HSBC USA Inc Form 10-K Pt 2

RNS Number : 1552Y

HSBC Holdings PLC

26 February 2012

9. Allowance for Credit Losses

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


	2011	2010	2009
	(In millions)
Balance at beginning of year..............................................................................................................................	$ 852	$ 1,602	$ 1,027
Provision for credit losses...................................................................................................................................	258	34	1,431
Charge-offs............................................................................................................................................................	(386 )	(806 )	(933 )
Recoveries.............................................................................................................................................................	65	53	76
Allowance on loans transferred to held for sale..............................................................................................	(46 )	(33 )	(12 )
Allowance related to bulk loan purchase from HSBC Finance......................................................................	-	-	13
Other.......................................................................................................................................................................	-	2	-

Balance at end of year..........................................................................................................................................	$ 743	$ 852	$ 1,602

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, 2011, 2010 and 2009:


	Commercial				Consumer
	Construction and Other Real Estate	Business Banking and Middle Market Enterprises	Global Banking	Other Comm'l	Residential Mortgage, Excl Home Equity Mortgages	Home Equity Mortgages	Credit Card	Auto Finance	Other Consumer	Total
	(in millions)
Year Ended December 31, 2011:
Allowance for credit losses - beginning of period.............	$ 243	$ 132	$ 116	$ 32	$ 167	$ 77	$ 58	$ -	$ 27	$ 852
Provision charged to income.............................	11	(3 )	31	(28 )	133	49	46	-	19	258
Charge offs..............................	(51 )	(53 )	-	(6 )	(106 )	(70 )	(71 )	-	(29 )	(386 )
Recoveries..............................	9	12	-	23	5	-	12	-	4	65

Net charge offs.........................	(42 )	(41 )	-	17	(101 )	(70 )	(59 )	-	(25 )	(321 )
Allowance on loans transferred to held for sale.......................	-	(10 )	(16 )	-	(7 )	(4 )	(6 )	-	(3 )	(46 )
Other.....................................	-	-	-	-	-	-	-	-	-	-

Allowance for credit losses - end of period...........................	$ 212	$ 78	$ 131	$ 21	$ 192	$ 52	$ 39	$ -	$ 18	$ 743

Ending balance: collectively evaluated for impairment........................	$ 98	$ 66	$ 41	$ 21	$ 104	$ 48	$ 32	$ -	$ 18	$ 428
Ending balance: individually evaluated for impairment⁽¹⁾....	114	12	90	-	88	4	7	-	-	315

Total allowance for credit losses.	$ 212	$ 78	$ 131	$ 21	$ 192	$ 52	$ 39	$ -	$ 18	$ 743

Loans:
Collectively evaluated for impairment........................	$ 7,127	$ 9,515	$ 12,521	$ 3,399	$ 12,817	$ 2,550	$ 807	$ -	$ 714	$ 49,450
Individually evaluated for impairment........................	733	127	137	90	547	13	21	-	-	1,668
Loans carried at fair value less cost to sell........................	-	-	-	-	749	-	-	-	-	749

Total loans.............................	$ 7,860	$ 9,642	$ 12,658	$ 3,489	$ 14,113	$ 2,563	$ 828	$ -	$ 714	$ 51,867

Year Ended December 31, 2010:
Allowance for credit losses - beginning of period.............	$ 303	$ 184	$ 301	$ 119	$ 347	$ 185	$ 80	$ 36	$ 47	$ 1,602
Provision charged to income.............................	101	19	(163 )	(35 )	(14 )	13	68	35	10	34
Charge offs..............................	(173 )	(88 )	(24 )	(59 )	(170 )	(121 )	(98 )	(37 )	(36 )	(806 )
Recoveries..............................	12	17	2	5	4	-	8	(1 )	6	53

Net charge offs.........................	(161 )	(71 )	(22 )	(54 )	(166 )	(121 )	(90 )	(38 )	(30 )	(753 )
Allowance on loans transferred to held for sale.......................	-	-	-	-	-	-	-	(33 )	-	(33 )
Other.....................................	-	-	-	2	-	-	-	-	-	2

Allowance for credit losses - end of period...........................	$ 243	$ 132	$ 116	$ 32	$ 167	$ 77	$ 58	$ -	$ 27	$ 852

Ending balance: collectively evaluated for impairment........................	$ 159	$ 106	$ 44	$ 26	$ 118	$ 74	$ 49	$ -	$ 27	$ 603
Ending balance: individually evaluated for impairment⁽¹⁾....	84	26	72	6	49	3	9	-	-	249

Total allowance for credit losses.	$ 243	$ 132	$ 116	$ 32	$ 167	$ 77	$ 58	$ -	$ 27	$ 852

Loans:
Collectively evaluated for impairment......................	$ 7,473	$ 7,793	$ 10,640	$ 2,970	$ 12,411	$ 3,812	$ 1,223	$ -	$ 1,039	$ 47,361
Individually evaluated for impairment......................	755	152	105	115	394	8	27	-	-	1,556
Loans carried at fair value less cost to sell.......................	-	-	-	-	892	-	-	-	-	892

Total loans............................	$ 8,228	$ 7,945	$ 10,745	$ 3,085	$ 13,697	$ 3,820	$ 1,250	$ -	$ 1,039	$ 49,809

Year Ended December 31, 2009:
Allowance for credit losses - beginning of period............	$ 186	$ 189	$ 131	$ 31	$ 207	$ 167	$ 74	$ 5	$ 37	$ 1,027
Provision charged to income............................	177	137	215	93	364	195	100	104	46	1,431
Charge offs............................	(64 )	(158 )	(45 )	(8 )	(235 )	(189 )	(100 )	(92 )	(42 )	(933 )
Recoveries.............................	4	16	-	3	11	12	6	18	6	76

Net charge offs........................	(60 )	(142 )	(45 )	(5 )	(224 )	(177 )	(94 )	(74 )	(36 )	(857 )
Allowance on loans transferred to held for sale......................	-	-	-	-	-	-	-	(12 )	-	(12 )
Other....................................	-	-	-	-	-	-		13	-	13

Allowance for credit losses - end of period..........................	$ 303	$ 184	$ 301	$ 119	$ 347	$ 185	$ 80	$ 36	$ 47	$ 1,602

Ending balance: collectively evaluated for impairment......................	$ 201	$ 154	$ 190	$ 26	$ 314	$ 183	$ 76	$ 36	$ 47	$ 1,227
Ending balance: individually evaluated for impairment⁽¹⁾..	102	30	111	93	33	2	4	-	-	375

Total allowance for credit losses	$ 303	$ 184	$ 301	$ 119	$ 347	$ 185	$ 80	$ 36	$ 47	$ 1,602

Loans:
Collectively evaluated for impairment......................	$ 8,162	$ 7,375	$ 9,280	$ 3,664	$ 13,146	$ 4,159	$ 1,253	$ 1,701	$ 1,188	$ 49,928
Individually evaluated for impairment......................	696	146	445	246	168	5	20	-	-	1,726
Loans carried at fair value less cost to sell.......................	-	-	-	-	408	-	-	-	-	408

Total loans............................	$ 8,858	$ 7,521	$ 9,725	$ 3,910	$ 13,722	$ 4,164	$ 1,273	$ 1,701	$ 1,188	$ 52,062

⁽¹⁾ For consumer loans, these amounts represent TDR Loans for which we evaluate reserves using a discounted cash flow methodology. Each loan is individually identified as a TDR Loan and then grouped together with other TDR Loans with similar characteristics. The discounted cash flow analysis is then applied to these groups of TDR Loans.

10. Loans Held for Sale

Loans held for sale consisted of the following:


At December 31,	2011	2010
	(in millions)
Commercial loans.......................................................................................................................................................................	$ 965	$ 1,356

Consumer loans:
Residential mortgages.........................................................................................................................................................	2,058	954
Credit cards receivables......................................................................................................................................................	416	-
Other consumer....................................................................................................................................................................	231	80

Total consumer..........................................................................................................................................................................	2,705	1,034

Total loans held for sale...........................................................................................................................................................	$ 3,670	$ 2,390

Included in loans held for sale at December 31, 2011 are $2.5 billion of loans that are being sold as part of our agreement to sell certain branches to First Niagara. Included in this amount are $521 million of commercial loans, $1.4 billion of residential mortgages, $416 million of credit card receivables and $161 million of other consumer loans. Credit card, private label credit card and closed-end loans being sold to Capital One are included in Assets of discontinued operations on our balance sheet.

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, 2011 and 2010. The fair value of commercial loans held for sale under this program was $377 million and $1.0 billion at December 31, 2011 and 2010, respectively, all of which are recorded at fair value as we have elected to designate these loans under fair value option. We provided 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. As of December 31, 2011, there were none of these loans outstanding. See Note 18, "Fair Value Option," for additional information.

In addition to the residential mortgage loans being sold to First Niagara discussed above, residential mortgage loans held for sale include subprime residential mortgage loans with a fair value of $181 million and $391 million at December 31, 2011 and 2010, 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 subprime residential mortgage loans with a carrying amount of $229 million and $276 million in 2011 and 2010, respectively. 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.

Excluding the commercial loans designated under fair value option discussed above, loans held for sale are recorded at the lower of amortized cost or fair value. While the initial carrying amount of loans held for sale continued to exceed fair value at December 31, 2011, we experienced a decrease in the valuation allowance during 2011 due primarily to loan sales. The valuation allowance on loans held for sale was $251 million and $435 million at December 31, 2011 and 2010, 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 residential mortgage banking revenue (loss) in the consolidated statement of income, was a loss of $11 million during 2011 and gains of $3 million and $15 million during 2010 and 2009, respectively.

11. Properties and Equipment, Net

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


At December 31,	2011	2010	Depreciable Life
	(in millions)
Land...................................................................................................................................................................	$ 63	$ 72	-
Buildings and improvements..........................................................................................................................	832	968	10-40 years
Furniture and equipment.................................................................................................................................	138	363	3-30

Total...................................................................................................................................................................	1,033	1,403
Accumulated depreciation and amortization...............................................................................................	(575 )	(854 )

Properties and equipment, net.......................................................................................................................	$ 458	$ 549

Depreciation and amortization expense totaled $82 million, $79 million and $69 million in 2011, 2010 and 2009, respectively.

12. Intangible Assets

Intangible assets consisted of the following:


At December 31,	2011	2010
	(in millions)
Mortgage servicing rights................................................................................................................................................................	$ 227	$ 403
Other....................................................................................................................................................................................................	15	21

Total other intangible assets............................................................................................................................................................	$ 242	$ 424

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,	2011	2010
Annualized constant prepayment rate ("CPR").....................................................................................................	21.4 %	14.1 %
Constant discount rate..............................................................................................................................................	11.3 %	13.6 %
Weighted average life................................................................................................................................................	3.4 years	4.9 years

Residential MSRs activity is summarized in the following table:


Year Ended December 31,	2011	2010
	(in millions)
Fair value of MSRs:
Beginning balance..........................................................................................................................................................	$ 394	$ 450
Additions related to loan sales....................................................................................................................................	39	48
Changes in fair value due to:
Change in valuation inputs or assumptions used in the valuation models.....................................................	(136 )	(12 )
Realization of cash flows.........................................................................................................................................	(77 )	(92 )

Ending balance.....................................................................................................................................................................	$ 220	$ 394

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,	2011	2010
	(in millions)
Outstanding principal balances at period end.................................................................................................................	$ 39,937	$ 44,407

Custodial balances maintained and included in noninterest bearing deposits at period end..................................	$ 838	$ 960

Servicing fees collected are included in residential mortgage banking revenue (loss) and totaled $109 million, $121 million and $129 million during 2011, 2010 and 2009, respectively.

Commercial mortgage servicing rights Commercial MSRs, which are accounted for using the lower of amortized cost or fair value method, totaled $7 million and $9 million at December 31, 2011 and 2010, respectively.

Other Intangible Assets Other intangible assets, which result from purchase business combinations, are comprised of favorable lease arrangements of $12 million and $16 million at December 31, 2011 and 2010, respectively, and customer lists of $3 million and $5 million at December 31, 2011 and 2010, respectively.

13. Goodwill

Goodwill was $2.2 billion and $2.6 billion at December 31, 2011 and 2010, and includes accumulated impairment losses of $54 million. In 2011, $398 million of goodwill has been allocated to the branch operations being sold to First Niagara and is classified within other branch assets held for sale. See Note 4, "Branch Assets and Liabilities Held for Sale," for further discussion. As it relates to our discontinued operations, goodwill totaling $21 million was reclassified to the assets of our Asian Banknotes Operations in 2010. See Note 3, "Discontinued Operations," for further discussion.

As a result of increased market volatility during the second half of 2011, we performed an interim impairment test of the goodwill associated with our Global Banking and Markets reporting unit as of December 31, 2011. As a result of this test, the fair value of the Global Banking and Markets reporting unit continued to exceed its carrying value, including goodwill. At December 31, 2011, goodwill totaling $612 million has been allocated to our Global Banking and Markets reporting unit. As of December 31, 2011 the book value including goodwill of our Global Banking and Markets reporting unit was 80 percent of fair value. Our goodwill impairment testing is however, highly sensitive to certain assumptions and estimates used as discussed above. We continue to perform periodic analyses of the risks and strategies of our business and product offerings. 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 be required in 2012.

14. 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 $4.8 billion and $5.4 billion at December 31, 2011 and 2010, respectively. At December 31, 2011 and 2010, deposits totaling $9.8 billion and $7.4 billion, respectively, were carried at fair value. The scheduled maturities of all time deposits at December 31, 2011 are summarized in the following table.


	Domestic Offices	Foreign Offices	Total
	(in millions)
2012:
0-90 days.........................................................................................................................................................	$ 3,736	$ 6,438	$ 10,174
91-180 days.....................................................................................................................................................	1,136	187	1,323
181-365 days...................................................................................................................................................	1,521	148	1,669

	6,393	6,773	13,166
2013.......................................................................................................................................................................	887	-	887
2014.......................................................................................................................................................................	1,073	16	1,089
2015.......................................................................................................................................................................	1,391	-	1,391
2016.......................................................................................................................................................................	2,092	12	2,104
Later years............................................................................................................................................................	5,383	-	5,383

	$ 17,219	$ 6,801	$ 24,020

Overdraft deposits, which are classified as loans, were approximately $1.2 billion and $1.2 billion at December 31, 2011 and 2010, respectively.

15. Short-Term Borrowings

Short-term borrowings consisted of the following:


	December 31
	2011		Rate	2010		Rate
	(dollars are in millions)
Federal funds purchased (day to day)...........................................	$ 90			$ 78
Securities sold under repurchase agreements⁽¹⁾⁽²⁾..........................	7,417		.22 %	7,317		.20 %
Average during year.........................................................................		$ 11,579	.28		$ 7,865	.68
Maximum month-end balance..........................................................		15,088			11,862
Commercial paper...............................................................................	4,836		.06	6,049		.23
Average during year.........................................................................		3,931	.19		6,284	.25
Maximum month-end balance..........................................................		6,134			6,849
Precious metals..................................................................................	1,639			1,438
Other....................................................................................................	2,027			305

Total short-term borrowings............................................................	$ 16,009			$ 15,187

⁽¹⁾ Exceeded 30 percent of shareholders' equity at December 31, 2011 and 2010.

⁽²⁾ The following table presents the quarter end and average quarterly balances of securities sold under repurchase agreements:


	2011				2010
	Fourth	Third	Second	First	Fourth	Third	Second	First
	(in millions)
Quarter end balance..............................	$ 7,417	$ 12,913	$ 8,463	$ 8,807	$ 7,317	$ 10,330	$ 4,688	$ 1,103
Average quarterly balance...................	11,560	10,913	9,927	13,949	9,842	8,900	6,820	5,838

At December 31, 2011, we had a committed unused line of credit from HSBC France of $2.5 billion. This line of credit does not require compensating balance arrangements and commitment fees are not significant. At December 31, 2010, we had a committed unused line of credit with HSBC Bank plc for $2.5 billion, which matured during 2011. At December 31, 2011 and 2010, 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, 2011 and 2010, 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, 2011 and 2010. See Note 16, "Long-Term Debt," for further information regarding these borrowings.

16. 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, 2011 are shown in parentheses.


