supplemental Tax Reduction Investment Plan (2) HSBC USA Contributions in 2010	Aggregate Earnings in 2010	Aggregate Withdrawals/ Distributions	Aggregate Balance at 12/31/2010
Irene M. Dorner	N/A	N/A	N/A	N/A	N/A
President and Chief Executive Officer
John T. McGinnis	$43,108(3)	$25,821	$41,346	$-	$306,053
Executive Vice President and Chief Financial Officer
Gerard Mattia	$87,585(4)	N/A	$51,903	$-	$378,192
Former Senior Executive Vice President and Chief Financial Officer
C. Mark Gunton	N/A	N/A	N/A	N/A	N/A
Senior Executive Vice President, Chief Risk Officer
Marlon Young	N/A	N/A	N/A	N/A	N/A
Managing Director, Private Banking Americas
Christopher Davies	N/A	N/A	N/A	N/A	N/A
Senior Executive Vice President, Head of Commercial Banking

____________

(1)	The HSBC-North America Non-Qualified Deferred Compensation Plan ("NQDCP") is described under Savings and Pension Plans.
(2)	The Supplemental HSBC Finance Corporation Tax Reduction Investment Plan ("STRIP") is described under Savings and Pension Plans. Company contributions are invested in STRIP through a credit to a bookkeeping account, which deems such contributions to be invested in equity or income mutual funds selected by the participant. Distributions are made in a lump sum upon termination of employment. These figures are also included in the "Change in Pension Value and Non-Qualified Deferred Compensation Earnings" column of the Summary Compensation Table.
(3)	Mr. McGinnis' elective deferrals into the NQDCP during 2010 consist of $25,108 of the 2010 base salary disclosed in the Summary Compensation Table and $18,000 of the 2009 bonus disclosed in the Summary Compensation Table.
(4)	Mr. Mattia's elective deferrals into the NQDCP during 2010 consist of $42,565 of the 2010 base salary disclosed in the Summary Compensation Table. The remainder of elective deferrals was made when Mr. Mattia was no longer an employee of HSBC USA.

Potential Payments Upon Termination Or Change-In-Control

The following tables describe the payments that HSBC USA would be required to make as of December 31, 2010, to Ms. Dorner and Messrs. McGinnis, Young and Davies as a result of their termination, retirement, disability or death or a change in control of the company as of that date. The specific circumstances that would trigger such payments are identified in the tables. The amounts and terms of such payments are defined by HSBC's employment and severance policies, and the particular terms of any equity-based awards. Mr. Mattia was not employed by HSBC USA on December 31, 2010.

Irene M. Dorner

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability	Normal Retirement	Involuntary Not for Cause Termination	For Cause Termination	Voluntary for Good Reason Termination	Death	Change in Control Termination
Cash Compensation
Base Salary
Bonus
Long Term Award
Restricted Stock		$1,987,923(1)	$1,987,923(1)	$1,987,923(1)		$1,987,923(1)	$1,987,923(1)	$1,987,923(1)

____________

(1)	This amount represents a full vesting of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2010, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2010.

John T. McGinnis

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability	Normal Retirement	Involuntary Not For Cause Termination	For Cause Termination	Voluntary for Good Reason Termination	Death	Change in Control Termination
Cash Compensation
Base Salary				$220,000(1)
Bonus
Long Term Award
Restricted Stock		$361,898(2)	$361,898(2)	$361,898(2)		$361,898(2)	$394,797(3)	$394,797(3)
Restricted Stock/Units		$798,011(3)	$798,011(3)	$798,011(3)		$798,011(3)	$798,011(3)	$798,011(3)

(1)	Under the terms of the HSBC - North America (U.S.) Severance Pay Plan, Mr. McGinnis would receive 26 weeks of his current salary upon separation from the company.
(2)	This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2010, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2010.
(3)	This amount represents a full vesting of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2010, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2010.

C. Mark Gunton

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability	Normal Retirement	Involuntary Not For Cause Termination	For Cause Termination	Voluntary for Good Reason Termination	Death	Change in Control Termination
Cash Compensation
Base Salary
Bonus
Long Term Award
Restricted Stock		$215,430(1)	$215,430(1)	$215,430(1)		$215,430(1)	$235,014(2)	$235,014(2)
Restricted Stock/Units		$477,855(2)	$477,855(2)	$477,855(2)		$477,855(2)	$477,855(2)	$477,855(2)

____________

(1)	This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2010, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2010.
(2)	This amount represents a full vesting of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2010, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2010.

Marlon Young

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability	Normal Retirement	Involuntary Not for Cause Termination	For Cause Termination	Voluntary for Good Reason Termination	Death	Change in Control Termination
Cash Compensation
Base Salary				$115,385(1)
Bonus
Long Term Award
Restricted Stock/Units		$3,155,594(2)	$3,155,594(2)	$3,155,594(2)		$3,155,594(2)	$3,155,594(2)	$3,155,594(2)

____________

(1)	Under the terms of the HSBC - North America (U.S.) Severance Pay Plan, Mr. Young would receive 12 weeks of his current salary upon separation from the company.
(2)	This amount represents a full vesting of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2010, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2010.

Christopher P. Davies

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability	Normal Retirement	Involuntary Not for Cause Termination	For Cause Termination	Voluntary for Good Reason Termination	Death	Change in Control Termination
Cash Compensation
Base Salary
Bonus
Long Term Incentive
Restricted Stock		$506,651(1)	$506,651(1)	$506,651(1)		$506,651(1)	$552,710(2)	$552,710(2)
Restricted Stock/Units		$1,292,354(2)	$1,292,354(2)	$1,292,354(2)		$1,292,354(2)	$1,292,354(2)	$1,292,354(2)

____________

(1)	This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2010, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2010.
(2)	This amount represents a full vesting of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2010, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2010.

Director Compensation The following table and narrative footnotes discuss the compensation awarded to, earned by or paid to our Non-Executive Directors in 2010. As Executive Directors, Mr. Booker and Ms. Dorner do not receive any additional compensation for their service on the Board of Directors. Additionally, former Executive Director Brendan P. McDonagh received no additional compensation for his service on the Board of Directors. Mr. McDonagh's service on the Board of Directors concluded July 31, 2010.