At December 31,	2011	2010
	(in millions)
Issued by HSBC USA:
Non-subordinated debt:
Medium-Term Floating Rate Notes due 2011-2023 (.05% - 2.63%).........................................................................	$ 2,975	$ 2,998
$4 billion Floating Rate Notes due 2013-2016 (1.16% - 1.91%)................................................................................	4,000	1,000
$2,325 million 3.125% Guaranteed Notes due 2011.....................................................................................................	-	2,301
$350 million 3-Year Floating Rate Guaranteed Notes due 2011................................................................................	-	346
$250 million 2-Year Floating Rate Notes due 2011......................................................................................................	-	250

	6,975	6,895
Subordinated debt:
Fixed Rate Subordinated Notes due 2011-2097 (5.00% - 9.50%).............................................................................	1,320	1,418
Perpetual Floating Rate Capital Notes (.60%).............................................................................................................	129	128
Junior Subordinated Debentures due 2026-2032 (7.75% - 8.38%)...........................................................................	868	868

	2,317	2,414

Total issued by HSBC USA................................................................................................................................................	9,292	9,309

Issued or acquired by HSBC Bank USA and its subsidiaries:
Non-subordinated debt:
Global Bank Note Program:
Medium-Term Notes due 2011-2040 (.05% - 1.53%)..................................................................................................	657	804
4.95% Fixed Rate Senior Notes due 2012.....................................................................................................................	25	25

	682	829
Federal Home Loan Bank of New York advances:
Fixed Rate FHLB advances due 2011-2037 (3.68% - 7.24%).....................................................................................	7	7
Floating Rate FHLB advance due 2036 (.47%)............................................................................................................	1,000	1,000

	1,007	1,007
Precious metal leases due 2011-2014 (1.50%)...................................................................................................................	50	46
Secured financings with Structured Note Vehicles⁽¹⁾.......................................................................................................	189	320
Other.......................................................................................................................................................................................	18	49

Total non-subordinated debt..............................................................................................................................................	1,946	2,251

Subordinated debt:
4.625% Global Subordinated Notes due 2014.............................................................................................................	998	997
Other..................................................................................................................................................................................	55	55
Global Bank Note Program:
Fixed Rate Global Bank Notes due 2017-2039 (4.875% - 7.00%)..............................................................................	4,152	4,176

Total subordinated debt......................................................................................................................................................	5,205	5,228

Total issued or acquired by HSBC Bank USA and its subsidiaries..............................................................................	7,151	7,479

Obligations under capital leases........................................................................................................................................	266	292

Total long-term debt.............................................................................................................................................................	$ 16,709	$ 17,080

⁽¹⁾ See Note 27, "Variable Interest Entities," for additional information.

The table excludes $900 million of long-term debt at December 31, 2011 and 2010, due to us from HSBC Bank USA and our subsidiaries. Of this amount, the earliest note is due to mature in 2022 and the latest note is due to mature in 2097.

Foreign currency denominated long-term debt was immaterial at December 31, 2011 and 2010.

At December 31, 2011 and 2010, we have elected fair value option accounting for some of our medium-term floating rate notes and certain subordinated debt. See Note 18, "Fair Value Option," for further details. At December 31, 2011 and 2010, medium term notes totaling $3.4 billion and $3.7 billion, respectively, were carried at fair value. Subordinated debt of $1.7 billion was carried at fair value at December 31, 2011 and 2010.

In addition, in April 2011, we issued senior notes in the amount of $3.0 billion to HNAH. These notes mature in three equal installments of $1.0 billion in April 2013, 2015 and 2016. The notes bear interest at 90 day USD Libor plus a spread, with each maturity at a different spread.

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.

During the third quarter of 2011, we notified the holders of our outstanding Putable Capital Notes with an aggregate principal amount of $129 million (the "Notes") that, pursuant to the terms of the Notes, we had elected to revoke the obligation to exchange capital securities for the Notes and would redeem the Notes in full. The Notes were redeemed in January 2012.

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, 2011, including secured financings and conduit facility renewals, were as follows:


	(in millions)
2012............................................................................................................................................................................................................	$ 2,393
2013............................................................................................................................................................................................................	1,640
2014............................................................................................................................................................................................................	2,464
2015............................................................................................................................................................................................................	1,225
2016............................................................................................................................................................................................................	1,236
Thereafter..................................................................................................................................................................................................	7,751

Total...........................................................................................................................................................................................................	$ 16,709

17. 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 losses of $74 million during 2011 compared to net gains of $33 million during 2010 which are reported in other income (loss) 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 amount 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 life of the hedged item. We recorded basis adjustments for active fair value hedges which increased the carrying amount of our debt by $17 million and $32 million during 2011 and 2010, respectively. We amortized $11 million and $10 million of basis adjustments related to terminated and/or re-designated fair value hedge relationships during 2011 and 2010, respectively. The total accumulated unamortized basis adjustment amounted to an increase in the carrying amount of our debt of $53 million and $73 million as of December 31, 2011 and 2010, respectively. Basis adjustments for active fair value hedges of available-for-sale securities increased the carrying amount of the securities by $1.0 billion during 2011 compared to an increase in the carrying amount of the securities by $123 million during 2010. Total accumulated unamortized basis adjustments for active fair value hedges of available-for-sale securities amounted to an increase in carrying amount of $1.1 billion and $71 million as of December 31, 2011 and 2010, respectively.

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


	Derivative Assets⁽¹⁾			Derivative Liabilities⁽¹⁾
	Balance Sheet	Fair Value as of December 31,		Balance Sheet	Fair Value as of December 31,
	Location	2011	2010	Location	2011	2010
				(in millions)
Interest rate contracts..............................................................	Other assets	$ 4	$ 140	Interest, taxes and other liabilities	$ 1,134	$ 164

⁽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).


	Location of Gain (Loss) Recognized in Income on Derivatives	Amount of Gain (Loss) Recognized in Income on Derivatives Year Ended December 31,
		2011	2010
		(in millions)
Interest rate contracts.....................................................................................................	Other income (loss)	$ (1,773 )	$ (378 )
Interest rate contracts.....................................................................................................	Interest income	(4 )	54

Total...................................................................................................................................		$ (1,777 )	$ (324 )

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, 2011:
Interest rate contracts/AFS Securities...............................................	$ (31 )	$ (1,762 )	$ 712	$ 1,694
Interest rate contracts/commercial loans...........................................	(22 )	2	-	(5 )
Interest rate contracts/subordinated debt........................................	50	(13 )	(104 )	10

Total........................................................................................................	$ (3 )	$ (1,773 )	$ 608	$ 1,699

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

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 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 to that date 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, 2011 and 2010, active cash flow hedge relationships extend or mature through July 2036 and December 2012, respectively. During 2011 and 2010, $13 million and $10 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 $17 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⁾
	Balance Sheet	Fair Value as of December 31,		Balance Sheet	Fair Value as of December 31,
	Location	2011	2010	Location	2011	2010
	(in millions)
Interest rate contracts....................................................................	Other assets	$ 29	$ -	Interest, taxes and other liabilities	$ 248	$ 18

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


	Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)		Location of Gain (Loss) Reclassified from AOCI into Income (Effective	Gain (Loss) Reclassed From AOCI into Income (Effective Portion)		Location of Gain (Loss) Recognized in Income on the Derivative (Ineffective Portion and Amount Excluded from	Gain (Loss) Recognized in Income on the Derivative (Ineffective Portion)
	2011	2010	Portion)	2011	2010	Effectiveness Testing)	2011	2010
	(in millions)
Interest rate contracts..............	$ (265 )	$ 11	Other income (loss)	$ (13 )	$ (10 )	Other income (loss)	$ (5 )	$ (1 )

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 in trading revenue or residential mortgage banking revenue (loss). 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 or residential mortgage banking revenue (loss) while the derivative asset or liability positions are reflected as other assets or other liabilities. As of December 31, 2011, 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 (loss). 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⁾
	Balance Sheet	Fair Value as of December 31,		Balance Sheet	Fair Value as of December 31,
	Location	2011	2010	Location	2011	2010
	(in millions)
Interest rate contracts............................................	Trading assets	$ 60,719	$ 32,047	Trading liabilities	$ 61,280	$ 32,526
Foreign exchange contracts..................................	Trading assets	15,654	16,367	Trading liabilities	15,413	16,742
Equity contracts......................................................	Trading assets	1,165	950	Trading liabilities	1,164	986
Precious metals contracts......................................	Trading assets	1,842	1,004	Trading liabilities	1,248	2,073
Credit contracts.......................................................	Trading assets	14,388	12,766	Trading liabilities	14,285	12,506
Other.........................................................................	Trading assets	-	4	Trading liabilities	-	23

Total..........................................................................		$ 93,768	$ 63,138		$ 93,390	$ 64,856

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⁾
	Balance Sheet	Fair Value as of December 31,		Balance Sheet	Fair Value as of December 31,
	Location	2011	2010	Location	2011	2010
	(in millions)
Interest rate contracts................................................................	Other assets	$ 957	$ 420	Interest, taxes and other liabilities	$ 106	$ 82
Foreign exchange contracts......................................................	Other assets	11	96	Interest, taxes and other liabilities	13	4
Equity contracts..........................................................................	Other assets	51	221	Interest, taxes and other liabilities	87	10
Credit contracts...........................................................................	Other assets	2	2	Interest, taxes and other liabilities	8	17

Total..............................................................................................		$ 1,021	$ 739		$ 214	$ 113

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).


	Location of Gain (Loss)	Amount of Gain (Loss) Recognized in Income on Derivatives Year Ended December 31,
	Recognized in Income on Derivatives	2011	2010
	(in millions)
Interest rate contracts...........................................................	Trading revenue (loss)	$ (83 )	$ 102
Interest rate contracts...........................................................	Residential mortgage banking revenue (loss)	119	66
Foreign exchange contracts.................................................	Trading revenue (loss)	263	354
Equity contracts.....................................................................	Trading revenue (loss)	128	21
Precious metals contracts.....................................................	Trading revenue (loss)	114	109
Credit contracts......................................................................	Trading revenue (loss)	(174 )	(69 )
Other........................................................................................	Trading revenue (loss)	1	10

Total.........................................................................................		$ 368	$ 593

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).


	Location of Gain (Loss)	Amount of Gain (Loss) Recognized in Income on Derivatives Year Ended December 31,
	Recognized in Income on Derivatives	2011	2010
	(in millions)
Interest rate contracts............................................................	Other income (loss)	$ 677	$ 325
Interest rate contracts............................................................	Residential mortgage banking revenue (loss)	(11 )	4
Foreign exchange contracts..................................................	Other income (loss)	38	25
Equity contracts.....................................................................	Other income (loss)	22	451
Credit contracts......................................................................	Other income (loss)	(2 )	(17 )
Other.........................................................................................	Other income (loss)	-	1

Total.........................................................................................		$ 724	$ 789

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, 2011, is $8.5 billion for which we have posted collateral of $10.3 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, 2010, is $5.1 billion for which we have posted collateral of $7.3 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 28, "Guarantee Arrangements," and Note 30, "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 tables 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.......................................................................................................................................................................................	$ -	$ 263	$ 356
P-2.......................................................................................................................................................................................	50	361	502


S&P	Long-Term Ratings
Short-Term Ratings	AA-	A+	A
	(in millions)
A-1+....................................................................................................................................................................................	$ -	$ 264	$ 350
A-1......................................................................................................................................................................................	59	383	529

We would be required to post $64 million of additional collateral on total return swaps and certain other transactions if HSBC Bank USA is downgraded by S&P and Moody's by two notches on our long term rating accompanied by one notch downgrade in our short term rating.

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


At December 31,	2011	2010
	(in billions)
Interest rate:
Futures and forwards...................................................................................................................................................	$ 320.3	$ 356.9
Swaps.............................................................................................................................................................................	2,325.1	1,773.0
Options written.............................................................................................................................................................	69.9	62.9
Options purchased.......................................................................................................................................................	67.3	63.9

	2,782.6	2,256.7

Foreign Exchange:
Swaps, futures and forwards......................................................................................................................................	725.0	603.3
Options written.............................................................................................................................................................	39.7	22.0
Options purchased.......................................................................................................................................................	40.4	22.3
Spot.................................................................................................................................................................................	60.1	56.5

	865.2	704.1

Commodities, equities and precious metals:
Swaps, futures and forwards......................................................................................................................................	50.2	36.1
Options written.............................................................................................................................................................	8.2	9.1
Options purchased.......................................................................................................................................................	17.1	16.4

	75.5	61.6

Credit derivatives...............................................................................................................................................................	657.3	701.0

Total.....................................................................................................................................................................................	$ 4,380.6	$ 3,723.4

18. 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, 2011, commercial leveraged acquisition finance loans held for sale and related unfunded commitments of $377 million carried at fair value had an aggregate unpaid principal balance of $448 million. 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.

We have provided 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. The fair value of these commercial loans was $273 million at December 31, 2010. The unpaid principal balance of these loans was $270 million at December 31, 2010. There were none of these commercial loans outstanding as of December 31, 2011.

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. 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, 2011 and 2010, 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, 2011 and 2010 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. 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, 2011, interest bearing deposits in domestic offices included $9.8 billion of structured deposits accounted for under FVO which had an unpaid principal balance of $9.6 billion. 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. Long-term debt at December 31, 2011 included structured notes of $3.4 billion accounted for under FVO which had an unpaid principal balance of $3.5 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. Interest on this debt is recorded as interest expense in the consolidated statement of income. 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 financial instrument 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 the financial instrument accounted for under FVO are as follows:


	Year Ended December 31,
	2011				2010
	Loans	Long- Term Debt	Hybrid Instruments	Total	Loans	Long- Term Debt	Hybrid Instruments	Total
	(in millions)
Interest rate component..................................................	$ (5 )	$ (345 )	$ (391 )	$ (741 )	$ 2	$ (99 )	$ (556 )	$ (653 )
Credit risk component.....................................................	(14 )	376	113	475	42	62	41	145

Total mark-to-market on financial instruments designated at fair value..............................................	(19 )	31	(278 )	(266 )	44	(37 )	(515 )	(508 )
Net realized loss on financial instruments....................	(1 )	-	-	(1 )	-	-	-	-
Mark-to-market on the related derivatives...................	-	369	305	674	(3 )	199	529	725
Net realized gain on the related long-term debt derivatives...................................................................	-	64	-	64	-	77	-	77

Gain (loss) on instruments designated at fair value and related derivatives...............................................	$ (20 )	$ 464	$ 27	$ 471	$ 41	$ 239	$ 14	$ 294

19. Income Taxes

Total income taxes for continuing operations were as follows.


Year Ended December 31,	2011	2010	2009
	(in millions)
Provision (benefit) for income taxes.........................................................................................................................	$ 227	$ 439	$ (98 )
Income taxes related to adjustments included in common shareholder's equity:
Unrealized gains (losses) on securities available-for-sale, net.......................................................................	552	96	248
Unrealized gains (losses) on derivatives classified as cash flow hedges.....................................................	(110 )	10	101
Employer accounting for post-retirement plans................................................................................................	(3 )	(2 )	-
Other-than-temporary impairment.......................................................................................................................	1	30	(31 )

Total..............................................................................................................................................................................	$ 667	$ 573	$ 220

The components of income tax expense (benefit) follow.


Year Ended December 31,	2011	2010	2009
	(in millions)
Current:
Federal....................................................................................................................................................................	$ 316	$ 85	$ 300
State and local.......................................................................................................................................................	143	33	34
Foreign....................................................................................................................................................................	57	47	29

Total current................................................................................................................................................................	516	165	363
Deferred, primarily federal.........................................................................................................................................	(289 )	274	(461 )

Total income tax expense (benefit)..........................................................................................................................	$ 227	$ 439	$ (98 )

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,	2011		2010		2009
	(dollars are in millions)
Tax expense (benefit) at the U.S. federal statutory income tax rate...	$ 239	35.0 %	$ 506	35.0 %	$ (93 )	(35.0 )%
Increase (decrease) in rate resulting from:
State and local taxes, net of Federal benefit......................................	92	13.5	28	1.9	19	7.2
Sale of minority stock interest.............................................................	-	-	-	-	74	27.9
Adjustment of tax rate used to value deferred taxes........................	-	-	(84 )	(5.8 )	(2 )	(.8 )
Valuation allowance..............................................................................	(217 )	(31.8 )	(26 )	(1.8 )	4	1.5
IRS audit settlement..............................................................................	-	-	-	-	(8 )	(3.0 )
Accrual of tax reserves.........................................................................	161	23.6	75	5.2	2	.8
Impact of foreign operations...............................................................	63	9.2	56	3.9	29	10.9
Tax exempt interest income..................................................................	(10 )	(1.5 )	(12 )	(.8 )	(14 )	(5.3 )
Low income housing and other tax credits........................................	(115 )	(16.9 )	(111 )	(7.7 )	(114 )	(43.0 )
Non-taxable income...............................................................................	(4 )	(.6 )	(5 )	(.3 )	(6 )	(2.3 )
Other........................................................................................................	18	2.6	12	.8	11	4.5

Total income tax expense (benefit)...........................................................	$ 227	33.3 %	$ 439	30.4 %	$ (98 )	(36.6 )%

The effective tax rate from continuing operations for 2011 was significantly impacted by expense from foreign operations, the utilization of low income housing tax credits, the impact of state taxes, an adjustment in uncertain tax positions and the release of valuation allowance previously established on foreign tax credits. 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 allowance 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,	2011	2010
	(in millions)
Deferred tax assets:
Allowance for credit losses...............................................................................................................................................	$ 369	$ 640
Benefit accruals...................................................................................................................................................................	145	120
Accrued expenses not currently deductible...................................................................................................................	281	277
Tax credit carry-forwards...................................................................................................................................................	145	167
Interest and discount income............................................................................................................................................	74	61
Fair value adjustments........................................................................................................................................................	-	128
Other......................................................................................................................................................................................	788	170

Total deferred tax assets before valuation allowance..............................................................................................	1,802	1,563
Valuation allowance.................................................................................................................................................	-	(217 )

Total deferred tax assets...............................................................................................................................................	1,802	1,346

Less deferred tax liabilities:
Fair value adjustments........................................................................................................................................................	172	-
Unrealized gains (losses) on available-for-sale securities............................................................................................	606	66
Mortgage servicing rights.................................................................................................................................................	85	102

Total deferred tax liabilities...........................................................................................................................................	863	168

Net deferred tax asset....................................................................................................................................................	$ 939	$ 1,178

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,	2011	2010
	(in millions)
State tax benefit loss limitations......................................................................................................................................................	$ -	$ 68
Foreign tax credit carryforward.......................................................................................................................................................	-	80
State tax deferreds.............................................................................................................................................................................	-	69

Total....................................................................................................................................................................................................	$ -	$ 217

A reconciliation of the beginning and ending amount of unrecognized tax benefits (hereinafter referred to as uncertain tax reserves) is as follows.


	2011	2010	2009
	(in millions)
Balance at January 1,...................................................................................................................................................	$ 210	$ 88	$ 136
Additions based on tax positions related to the current year...............................................................................	105	62	3
Additions for tax positions of prior years................................................................................................................	145	84	1
Reductions for tax positions of prior years..............................................................................................................	(44 )	(24 )	(52 )

Balance at December 31,..............................................................................................................................................	$ 416	$ 210	$ 88

The state tax portion of this amount is reflected gross and not reduced by Federal tax effect. It is reasonably possible that there could be a change in the amount of our unrecognized tax benefits within the next 12 months due to settlements or statutory expirations in various state and local tax jurisdictions. The total amount of unrecognized tax benefits at December 31, 2011 that, if recognized, would affect the effective income tax rate is $276 million and $113 million at December 31, 2011 and 2010, respectively.

It is our policy to recognize accrued interest related to unrecognized tax positions in interest expense in the consolidated statement of income and to recognize penalties, if any, related to unrecognized tax positions as a component of other operating expenses in the consolidated statement of income. We had accruals for the payment of interest and penalties associated with uncertain tax positions of $139 million and $40 million at December 31, 2011 and 2010, respectively. We increased our accrual for the payment of interest and penalties associated with uncertain tax positions by $99 million and $16 million during 2011 and 2010, 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 in our pre-tax book income, our analysis of the realizability of the deferred tax assets significantly discounts any future taxable income expected from continuing 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.

During the first quarter of 2011, the HNAH Group identified an additional tax planning strategy that provides support for the realization of the deferred tax assets recorded for its foreign tax credits and certain state related deferred tax assets. The use of foreign tax credits is limited by the HNAH Group's U.S. tax liability and the availability of foreign source income. The tax planning strategy included the purchase of foreign bonds and REMIC residual interests. These purchases are expected to generate sufficient foreign source taxable income to allow for the utilization of the foreign tax credits before the credits expire and recognition of certain state deferred tax assets.

Notwithstanding the above, the HNAH Group had valuation allowances against certain state deferred tax assets and certain Federal tax loss carryforwards prior to 2011 for which tax planning strategies did 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 tax planning strategies were to change, a valuation allowance against some or all of 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 $0.9 billion and $1.2 billion as of December 31, 2011 and 2010, 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.

During the second quarter of 2011, we reached a pending resolution of an issue with the Internal Revenue Service ("IRS") Appeals Office covering the tax periods 2004 and 2005. We anticipate finalizing the resolution of this matter within the next twelve months. There is no resulting impact to our uncertain tax reserves.

The IRS began its audit of our 2006 and 2007 income tax returns in 2009, with an anticipated completion in 2012. The IRS began their examination of 2008 and 2009 during the third quarter of 2011, with an anticipated completion in 2013.

We remain subject to state and local income tax examinations for years 2000 and forward. We are currently under audit by various state and local tax jurisdictions. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law and the closing of statute of limitations. Such adjustments are reflected in the tax provision. As a result of a recent state court decision related to a state tax uncertainty, we no longer believe that we can uphold the more likely than not conclusion taken on one of these uncertain tax positions. Therefore, tax reserves of approximately $225 million and related accrued interest expense of $116 million were recorded through the fourth quarter of 2011 to recognize the estimated tax exposure on this matter.

At December 31, 2011, we had foreign tax credit carryforwards of $74 million for U.S. federal income tax purposes which expire as follows: $8 million in 2015, $22 million in 2016, $5 million in 2017, $23 million in 2018, $8 million in 2019 and $8 million in 2020.

At December 31, 2011, we had general business credit carryforwards of $52 million for U.S. federal income tax purposes which expire as follows: $16 million in 2028 and $36 million in 2029.

At December 31, 2011 we had net operating losses carryforwards of $1.1 billion for state tax purposes which expire as follows: $33 million in 2012 - 2016, $2 million in 2022 - 2026 and $1.0 billion in 2027 and forward

At December 31, 2011 we had general business tax credits carryforwards of $1 million for state income tax purposes with no expiration period.

As of December 31, 2011, the HNAH Group had not provided for withholding or U.S. Federal income taxes on current or prior year undistributed earnings of certain foreign subsidiaries since such earnings are expected to be reinvested indefinitely or be substantially offset by available foreign tax credits and operating loss carry forwards. As of December 31, 2011 and 2010, we had approximately $175 million of undistributed earnings in our foreign subsidiaries. It is not practicable to determine the amount of unrecognized deferred U.S. income tax liability on these unremitted earnings.

20. Preferred Stock

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


	Shares Outstanding	Dividend Rate	Amount
	Shares Outstanding	Dividend Rate	Outstanding
At December 31,	2011	2011	2011	2010
	(dollars are in millions)
Floating Rate Non-Cumulative Preferred Stock, Series F ($25 stated value).................	20,700,000	3.549 %	$ 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	4.056	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.

21. Accumulated Other Comprehensive Income (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,	2011	2010	2009
	(in millions)
Unrealized gains (losses) on securities available-for-sale, not other-than temporarily impaired:
Balance at beginning of period....................................................................................................................................................	$ 97	$ (68 )	$ (512 )
Other comprehensive income for period:
Net unrealized holding gains arising during period, net of tax (provision) of $(605) million, $(123) million and $(284) million in 2011, 2010 and 2009, respectively..............................................................................................................................	862	211	526
Reclassification adjustment for (gains) realized in net income, net of tax benefit of $53 million, $27 million and $36 million in 2011, 2010 and 2009, respectively.......................................................................................................................................	(76 )	(46 )	(82 )

Total other comprehensive income for period...........................................................................................................................	786	165	444

Balance at end of period............................................................................................................................................................	883	97	(68 )

Unrealized gains (losses) on other-than-temporarily impaired debt securities available-for-sale:
Balance at beginning of period....................................................................................................................................................	(1 )	(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...................................................................................................................................	(1 )	(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 losses realized in net income, net of tax (provision) of $(1) million, $(9) million and $(7) million in 2011, 2010 and 2009, respectively..............................................................................................................................	1	17	13

Total other comprehensive income (loss) for period...................................................................................................................	1	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....................................................................................................................................................	(153 )	-	-
Adjustment to initially apply new guidance for consolidation of VIE............................................................................................	-	(246 )	-

Balance at beginning of period, as adjusted..............................................................................................................................	(153 )	(246 )	-
Other comprehensive income for period:
Net unrealized other-than-temporary impairment arising during period.....................................................................................	11	93	-
Adjustment to reverse other-than-temporary impairment due to deconsolidation of VIE..............................................................	142	-	-

Total other comprehensive income for period...........................................................................................................................	153	93	-

Balance at end of period............................................................................................................................................................	-	(153 )	-

Unrealized (losses) gains on derivatives classified as cash flow hedges:
Balance at beginning of period....................................................................................................................................................	(87 )	(100 )	(271 )
Other comprehensive loss for period:
Net gains (losses) arising during period, net of tax benefit (provision) of $110 million, $(10) million and $(101) million in 2011, 2010 and 2009, respectively.......................................................................................................................................	(142 )	13	171

Total other comprehensive income(loss) for period....................................................................................................................	(142 )	13	171

Balance at end of period............................................................................................................................................................	(229 )	(87 )	(100 )

Pension and postretirement benefit liability:
Balance at beginning of period..............................................................................................................................................	(9 )	(4 )	(4 )
Other comprehensive income (loss) for period:
Change in unfunded pension postretirement liability, net of tax benefit of $3 million and $2 million in 2011 and 2010, respectively..	(3 )	(5 )	-

Total other comprehensive (loss) for period.............................................................................................................................	(3 )	(5 )	-

Balance at end of period............................................................................................................................................................	(12 )	(9 )	(4 )

Total accumulated other comprehensive income (loss) at end of period........................................................................................	$ 642	$ (153 )	$ (228 )

22. Share-Based Plans

Employee Stock Purchase Plans The HSBC Holdings Savings-Related Share Option Plan ("HSBC Sharesave Plan") allows 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 currently save up to $400 per month over all their HSBC Sharesave Plans savings contracts.

The following table presents information for the HSBC Sharesave Plan.


At December 31,	2011	2010	2009
	(dollars are in millions)
Sharesave (5 year vesting period):
Total options granted.......................................................................................................	59,000	67,000	943,000
Fair value per option granted..........................................................................................	$ 2.22	$ 2.76	$ 2.08
Total compensation expense recognized......................................................................	$ 1	$ 1	$ 1
Significant assumptions used to calculate fair value:
Risk free interest rate...................................................................................................	2.17 %	2.63 %	2.10 %
Expected life (years)....................................................................................................	5	5	5
Expected volatility.......................................................................................................	25 %	30 %	30 %
Sharesave (3 year vesting period):
Total options granted.......................................................................................................	209,000	268,000	1,447,000
Fair value per option granted..........................................................................................	$ 2.08	$ 2.57	$ 2.21
Total compensation expense recognized......................................................................	$ 1	$ 1	$ 1
Significant assumptions used to calculate fair value:
Risk free interest rate...................................................................................................	1.19 %	1.65 %	1.47 %
Expected life (years)....................................................................................................	3	3	3
Expected volatility.......................................................................................................	25 %	30 %	35 %
Sharesave (1 year vesting period):
Total options granted.......................................................................................................	173,000	168,000	334,000
Fair value per option granted..........................................................................................	$ 1.62	$ 2.00	$ 2.06
Total compensation expense recognized......................................................................	$ -	$ 1	$ 1
Significant assumptions used to calculate fair value:
Risk free interest rate...................................................................................................	.25 %	.47 %	.52 %
Expected life (years)....................................................................................................	1	1	1
Expected volatility.......................................................................................................	25 %	30 %	50 %

Restricted Share Plans Key employees have been provided awards in the form of restricted share rights ("RSRs"), restricted shares ("RSs") and restricted share units ("RSUs") under the HSBC Group Share Plan. These shares have been granted subject to either time-based vesting or performance based-vesting, typically over three to five years. Currently, share-based awards granted to U.S. employees are granted in the form of RSUs. Annual awards to employees in 2011 and 2010 are subject to three-year time-based graded vesting. Also during 2011, we made a one-time grant of performance-based awards that are subject to performance-based vesting periods ranging from 12 to 30 months. Annual awards to employees in 2009 vest after three years. We also issue a small number of off-cycle grants each year, primarily for reasons related to recruitment of new employees. Compensation expense for these restricted share plans totaled $54 million in 2011, $40 million in 2010 and $51 million in 2009.

23. 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,	2011	2010	2009
	(in millions)
Service cost - benefits earned during the period......................................................................................................	$ 14	$ 23	$ 24
Interest cost on projected benefit obligation.............................................................................................................	74	72	77
Expected return on assets..............................................................................................................................................	(81 )	(71 )	(54 )
Amortization of prior service cost................................................................................................................................	(6 )	(5 )	-
Recognized losses..........................................................................................................................................................	38	46	40
Partial plan termination⁽¹⁾................................................................................................................................................	-	-	5

Pension expense..............................................................................................................................................................	$ 39	$ 65	$ 92

⁽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 2011 due to lower service cost and an increase in the expected return of plan assets primarily due to higher asset levels.

In December 2011, an amendment was made to the Plan effective January 1, 2011 to amend the benefit formula, thus increasing the benefits associated with services provided by certain employees in past periods. The financial impact is being amortized to pension expense over the remaining life expectancy of the participants.

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 are now provided under the cash balance based formula which has been used to calculate benefits for employees hired after December 31, 1999. These 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 is being 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:


	2011	2010	2009
Discount rate.........................................................................................................................................................	5.30 %	5.60 %	7.15 %
Salary increase assumption................................................................................................................................	2.75	2.90	3.50
Expected long-term rate of return on Plan assets............................................................................................	7.25	7.70	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 U.S. 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 investment staff tracking actual investment manager performance versus the relevant benchmark and absolute return expectations on a monthly basis. The pension investment staff also monitors adherence to individual investment manager guidelines via a quarterly compliance certification process. A sub-committee consisting of the pension investment staff and three members of the investment committee 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 2011, the Committee re-examined the Plan's asset allocation levels, interest rate hedging strategy and investment menu options. In 2010, the Committee unanimously agreed to transition the Plan's target asset allocation mix to 40 percent equity securities, 59 percent fixed income securities and 1 percent cash over a 24-month period. In 2011, the Committee unanimously agreed to accelerate the shift to 40 percent equities, 59 percent fixed income securities and 1 percent cash by year end. Should interest rates rise faster than currently projected by the Committee, a further shift to a higher percentage of fixed income securities may be made.

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 7.00 percent;

• A passive, blended index comprised of 11.5 percent S&P 500, 5.6 percent Russell 2000, 9.9 percent EAFE, 2.0 percent S&P/Citigroup Extended Market World Ex-US, 5.5 percent MSCI AC World Free Index, 5.5 percent MSCI Emerging Markets, 50.0 percent Barclays Long Gov/Credit, 9.0 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, 2011 are as follows:


	Percentage of Plan Assets at December 31, 2011
Domestic Large/Mid-Cap Equity.....................................................................................................................................................	11.5 %
Domestic Small Cap Equity...............................................................................................................................................................	5.6
International Equity...........................................................................................................................................................................	11.9
Global Equity......................................................................................................................................................................................	5.5
Emerging Market Equity...................................................................................................................................................................	5.5
Fixed Income Securities.....................................................................................................................................................................	59.0
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,	2011	2010
	(in millions)
Fair value of net Plan assets at beginning of year..............................................................................................................	$ 2,564	$ 2,141
Cash contributions by HSBC North America......................................................................................................................	357	187
Actual return on Plan assets..................................................................................................................................................	393	397
Benefits paid.............................................................................................................................................................................	(184 )	(161 )

Fair value of net Plan assets at end of year.........................................................................................................................	$ 3,130	$ 2,564

As a result of the capital markets improving since December 2010, as well as the $357 million contribution to the Plan during 2011, the fair value of Plan assets at December 31, 2011 increased approximately 22 percent compared to 2010.

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. In 2011, we revised the Pension Funding Policy to lower the fourth criteria as listed below to $50 million (from $100 million) to reflect lower expected service costs. Until the Plan is fully funded, 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 adjusted funding target attainment percentage for the Plan Year is equal to or greater than 90 percent;

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

• $50 million which approximates the actuarial present value of benefits earned by Plan participants on an annual basis.

As a result, during 2011 HSBC North America made a contribution to the Plan of $357 million. Additional contributions during 2012 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, 2011 and 2010.