Director Compensation

Name	Fees Earned or Paid in Cash ($)(1)	Stock Awards ($)(2)	Option Awards ($)(3)	Change in Pension Value And Non-Qualified Deferred Compensation Earnings ($)(4)	All Other Compensation ($)(5)	Total ($)
Salvatore H. Alfiero (6)	$145,000	$-	$-	$-	$35,625	$180,625
William R.P. Dalton	$225,000	$-	$-	$-	$1,991	$226,991
Anthea Disney	$225,000	$-	$-	$115,914	$1,991	$342,905
Robert K. Herdman (7)	$40,625	$-	$-	$-	$-	$40,625
Louis Hernandez, Jr.	$235,000	$-	$-	$-	$1,991	$236,991
Richard A. Jalkut	$235,000	$-	$-	$-	$1,991	$236,991

____________

(1)	The Non-Executive Directors of HSBC USA receive an annual cash retainer of $210,000 for board membership on HSBC North America and HSBC USA. Mr. Alfiero's compensation was grandfathered at an amount equal to his 2007 Board and Committee compensation, and he received a pro-rated amount in 2010 due to his retirement from service which included $40,000 of the grandfathered amount. Mr. Herdman's compensation of $40,625 is due to service as Chair of the HSBC USA Audit and Risk Committee, which represents a pro-rated amount, since his membership did not commence until May 13, 2010. Ms. Disney and Messrs. Dalton, Hernandez and Jalkut each receives an additional $15,000 for his or her membership on the HSBC USA Audit and Risk Committee. Messrs. Hernandez and Jalkut also receive $10,000 as Co-Chairs of the HSBC USA Fiduciary Committee. Other than as stated above, HSBC USA does not pay additional compensation for committee membership, or meeting attendance fees to its Directors. Directors who are employees of HSBC USA or any of its affiliates do not receive any additional compensation related to their Board service.
	Mr. Herdman receives compensation of $305,309 for board and committee membership for HSBC Finance Corporation and compensation of $85,000 for serving as Chair of the HSBC North America Audit and Risk Committee. Mr. Jalkut received an additional $7,500 for membership on the HSBC North America Audit and Risk Committee, which represents a pro-rated amount, since his membership did not commence until July 7, 2010.
	Non-Executive Directors elected prior to 1999 may elect to participate in the HSBC USA/HBUS Plan for Deferral of Directors' Fees. Under this plan, they may elect to defer receipt of all or a part of their retainer. The deferred retainers accrue interest on a quarterly basis at the one year Employee Extra CD rate in effect on the first business day of each quarter. Upon retirement from the Board, the deferrals plus interest are paid to the Director in quarterly or annual installments over a five or ten year period. No eligible Director elected to defer receipt of their 2010 retainer into the HSBC USA/HBUS Plan for Deferral of Directors' Fees. Ms. Disney, however, participates in the HSBC North America Directors Non-Qualified Deferred Compensation Plan and elected to defer all fees earned in 2010.
(2)	HSBC USA does not grant stock awards to its Non-Executive Directors nor do any portions of Executive Directors' stock awards reflect services related to their Board positions. Prior to the merger with HSBC, Non-Executive Directors could elect to receive all or a portion of their cash compensation in shares of common stock of Household International, Inc., defer it under the Deferred Fee Plan for Directors or purchase options to acquire common stock (as reflected in Footnote 3 below).
(3)	HSBC USA does not grant stock option awards to its Non-Executive Directors. As referenced in Footnote 2 above, Ms. Disney held options to purchase 30,696 HSBC ordinary shares pursuant to the historical Directors Deferred Fee Plan.
(4)	The HSBC USA Director Retirement Plan covers Non-Executive Directors elected prior to 1998 and excludes those serving as Directors at the request of HSBC. Eligible Directors with at least five years of service will receive quarterly retirement benefit payments commencing at the later of age 65 or retirement from the Board, and continuing for ten years. The annual amount of the retirement benefit is a percent of the annual retainer in effect at the time of the last Board meeting the Director attended. The percentage is 50 percent after five years of service and increases by five percent for each additional year of service to 100 percent upon completion of 15 years of service. If a Director who has at least five years of service dies before the retirement benefit has commenced, the Director's beneficiary will receive a death benefit calculated as if the Director had retired on the date of death. If a retired Director dies before receiving retirement benefit payments for the ten year period, the balance of the payments will be continued to the Director's beneficiary. The plan is unfunded and payment will be made out of the general funds of HSBC USA or HSBC Bank USA. Upon the conclusion of his service on the Board, Mr. Alfiero became eligible for payments under the HSBC USA Director Retirement Plan. Mr. Alfiero's total payments under this plan in 2010 were $35,625, and are shown under All Other Compensation. Mr. Jalkut is also a participant under the HSBC USA Director Retirement Plan and is eligible for the maximum retirement benefit upon the conclusion of his service on the Board.
	The HSBC North America Directors Non-Qualified Deferred Compensation Plan allows Non-Executive Directors to elect to defer their cash fees in any plan year. Participants are required to make an election with regard to the percentage of compensation to be deferred and the timing and manner of future payout. Amounts shown for Ms. Disney reflect the gains or losses calculated by reference to the actual earnings of the investment choices.
(5)	Components of All Other Compensation are disclosed in the aggregate. Non-Executive Directors are offered, on terms that are not more favorable than those available to the general public, a MasterCard/Visa credit card issued by one of our subsidiaries with a credit limit of $15,000. HSBC USA guarantees the repayment of amounts charged on each card. We provide each Director with $250,000 of accidental death and dismemberment insurance and a $10,000,000 personal excess liability insurance policy for which the company paid premium of $1,991 per annum for each participating Director. Premiums are pro-rated to the calendar quarter for participating Directors with less than one full calendar year of service on the Board. Under HSBC's Matching Gift Program, for all Non-Executive Directors who were members of the Board in 2006 and continue to be on the Board, we match charitable gifts to qualified organizations (subject to a maximum of $10,000 per year), including eligible non-profit organizations which promote neighborhood revitalization or economic development for low and moderate income populations, with a double match for the first $500 donated to higher education institutions (both public and private). Additionally, each current Non-Executive Director, who was a member of the HSBC Finance Corporation Board in 2006 and continues to be on the HSBC USA Board, may ask us to contribute up to $10,000 annually to charities of the Director's choice which qualify under our philanthropic program.
(6)	Service on the Board concluded on May 13, 2010.
(7)	Service on the Board commenced on May 13, 2010.

Compensation Policies and Practices Related to Risk Management

All HSBC USA employees are eligible for some form of incentive compensation; however, those who actually receive payments are a subset of eligible employees, based on positions held and individual and business performance. Employees participate in either the annual discretionary cash award plan, the primary incentive compensation plan for all employees, or in formulaic plans, which are maintained for specific groups of employees who are typically involved in production/call center or direct sales environments.

A key feature of HSBC's compensation policy is that it is risk informed, seeking to ensure that risk based returns on capital are factored into the determination of variable compensation and that bonus pools are calculated only after appropriate risk based return has accrued on shareholders' capital. We apply Economic Profit (defined as the average annual difference between return on invested capital and HSBC's benchmark cost of capital) and other metrics to develop variable compensation levels and target a 15% to 19% return on shareholder funds. These requirements are built into the balanced scorecard of the senior HSBC executives and are incorporated in regional and business scorecards in an aligned manner, thereby ensuring that return, risk, and efficient capital usage shape reward considerations. The HSBC Group Chief Risk Officer and the Global Risk Function of HSBC provide input into the balanced scorecard, ensuring that key risk measures are included.

The use of a balanced scorecard framework ensures an aligned set of objectives and impacts the level of individual compensation received, as achievement of objectives is considered when determining the level of variable compensation awarded under the annual discretionary cash award plan. Objectives are set under four categories; Financial, Process (including risk mitigation), Customer, and People. Financial objectives, as well as the other objectives relating to efficiency and risk mitigation, customer development and the productivity of human capital are all measures of performance that may influence reward levels.

In 2010, building upon the combined strengths of our balanced scorecard and risk management processes, outside consultants were engaged to assist in the development of a formal incentive compensation risk management framework. Commencing with the 2011 objectives-setting process, standard risk performance measures and targets will be established and monitored for employees who have been identified as having the potential to expose the organization to material risks, or who are responsible for controlling those risks.

Also in 2010, HSBC North America established the Compensation and Performance Management Governance Sub-Committee ("CPMG Sub-Committee") within the existing HSBC North America Human Resources Steering Committee ("HRSC"). The CPMG Sub-Committee was created to provide a more systematic approach to incentive compensation governance and ensure the involvement of the appropriate levels of leadership, while providing a comprehensive view of compensation practices and associated risks. The CPMG Sub-Committee is comprised of senior executive representatives from HSBC North America's control functions, consisting of Risk, Compliance, Legal, Finance, Audit and Human Resources. The CPMG Sub-Committee has responsibility for oversight of compensation for covered populations (those employees identified as being capable of exposing HSBC USA to excessive risk taking); compensation related regulatory and audit findings and recommendations related to such findings; incentive plan review; review of guaranteed bonuses, sign-on bonuses and equity grants, including any exceptions to established policies; and recommendation to REMCO of clawback of previous grants of incentive compensation based on actual results and risk outcomes. Additionally, compensation processes for employees are evaluated by the CPMG Sub-Committee to ensure adequate controls are in place, while reinforcing the distinct performance expectation for employees. The CPMG Sub-Committee makes recommendations to REMCO based on reviews of the total compensation for employees.

Risk oversight of formulaic plans is ensured through formal policies of HSBC requiring that the HSBC North America Office of Operational Risk Management approve all plans relating to the sale of "credit," which are those plans that impact employees selling loan products such as credit cards.

Incentive compensation awards are also impacted by controls established under a comprehensive risk management framework that provides the necessary controls, limits, and approvals for risk taking initiatives on a day-to-day basis ("Risk Management Framework"). Business management cannot bypass these risk controls to achieve scorecard targets or performance measures. As such, the Risk Management Framework is the foundation for ensuring excessive risk taking is avoided. The Risk Management Framework is governed by a defined risk committee structure, which oversees the development, implementation, and monitoring of the risk appetite process for HSBC USA. Risk Appetite is annually reviewed and approved by the HSBC North America Risk Management Committee and HSBC North America Board Audit Committee.

Risk Adjustment of Incentive Compensation HSBC USA uses a number of techniques to ensure that the amount of incentive compensation received by an employee appropriately reflects risk and risk outcomes, including risk adjustment of awards, deferral of payment, appropriate performance periods, and reducing sensitivity to short-term performance. The techniques used vary depending on whether the incentive compensation is paid under the general discretionary cash award plan or a formulaic plan.

The discretionary plan is designed to allow managers to exercise judgment in making variable pay award recommendations, subject to appropriate oversight. A consideration when making award recommendations for an employee participating in the discretionary plan is performance against the objectives established in the balanced scorecard. Where objectives have been established with respect to risk and risk outcomes, managers will consider performance against these objectives when making variable pay award recommendations.

Participants in the discretionary plan are subject to the 2010 HSBC Minimum Deferral Policy, which provides minimum deferral guidelines for variable pay awards. Deferral rates applicable to compensation earned in performance year 2010, range from 0 to 60% and increase relative to the level of variable compensation earned, and in respect to employee's classification under the Code of the FSA, as further described under the section "Mix of Elements of Compensation" under the 2010 CD&A. Variable pay is deferred in the form of cash and/or through the use of Restricted Share Units. The deferred Restricted Share Units have a three-year graded vesting. The deferred cash is credited with a notional return, basis and rate as approved by REMCO. The economic value of pay deferred in the form of Restricted Share Units will ultimately be determined by the ordinary share price and foreign exchange rate in effect when each tranche of shares awarded is released. Employees who terminate employment as "bad leavers" forfeit all unvested equity awards. A clawback provision has been added to variable compensation awards, as further described under the section "Reduction or Cancellation of Long-Term Equity Awards" under the 2010 CD&A. Additionally, all employees with unvested share awards or awards subject to a retention period are required to annually certify that they have not used personal hedging strategies or remuneration contracts of insurance to mitigate the risk alignment of the unvested awards.

Employees who terminate employment as "bad leavers" forfeit all unvested equity awards. A claw back provision has been added to all awards granted after January 1, 2010, as further described under the section "Reduction or Cancellation of Long-Term Equity Awards" under Compensation Discussion and Analysis. Additionally, all employees with unvested share awards or awards subject to a retention period will be required to make an annual declaration to confirm they have not, since January 1, 2011, used personal hedging strategies or remuneration contracts of insurance to mitigate the risk alignment of the unvested awards.

Employees in formulaic plans are held to performance standards that may result in a loss of incentive compensation when quality standards are not met. For example, participants in these plans may be subject to a reduction in future commission payments if they commit a "reportable event" (e.g., an error or omission resulting in a loss or expense to the company) or fail to follow required regulations, procedures, policies, and/or associated training. Participants may be altogether disqualified from participation in the plans for unethical acts, breach of company policy, or any other conduct that, in the opinion of HSBC USA, is sufficient reason for disqualification or subject to a recapture provision, if it is determined that commissions were paid in excess of the amount that should have been paid. Some formulaic incentive plans include limits or caps on the financial measures that are considered in the determination of incentive award amounts.

Performance periods for the formulaic plans are often one month or one quarter, with features that may reserve or hold back a portion of the incentive award earned until year-end. This design is a conscious effort to align the reward cycle to the successful performance of job responsibilities, as longer performance periods may fail to adequately reinforce the desired behaviors on the part of formulaic plan participants.

Incentive Compensation Monitoring HSBC North America monitors and evaluates the performance of its incentive compensation arrangements, both the discretionary and formulaic plans, to ensure adequate focus and control.

The nature of the discretionary plan allows for compensation decisions to reflect individual and business performance based on balanced scorecard achievements. Payments under the discretionary plan are not tied to formula, which enables payments to be adjusted as appropriate based on individual performance, business performance, and risk assessment. Balanced scorecards may also be updated as needed by leadership during the performance year to reflect significant changes in the operating plan, risk, or business strategy of HSBC USA. Additionally, the discretionary plan is reviewed annually by REMCO to ensure that it is meeting the desired objectives. The review includes a comparison of actual payouts against the targets established, a cost/benefit analysis, the ratio of payout to overall business performance, and a review of any unintended consequences (e.g., deteriorating service standards).

Formulaic programs are reviewed and revised annually by HSBC North America Human Resources using an incentive plan review template, which highlights basic identifiers for overall plan performance. The review includes: an examination of overall plan expenditures versus actual business performance versus planned expenditures; an examination of individual pay out levels within plans; a determination of whether payment levels align with expected performance levels and market indicators; and a determination of whether the compensation mix is appropriate for the role utilizing market practice and business philosophy.