	Fair Value Measurement at December 31, 2011
	Total	(Level 1)	(Level 2)	(Level 3)
	(in millions)
Investments at Fair Value:
Cash and short term investments....................................................................................	$ 97	$ 97	$ -	$ -
Equity Securities
U.S. Large-cap Growth⁽¹⁾..............................................................................................	347	342	5	-
U.S. Small-cap Growth⁽²⁾...............................................................................................	159	158	1	-
International Equity⁽³⁾...................................................................................................	282	117	165	-
Global Equity.................................................................................................................	174	86	88	-
Emerging Market Equity..............................................................................................	175	-	175	-
U.S. Treasury......................................................................................................................	861	861	-	-
U.S. Government agency issued or guaranteed............................................................	70	7	63	-
Obligations of U.S. states and political subdivisions..................................................	50	-	42	8
Asset-backed securities...................................................................................................	37	-	1	36
U.S. corporate debt securities⁽⁴⁾.......................................................................................	598	-	598	-
Corporate stocks - preferred...........................................................................................	4	3	1	-
Foreign debt securities.....................................................................................................	169	2	159	8
Other investments.............................................................................................................	61	-	61	-
Accrued interest................................................................................................................	20	7	13	-

Total investments..............................................................................................................	3,104	1,680	1,372	52

Receivables:
Receivables from sale of investments in process of settlement.................................	28	28	-	-
Derivative financial assets...............................................................................................	26	-	26	-

Total receivables................................................................................................................	54	28	26	-

Total Assets.......................................................................................................................	3,158	1,708	1,398	52
Liabilities...........................................................................................................................	(28 )	(28 )	-	-

Total Net Assets................................................................................................................	$ 3,130	$ 1,680	$ 1,398	$ 52


	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

⁽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, 2011:


	Level 2	Level 3	Total
	(in millions)
AAA to AA⁽¹⁾..............................................................................................................................................................	$ 60	$ -	$ 60
A+ to A-⁽¹⁾.....................................................................................................................................................................	212	-	212
BBB+ to Unrated⁽¹⁾......................................................................................................................................................	326	-	326

Total..............................................................................................................................................................................	$ 598	$ -	$ 598

⁽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 2011.

Information on Level 3 Assets and Liabilities The following table summarizes additional information about changes in the fair value of Level 3 assets during 2011 and 2010.


		Total Gains and (Losses) Included in							Current Period Unrealized Gains (Losses)
	Jan 1, 2011	Income	Other Comp. Income	Purchases	Settlement	Transfers Into Level 3	Transfers Out of Level 3	Dec. 31, 2011	Current Period Unrealized Gains (Losses)
	(in millions)
Obligations of U.S. states and political subdivisions..............	$ -	$ -	$ -	$ 2	$ -	$ 6	$ -	$ 8	$ 1
Asset-backed securities...............	28	-	-	11	(4 )	1	-	36	-
Foreign debt securities.................	17	-	(2 )	-	(7 )	-	-	8	-

Total assets...............................	$ 45	$ -	$ (2 )	$ 13	$ (11 )	$ 7	$ -	$ 52	$ 1


		Total Gains and (Losses) Included in							Current Period Unrealized Gains (Losses)
	Jan 1, 2010	Income	Other Comp. Income	Purchases	Settlement	Transfers Into Level 3	Transfers Out of Level 3	Dec. 31, 2010	Current Period Unrealized 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

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.


	2011	2010
	(in millions)
Projected benefit obligation at beginning of year...............................................................................................................	$ 3,384	$ 3,113
Service cost...............................................................................................................................................................................	45	76
Interest cost..............................................................................................................................................................................	178	174
Actuarial losses........................................................................................................................................................................	466	326
Plan amendments⁽¹⁾...................................................................................................................................................................	34	(144 )
Benefits paid.............................................................................................................................................................................	(184 )	(161 )

Projected benefit obligation at end of year..........................................................................................................................	$ 3,923	$ 3,384

⁽¹⁾ The Plan Amendments relate to the approval in December 2010 effective January 1, 2011 to amend the benefit formula, thus increasing the benefits associated with services provided by certain employees in past periods and to the approval in the first quarter of 2010 to cease all future benefit accruals for legacy participants under the final average pay formula effective January 1, 2011.

The accumulated benefit obligation for the HSBC North America Pension Plan was $3.9 billion and $3.4 billion at December 31, 2011 and 2010, 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:


	2011	2010	2009
Discount rate.........................................................................................................................................................	4.60 %	5.45 %	5.95 %
Salary increase assumption................................................................................................................................	2.75	2.75	3.50

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


	HSBC North America
	(in millions)
2012.......................................................................................................................................................................................................	$ 180
2013.......................................................................................................................................................................................................	187
2014.......................................................................................................................................................................................................	194
2015.......................................................................................................................................................................................................	200
2016.......................................................................................................................................................................................................	206
2017-2021..............................................................................................................................................................................................	1,094

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 $32 million, $30 million and $31 million in 2011, 2010 and 2009, 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 2011, 2010 and 2009.

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,	2011	2010	2009
	(in millions)
Service cost - benefits earned during the period..........................................................................................................	$ 1	$ 1	$ 1
Interest cost.........................................................................................................................................................................	4	4	5
Amortization of transition obligation..............................................................................................................................	2	2	2
Amortization of recognized actuarial gain......................................................................................................................	-	-	(1 )
Curtailment gain..................................................................................................................................................................	-	-	(1 )

Net periodic postretirement benefit cost.........................................................................................................................	$ 7	$ 7	$ 6

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


	2011	2010	2009
Discount rate.........................................................................................................................................................	4.95 %	5.20 %	7.15 %
Salary increase assumption................................................................................................................................	2.75	2.90	3.50

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


	2011	2010
	(in millions)
Accumulated benefit obligation at beginning of year..................................................................................................................	$ 79	$ 72
Service cost.........................................................................................................................................................................................	1	1
Interest cost........................................................................................................................................................................................	4	4
Actuarial losses..................................................................................................................................................................................	6	10
Transfers.............................................................................................................................................................................................	-	(2 )
Benefits paid.......................................................................................................................................................................................	(5 )	(6 )

Accumulated benefit obligation at end of year.............................................................................................................................	$ 85	$ 79

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 2012. The funded status of our postretirement benefit plans was a liability of $85 million at December 31, 2011.

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


	(in millions)
2012............................................................................................................................................................................................................	$ 7
2013............................................................................................................................................................................................................	7
2014............................................................................................................................................................................................................	6
2015............................................................................................................................................................................................................	6
2016............................................................................................................................................................................................................	6
2017-2021...................................................................................................................................................................................................	27

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


	2011	2010
Discount rate..............................................................................................................................................................................	4.25 %	4.95 %
Salary increase assumption......................................................................................................................................................	2.75	2.75

For measurement purposes, 7.5 percent (pre-65) and 7.1 percent (post-65) annual rates of increase in the per capita costs of covered health care benefits were assumed for 2011. These rates are assumed to decrease gradually reaching the ultimate rate of 4.5 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.....................................................................................	2	(2 )

24. 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,	2011	2010	2009
	(in millions)
Assets:
Cash and due from banks........................................................................................................................	$ 263	$ 137	$ 359
Interest bearing deposits with banks....................................................................................................	1,416	1,287	198
Federal funds sold and securities purchased under agreements to resell.......................................	228	534	294
Trading assets⁽¹⁾........................................................................................................................................	22,367	16,575	12,811
Loans..........................................................................................................................................................	858	664	1,165
Other...........................................................................................................................................................	248	537	715

Total assets...............................................................................................................................................	$ 25,380	$ 19,734	$ 15,542

Liabilities:
Deposits.....................................................................................................................................................	$ 18,153	$ 10,337	$ 9,437
Trading liabilities⁽¹⁾....................................................................................................................................	25,298	19,211	16,848
Short-term borrowings.............................................................................................................................	2,916	3,326	445
Long-term debt..........................................................................................................................................	3,988	984	989
Other...........................................................................................................................................................	451	569	771

Total liabilities...........................................................................................................................................	$ 50,806	$ 34,427	$ 28,490

⁽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,
	2011	2010	2009
	(in millions)
Income/(Expense):
Interest income...................................................................................................................................................	$ 62	$ 91	$ 178
Interest expense.................................................................................................................................................	(82 )	(44 )	(26 )

Net interest income (loss).................................................................................................................................	$ (20 )	$ 47	$ 152

HSBC affiliate income:
HSBC Finance..........................................................................................................................................	$ 71	$ 45	$ 12
HSBC Markets (USA) Inc. ("HMUS").................................................................................................	23	13	23
Other HSBC affiliates..............................................................................................................................	76	72	83
Fees on transfers of refund anticipation loans to HSBC Finance....................................................	-	4	11
Other HSBC affiliates income......................................................................................................................	34	22	11

Total affiliate income....................................................................................................................................	$ 204	$ 156	$ 140

Support services from HSBC affiliates:
HSBC Finance...............................................................................................................................................	$ (36 )	$ (101 )	$ (100 )
HMUS.............................................................................................................................................................	(257 )	(288 )	(247 )
HSBC Technology & Services (USA) ("HTSU")....................................................................................	(967 )	(780 )	(471 )
Other HSBC affiliates...................................................................................................................................	(195 )	(117 )	(144 )

Total support services from HSBC affiliates............................................................................................	$ (1,455 )	$ (1,286 )	$ (962 )

Stock based compensation expense with HSBC...........................................................................................	$ (56 )	$ (42 )	$ (54 )

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 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. We purchased $2.3 billion of credit card receivables from HSBC Finance during 2011 compared to $2.4 billion and $2.6 billion during 2010 and 2009, respectively. Premiums paid are amortized to interest income over the estimated life of the receivables purchased. At December 31, 2011 and 2010, HSBC Finance was servicing $1.2 billion of credit card receivables. We paid HSBC finance fees for servicing these loans of $15 million during 2011 and 2010.

• 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. At December 31, 2011 and 2010, HSBC Finance was servicing $1.3 billion and $1.5 billion of residential mortgage loans for us. We paid HSBC Finance fees for servicing these loans of $4 million during 2011 compared to $5 million during 2010.

• 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 2011 and 2010, we paid $7 million and $7 million, respectively, for services we received from HSBC Finance and received $10 million and $8 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 and subsequently to 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 2011 and 2010, we received servicing revenue from HSBC Finance of $62 million and $34 million, respectively.

• Prior to 2011, 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 of loans during 2010, of which $3.1 billion, were transferred to HSBC Finance. During 2010, we received fees of $4 million 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 5, "Exit from Taxpayer Financial Services Loan Program," for further discussion.

• During the 2011, we purchased $5 million of commercial paper from HSBC Finance as part of our North America funding strategy. There was no amount outstanding at December 31, 2011.

• 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 November 2011. There were no balances outstanding at December 31, 2011 and 2010.

• 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 and $6 million in 2009 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.

Transactions Conducted with HSBC Finance Corporation Involving Discontinued Operations As it relates to our discontinued credit card and private label operations, 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. Additionally, 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 for both the GM and UP receivables and the private label credit card receivables and by agreement we purchase on a daily basis substantially all new originations from these account relationships from HSBC Finance. Premiums paid for these receivables are amortized to interest income over the estimated life of the receivables purchased and are included as a component of Income from discontinued operations. HSBC Finance continues to service these credit card loans for us for a fee. Information regarding these loans is summarized in the table below.


	Private Label		Credit Card
	Cards	Commercial and Closed End Loans⁽¹⁾	General Motors	Union Privilege	Other	Total
	(in billions)
Loans serviced by HSBC Finance:
December 31, 2011......................................................................	$ 12.5	$ .3	$ 4.1	$ 3.5	$ .8	$ 21.2
December 31, 2010......................................................................	13.3	.4	4.6	4.2	.8	23.3
Total loans purchased on a daily basis from HSBC Finance during:
2011...............................................................................................	15.4	-	13.0	3.2	1.8	33.4
2010...............................................................................................	14.6	-	13.5	3.2	1.7	33.0
2009...............................................................................................	15.7	-	14.5	3.5	1.7	35.4

⁽¹⁾ Private label commercial loans were previously included in other commercial loans and private label closed end loans were included in other consumer loans in Note 8, "Loans".

Fees paid for servicing these loan portfolios, which are included as a component of Income from discontinued operations, totaled $578 million, $615 million and $625 million during 2011, 2010 and 2009, 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. If significant information becomes available that would alter the projected future cash flows, an analysis would be performed to determine if fair value rates needed to be updated prior to the normal semi-annual cycles. With the announcement of the Capital One transaction, an analysis was performed and an adjustment to the fair value rates was made effective August 10, 2011 to reflect the sale of the receivables to a third party during the first half of 2012. The rates will continue to be updated as part of our normal semi-annual process until the time the transaction is completed.

• 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, 2011 and 2010.

• 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 November 2011. There were no balances outstanding at December 31, 2011 and 2010.

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 at December 31, 2011 and 2010. At December 31, 2011 and 2010, $229 million and $867 million, respectively, was outstanding on these loans and lines. Interest income on these loans and lines totaled $6 million in 2011, $15 million in 2010 and $34 million during 2009.

Other Transactions with HSBC Affiliates

• In January 2011, we acquired Halbis Capital Management (USA) Inc (Halbis), an asset management business, from an affiliate, Halbis Capital Management (UK) Ltd. as part of a reorganization which resulted in an increase to additional paid-in-capital of approximately $21 million.

• In April 2011, we completed the sale of our European Banknotes Business with assets of $123 million to HSBC Bank plc.

• HNAH extended a $1.0 billion senior note to us in August 2009. This is a five year floating rate note which matures on August 2014. In addition, in April 2011, we issued senior notes in the amount of $3.0 billion to HNAH. These notes mature in three equal installments of $1.0 billion in April 2013, 2015 and 2016. The notes bear interest at 90 day USD Libor plus a spread, with each maturity at a different spread. Interest expense on these notes totaled $46 million in 2011, $17 million in 2010 and $6 million in 2009.

• In addition to purchases of U.S. Treasury and U.S. Government Agency securities, we have periodically purchased both foreign-denominated and USD denominated marketable securities from certain affiliates including HSI, HSBC Asia-Pacific, HSBC Mexico, HSBC London, HSBC Brazil, HSBC Chile, HSBC Uruguay and HSBC Canada. Marketable securities outstanding from these purchases are reflected in trading assets and totaled $8.5 billion and $6.4 billion at December 31, 2011 and 2010, respectively.

• We have also entered into credit derivatives transactions, primarily in the form of credit default swaps, with certain affiliates. The notional value so these derivative contracts was $45.1 billion and $49.4 billion at December 31, 2011 and 2010, respectively. The net credit exposure (defined as the recorded fair value of the derivative liability) related to the contracts was $1.0 billion and $106 million at December 31, 2011 and 2010, respectively.

• 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.

• In 2011, we sold our equity interest in Guernsey Joint Venture to HSBC Private Bank (Suisse) SA, resulting in a gain of $53 million.

• 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 France of $2.5 billion at December 31, 2011. At December 31, 2010, we had a committed unused line of credit with HSBC Bank plc for $2.5 billion, which matured during 2011.

• We have an uncommitted unused line of credit with HNAI of $150 million at December 31, 2011 and 2010.

• We have extended loans and lines of credit to various other HSBC affiliates totaling $460 million at December 31, 2011 and 2010. At December 31, 2011 and 2010, there were no amounts outstanding under these loans or lines of credit. Interest income on these lines totaled less than $1 million in 2011, $5 million in 2010 and $13 million in 2009.

• 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, 2011, no ABCP issued by such conduits was held. At December 31, 2010, we held $75 million of commercial paper issued by an HSBC affiliate sponsored ABCP conduit.

• 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 $887.1 billion and $774.1 billion at December 31, 2011 and 2010, respectively. The net credit exposure (defined as the recorded fair value of derivative receivables) related to the contracts was approximately $22.4 billion and $16.6 billion at December 31, 2011 and 2010, 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 reduced income volatility for HSBC Bank USA by transferring the volatility to the affiliate. The last of these transactions matured during the third quarter of 2011. The recorded fair value of derivative assets related to these derivative transactions was approximately $25 million at December 31, 2010.

• 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 23, "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 $56 million in 2011, $42 million in 2010 and $54 million in 2009. As of December 31, 2011, our share of compensation cost related to nonvested stock compensation plans was approximately $38 million, which is expected to be recognized over a weighted-average period of less than 1 year. A description of these stock compensation plans can be found in Note 22, "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 $25 million in 2011, $32 million in 2010 and $38 million in 2009, are included as a component of Support services from HSBC affiliates in the table above. Billing for these services was processed by HTSU.

• We did not pay any dividends to our parent company, HNAI, in 2011, 2010 or 2009.

25. Business Segments

We initiated a process in late 2010 to re-evaluate the financial information used to manage our business including the scope and content of the financial data being reported to our management. During the first quarter of 2011, we completed our evaluation and decided we would no longer manage and evaluate the performance of the receivables purchased from HSBC Finance as a separate operating segment. Rather, we would manage and evaluate the performance of these assets as a component of our Retail Banking and Wealth Management (formerly Personal Financial Services) operating segment, consistent with HSBC's globally defined business segments. As a result, beginning in the first quarter of 2011, our management reporting was changed to reflect this decision and we now report our financial results under four reportable segments which are generally based upon customer group and global business: Retail Banking and Wealth Management (formerly Personal Financial Services), Commercial Banking, Global Banking and Markets and Private Banking. These changes have been reflected in the segment financial information for all periods presented to reflect this new segmentation.

HSBC previously announced that with effect from March 1, 2011, Retail Banking and Wealth Management would be managed as a single global business. This business is the historical Personal Financial Services with Asset Management moving from Global Banking and Markets to this new single business. Therefore, to coincide with the change in our management reporting effective beginning in the second quarter of 2011, we changed the name of our Personal Financial Services segment to Retail Banking and Wealth Management and have included the results of Asset Management, which provides investment solutions to institutions, financial intermediaries and individual investors, in this segment for all periods presented. There have been no other changes in the basis of our segmentation or measurement of segment profit as compared with the presentation in our 2010 Form 10-K.