In addition to the annual review, plan performance is monitored regularly by the business management and periodically by HSBC North America Human Resources, which tracks plan expenditures and plan performance to ensure that plan payouts are consistent with expectations. Calculations for plans are performed systematically based on plan measurement factors to ensure accurate calculation of incentives and all performance payouts are subject to the review of the designated plan administrator to ensure payment and performance of the plan are tracking in line with expectations. Plan inventories are refreshed during the course of the year to identify plans to be eliminated, consolidated, or restructured based on relevant business and commercial factors. Finally, all plans contain provisions that enable modification of the plan if necessary to meet business objectives.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners

HSBC USA Inc.'s common stock is 100 percent owned by HSBC North America Inc. ("HNAI"). HNAI is an indirect wholly owned subsidiary of HSBC.

Security Ownership by Management

The following table lists the beneficial ownership, as of January 31, 2011, of HSBC ordinary shares or interests in HSBC ordinary shares and HSBC's American Depositary Shares, Series A, by each director and each executive officer named in the Summary Compensation Table, individually, and the directors and executive officers as a group. Each of the individuals listed below and all directors and executive officers as a group own less than one percent of the HSBC ordinary shares. No director or executive officer of HSBC USA owned any of HSBC USA's outstanding series of preferred stock at January 31, 2011.

	Number of HSBC Ordinary Shares Beneficially Owned(1)(2)	HSBC Ordinary Shares That May Be Acquired Within 60 Days By Exercise of Owned(3)	HSBC Restricted Shares Released Within 60 Days(4)	Number of HSBC Ordinary Share Equivalents(5)	Total HSBC Ordinary Shares(2)	HSBC Holdings plc American Depositary Shares, Series A(6)
Directors
Niall S.K. Booker	69,325	-	138,483	-	207,808	-
William R. P. Dalton	71,296	-	-	-	71,296	-
Anthea Disney	12	30,696	-	-	30,708	-
Irene M. Dorner(7)	18,951	-	60,389	-	79,340	-
Robert K. Herdman	82	-	-	-	82	-
Louis Hernandez, Jr.	50	-	-	-	50	-
Richard A. Jalkut	50	-	-	-	50	-
Named Executive Officers
John T. McGinnis	19,194	-	45,417	-	64,611
Gerard Mattia	28,345	-	69,335	-	97,680	-
Christopher Davies	19,008	10,902	67,942	-	97,852	-
C. Mark Gunton	693	-	32,988	-	33,681	-
Marlon Young	693	-	29,227	-	29,920	-
All directors and executive officers as a group	389,099	529,585	613,108	-	1,531,792	-

____________

(1)	Directors and executive officers have sole voting and investment power over the shares listed above, except that the number of ordinary shares held by spouses, children and charitable or family foundations in which voting and investment power is shared (or presumed to be shared) is as follows: Mr. Booker, 26,625 and Mr. Mattia, 28,345; and directors and executive officers as a group, 113,106.
(2)	Some of the shares included in the table above were held in American Depositary Shares, each of which represents five HSBC ordinary shares, including the shares listed above in the first column for Messrs. Herdman, Hernandez and Jalkut and Ms. Disney.
(3)	Represents the number of ordinary shares that may be acquired by HSBC USA directors and executive officers through April 1, 2011 pursuant to the exercise of stock options.
(4)	Represents the number of ordinary shares that may be acquired by HSBC USA directors and executive officers through April 1, 2011 pursuant to the satisfaction of certain conditions.
(5)	Represents the number of ordinary share equivalents owned by executive officers under HSBC-North America (U.S.) Tax Reduction Investment Plan and HSBC-North America Employee Non-Qualified Deferred Compensation Plan which may be shares held in American Depositary Shares, each of which represents five HSBC ordinary shares.
(6)	Each depositary share represents one-fortieth of a share of HSBC's 6.20% Non-Cumulative Dollar Preference Shares, Series A.
(7)	Also a Named Executive Officer.

Item 13. Certain Relationships and Related Transactions, and DirectorIndependence.

Transactions with Related Persons During the fiscal year ended December 31, 2010, HSBC USA was not a participant in any transaction, and there is currently no proposed transaction, in which the amount involved exceeded or will exceed $120,000, and in which a director or an executive officer, or a member of the immediate family of a director or an executive officer, had or will have a direct or indirect material interest. During 2010, HSBC Bank USA provided loans to certain directors and executive officers of HSBC USA and its subsidiaries in the ordinary course of business. Such loans were provided on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to HSBC USA and do not involve more than the normal risk of collectability or present other unfavorable features.

HSBC USA maintains a written Policy for the Review, Approval or Ratification of Transactions with Related Persons, which provides that any "Transaction with a Related Person" must be reviewed and approved or ratified in accordance with specified procedures. The term "Transaction with a Related Person" includes any transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships, in which (1) the aggregate dollar amount involved will or may be expected to exceed $120,000 in any calendar year, (2) HSBC USA or any of its subsidiaries is, or is proposed to be, a participant, and (3) a director or an executive officer, or a member of the immediate family of a director or an executive officer, has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). The following are specifically excluded from the definition of Transaction with a Related Person:

•  compensation paid to directors and executive officers reportable under rules and regulations promulgated by the Securities and Exchange Commission;

•  transactions with other companies if the only relationship of the director, executive officer or family member to the other company is as an employee (other than an executive officer), director or beneficial owner of less than 10 percent of such other company's equity securities;

•  charitable contributions, grants or endowments by HSBC USA or any of its subsidiaries to charitable organizations, foundations or universities if the only relationship of the director, executive officer or family member to the organization, foundation or university is as an employee (other than an executive officer) or a director;

•  transactions where the interest of the director, executive officer or family member arises solely from the ownership of HSBC USA's equity securities and all holders of such securities received or will receive the same benefit on a pro rata basis;

•  transactions where the rates or charges involved are determined by competitive bids;

•  loans made in the ordinary course of business on substantially the same terms (including interest rates and collateral requirements) as those prevailing at the time for comparable loans with persons not related to HSBC USA or any of its subsidiaries that do not involve more that the normal risk for collectability or present other unfavorable features; and

•  transactions involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services.

The policy requires each director and executive officer to notify the Office of the General Counsel in writing of any Transaction with a Related Person in which the director, executive officer or an immediate family member has or will have an interest and to provide specified details of the transaction. The Office of the General Counsel, through the Corporate Secretary, will deliver a copy of the notice to the Board of Directors. The Board of Directors will review the material facts of each proposed Transaction with a Related Person at each regularly scheduled committee meeting and approve, ratify or disapprove the transaction.

The vote of a majority of disinterested members of the Board of Directors is required for the approval or ratification of any Transaction with a Related Person. The Board of Directors may approve or ratify a Transaction with a Related Person if the Board of Directors determines, in its business judgment, based on the review of all available information, that the transaction is fair and reasonable to, and consistent with the best interests of, HSBC USA and its subsidiaries. In making this determination, the Board of Directors will consider, among other things, (i) the business purpose of the transaction, (ii) whether the transaction is entered into on an arms-length basis and on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances, (iii) whether the interest of the director, executive officer or family member in the transaction is material and (iv) whether the transaction would violate any provision of the HSBC North America Holdings Inc. Statement of Business Principles and Code of Ethics, the HSBC USA Inc. Code of Ethics for Senior Financial Officers or the HSBC USA Inc. Corporate Governance Standards, as applicable.

In any case where the Board of Directors determines not to approve or ratify a Transaction with a Related Person, the matter will be referred to the Office of the General Counsel for review and consultation regarding the appropriate disposition of such transaction including, but not limited to, termination of the transaction, rescission of the transaction or modification of the transaction in a manner that would permit it to be ratified and approved.

Director Independence

The HSBC USA Inc. Corporate Governance Standards, together with the charters of the committees of the Board of Directors, provide the framework for our corporate governance. Director independence is defined in the HSBC USA Inc. Corporate Governance Standards, which are based upon the rules of the New York Stock Exchange. The HSBC USA Inc. Corporate Governance Standards are available on our website at www.us.hsbc.com or upon written request made to HSBC USA Inc., 26525 North Riverwoods Boulevard, Mettawa, Illinois 60045, Attention: Corporate Secretary.

According to the HSBC USA's Inc. Corporate Governance Standards, a majority of the members of the Board of Directors must be independent. The composition requirement for each committee of the Board of Directors is as follows:

Committee	Independence/Member Requirements
Audit and Risk Committee	Chair and all voting members
Compliance Committee	A majority of voting members
Fiduciary Committee	Chair and all voting members
Executive Committee	Chair and all voting members, other than the Chief Executive Officer

Ms. Disney and Messrs. Dalton, Hernandez and Jalkut are considered to be independent directors. Ms. Dorner currently serves as President and Chief Executive Officer of HSBC USA and HSBC Bank USA. Mr. Booker currently serves as a director and Chief Executive Officer of HSBC North America and Group Managing Director at HSBC. Because of the positions held by Ms. Dorner and Mr. Booker, they are not considered to be independent directors. Brendan P. McDonagh was a director until July 2010. He was also a director of HSBC North America and a Group Managing Director at HSBC. Because of the positions held by Mr. McDonagh, he was not considered to be an independent director.

See Item 10. Directors, Executive Officers and Corporate Governance - Corporate Governance - Board of Directors - Committees and Charters for more information about our Board of Directors and its committees.

Item 14. Principal Accounting Fees and Services

Audit Fees The aggregate amount billed by our principal accountant, KPMG LLP, for audit services performed was $6 million for each of the fiscal years ended December 31, 2010 and 2009. Audit services include the auditing of financial statements, quarterly reviews, statutory audits, and the preparation of comfort letters, consents and review of registration statements.

Audit Related Fees The aggregate amount billed by KPMG LLP in connection with audit related services performed during the fiscal years ended December 31, 2010 and 2009 was $960,000 and $416,000, respectively. Audit related services include employee benefit plan audits, and audit or attestation services not required by statute or regulation.

Tax Fees Total fees billed by KPMG LLP for tax related services for the fiscal years ended December 31, 2010 and 2009 were $40,000 and $11,000, respectively. These services include tax related research, general tax services in connection with transactions and legislation and tax services for review of Federal and state tax accounts for possible over assessment of interest and/or penalties.

All Other Fees Other than those fees described above, there were no other fees billed for services performed by KPMG LLP during the fiscal years ended December 31, 2010 and December 31, 2009.

All of the fees described above were approved by HSBC USA's Audit and Risk Committee.

The Audit and Risk Committee has a written policy that requires pre-approval of all services to be provided by KPMG LLP, including audit, audit-related, tax and all other services. Pursuant to the policy, the Audit and Risk Committee annually pre-approves the audit fee and terms of the audit services engagement. The Audit and Risk Committee also approves a specified list of audit, audit-related, tax and permissible non-audit services deemed to be routine and recurring services. Any service not included on this list must be submitted to the Audit and Risk Committee for pre-approval. On an interim basis, any proposed engagement that does not fit within the definition of a pre-approved service may be presented to the Chair of the Audit and Risk Committee for approval and to the full Audit and Risk Committee at its next regular meeting.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)(1) Financial Statements

The consolidated financial statements listed below, together with an opinion of KPMG LLP dated February   , 2011 with respect thereto, are included in this Form 10-K pursuant to Item 8. Financial Statements and Supplementary Data of this Form 10-K.

HSBC USA Inc. and Subsidiaries:

Report of Independent Registered Public Accounting Firm

Consolidated Statement of Income (Loss)

Consolidated Balance Sheet

Consolidated Statement of Cash Flows

Consolidated Statement of Changes in Shareholders' Equity

HSBC Bank USA, National Association and Subsidiaries:

Consolidated Balance Sheet

Notes to Financial Statements

(a)(2) Not applicable.

(a)(3) Exhibits

3(i)	Articles of Incorporation and amendments and supplements thereto (incorporated by reference to Exhibit 3(a) to HSBC USA Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999, filed with the Securities and Exchange Commission on March 30, 2000; Exhibit 3 to HSBC USA Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, filed with the Securities and Exchange Commission on November 9, 2000; Exhibits 3.2 and 3.3 to HSBC USA Inc.'s Current Report on Form 8-K dated March 30, 2005, filed with the Securities and Exchange Commission on April 4, 2005; Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K dated October 11, 2005, filed with the Securities and Exchange Commission on October 14, 2005 and Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K dated May 18, 2006, filed with the Securities and Exchange Commission on May 22, 2006).
3(ii)	By-Laws (incorporated by reference to Exhibit 3.3 of HSBC USA Inc.'s Current Report on Form 8-K dated May 13, 2010, filed with the Securities and Exchange Commission on May 17, 2010).
4.1	Senior Indenture, dated as of March 31, 2009, by and between HSBC USA Inc. and Wells Fargo Bank, National Association, as trustee, as amended and supplemented (incorporated by reference to Exhibit 4.1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-158358, filed with the Securities and Exchange Commission on April 2, 2009).
4.2	Senior Indenture, dated as of March 31, 2006, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas, as trustee, as amended and supplemented (incorporated by reference to Exhibit 4.1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-133007, filed with the Securities and Exchange Commission on April 5, 2006; Exhibit 4.16 to HSBC USA Inc.'s Current Report on Form 8-K dated April 21, 2006 and filed with the Securities and Exchange Commission on April 21, 2006; Exhibit 4.17 to HSBC USA Inc.'s Current Report on Form 8-K dated August 15, 2008 and filed with the Securities and Exchange Commission on August 15, 2008; Exhibit 4.18 to HSBC USA Inc.'s Current Report on Form 8-K dated August 15, 2008 and filed with the Securities and Exchange Commission on August 15, 2008; Exhibit 4.19 to HSBC USA Inc.'s Current Report on Form 8-K dated December 16, 2008 and filed with the Securities and Exchange Commission on December 16, 2008; and Exhibit 4.20 to HSBC USA Inc.'s Current Report on Form 8-K dated December 17, 2008 and filed with the Securities and Exchange Commission on December 17, 2008).
4.3	Senior Indenture, dated as of October 24, 1996, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas (as successor in interest to Bankers Trust Company), as trustee, as amended and supplemented (incorporated by reference to Exhibits 4.1 and 4.2 to Post-Effective Amendment No. 1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-42421, filed with the Securities and Exchange Commission on April 3, 2002; and Exhibit 4.1 to HSBC USA Inc.'s Current Report on Form 8-K dated November 21, 2005 and filed with the Securities and Exchange Commission on November 28, 2005).
4.4	Subordinated Indenture, dated as of October 24, 1996, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas (as successor in interest to Bankers Trust Company), as trustee, as amended and supplemented (incorporated by reference to Exhibits 4.3, 4.4, 4.5 and 4.6 to Post-Effective Amendment No. 1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-42421, filed with the Securities and Exchange Commission on April 3, 2002, and Exhibit 4.1 to HSBC USA Inc.'s Current Report on Form 8-K dated September 27, 2010 and filed with the Securities and Exchange Commission on September 27, 2010).
12	Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends.
14	Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14 to HSBC USA Inc.'s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on March 5, 2007).
21	Subsidiaries of HSBC USA Inc.
23	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
24	Power of Attorney (included on the signature page of this Form 10-K).
31	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Upon receiving a written request, we will furnish copies of the exhibits referred to above free of charge. Requests should be made to HSBC USA Inc., 26525 North Riverwoods Boulevard, Mettawa, Illinois 60045, Attention: Corporate Secretary.