Our segment results are reported on a continuing operations basis. As previously discussed, in August 2011 we agreed to sell our GM and UP credit card receivable portfolios and our private label credit card and closed-end receivable portfolio, all of which were purchased from HSBC Finance, to Capital One. Because the credit card and private label receivables being sold have been classified as held for sale and the operations and cash flows from these receivables will be eliminated from our ongoing operations upon disposition without any significant continuing involvement, we have determined we have met the requirements to report the results of these credit card and private label card receivables being sold as discontinued operations and have included these receivables in Assets of discontinued operations on our balance sheet for all periods presented. The results for these receivables were previously reported in the Retail Banking and Wealth Management segment.

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 incurred 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.

Our segment results are presented under IFRSs (a non-U.S. GAAP financial measure) on a legal entity basis ("IFRS Basis") 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.

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 changes in estimated contractual cash flows, including fees and points paid or recovered between parties to the contract that are an integral part of the effective interest rate to 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 operating income 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)

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 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 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 held for sale investment guidance, 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 amortized cost or fair value. Under U.S. GAAP, the initial component of the lower of amortized cost or fair value adjustment related to credit risk is recorded in the consolidated statement of income as provision for credit losses while the component related to interest rates and liquidity factors is reported in the consolidated statement of income 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 IFRSs, 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 (loss) 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 discounting of cash flows including recovery estimates at the original effective interest rate of the pool of customer loans. The amount of impairment relating to the discounting of future cash flows unwinds with the passage of time, and is recognized in interest income. Also under IFRSs, if the recognition of a write-down to fair value on secured loans decreases because collateral values have improved and the improvement can be related objectively to an event occurring after recognition of the write-down, such write-down can be reversed, which is not permitted under U.S. GAAP. Additionally under IFRSs, future recoveries on charged-off loans or loans written down to fair value less cost to obtain title and sell 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. Under IFRSs, interest on impaired loans is recorded at the effective interest rate on the carrying amount net of impairment allowances, and therefore reflects the collectibility of the loans.

As discussed above, under U.S. GAAP, the credit risk component of the lower of amortized cost or fair value adjustment related to the transfer of receivables to held for sale is recorded in the consolidated statement of income 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 exceeded the higher of 10 percent of the projected benefit obligation or fair value of plan assets (the "corridor."). In 2011, amounts reflect a pension curtailment gain relating to the branch sales as under IFRSs recognition occurs when "demonstrably committed to the transaction" as compared to U.S. GAAP when recognition occurs when the transaction is completed. 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.

Share-based bonus arrangements - Under IFRSs, the recognition of compensation expense related to share-based bonuses begins on January 1 of the current year for awards expected to be granted in the first quarter of the following year. Under U.S. GAAP, the recognition of compensation expense related to share-based bonuses does not begin until the date the awards are granted.

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.

Litigation accrual -A litigation accrual was recorded at year end related to a potential settlement of a legal matter where the loss criteria have been met and an accrual can be estimated for U.S. GAAP. Under IFRSs, apart from the likelihood of a potential settlement, it was determined that a present obligation does not exist at December 31, 2011 and therefore a liability was not recognized.

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, under U.S. GAAP we were determined to be the primary beneficiary and consolidated a commercial paper conduit effective January 1, 2010. However in 2011, changes involving liquidity asset purchase agreements were made which resulted in us no longer being considered the primary beneficiary and this commercial paper conduit was deconsolidated at March 31, 2011. 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
	RBWM	CMB	Global Banking and Markets	PB	Other	Adjustments/ Reconciling Items	Total	IFRS Adjustments⁽⁴⁾	IFRS Reclassi- fications⁽⁵⁾	U.S. GAAP Consolidated Totals
	(in millions)
December 31, 2011
Net interest income⁽¹⁾........	$ 1,023	$ 711	$ 504	$ 180	$ (83 )	$ (23 )	$ 2,312	$ (41 )	$ 163	$ 2,434
Other operating income.....	409	453	969	184	336	23	2,374	7	(114 )	2,267

Total operating income.....	1,432	1,164	1,473	364	253	-	4,686	(34 )	49	4,701
Loan impairment charges⁽³⁾...................	247	6	5	(30 )	-	-	228	(3 )	33	258

	1,185	1,158	1,468	394	253	-	4,458	(31 )	16	4,443
Operating expenses⁽²⁾.........	1,653	741	986	261	65	-	3,706	39	16	3,761

Profit before income tax expense.....................	$ (468 )	$ 417	$ 482	$ 133	$ 188	$ -	$ 752	$ (70 )	$ -	$ 682

Balances at end of period:
Total assets.....................	$ 28,017	$ 21,669	$ 213,164	$ 6,525	$ 92	$ -	$ 269,467	$ (80,526 )	$ (115 )	$ 188,826
Total loans, net...............	16,233	16,782	21,390	4,716	-	-	59,121	(4,636 )	(3,361 )	51,124
Goodwill........................	581	358	480	325	-	-	1,744	484	-	2,228
Total deposits.................	36,837	21,799	45,061	13,169	-	-	116,866	(4,788 )	27,651	139,729
December 31, 2010
Net interest income⁽¹⁾........	$ 1,077	$ 704	$ 638	$ 184	$ (11 )	$ (30 )	$ 2,562	$ (110 )	$ 161	$ 2,613
Other operating income.....	277	455	1,010	132	193	30	2,097	82	1	2,180

Total operating income.....	1,354	1,159	1,648	316	182	-	4,659	(28 )	162	4,793
Loan impairment charges⁽³⁾...................	77	115	(180 )	(38 )	-	-	(26 )	30	30	34

	1,277	1,044	1,828	354	182	-	4,685	(58 )	132	4,759
Operating expenses⁽²⁾.........	1,371	681	724	242	70	-	3,088	94	132	3,314

Profit before income tax expense.....................	$ (94 )	$ 363	$ 1,104	$ 112	$ 112	$ -	$ 1,597	$ (152 )	$ -	$ 1,445

Balances at end of period:
Total assets.....................	$ 22,289	$ 16,470	$ 177,150	$ 5,380	$ 24	$ -	$ 221,313	$ (60,049 )	$ (90 )	$ 161,174
Total loans, net...............	17,474	14,530	25,443	4,683	-	-	62,130	(1,695 )	(11,478 )	48,957
Goodwill........................	876	368	480	326	-	-	2,050	576	-	2,626
Total deposits.................	48,385	24,481	33,511	11,337	-	-	117,714	(3,725 )	6,629	120,618
December 31, 2009
Net interest income⁽¹⁾........	$ 1,198	$ 725	$ 812	$ 172	$ 17	$ (22 )	$ 2,902	$ (213 )	$ 295	$ 2,984
Other operating income.....	254	353	486	106	(515 )	22	706	1,018	(354 )	1,370

Total operating income.....	1,452	1,078	1,298	278	(498 )	-	3,608	805	(59 )	4,354
Loan impairment charges⁽³⁾...................	690	309	591	98	-	-	1,688	(29 )	(228 )	1,431

	762	769	707	180	(498 )	-	1,920	834	169	2,923
Operating expenses⁽²⁾.........	1,301	634	721	232	87	-	2,975	44	169	3,188

Profit before income tax expense.....................	$ (539 )	$ 135	$ (14 )	$ (52 )	$ (585 )	$ -	$ (1,055 )	$ 790	$ -	$ (265 )

Balances at end of period:
Total assets.....................	$ 25,201	$ 16,600	$ 156,649	$ 6,055	$ 13	$ -	$ 204,518	$ (59,721 )	$ (1,947 )	$ 142,850
Total loans, net...............	19,448	14,849	17,360	5,355	-	-	57,012	(3,277 )	(3,276 )	50,459
Goodwill........................	876	368	480	326	-	-	2,050	576	-	2,626
Total deposits.................	48,240	24,107	29,897	11,566	-	-	113,810	(2,749 )	7,142	118,203

⁽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, 2011
Unquoted equity securities..........................................	$ -	$ -	$ -	$ -	$ -	$ (71 )
Reclassification of financial assets.............................	(37 )	37	-	-	-	187
Securities.........................................................................	-	(18 )	-	(7 )	(11 )	(9 )
Derivatives......................................................................	(4 )	(7 )	-	-	(11 )	(81,262 )
Loan impairment.............................................................	(8 )	-	(4 )	-	(4 )	(28 )
Property...........................................................................	(5 )	-	-	(27 )	22	164
Pension costs.................................................................	-	-	-	48	(48 )	(134 )
Purchased loan portfolios............................................	-	-	-	-	-	3
Servicing assets.............................................................	-	-	-	-	-	4
Interest recognition.......................................................	2	-	-	-	2	(3 )
Sale of Cards and Retail Services business...............	-	-	-	-	-	(11 )
Other................................................................................	11	(5 )	1	25	(20 )	634

Total.................................................................................	$ (41 )	$ 7	$ (3 )	$ 39	$ (70 )	$ (80,526 )

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.............................................................	(4 )	-	-	(1 )	(3 )	5
Property...........................................................................	(4 )	(56 )	-	(17 )	(43 )	199
Pension costs.................................................................	-	-	-	120	(120 )	(120 )
Purchased loan portfolios............................................	46	5	35	(1 )	17	18
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................................................................................	10	(42 )	(34 )	(10 )	12	2,816

Total.................................................................................	$ (110 )	$ 82	$ 30	$ 94	$ (152 )	$ (60,049 )

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.............................................................	2	-	6	-	(4 )	(9 )
Pension costs.................................................................	-	-	-	43	(43 )	(50 )
Purchased loan portfolios............................................	124	10	108	-	26	27
Servicing assets.............................................................	-	(6 )	-	-	(6 )	(10 )
Return of capital.............................................................	-	55	-	-	55	-
Interest recognition.......................................................	2	-	-	-	2	(2 )
Other................................................................................	45	18	-	1	62	525

Total.................................................................................	$ (213 )	$ 1,018	$ (29 )	$ 44	$ 790	$ (59,721 )

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

26. 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. Approval of the Office of the Comptroller of the Currency (the "OCC") is required if the total of all dividends HSBC Bank USA declares 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.

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


	December 31, 2011			December 31, 2010
	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.....................................	$ 21,908	10.00 %	18.39 %	$ 22,070	10.00 %	18.14 %
HSBC Bank USA.................................	22,390	10.00	18.86	22,177	10.00	18.41
Tier 1 capital ratio:
HSBC USA Inc.....................................	15,179	6.00	12.74	14,355	6.00	11.80
HSBC Bank USA.................................	15,996	6.00	13.48	14,970	6.00	12.43
Tier 1 common ratio:
HSBC USA Inc.....................................	12,773	4.00	10.72	11,949	4.00	9.82
HSBC Bank USA.................................	15,996	4.00	13.48	14,970	4.00	12.43
Tier 1 leverage ratio:
HSBC USA Inc.....................................	15,179	3.00 ⁽²⁾	7.43	14,355	3.00 ⁽²⁾	7.87
HSBC Bank USA.................................	15,996	5.00	7.98	14,970	5.00	8.28
Risk weighted assets:
HSBC USA Inc.....................................	119,099			121,645
HSBC Bank USA.................................	118,688			120,473

⁽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.

We did not receive any cash capital contributions from our immediate parent, HNAI during 2011 or 2010. During 2011 and 2010, we contributed $208 million and $60 million, respectively, primarily to our subsidiary, HSBC Bank USA, in part to provide capital support for receivables purchased from our affiliate, HSBC Finance Corporation. See Note 24, "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. These loans were subsequently sold to SC USA in August 2010. During 2011, HSBC Bank USA sold low-quality credit card receivables with a net book value of approximately $266 million to a non-bank subsidiary of HSBC USA Inc. to reduce the capital requirement associated with these assets. Capital ratios and amounts at December 31, 2011 and 2010 in the table above reflect this reporting. At December 31, 2011, the remaining purchased receivables subject to this requirement totaled $1.5 billion of which $2 million are considered to be low-quality assets. These receivables will be sold to Capital One as part of the previously discussed sale which is expected to close in the first half of 2012.

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, 2011 and 2010, deferred tax assets of $363 million and $360 million, respectively, were excluded in the computation of regulatory capital.

27. 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. While the adoption of the new guidance resulted in the consolidation of one commercial paper conduit managed by HSBC Bank USA effective January 1, 2010, in March 2011, this commercial paper conduit was again deconsolidated as discussed more fully below. 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 SPE 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, 2011 and 2010 which are consolidated on our balance sheet. Assets and liabilities exclude intercompany balances that eliminate in consolidation:


	December 31, 2011		December 31, 2010
	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

Low income housing limited liability partnership:
Interest bearing deposits with banks........................................................	108	-	83	-
Other assets...................................................................................................	520	-	509	-
Long term debt..............................................................................................	-	55	-	55
Other liabilities..............................................................................................	-	166	-	109

Subtotal..........................................................................................................	628	221	592	164

Total.....................................................................................................................	$ 628	$ 221	$ 3,372	$ 3,189

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.

The liquidity facilities provided to Bryant Park 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, the provider is 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, exposure to the market risk and the credit risk of the underlying assets held by Bryant Park exists only to the extent the liquidity facility is drawn.

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 VIE consolidation guidance adopted January 1, 2010, we were considered to be the primary beneficiary because we held the majority of the LAPAs.

During the first quarter of 2011, in order to consolidate and streamline conduit administration across HSBC as well as to reduce risk and achieve operational and capital efficiencies, we assigned a significant majority all of our LAPAs to HSBC Bank plc. As a result, we no longer have a controlling financial interest in Bryant Park and beginning in March 2011, we no longer consolidate Bryant Park.

The deconsolidation of Bryant Park in March 2011 resulted in the removal of $2.4 billion of assets (primarily commercial loans and held-to-maturity securities) and $2.5 billion of liabilities (primarily short-term borrowings). In addition, $142 million of unrealized losses on held-to-maturity securities were reversed from accumulated other comprehensive income (loss), while a reserve of $94 million was established relating to the liquidity facilities still provided by HSBC Bank USA with respect to certain securities held by Bryant Park. The impact of deconsolidation on our results of operations was not significant.

Low income housing limited liability partnership In 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, 2011 and 2010 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, 2011 and 2010:


	Variable Interests Held Classified as Assets	Variable Interests Held Classified as Liabilities	Total Assets in Unconsolidated VIEs	Maximum Exposure to Loss
	(in millions)
At December 31, 2011
Asset-backed commercial paper conduits.......................................	$ -	$ -	$ 14,989	$ 677
Structured note vehicles....................................................................	1,392	88	6,605	1,793

Total......................................................................................................	$ 1,392	$ 88	$ 21,594	$ 2,470

At December 31, 2010

Asset-backed commercial paper conduits.......................................	$ -	$ -	$ 13,516	$ 1,856
Structured note vehicles....................................................................	537	87	6,734	900

Total......................................................................................................	$ 537	$ 87	$ 20,250	$ 2,756

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 Bryant Park 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 do not provide the majority of the liquidity facilities to any of these ABCP 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. Credit risk related to the liquidity facilities provided is managed by subjecting these facilities to our normal underwriting and risk management processes. The $677 million 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.

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, 2011, we recorded approximately $73 million of trading assets and $89 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, 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. 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 7, "Securities" and Note 29, "Fair Value Measurements" and, therefore, are not disclosed in this note to avoid redundancy.

Consolidated VIEs of Discontinued Credit Card and Private Label Operations The following summarizes the assets and liabilities of consolidated VIEs which are part of our discontinued credit card operations as of December 31, 2011 and 2010 and are included as a component of Assets of discontinued operations and Liabilities of discontinued operations:


	December 31, 2011		December 31, 2010
	Consolidated Assets	Consolidated Liabilities	Consolidated Assets	Consolidated Liabilities
	(in millions)
Securitization vehicles:
Loans, net......................................................................................................	$ -	$ -	$ 12,963	$ -
Other assets..................................................................................................	-	-	(1,055 )	-
Long-term debt.............................................................................................	-	-	-	150
Deposits........................................................................................................	-	-	-	20
Other liabilities⁽¹⁾...........................................................................................	-	541	-	261

Total....................................................................................................................	$ -	$ 541	$ 11,908	$ 431

⁽¹⁾ Other liabilities in 2011 represents tax related liabilities of these VIEs.

We have historically utilized 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 transferred 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. In 2011, in connection with our agreement to sell certain credit card operations to Capital One, all remaining loans in the private label and other credit card receivables VIEs were transferred to a wholly-owned subsidiary of HSBC Bank USA.