Index

Accounting:

new pronouncements 104, 130

policies (critical) 33

policies (significant) 121

Assets:

by business segment 186

consolidated average balances 108

fair value measurements 197

nonperforming 69

trading 43, 132

Asset-backed commercial paper conduits 190

Asset-backed securities 37, 86, 133

Audit committee 88, 222

Auditors' report:

financial statement opinion 110

internal control opinion 111

Balance sheet:

consolidated 113

consolidated average balances 108

review 40

Basel II 12, 17, 30

Basel III 12, 92

Basis of reporting 31, 121

Business:

consolidated performance review 27

operations 6

organization history 4

Capital:

2011 funding strategy 78

common equity movements 76

consolidated statement of changes 115

regulatory capital 187

selected capital ratios 76, 187

Cash flow (consolidated) 116

Cautionary statement regarding forward-looking statements 14

Collateral - pledged assets 208

Collateralized debt obligations 37, 86

Commercial banking segment results (IFRSs) 58, 186

Consumer finance segment results (IFRSs) 56, 186

Committees 88, 221

Competition 13

Contingent liabilities 208

Controls and procedures 216

Corporate governance and controls 14, 221

Customers 6

Credit card fees 49

Credit quality 30, 63

Credit risk:

accounting policy 122

adjustment 26, 208

component of fair value option 162

concentration 212

critical accounting policy 33

exposure 74

management 89

related contingent features 161

related guarantees 193

Compliance risk 87, 101

Critical accounting policies and estimates 33

Current environment 24

Deferred tax assets 39, 164

Deposits 43, 75, 152

Derivatives:

accounting policy 127

cash flow hedges 158

critical accounting policy 38

fair value hedges 157

notional value 161

trading and other 159

Directors:

biographies 216

board of directors 216

executive 219

compensation (executives) 227

responsibilities 221

Employees:

compensation and benefits 227

number of 6

Equity:

consolidated statement of changes 115

ratios 76, 188

Equity securities available-for-sale 133

Estimates and assumptions 33, 121

Executive overview 24

Fair value measurements:

assets and liabilities recorded at fair value on a recurring basis 198

assets and liabilities recorded at fair value on a non-recurring basis 203

control over valuation process 83

financial instruments 197

hierarchy 83

transfers into/out of level one and two 84, 201

transfers into/out of level two and three 85, 201

valuation techniques 204

Fiduciary risk 87, 102

Financial assets:

designated at fair value 162

reclassification under IFRSs 60

Financial highlights metrics 22

Financial liabilities:

designated at fair value 162

fair value of financial liabilities 197, 198

Forward looking statements 14

Funding 6, 30, 78

Future prospects 30

Gains less losses from securities 26, 51, 140

Global Banking and Markets:

balance sheet data (IFRSs) 186

loans and securities reclassified (IFRSs) 60

segment results (IFRSs) 60, 186

Geographic concentration of receivables 213

Goodwill:

accounting policy 126

critical accounting policy 35

Guarantee arrangements 192

Impairment:

available-for-sale securities 135

credit losses 30, 47, 65, 149

nonperforming loans 69 , 143

impaired loans 70 , 144

Income (loss) from financial instruments designated at

fair value, net 52, 163

Income statement 112

Intangible assets 151

Income taxes:

accounting policy 129

critical accounting policy - deferred taxes 39

expense 163

Internal control 216

Interest rate risk 93

Key performance indicators 22

Legal proceedings 22

Leveraged finance transactions 162

Liabilities:

commitments, lines of credit 79, 193

deposits 43, 75, 152

financial liabilities designated at fair value 163

long-term debt 44, 155

short-term borrowings 44, 154

trading 43, 132

Lease commitments 79, 209

Liquidity and capital resources 75

Liquidity risk 91

Litigation 22, 210

Loans:

by category 41, 141

by charge-off (net) 68, 149

by delinquency 67, 149

criticized assets 71, 147

geographic concentration 213

held for sale 42, 150

impaired 71, 147

nonperforming 69, 143

overall review 41

purchases from HSBC Finance 141, 179

risk concentration 212

troubled debt restructures 144

Loan impairment charges - see Provision for credit losses

Loan-to-deposits ratio 22

Market risk 96

Market turmoil:

current environment 24

exposures 26

impact on liquidity risk 75

structured investment vehicles 189

variable interest entities 189

Monoline insurers 26, 60, 74, 139

Mortgage lending products 41, 141

Mortgage servicing rights 39, 151

Net interest income 45

New accounting pronouncement adopted 130

New accounting pronouncements to be adopted in

future periods 104

Off balance sheet arrangements 79

Operating expenses 53

Operational risk 100

Other revenue 49

Other segment results (IFRSs) 62, 186

Pension and other postretirement benefits:

accounting policy 129

Performance, developments and trends 27

Personal financial services segment

results (IFRSs) 55, 186

Pledged assets 208

Private banking segment results (IFRSs) 61, 186

Profit (loss) before tax:

by segment - IFRSs 186

consolidated 112

Properties 22

Property, plant and equipment:

accounting policy 126

Provision for credit losses 28, 47 , 149

Ratios:

capital 76, 188

charge-off (net) 68

credit loss reserve related 65

earnings to fixed charges - Exhibit 12

efficiency 28, 54

financial 22

loans-to-deposits 22

Reconciliation of U.S. GAAP results to IFRSs 31

Refreshed loan-to-value 41

Regulation 8

Related party transactions 178

Reputational risk 87, 103

Results of operations 45

Risks and uncertainties 14

Risk elements in the loan portfolio 212

Risk factors 14

Risk management:

credit 87

compliance 101

fiduciary 102

interest rate 93

liquidity 75, 91

market 96

operational 100

reputational 103

strategic 103

Securities:

fair value 133, 197

impairment 135

maturity analysis 140

Segment results - IFRSs basis:

personal financial services 55 , 186

consumer finance 56 , 186

commercial banking 58 , 186

global banking and markets 59 , 186

private banking 61 , 186

other  62 , 186

overall summary 54, 219

Selected financial data 22

Senior management:

biographies 216

Sensitivity:

projected net interest income 95

Share-based payments:

accounting policy 128

Statement of changes in shareholders' equity 115

Statement of changes in comprehensive income 115

Statement of income (loss) 112

Strategic risk 103

Stress testing 88

Table of contents 3

Tax expense 163

Trading:

assets 43, 132

derivatives 43, 50, 132

liabilities 43, 132

portfolios 132

Trading revenue (net) 50

Troubled debt restructures 144

Value at risk 94

Variable interest entities 189

Unresolved staff comments 22

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, HSBC USA Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this the 28th day of February 2011.