Certain assets of the consolidated VIEs historically served as collateral for the obligations of the VIE. These assets include loans of $233 million at December 31, 2010. There were no such assets at December 31, 2011. 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 at December 31 2010, related to the transfer of receivables to the securitization vehicles which are eliminated in consolidation and therefore are not presented in the table above. There were no such obligations at December 31, 2011.

28. 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, 2011 and 2010. Following the table is a description of the various arrangements.


	December 31, 2011		December 31, 2010
	Carrying Value	Notional/Maximum Exposure to Loss	Carrying Value	Notional/Maximum Exposure to Loss
	(in millions)
Credit derivatives⁽¹⁾⁽⁴⁾................................................................................	$ (7,759 )	$ 330,395	$ (831 )	$ 354,780
Financial standby letters of credit, net of participations⁽²⁾⁽³⁾...............	-	4,705	-	4,264
Performance (non-financial) guarantees⁽³⁾............................................	-	3,088	-	2,895
Liquidity asset purchase agreements⁽³⁾.................................................	-	677	-	1,856

Total...........................................................................................................	$ (7,759 )	$ 338,865	$ (831 )	$ 363,795

⁽¹⁾ Includes $45.1 billion and $49.4 billion issued for the benefit of HSBC affiliates at December 31, 2011 and 2010, respectively.

⁽²⁾ Includes $707 million and $486 million issued for the benefit of HSBC affiliates at December 31, 2011 and 2010, 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, 2011 and 2010:


	December 31, 2011		December 31, 2010
	Carrying (Fair) Value	Notional	Carrying (Fair) Value	Notional
	(in millions)
Sell-protection credit derivative positions..................................................	$ (7,759 )	$ 330,395	$ (831 )	$ 354,780
Buy-protection credit derivative positions.................................................	8,131	326,882	1,631	346,246

Net position⁽¹⁾...................................................................................................	$ 372	$ 3,513	$ 800	$ 8,534

⁽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, 2011, the total amount of outstanding financial standby letters of credit (net of participations) and performance guarantees were $4.7 billion and $3.1 billion, respectively. 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.

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 value of the stand-ready obligation to perform under these guarantees, amounting to $44 million and $47 million at December 31, 2011 and 2010, respectively. Also included in other liabilities is an allowance for credit losses on unfunded standby letters of credit of $22 million and $26 million at December 31, 2011 and 2010, 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, 2011 as an indicative proxy of payment risk:


	Average Life (in years)	Credit Ratings of the Obligors or the Transactions
Notional/Contractual Amounts	Average Life (in years)	Investment Grade	Non-Investment Grade	Total
	(dollars are in millions)
Sell-protection Credit Derivatives⁽¹⁾
Single name CDS......................................................................................	2.9	$ 142,689	$ 65,089	$ 207,778
Structured CDS.........................................................................................	2.3	63,085	5,016	68,101
Index credit derivatives...........................................................................	3.3	29,559	10,372	39,931
Total return swaps...................................................................................	7.7	13,074	1,511	14,585

Subtotal...........................................................................................................		248,407	81,988	330,395
Standby Letters of Credit⁽²⁾...........................................................................	1.2	7,016	777	7,793

Total.................................................................................................................		$ 255,423	$ 82,765	$ 338,188

⁽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, misrepresentation or file documentation issues. 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 resources. In some 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 is usually resolved within 3 months, however some cases may take as long as 12 months to resolve. 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, a majority of the repurchase demands we have received primarily relate to prime loans sourced during 2004 through 2008 from the legacy broker channel which we exited 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 $19.3 billion and $23.0 billion at December 31, 2011 and 2010, respectively, including $12.1 billion and $14.3 billion, respectively, 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, 2011, 2010 and 2009:


	2011	2010	2009
	(in millions)
Pre- 2004..........................................................................................................................................................................	$ 5	$ 14	$ 8
2004..................................................................................................................................................................................	13	31	9
2005..................................................................................................................................................................................	24	24	10
2006..................................................................................................................................................................................	56	41	21
2007..................................................................................................................................................................................	146	161	59
2008..................................................................................................................................................................................	98	112	53
Post 2008.........................................................................................................................................................................	68	34	5

Total repurchase demands received⁽¹⁾.........................................................................................................................	$ 410	$ 417	$ 165

⁽¹⁾ Includes repurchase demands on loans sourced from our legacy broker channel of $300 million, $339 million and $147 million at December 2011, 2010 and 2009, respectively.

The following table provides information about outstanding repurchase demands received from GSEs and other third parties at December 31, 2011, 2010 and 2009:


	2011	2010	2009
	(in millions)
GSEs.................................................................................................................................................................................	$ 78	$ 92	$ 104
Others..............................................................................................................................................................................	35	23	19

Total⁽¹⁾...............................................................................................................................................................................	$ 113	$ 115	$ 123

⁽¹⁾ Includes repurchase demands on loans sourced from our legacy broker channel of $87 million, $87 million and $110 million at December 2011, 2010 and 2009, 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 2011, 2010 and 2009 for obligations arising from the breach of representations and warranties associated with the sale of these loans:


	2011	2010	2009
	(in millions)
Balance at beginning of period................................................................................................................................	$ 262	$ 66	$ 13
Increase in liability recorded through earnings.....................................................................................................	92	341	65
Realized losses............................................................................................................................................................	(117 )	(145 )	(12 )

Balance at end of period............................................................................................................................................	$ 237	$ 262	$ 66

Our reserve for potential repurchase liability exposures relates primarily to previously originated mortgages through broker channels. Our mortgage repurchase liability of $237 million at December 31, 2011 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, Non Credit-Risk Related 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, 2011 and 2010, we have issued $677 million and $1.9 billion, respectively, of liquidity facilities to provide liquidity support to the commercial paper issued by various conduits. The decline since December 31, 2010 reflects the assignment of a significant majority of these facilities to HSBC Bank plc during the first quarter of 2011. See Note 27, "Variable Interest Entities," for further information.

Structured 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 due 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 structured products are accounted for on a fair value basis. The notional amounts of these structured products were not material as of December 31, 2011 and 2010. We have not made any payments under the terms of these structured products for the years ended December 31, 2011 and 2010.

Visa covered litigation 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 later. 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 2009 and 2010, 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 collectively an additional $2.0 billion into the escrow account. As a result, we re-evaluated our contingent liability recorded relating to this litigation and reduced our liability by $24 million during 2009 and 2010. In March 2011 and December 2011, Visa again exercised its rights to sell shares of existing Class B shareholders and funded an additional $400 million and $1.6 billion, respectively, into the escrow account and we reduced our liability by $5 million and $4 million, respectively. At December 31, 2011, there was no net contingent liability recorded. 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.

29. Fair Value Measurements

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, 2011 and 2010.


	December 31, 2011		December 31, 2010
	Carrying Value	Fair Value	Carrying Value	Fair Value
	(in millions)
Financial assets:
Short-term financial assets...........................................................................................	$ 27,534	$ 27,534	$ 10,665	$ 10,665
Federal funds sold and securities purchased under resale agreements................	3,109	3,104	8,236	8,212
Non-derivative trading assets.....................................................................................	30,028	30,028	26,390	26,390
Derivatives......................................................................................................................	$ 9,826	$ 9,826	6,891	6,891
Securities.........................................................................................................................	55,316	55,579	48,713	48,923
Commercial loans, net of allowance for credit losses...............................................	33,176	33,504	29,480	29,773
Commercial loans designated under fair value option and held for sale...............	966	966	1,356	1,356
Consumer loans, net of allowance for credit losses.................................................	17,948	14,301	19,477	14,668
Consumer loans held for sale:
Residential mortgages.............................................................................................	2,057	2,071	954	957
Credit cards...............................................................................................................	416	416	-	-
Other consumer........................................................................................................	231	231	80	80
Financial liabilities:
Short-term financial liabilities.......................................................................................	$ 18,497	$ 18,497	$ 18,031	$ 18,031
Deposits:
Without fixed maturities..........................................................................................	123,720	122,710	95,457	95,457
Fixed maturities.........................................................................................................	6,210	6,232	17,808	17,845
Deposits designated under fair value option............................................................	9,799	9,799	7,386	7,386
Non-derivative trading liabilities.................................................................................	7,342	7,342	5,538	5,538
Derivatives......................................................................................................................	8,440	8,440	5,285	5,285
Long-term debt...............................................................................................................	11,666	11,653	11,862	12,026
Long-term debt designated under fair value option.................................................	5,043	5,043	5,368	5,368

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, 2011 and 2010 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, 2011 and 2010, 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, 2011
	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.................	$ 259	$ 38	$ -	$ 297	$ -	$ 297
Collateralized debt obligations....................................................................	-	52	703	755	-	755
Asset-backed securities:
Residential mortgages..........................................................................	-	274	-	274	-	274
Home equity......................................................................................	-	1	-	1	-	1
Student loans.....................................................................................	-	2	-	2	-	2
Corporate and other domestic debt securities.................................................	-	226	1,679	1,905	-	1,905
Debt Securities issued by foreign entities:
Corporate..........................................................................................	-	1,958	253	2,211	-	2,211
Government.......................................................................................	-	7,461	-	7,461	-	7,461
Equity securities......................................................................................	-	27	13	40	-	40
Precious metals trading.............................................................................	-	17,082	-	17,082	-	17,082
Derivatives⁽²⁾:
Interest rate contracts...........................................................................	135	61,565	9	61,709	-	61,709
Foreign exchange contracts...................................................................	4	15,440	221	15,665	-	15,665
Equity contracts..................................................................................	-	1,047	169	1,216	-	1,216
Precious metals contracts......................................................................	171	1,641	30	1,842	-	1,842
Credit contracts..................................................................................	-	12,297	2,093	14,390	-	14,390
Other contracts...................................................................................	-	-	-	-	-	-
Derivatives netting..............................................................................	-	-	-	-	(84,996 )	(84,996 )

Total derivatives......................................................................................	310	91,990	2,522	94,822	(84,996 )	9,826
Securities available-for-sale:
U.S. Treasury, U.S. Government agencies and sponsored enterprises.................	22,467	22,142	-	44,609	-	44,609
Obligations of U.S. states and political subdivisions......................................	-	600	-	600	-	600
Asset-backed securities:
Residential mortgages..........................................................................	-	5	-	5	-	5
Commercial mortgages........................................................................	-	451	-	451	-	451
Home equity......................................................................................	-	270	-	270	-	270
Student loans.....................................................................................	-	12	-	12	-	12
Other................................................................................................	-	80	-	80	-	80
Corporate and other domestic debt securities.................................................	-	544	-	544	-	544
Debt Securities issued by foreign entities:
Corporate..........................................................................................	-	1,235	-	1,235	-	1,235
Government-backed.............................................................................	40	5,295	-	5,335	-	5,335
Equity securities......................................................................................	-	140	-	140	-	140
Loans⁽³⁾..................................................................................................	-	367	11	378	-	378
Intangible⁽⁴⁾.............................................................................................	-	-	220	220	-	220

Total assets..................................................................................	$ 23,076	$ 150,252	$ 5,401	$ 178,729	$ (84,996 )	$ 93,733

Liabilities:
Deposits in domestic offices⁽⁵⁾.....................................................................	$ -	$ 6,932	$ 2,867	$ 9,799	$ -	$ 9,799
Trading liabilities, excluding derivatives......................................................	321	7,021	-	7,342	-	7,342
Derivatives⁽²⁾:
Interest rate contracts...........................................................................	66	62,702	-	62,768	-	62,768
Foreign exchange contracts...................................................................	13	15,191	222	15,426	-	15,426
Equity contracts..................................................................................	-	999	252	1,251	-	1,251
Precious metals contracts......................................................................	32	1,186	30	1,248	-	1,248
Credit contracts..................................................................................	-	13,553	740	14,293	-	14,293
Derivatives netting..............................................................................	-	-	-	-	(86,546 )	(86,546 )

Total derivatives......................................................................................	111	93,631	1,244	94,986	(86,546 )	8,440
Long-term debt⁽⁶⁾......................................................................................	-	4,957	86	5,043	-	5,043

Total liabilities..................................................................................	$ 432	$ 112,541	$ 4,197	$ 117,170	$ (86,546 )	$ 30,624

	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-backed.........................................................................	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

⁽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 $8.8 billion and $6.0 billion and trading derivative liabilities of $6.8 billion and $5.0 billion as of December 31, 2011 and 2010, 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 10, "Loans Held for Sale," for further information.

⁽⁴⁾ Represents residential mortgage servicing rights. See Note 12, "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 2011 and 2010.

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, 2011 and 2010. 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.


	Jan 1, 2011	Total Gains and (Losses) Included in⁽¹⁾			Purch- ases	Issu- ances	Settle- ments	Transfers Into Level 3	Transfers Out of Level 3	Dec. 31 2011	Current Period Unrealized Gains (Losses)
	Jan 1, 2011	Trading Revenue (Loss)	Other Revenue	Other Comprehensive Income	Purch- ases	Issu- ances	Settle- ments	Transfers Into Level 3	Transfers Out of Level 3	Dec. 31 2011	Current Period Unrealized Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives:
Collateralized debt obligations.........	$ 793	$ (9 )	$ -	$ -	$ 103	$ -	$ (184 )	$ -	$ -	$ 703	$ (30 )
Corporate and other domestic debt securities............	833	(20 )	-	-	871	-	(5 )	-	-	1,679	(22 )
Corporate debt securities issued by foreign entities..............	243	10	-	-	-	-	-	-	-	253	10
Equity securities.......	17	(1 )	-	-	-	-	(3 )	-	-	13	(1 )
Derivatives⁽²⁾:
Interest rate contracts............	(1 )	-	11	-	-	-	(1 )	-	-	9	11
Foreign exchange contracts............	(4 )	5	-	-	-	-	-	(2 )	-	(1 )	5
Equity contracts........	12	(20 )	-	-	-	-	(196 )	33	88	(83 )	(60 )
Credit contracts........	1,202	275	-	-	-	-	(186 )	-	62	1,353	374
Loans(3).......................	11	-	-	-	-	-		-	-	11	-
Other assets, excluding derivatives(4)...........	394	-	(213 )	-	-	39	-	-	-	220	(213 )

Total assets........	$ 3,500	$ 240	$ (202 )	$ -	$ 974	$ 39	$ (575 )	$ 31	$ 150	$ 4,157	$ 74

Liabilities:
Deposits in domestic offices................	$ (3,612 )	$ (172 )	$ -	$ -	$ -	$ (2,124 )	$ 434	$ (135 )	$ 2,742	(2,867 )	$ (18 )
Long-term debt.........	(301 )	96	-	-	-	(626 )	194	(3 )	554	(86 )	7

Total liabilities...	$ (3,913 )	$ (76 )	$ -	$ -	$ -	$ (2,750 )	$ 628	$ (138 )	$ 3,296	$ (2,953 )	$ (11 )


	Jan 1, 2010	Total Gains and (Losses) Included in⁽¹⁾			Purch- ases	Issua- nces	Settle- ments	Transfers Into Level 3	Transfers Out of Level 3	Dec. 31 2010	Current Period Unrealized Gains (Losses)
	Jan 1, 2010	Trading Revenue (Loss)	Other Revenue	Other Comprehensive Income	Purch- ases	Issua- nces	Settle- ments	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............	$ 832	$ (11 )	$ -	$ -	$ 292	$ -	$ (320 )	$ -	$ -	$ 793	$ (80 )
Asset-backed securities:
Residential mortgages........	817	103	-	-	55	-	(671 )	21	(325 )	-	-
Commercial mortgages........	4	(4 )	-	-	-	-	-	-	-	-	-
Home equity.........	24	(65 )	-	-	228	-	(199 )	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.................	195	48	-	-	-	-	-	-	-	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.........................	(3 )	-	2	-	-	-	-	-	-	(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.........................	43	-	-	-	-	-	(43 )	-	-	-	-
Student loans..............	-	-	-	1	-	-	(1 )	12	(12 )	-	-
Other.........................	-	-	-	-	-	-	(1 )	87	(86 )	-	-
Loans⁽³⁾...........................	4	-	-	-	-	-	(1 )	11	(3 )	11	1
Other assets, excluding derivatives⁽⁴⁾...............	450	-	(104 )	-	-	48	-	-	-	394	(104 )

Total assets...........	$ 5,587	$ (121 )	$ (102 )	$ 100	$ 1,018	$ 45	$ (2,611 )	$ 336	$ (752 )	$ 3,500	$ (427 )

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 )

⁽¹⁾ Includes realized and unrealized gains and losses.

⁽²⁾ Level 3 net derivatives included derivative assets of $2.5 billion and derivative liabilities of $1.3 billion for both periods ended December 31, 2011 and 2010.

⁽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 12, "Intangible Assets," for additional information.

Material Additions to and Transfers Into (Out of) Level 3 Measurements

During 2011, we transferred $62 million, of credit derivatives from Level 3 to Level 2 as a result of a qualitative analysis of the foreign exchange and credit correlation attributes of our model used for certain credit default swaps. We transferred $2.7 billion of deposits in domestic offices, which we have elected to carry at fair value, and $554 million of long-term debt, which we have elected to carry at fair value, from Level 3 to Level 2 as a result of the embedded derivative no longer being unobservable as the derivative option is closer in maturity and there is more observability in short term volatility.