HSBC USA INC.

By: /s/  Irene M. Dorner

Irene M. Dorner

President & Chief Executive Officer

Each person whose signature appears below constitutes and appoints P.D. Schwartz and M.J. Forde as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her in his/her name, place and stead, in any and all capacities, to sign and file, with the Securities and Exchange Commission, this Form 10-K and any and all amendments and exhibits thereto, and all documents in connection therewith, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of HSBC USA Inc. and in the capacities indicated on this the 28th day of February 2011.

Signature	Title
/s/  (I. M. DORNER) (I. M. Dorner)	President & Chief Executive Officer, Director (as Principal Executive Officer)
/s/  (W. R. P. DALTON) (W. R. P. Dalton)	Director
/s/  (A. DISNEY) (A. Disney)	Director
/s/  (R. K. HERDMAN) (R. K. Herdman)	Director
/s/  (L. HERNANDEZ, JR.) (L. Hernandez, Jr.)	Director
/s/  (R. A. JALKUT) (R. A. Jalkut)	Director
/s/  (N. S. K. BOOKER) (N. S. K. Booker)	Chairman and Director
/s/  (J. T. McGINNIS) (J. T. McGinnis)	Executive Vice President and Chief Financial Officer (as Principal Financial Officer)
/s/  (E. K. FERREN) (E. K. Ferren)	Executive Vice President and Chief Accounting Officer (as Principal Accounting Officer)

Exhibit Index

3(i)	Articles of Incorporation and amendments and supplements thereto (incorporated by reference to Exhibit 3(a) to HSBC USA Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999, filed with the Securities and Exchange Commission on March 30, 2000; Exhibit 3 to HSBC USA Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, filed with the Securities and Exchange Commission on November 9, 2000; Exhibits 3.2 and 3.3 to HSBC USA Inc.'s Current Report on Form 8-K dated March 30, 2005, filed with the Securities and Exchange Commission on April 4, 2005; Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K dated October 11, 2005, filed with the Securities and Exchange Commission on October 14, 2005 and Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K dated May 18, 2006, filed with the Securities and Exchange Commission on May 22, 2006).
3(ii)	By-Laws (incorporated by reference to Exhibit 3.3 of HSBC USA Inc.'s Current Report on Form 8-K dated May 13, 2010, filed with the Securities and Exchange Commission on May 17, 2010).
4.1	Senior Indenture, dated as of March 31, 2009, by and between HSBC USA Inc. and Wells Fargo Bank, National Association, as trustee, as amended and supplemented (incorporated by reference to Exhibit 4.1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-158358, filed with the Securities and Exchange Commission on April 2, 2009).
4.2	Senior Indenture, dated as of March 31, 2006, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas, as trustee, as amended and supplemented (incorporated by reference to Exhibit 4.1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-133007, filed with the Securities and Exchange Commission on April 5, 2006; Exhibit 4.16 to HSBC USA Inc.'s Current Report on Form 8-K dated April 21, 2006 and filed with the Securities and Exchange Commission on April 21, 2006; Exhibit 4.17 to HSBC USA Inc.'s Current Report on Form 8-K dated August 15, 2008 and filed with the Securities and Exchange Commission on August 15, 2008; Exhibit 4.18 to HSBC USA Inc.'s Current Report on Form 8-K dated August 15, 2008 and filed with the Securities and Exchange Commission on August 15, 2008; Exhibit 4.19 to HSBC USA Inc.'s Current Report on Form 8-K dated December 16, 2008 and filed with the Securities and Exchange Commission on December 16, 2008; and Exhibit 4.20 to HSBC USA Inc.'s Current Report on Form 8-K dated December 17, 2008 and filed with the Securities and Exchange Commission on December 17, 2008).
4.3	Senior Indenture, dated as of October 24, 1996, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas (as successor in interest to Bankers Trust Company), as trustee, as amended and supplemented (incorporated by reference to Exhibits 4.1 and 4.2 to Post-Effective Amendment No. 1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-42421, filed with the Securities and Exchange Commission on April 3, 2002; and Exhibit 4.1 to HSBC USA Inc.'s Current Report on Form 8-K dated November 21, 2005 and filed with the Securities and Exchange Commission on November 28, 2005).
4.4	Subordinated Indenture, dated as of October 24, 1996, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas (as successor in interest to Bankers Trust Company), as trustee, as amended and supplemented (incorporated by reference to Exhibits 4.3, 4.4, 4.5 and 4.6 to Post-Effective Amendment No. 1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-42421, filed with the Securities and Exchange Commission on April 3, 2002, and Exhibit 4.1 to HSBC USA Inc.'s Current Report on Form 8-K dated September 27, 2010 and filed with the Securities and Exchange Commission on September 27, 2010).
12	Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends.
14	Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14 to HSBC USA Inc.'s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on March 5, 2007).
21	Subsidiaries of HSBC USA Inc.
23	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
24	Power of Attorney (included on the signature page of this Form 10-K).
31	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EXHIBIT 12

HSBC USA INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND

EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

	Year Ended December 31,
	2010	2009	2008	2007	2006
	(dollars are in millions)
Ratios excluding interest on deposits:
Income (loss) from continuing operations	$1,558	$(189)	$(1,733)	$105	$1,017
Income tax (benefit) expense	742	(110)	(943)	(19)	516
Less: Undistributed equity earnings	28	28	35	-	34
Fixed charges:
Interest on:
Borrowed funds	81	74	283	357	300
Long-term debt	605	782	985	1,443	1,457
One third of rents, net of income from subleases	29	24	24	29	25
Total fixed charges, excluding interest on deposits	715	880	1,292	1,829	1,782
(Loss) earnings from continuing operations before taxes and fixed charges, net of undistributed equity earnings	$2,987	$553	$(1,419)	$1,915	$3,281
Ratio of (loss) earnings to fixed charges	4.18	.63	(1.10)	1.05	1.84
Total preferred stock dividend factor(1)	$109	$115	$125	$88	$132
Fixed charges, including the preferred stock dividend factor	$824	$995	$1,417	$1,917	$1,914
Ratio of (loss) earnings from continuing operations to combined fixed charges and preferred stock dividends	3.63	.56	(1.00)	1.00	1.71
Ratios including interest on deposits:
Total fixed charges, excluding interest on deposits	$715	$880	$1,292	$1,829	$1,782
Add: Interest on deposits	580	989	2,419	3,833	3,109
Total fixed charges, including interest on deposits	$1,295	$1,869	$3,711	$5,662	$4,891
(Loss) earnings from continuing operations before taxes and fixed charges, net of undistributed equity earnings	$2,987	$553	$(1,419)	$1,915	$3,281
Add: Interest on deposits	580	989	2,419	3,833	3,109
Total	$3,567	$1,542	$1,000	$5,748	$6,390
Ratio of earnings to fixed charges	2.75	.83	.27	1.02	1.31
Fixed charges, including the preferred stock dividend factor	$824	$995	$1,417	$1,917	$1,914
Add: Interest on deposits	580	989	2,419	3,833	3,109
Fixed charges, including the preferred stock dividend factor and interest on deposits	$1,404	$1,984	$3,836	$5,750	$5,023
Ratio of earnings from continuing operations to combined fixed charges and preferred stock dividends	2.54	.78	.26	1.00	1.27

____________

(1)	Preferred stock dividends grossed up to their pretax equivalents.