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.

In addition 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. 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.

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 amortized 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, 2011 and 2010. The gains (losses) in 2011 and 2010 are also included.


	Non-Recurring Fair Value Measurements as of December 31, 2011				Total Gains (Losses) For Year Ended Dec. 31 2011
	Level 1	Level 2	Level 3	Total	Total Gains (Losses) For Year Ended Dec. 31 2011
	(in millions)
Residential mortgage loans held for sale⁽¹⁾........................	$ -	$ 10	$ 198	$ 208	$ (18 )
Other consumer loans held for sale⁽¹⁾.................................	-	-	70	70	-
Impaired loans⁽²⁾....................................................................	-	-	402	402	(80 )
Real estate owned⁽³⁾..............................................................	-	22	-	22	(4 )
Commercial loans held for sale...........................................	-	66	-	66	-
Impairment of certain previously capitalized software development costs⁽⁴⁾.......................................................	-	-	-	-	(110 )
Building held for use............................................................	-	-	-	-	(5 )

Total assets at fair value on a non-recurring basis.........	$ -	$ 98	$ 670	$ 768	$ (217 )

	Non-Recurring Fair Value Measurements as of December 31, 2010				Total Gains (Losses) For Year Ended Dec. 31 2010
	Level 1	Level 2	Level 3	Total	Total Gains (Losses) For Year Ended 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⁽⁵⁾...........................................................	-	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

⁽¹⁾ As of December 31, 2011 and 2010, 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 are 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⁾ Over the past few years, we have been building several new retail banking platforms as part of an initiative to build common platforms across HSBC. During 2011, we decided to cancel certain projects that were developing software for these new platforms and pursue alternative information technology platforms. Also during 2011, HSBC completed a comprehensive strategic review of all platforms under development which resulted in additional projects being cancelled. As a result, we collectively recorded $110 million of impairment charges in 2011 relating to the impairment of certain previously capitalized software development costs which we determined were no longer realizable. The impairment charges were recorded in other expenses in our consolidated statement of income and is included in the results of our segments principally in RBWM and CMB.

⁽⁵⁾ Represent held-to-maturity securities which were held at fair value at December 31, 2010. See Note 27, "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 amount 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 amortized cost or fair value. 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. For revolving products, the estimated fair value excludes future draws on the available credit line as well as other items and, therefore, does not include the fair value of the entire relationship.

Valuation inputs include estimates of future interest rates, prepayment speeds, default and loss curves, estimated collateral value 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 collateral value 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 analytical reviews of fair value changes on a quarterly basis and periodically validate 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 $44 million and $47 million at December 31, 2011 and 2010, 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		Subprime
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	$ -	$ 76	$ -	$ 189	$ -	$ 268
	Home equity	-	-	1	-	-	-	1
	Student loans	-	-	2	-	-	-	2
	Other	-	-	-	-	-	-	-

	Total AAA -A	3	-	79	-	189	-	271

BBB -B.........................................	Residential mortgages	-	-	2	-	-	-	2
	Home equity	-	-	-	-	-	-	-

	Total BBB -B	-	-	2	-	-	-	2

CCC-Unrated...............................	Residential mortgages	-	-	-	-	4	-	4
	Home equity	-	-	-	-	-	-	-
	Other	-	-	-	-	-	-	-

	Total CCC -Unrated	-	-	-	-	4	-	4

		$ 3	$ -	$ 81	$ -	$ 193	$ -	$ 277

Trading collateralized debt obligations and related collateral:


Rating of Securities:	Collateral Type:	Level 2	Level 3
AAA -A.........................................................................................	Commercial mortgages	$ -	$ -
	Corporate loans	-	-
	Student loans	52	-
	Other	-	-

	Total AAA -A	52	-

BBB -B...........................................................................................	Commercial mortgages	-	152
	Corporate loans	-	344
	Other	-	136

	Total BBB -B	-	632

CCC -Unrated................................................................................	Commercial mortgages	-	71
	Corporate loans	-	-
	Other	-	-

	Total CCC -Unrated	-	71

		$ 52	$ 703

Available-for-sale securities backed by collateral:


		Commercial Mortgages		Prime		Alt-A		Subprime
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	$ -	$ -	$ -	$ -	$ 2	$ -	$ -	$ -	$ 2
	Commercial mortgages	451	-	-	-	-	-	-	-	451
	Home equity	-	-	-	-	114	-	-	-	114
	Student loans	-	-	-	-	12	-	-	-	12
	Other	-	-	-	-	80	-	-	-	80

	Total AAA -A	451	-	-	-	208	-	-	-	659

BBB -B....................................	Residential mortgages	-	-	-	-	-	-	-	-	-
	Home equity	-	-	-	-	86	-	1	-	87

	Total BBB -B	-	-	-	-	86	-	1	-	87

CCC -Unrated.........................	Residential mortgages	-	-	-	-	3	-	-	-	3
	Home equity	-	-	-	-	69	-	-	-	69

	Total CCC -Unrated	-	-	-	-	72	-	-	-	72

		$ 451	$ -	$ -	$ -	$ 366	$ -	$ 1	$ -	$ 818

• 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 amount of the loan, the carrying amount of the loan is adjusted to the fair value. The carrying amount of the property is further reduced, if necessary, not less than once every 45 days 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, current 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.

30. Collateral, Commitments and Contingent Liabilities

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


At December 31,	2011	2010
	(in millions)
Interest bearing deposits with banks...................................................................................................................................	$ 4,426	$ 1,463
Trading assets⁽¹⁾.......................................................................................................................................................................	1,640	319
Securities available- for-sale⁽²⁾................................................................................................................................................	23,347	19,765
Securities held-to-maturity.....................................................................................................................................................	476	1,004
Loans⁽³⁾......................................................................................................................................................................................	2,113	2,691
Other assets⁽⁴⁾...........................................................................................................................................................................	3,688	5,598

Total..........................................................................................................................................................................................	$ 35,690	$ 30,840

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

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

⁽³⁾ Loans are primarily residential mortgage loans pledged against long-term borrowings from the Federal Home Loan Bank. At December 31, 2010, loans also include private label and credit card receivables pledged against long-term secured borrowings and 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 $14 billion and $11.4 billion at December 31, 2011 and 2010, respectively.

The fair value of collateral we accepted but not reported on the consolidated balance sheet that can be sold or repledged was $11.2 billion and $14.5 billion at December 31, 2011 and 2010, respectively. This collateral was obtained under security resale agreements. Of this collateral, $6.5 billion and $2.1 billion has been sold or repledged as collateral under repurchase agreements or to cover short sales at December 31, 2011 and 2010, 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 $148 million in 2011, $144 million in 2010 and $143 million in 2009.

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)
2012....................................................................................................................................................................	$ 158	$ (4 )	$ 154
2013....................................................................................................................................................................	154	(4 )	150
2014....................................................................................................................................................................	148	(3 )	145
2015....................................................................................................................................................................	131	(3 )	128
2016....................................................................................................................................................................	107	(2 )	105
Thereafter.........................................................................................................................................................	342	(3 )	339

Net minimum lease commitments..................................................................................................................	$ 1,040	$ (19 )	$ 1,021

Securitization Activity In addition to the repurchase risk described in Note 28, "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.

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 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 when 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 establish 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 than the amounts reserved for those matters.

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 financial statements 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, have been 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. 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. While we continue to believe that we have substantial meritorious defenses to the claims in this action, the parties are engaged in a mediation process at the direction of the District Court. Based on progress to date in mediation, we increased our litigation reserves in the fourth quarter of 2011 to an amount equal to our estimated portion of a potential settlement of this matter.

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 a 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. The plaintiffs dismissed the Federal court action after the case was transferred to the multi-district litigation pending in Miami, Florida, and re-filed the case in New York state court on March 1, 2011. The action, captioned Ofra Levin et al v. HSBC Bank USA et al. (N.Y. Sup. Ct. 650562/11), alleges a variety of common law claims and violations on behalf of a New York class, including breach of contract and implied covenant of good faith and fair dealing, conversion, unjust enrichment and a violation of the New York deceptive acts and practices statute. We filed a motion to dismiss the complaint in May 2011, oral argument was held in November 2011, and we are currently awaiting the court's decision. 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. Various non-U.S. HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the United States whose assets were invested with Madoff Securities. Plaintiffs (including funds, funds investors and the Madoff Securities trustee, as described below) have commenced Madoff-related proceedings against numerous defendants in a multitude of jurisdictions. Various HSBC companies have been named as defendants in suits in the United States, Ireland, Luxembourg and other jurisdictions. Certain suits (which included four U.S. putative class actions) allege that the HSBC defendants knew or should have known of Madoff's fraud and breached various duties to the funds and fund investors.

In November 2011, the District Court judge overseeing three related putative class actions in the Southern District of New York, captioned In re Herald, Primeo and Thema Funds Securities Litigation (S.D.N.Y. Nos. 09-CV-0289 (RMB), 09-CV-2558 (RMB)), dismissed all claims against the HSBC defendants on forum non conveniens grounds, but temporarily stayed this ruling as to one of the actions against the HSBC defendants - the claims of investors in Thema International Fund plc - in light of a proposed amended settlement agreement between the lead plaintiff in that action and the relevant HSBC defendants (including, subject to the granting of leave to effect a proposed pleading amendment, HSBC Bank USA). In December 2011, the District Court lifted this temporary stay and dismissed all remaining claims against the HSBC defendants, and declined to consider preliminary approval of the settlement. In light of the District Court's decision, HSBC has terminated the settlement agreement. The Thema plaintiff contests HSBC's right to terminate. Plaintiffs in all three actions have filed notices of appeal to the U.S. Circuit Court of Appeals for the Second Circuit.

In December 2010, the Madoff Securities trustee commenced suits against various HSBC companies in the 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, sought $9 billion in damages and additional recoveries from HSBC Bank USA, certain of our foreign affiliates and the various other codefendants. It sought damages against the HSBC defendants for allegedly aiding and abetting Madoff's fraud and breach of fiduciary duty. In July 2011, after withdrawing the case from the Bankruptcy Court in order to decide certain threshold issues, the District Court dismissed the trustee's various common law claims on the grounds that the trustee lacks standing to assert them. In December 2011, the District Court issued an order that allowed the trustee to immediately appeal that ruling and the trustee has filed a notice of appeal. The District Court returned the remaining claims to the Bankruptcy Court for further proceedings. Those claims seek, 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. In September 2011, certain non-HSBC defendants moved again to withdraw the case from the Bankruptcy Court. Those withdrawal motions are currently pending before the District Court. The trustee's English action, which names HSBC Bank USA and other HSBC entities as defendants, 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. HSBC has not been served.

Between October 2009 and July 2011, 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 United States 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. Some of these actions also seek recovery of the share redemptions under British Virgin Islands insolvency law. The actions in the United States are currently stayed in the Bankruptcy Court while plaintiffs pursue an appeal of a decision that reversed the Bankruptcy Court's denial of defendants' motions to remand or abstain and pending developments in the related appellate litigation in the British Virgin Islands.

HSBC Bank USA was also a defendant in an action filed in July 2011, captioned Wailea Partners, LP v. HSBC Bank USA, N.A. (N.D. Ca. No. 11-CV-3544), arising from derivatives transactions between Wailea Partners, LP and HSBC Bank USA that were linked to the performance of a fund that placed its assets with Madoff Securities pursuant to a specified investment strategy. The plaintiff alleged, among other things, that HSBC Bank USA knew or should have known that the fund's assets would not be invested as contemplated. The plaintiff also alleged that HSBC Bank USA marketed, sold and entered into the derivatives transactions on the basis of materially misleading statements and omissions in violation of California law. The plaintiff sought rescission of the transactions and return of amounts paid to HSBC Bank USA in connection with the transactions, together with interest, fees, expenses and disbursements. In December 2011, the District Court granted HSBC's motion to dismiss the complaint with prejudice, and the plaintiff appealed to the U.S. Court of Appeals for the Ninth Circuit.

Greenwich Sentry LP v. HSBC USA Inc. (Del. Ch. No. 6829) was filed in September 2011 in the Delaware Court of Chancery. The complaint seeks the return of specified redemption payments made to HSBC USA as a limited partner in Greenwich Sentry LP, a fund whose assets were invested with Madoff Securities, and asserts claims of unjust enrichment, mistaken payment, and constructive trust. HSBC USA was served with a copy of the complaint in December 2011 and expects to file a response in or about March 2012.

There are many factors that may 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 they could be significant. In any event, we consider that we have good defenses to these claims and will continue to defend them vigorously.

Knox Family Trust Litigation. HSBC Bank USA, N.A. is the defendant in seven separate proceedings collectively described as Matter of Knox (N.Y. Surrogate's Court, Erie County, File Nos. DO-0659, DO-0663, DO-0664, DO-0665, DO-0666, 1996-2486/B, and 1996-2486/D), concerning seven trusts for which HSBC Bank USA served as trustee that were established by Seymour Knox II and his descendants for various members of the Knox family. In these proceedings, the beneficiaries of the various trusts objected to HSBC Bank USA's final accountings and claimed that HSBC Bank USA mismanaged certain assets and investments. In November 2010, the court awarded the plaintiffs in the seven proceedings damages totaling approximately $26 million plus interest and attorneys' fees to be determined. In May 2011, the court entered final judgments totaling approximately $25 million in two of the seven proceedings. HSBC Bank USA appealed the judgments and secured the judgments in order to suspend execution of the judgments while the appeals are ongoing by depositing cash in the amount of the judgments in an interest-bearing escrow account. In May 2011, HSBC Bank USA agreed to settle three of the other proceedings for an immaterial amount. HSBC Bank USA also filed appeals of the two other proceedings. In August 2011, HSBC Bank USA agreed in principle to settle one proceeding on appeal for an immaterial amount. Final judgments were entered on the remaining proceedings and we have filed appeals, which are currently pending.

Governmental and Regulatory Matters

Foreclosure Practices In April 2011, HSBC Bank USA entered into a consent cease and desist order with the OCC (the "OCC Servicing Consent Order") and our affiliate, HSBC Finance Corporation, and our common indirect parent, HSBC North America, entered into a similar consent order with the Federal Reserve (together with the OCC Servicing Consent Order, the "Servicing Consent Orders") following completion of a broad horizontal review of industry foreclosure practices. The OCC Servicing Consent Order requires HSBC Bank USA to take prescribed actions to address the deficiencies noted in the joint examination and described in the consent order. We are committed to full compliance with the terms of the Servicing Consent Orders, as described in our Form 10-Q for the quarter ended March 31, 2011. We continue to work with the OCC and the Federal Reserve to align our processes with the requirements of the Servicing Consent Orders and are implementing operational changes as required.

The Servicing Consent Orders require an independent review of foreclosures pending or completed between January 2009 and December 2010 (the "Foreclosure Review Period") to determine if any borrower was financially injured as a result of an error in the foreclosure process. Consistent with the industry, and as required by the Servicing Consent Orders, an independent consultant has been retained to conduct that review, and remediation, including restitution, may be required if a borrower is found to have been financially injured as a result of servicer errors. In conjunction with the foreclosure review, a communication and outreach plan has been developed and implemented to contact borrowers with foreclosures pending or completed during the Foreclosure Review Period. We will conduct the outreach efforts in collaboration with other mortgage loan servicers and independent consultants in order to present a uniform, coherent and user-friendly complaint process. Written communications have been sent to borrowers who were subject to foreclosure proceedings during the Foreclosure Review Period notifying them of the foreclosure complaint review process and providing them with forms that can be used to request a review of their foreclosure proceeding. The outreach plan currently includes a staggered mailing to borrowers, which began on November 1, and industry media advertising, which began in January 2012. We expect the costs associated with the Servicing Consent Orders, including the foreclosure review, customer outreach plan and complaint process and any resulting remediation, will result in significant increases in our operating expenses in future periods.

The Servicing Consent Orders do not preclude additional enforcement actions against HSBC Bank USA or our affiliates by bank regulatory, governmental or law enforcement agencies, such as the Department of Justice and State Attorneys General, which could include the imposition of civil money penalties and other sanctions relating to the activities that are the subject of the Servicing Consent Orders. The Federal Reserve has indicated in a press release that it believes monetary penalties are appropriate for the enforcement actions and that it plans to announce such penalties. We may also see an increase in private litigation concerning foreclosure and other mortgage servicing practices.