EXHIBIT 21

Subsidiaries of HSBC USA Inc.

U.S. Affiliates

Names of Subsidiaries	USA or U.S. State Organized
Beachhouse Properties, Inc.	New York
Cabot Park Holdings, Inc.	Delaware
Capco/Cove, Inc.	New York
Card-Flo #1, Inc.	Delaware
Card-Flo #3, Inc.	Delaware
CBS/Holdings, Inc.	New York
Crossturkey, Inc.	New York
Cross Zou Holding Corp.	New York
Delaware Securities Processing Corp.	Delaware
Eagle Rock Holdings, Inc.	New York
Ellenville Holdings, Inc.	New York
F-Street Holdings, Inc.	Delaware
Giller Ltd.	New York
GWML Holdings, Inc.	Delaware
High Meadow Management, Inc.	New York
HSBC Affinity Corporation I	Delaware
HSBC AFS (USA) LLC	New York
HSBC Bank USA, National Association	USA
HSBC Business Credit (USA) Inc.	Delaware
HSBC CDC LLC	Delaware
HSBC Columbia Funding, LLC	Delaware
HSBC Diamond Trust (USA)	Delaware
HSBC Funding (USA) Inc. V	Delaware
HSBC Global Asset Management (USA) Inc.	New York
HSBC Insurance Agency (USA) Inc.	New York
HSBC International Finance Corporation (Delaware)	USA
HSBC International Investments Corporation (Delaware)	Delaware
HSBC Investment Corporation (Delaware)	Delaware
HSBC Jade Limited Partnership	Nevada
HSBC Land Title Agency (USA) LLC	New York
HSBC Logan Holdings USA, LLC	Delaware
HSBC McKinley Finance, LLC	Delaware
HSBC Mortgage Corporation (USA)	Delaware
HSBC Overseas Corporation (Delaware)	Delaware
HSBC Overseas Investments Corporation (New York)	Maryland
HSBC Private Bank International	USA
HSBC Processing Services (USA) Inc.	Delaware
HSBC Ranier Investments, LLC	Delaware
HSBC Realty Credit Corporation (USA)	Delaware
HSBC Receivables Acquisition Corporation (USA) III	Delaware
HSBC Receivables Acquisition Corporation (USA) IV	Delaware
HSBC Receivables Funding Inc. I	Delaware
HSBC Reinsurance (USA) Inc.	Vermont
HSBC Retail Credit (USA) Inc.	New York
HSBC Trust Company (Delaware), National Association	USA
HSBC USA Capital Trust I	Delaware
HSBC USA Capital Trust II	Delaware
HSBC USA Capital Trust III	Delaware
HSBC USA Capital Trust V	Delaware
HSBC USA Capital Trust VI	Delaware
HSBC USA Capital Trust VII	Delaware
HSBC Whitney Finance, LLC	Delaware
Icon Brickell LLC	Florida
Katonah Close Corp.	New York
LLV 345 SHN Holdings LLC	Nevada
MM Mooring #2 Corp.	New York
Northridge Plaza, Inc.	Delaware
Oakwood Holdings, Inc.	New York
One Main Street, Inc.	Florida
Property Owner (USA) LLC	Delaware
R/CLIP Corp.	Delaware
Republic Overseas Capital Corporation	New York
Republic New York Securities Corporation	Maryland
Sub 1-211, Inc.	Pennsylvania
Sub 2-211, Inc.	Pennsylvania
Timberlink Settlement Services (USA) Inc.	Delaware
Tower Holding New York Corp.	New York
Tower L.I.C. Corp.	New York
Tower Pierrepont Corp.	New York
TPBC Acquisition Corp.	Florida
Trumball Management, Inc.	New York
West 56th and 57th Street Corp.	New York

Non-U.S. Affiliates:

Names of Subsidiaries	Country Organized
HRMG Nominees Limited	Guernsey
HSBC Alternative Investments Limited	United Kingdom
HSBC Alternative Investments (Guernsey) Limited	Guernsey
HSBC Financial Services (Uruguay) S.A.	Uruguay
HSBC Investment Holdings (Guernsey) Limited	Guernsey
HSBC Management (Guernsey) Limited	Guernsey
Republic Bullion (Far East) Limited	Hong Kong

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

HSBC USA Inc.:

We consent to the incorporation by reference in the Registration Statements (No. 333-158385, 333-133007, 333-42421, 333-42421-01, 333-42421-02, 333-127603) on Form S-3 of HSBC USA Inc. of our reports dated February 28, 2011, with respect to the consolidated balance sheets of HSBC USA Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income (loss), changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2010, and the consolidated balance sheets of HSBC Bank USA, National Association and subsidiaries as of December 31, 2010 and 2009, and the effectiveness of internal control over financial reporting as of December 31, 2010, which reports appear in the December 31, 2010 annual report on Form 10-K of HSBC USA Inc. Our report dated February 28, 2011 on the consolidated financial statements referred to above included an explanatory paragraph describing that the Company changed its method of accounting for other-than-temporary impairments of debt securities in 2009.

/s/  KPMG LLP

New York, New York

February 28, 2011

EXHIBIT 31

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer

I, Irene M. Dorner, President and Chief Executive Officer of HSBC USA Inc., certify that:

1. I have reviewed this annual report on Form 10-K of HSBC USA Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 28, 2011

/s/  IRENE M. DORNER

Irene M. Dorner

President and Chief Executive Officer

Certification of Chief Financial Officer

I, John T. McGinnis, Executive Vice President and Chief Financial Officer of HSBC USA Inc., certify that:

1. I have reviewed this annual report on Form 10-K of HSBC USA Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 28, 2011

/s/  JOHN T. MCGINNIS

John T. McGinnis

Executive Vice President and

Chief Financial Officer

EXHIBIT 32

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

The certification set forth below is being submitted in connection with the HSBC USA Inc. (the "Company") Annual Report on Form 10-K for the period ending December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code.

I, Irene M. Dorner, President and Chief Executive Officer of the Company, certify that:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of HSBC USA Inc.

Date: February 28, 2011

/s/  IRENE M. DORNER

Irene M. Dorner

President and Chief Executive Officer

Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

The certification set forth below is being submitted in connection with the HSBC USA Inc. (the "Company") Annual Report on Form 10-K for the period ending December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code.

I, John T. McGinnis, Executive Vice President and Chief Financial Officer of the Company, certify that:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of HSBC USA Inc.

Date: February 28, 2011

/s/  JOHN T. MCGINNIS

John T. McGinnis

Executive Vice President and

Chief Financial Officer

These certifications accompany each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by HSBC USA Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Signed originals of these written statements required by Section 906 of the Sarbanes-Oxley Act of 2002 have been provided to HSBC USA Inc. and will be retained by HSBC USA Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

END

 

 

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