On February 9, 2012, the U.S. Department of Justice, the U.S. Department of Housing and Urban Development and State Attorneys General of 49 states announced a settlement with the five largest U.S. mortgage servicers with respect to foreclosure and other mortgage servicing practices. HSBC North America, HSBC Finance Corporation and HSBC Bank USA have had preliminary discussions with U.S. bank regulators and other governmental agencies regarding a potential resolution, although the timing of any settlement is not presently known. Based on discussions to date, an accrual was determined based on the total projected impact at HSBC North America associated with a proposed settlement of this matter. We have recorded an accrual of $38 million in the fourth quarter of 2011 which reflects the portion of the HSBC North America accrual that we currently believe is allocable to HSBC Bank USA. As this matter progresses and more information becomes available, we will continue to evaluate our portion of the HSBC North America liability which may result in a change to our current estimate. Any such settlement, however, may not completely preclude other enforcement actions by state or federal agencies, regulators or law enforcement agencies related to foreclosure and other mortgage servicing practices, including, but not limited to, matters relating to the securitization of mortgages for investors, including the imposition of civil money penalties, criminal fines or other sanctions. In addition, such a settlement would not preclude private litigation concerning these practices.

Anti-Money Laundering, Bank Secrecy Act, Office of Foreign Assets Control and Other Compliance Matters In October 2010, HSBC Bank USA has also entered into a consent cease and desist order with the OCC and our indirect parent, HSBC North America, entered into a consent cease and desist order with the Federal Reserve (together, the "AML/BSA Consent Orders"). These actions require improvements for an effective compliance risk management program across our U.S. businesses, including BSA and Anti-Money Laundering ("AML") compliance. Steps continue to be taken to address the requirements of the AML/BSA Consent Orders to ensure compliance, and that effective policies and procedures are maintained.

The AML/BSA Consent Orders do not preclude additional enforcement actions against HSBC Bank USA or HSBC North America by bank regulatory or law enforcement agencies, including the imposition of civil money penalties, criminal fines and other sanctions relating to activities that are the subject of the AML/BSA Consent Orders. We continue to cooperate in ongoing investigations by the U.S. Department of Justice, the Federal Reserve and the OCC in connection with AML/BSA compliance, including cross-border transactions involving our remittance and our former bulk cash businesses.

We continue to cooperate in ongoing investigations by the U.S. Department of Justice, the New York County District Attorney's Office, the Office of Foreign Assets Control ("OFAC"), the Federal Reserve and the OCC regarding historical transactions involving Iranian parties and other parties subject to OFAC economic sanctions.

In April 2011, HSBC Bank USA received a "John Doe" summons from the Internal Revenue Service (the "IRS") directing us to produce records with respect to U.S.-based clients of an HSBC Group company in India. While the summons was voluntarily withdrawn in August 2011, we have cooperated fully by providing responsive documents in our possession in the U.S. to the IRS, and engaging in efforts to resolve these matters.

We continue to cooperate in ongoing investigations by the U.S. Department of Justice and the IRS regarding whether certain HSBC Group companies acted appropriately in relation to certain customers who had U.S. tax reporting requirements.

In April 2011, HSBC Bank USA received a subpoena from the SEC directing HSBC Bank USA to produce records in the United States related to, among other things, HSBC Private Bank Suisse SA's cross-border policies and procedures and adherence to U.S. broker-dealer and investment adviser rules and regulations when dealing with U.S. resident clients. HSBC Bank USA continues to cooperate with the SEC.

We continue to cooperate with an investigation by the U.S. Senate Permanent Subcommittee on Investigations related to AML/BSA compliance, OFAC sanctions and compliance with U.S. tax and securities laws.

In each of these regulatory and law enforcement matters, we have received Grand Jury subpoenas or other requests for information from governmental and other agencies, and are cooperating fully and engaging in efforts to resolve these matters. It is likely that there will be some form of formal enforcement action, which may be criminal or civil in nature, in respect of some or all of the ongoing investigations. Investigations of several other financial institutions in recent years for breaches of BSA, AML and OFAC requirements have resulted in settlements. Some of those settlements involved the filing of criminal charges, in some cases including agreements to defer prosecution of these charges, and the imposition of fines and penalties. Some of those fines and penalties have been significant depending upon the individual circumstances of each action. The investigations are ongoing. 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.

Mortgage Securitization Activity In addition to the repurchase risk described in Note 28, "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, beginning in 2005 we began acquiring residential mortgage loans, substantially all of which were originated by non-HSBC entities, that 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. The outstanding principal balance on these loans was approximately $8.5 billion and $10.0 billion at December 31, 2011 and December 31, 2010, respectively. 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. Certain of these originators, however, are or may become financially impaired and, therefore, unable to fulfill their repurchase obligations.

Participants in the U.S. mortgage securitization market that purchased and repackaged whole loans have been the subject of lawsuits and governmental and regulatory investigations and inquiries, which have been directed at groups within the U.S. mortgage market, such as servicers, originators, underwriters, trustees or sponsors of securitizations, and at particular participants within these groups. As the industry's residential mortgage foreclosure issues continue, HSBC Bank USA has taken title to an increasing number of foreclosed homes as trustee on behalf of various securitization trusts. As nominal record owner of these properties, HSBC Bank USA has been sued by municipalities and tenants alleging various violations of law, including laws regarding property upkeep and tenants' rights. While we believe and continue to maintain that the obligations at issue and any related liability are properly those of the servicer of each trust, we continue to receive significant and adverse publicity in connection with these and similar matters, including foreclosures that are serviced by others in the name of "HSBC, as trustee."

HSBC Bank USA and certain of our affiliates have been named as defendants in a number of actions in connection with residential mortgage-backed securities ("RMBS") offerings, which generally allege that the offering documents for securities issued by securitization trusts contained material misstatements and omissions, including statements regarding the underwriting standards governing the underlying mortgage loans. In September 2011, the Federal Housing Finance Agency (the "FHFA"), acting in its capacity as conservator for the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), filed an action in the U.S. District Court for the Southern District of New York against HSBC Bank USA, HSBC USA, HSBC North America, HSBC Securities (USA) Inc., HSI Asset Securitization Corporation ("HASCO") and five former and current officers and directors of HASCO seeking damages or rescission of mortgage-backed securities purchased by Fannie Mae and Freddie Mac that were either underwritten or sponsored by HSBC entities. The aggregate unpaid principal balance of the securities was approximately $1.9 billion at December 31, 2011. This action, captioned Federal Housing Finance Agency, as Conservator for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation v. HSBC North America Holdings Inc. et al. (S.D.N.Y. No. CV 11-6189-LAK), is one of a series of similar actions filed against 17 financial institutions alleging violations of federal securities laws and state statutory and common law in connection with the sale of private-label RMBS purchased by Fannie Mae and Freddie Mac, primarily from 2005 to 2008. This action, along with all of the similar FHFA RMBS actions that were filed in the U.S. District Court for the Southern District of New York, have been transferred to a single judge, who has directed the defendant in the first-filed matter, UBS, to file a motion to dismiss. The District Court's ruling on that motion will form the basis for rulings on the other matters, including the action filed against HSBC Bank USA and our affiliates. This action is at a very early stage. At this time we are unable to reasonably estimate the liability, if any, that might arise as a result of this action.

On January 31, 2012 Deutsche Zentral-Genossenschaftsbank ("DZ Bank") filed a summons with notice in New York County Supreme Court, State of New York, naming as defendants HSBC North America, HSBC USA, HSBC Bank USA, HSBC Markets (USA) Inc., HASCO and HSBC Securities (USA) Inc. The summons alleges that DZ Bank purchased $122.4 million in RMBS from the HSBC defendants and has sustained unspecified damages as a result of material misrepresentations and omissions contained in the offering documents, which DZ Bank did not know of until recently. DZ Bank now has 120 days to serve the HSBC entities with a complaint.

We have received subpoenas from the SEC seeking production of documents and information relating to our involvement, and the involvement of our affiliates, in specified private-label RMBS transactions as an issuer, sponsor, underwriter, depositor, trustee or custodian as well as our involvement as a servicer. We have also had preliminary contacts with other governmental authorities exploring the role of trustees in private-label RMBS transactions. We also received a subpoena from the U.S. Department of Justice (U.S. Attorney's 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. In January 2012, our affiliate, HSBC Securities (USA) Inc., was served with a Civil Investigative Demand by the Massachusetts State Attorney General seeking documents, information and testimony related to the sale of RMBS to public and private customers in the State of Massachusetts from January 2005 to the present.

We expect this level of focus will continue and, potentially, intensify, so long as the U.S. real estate markets continue to be distressed. As a result, we may be subject to additional litigation and governmental and regulatory scrutiny related to our participation in the U.S. mortgage securitization market, either individually or as a member of a group. We are unable to reasonably estimate the financial effect of any action or litigation relating to these matters. As situations develop, it is possible that any related claims could be significant.

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

Condensed parent company financial statements follow.


Balance Sheet At December 31,	2011	2010
	(in millions)
Assets:
Cash and due from banks....................................................................................................................................................	$ -	$ -
Interest bearing deposits with banks................................................................................................................................	900	-
Trading assets.......................................................................................................................................................................	869	794
Securities available-for-sale................................................................................................................................................	273	259
Securities held-to-maturity (fair value $40 million and $51 million)...............................................................................	19	39
Loans......................................................................................................................................................................................	433	43
Receivables from subsidiaries............................................................................................................................................	11,584	9,476
Receivables from other HSBC affiliates.............................................................................................................................	532	1,149
Investment in subsidiaries at amount of their net assets:
Banking.............................................................................................................................................................................	19,591	17,682
Other..................................................................................................................................................................................	67	205
Goodwill.................................................................................................................................................................................	589	589
Other assets...........................................................................................................................................................................	507	404

Total assets...........................................................................................................................................................................	$ 35,364	$ 30,640

Liabilities:
Interest, taxes and other liabilities......................................................................................................................................	$ 318	$ 255
Payables due to subsidiaries..............................................................................................................................................	1,813	1,051
Payables due to other HSBC affiliates...............................................................................................................................	605	265
Short-term borrowings.........................................................................................................................................................	4,836	3,027
Long-term debt⁽¹⁾...................................................................................................................................................................	4,417	7,438
Long-term debt due to subsidiary and other HSBC affiliates⁽¹⁾......................................................................................	4,873	1,871

Total liabilities.......................................................................................................................................................................	16,862	13,907
Shareholders' equity............................................................................................................................................................	18,502	16,733

Total liabilities and shareholders' equity..........................................................................................................................	$ 35,364	$ 30,640

⁽¹⁾ Contractual scheduled maturities for the debt over the next five years are as follows: 2012 - $1.8 billion; 2013 - $1.5 million; 2014 - $1.3 million; 2015 - $1.2 billion; 2016 - $1.2 million; and thereafter - $2.2 billion.


Statement of Income (Loss) Year Ended December 31,	2011	2010	2009
	(in millions)
Income:
Dividends from banking subsidiaries...........................................................................................................	$ 1	$ 5	$ 7
Dividends from other subsidiaries................................................................................................................	2	2	2
Interest from subsidiaries...............................................................................................................................	67	74	70
Interest from other HSBC affiliates...............................................................................................................	17	20	46
Other interest income......................................................................................................................................	19	22	27
Securities transactions...................................................................................................................................	-	1	2
Other income from subsidiaries.....................................................................................................................	(131 )	(89 )	(20 )
Other income from other HSBC Affiliates....................................................................................................	(18 )	217	173
Other income....................................................................................................................................................	312	(30 )	(189 )

Total income..........................................................................................................................................................	269	222	118

Expenses:
Interest to subsidiaries...................................................................................................................................	70	70	70
Interest to other HSBC Affiliates..................................................................................................................	48	19	9
Other Interest Expense...................................................................................................................................	224	216	241
Provision for credit losses.............................................................................................................................	(1 )	-	-
Other expenses with subsidiaries.................................................................................................................	-	-	9
Other expenses with Other HSBC Affiliates................................................................................................	12	4	4
Other expenses................................................................................................................................................	2	3	4

Total expenses......................................................................................................................................................	355	312	337

Loss before taxes and equity in undistributed income of subsidiaries........................................................	(86 )	(90 )	(219 )
Income tax benefit.................................................................................................................................................	62	47	96

Loss before equity in undistributed income of subsidiaries..........................................................................	(24 )	(43 )	(123 )
Equity in undistributed income (loss) of subsidiaries....................................................................................	1,042	1,607	(19 )

Net income (loss)..................................................................................................................................................	$ 1,018	$ 1,564	$ (142 )


Statement of Cash Flows Year Ended December 31,	2011	2010	2009
	(in millions)
Cash flows from operating activities:
Net income..................................................................................................................................................	$ 1,018	$ 1,564	$ (142 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and deferred taxes.................................................................................	149	141	152
Net change in other accrued accounts..............................................................................................	765	708	297
Net change in fair value of non-trading derivatives........................................................................	(240 )	(176 )	130
Undistributed loss (gain) of subsidiaries..........................................................................................	(1,042 )	(1,607 )	19
Other, net...............................................................................................................................................	(73 )	(291 )	359

Net cash provided by operating activities..................................................................................	577	339	815

Cash flows from investing activities:
Net change in interest bearing deposits with banks............................................................................	(900 )	64	1
Purchases of securities.............................................................................................................................	-	-	(9,948 )
Sales and maturities of securities............................................................................................................	21	107	9,912
Net change in loans...................................................................................................................................	(390 )	295	(190 )
Net change in investments in and advances to subsidiaries..............................................................	(1,134 )	(1,833 )	(1,428 )
Other, net.....................................................................................................................................................	-	105	(14 )

Net cash used in investing activities...........................................................................................	(2,403 )	(1,262 )	(1,667 )

Cash flows from financing activities:
Net change in short-term borrowings.....................................................................................................	1,809	67	(996 )
Issuance of long-term debt, net of issuance costs...............................................................................	5,511	2,357	3,457
Repayment of long-term debt...................................................................................................................	(5,450 )	(1,417 )	(3,637 )
Dividends paid...........................................................................................................................................	(73 )	(74 )	(73 )
Additions (reductions) of capital surplus..............................................................................................	29	(10 )	(66 )
Preferred stock issuance, net of redemptions........................................................................................	-	-	-
Capital contribution from HNAI..............................................................................................................	-	-	2,167

Net cash provided by financing activities...................................................................................	1,826	923	852

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.........................................................................................................................................................	$ 338	$ 295	$ 352

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 26, "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.


	2011				2010
	Fourth	Third	Second	First	Fourth	Third	Second	First
	(in millions)
Net interest income......................................................	$ 640	$ 621	$ 543	$ 630	$ 646	$ 643	$ 660	$ 664
Provision for credit losses..........................................	87	78	95	(2 )	41	10	60	(77 )

Net interest income after provision for credit losses.......................................................................	553	543	448	632	605	633	600	741
Other revenues.............................................................	475	667	534	591	359	598	500	723
Operating expenses.....................................................	1,017	921	892	931	829	823	785	877

Income from continuing operations before income tax expense (benefit)..............................................	11	289	90	292	135	408	315	587
Income tax expense (benefit)......................................	(12 )	118	134	(13 )	(2 )	137	86	218

Income (loss) from continuing operations...............	23	171	(44 )	305	137	271	229	369
Income from discontinued operations, net of tax..............................................................................	122	140	127	174	156	146	71	185

Net income....................................................................	$ 145	$ 311	$ 83	$ 479	$ 293	$ 417	$ 300	$ 554

PART III

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

There were no disagreements on accounting and financial disclosure matters between HSBC USA and its independent accountants during 2011.

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, 2011 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, 2011. 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, 2011, 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, 2011 has been audited by HSBC USA's independent registered public accounting firm, KPMG LLP, as stated in their report appearing on page , which expressed an unqualified opinion on the effectiveness of HSBC USA's internal control over financial reporting as of December 31, 2011.

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 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.

William R. P. Dalton, age 68, joined the HSBC USA Board in May 2008. He has been a member of the HSBC North America Board since 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 Committees.

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 67, 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 News Corporation 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 and the board of the North Western Connecticut Economic Development Corporation.

Ms. Disney is a member of the Compliance and Risk Committees. She was also a member of the Executive Committee until it was dissolved in December 2011, Chair of an ad hoc Nominating Committee from July 2011 until it was dissolved in January 2012 and a member of the Audit Committee through May 2011.

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 57, 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 in January 2010. Ms. Dorner was also appointed Chairman of the Board of HSBC USA and HSBC Bank USA and Chief Executive Officer of HSBC North America in October 2011. She 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 Berhad, 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 British-American Business Council, The Clearing House and the Financial Services Roundtable.

Ms. Dorner is a member of the Compliance Committee. She was also a member of the Executive Committee until it was dissolved in December 2011.

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 63, joined HSBC USA's Board in May 2010 and is Chair of its Audit and Risk Committees. He has also been a member of HSBC Finance Corporation's Board since January 2004, and is also Chair of its Audit and Risk Committees. Since March 2005, he has served as a member of the Board of Directors of HSBC North America and as Chair of its Audit Committee, and since July 2011 he has served as Chair of its Risk Committee. HSBC USA, HSBC Finance Corporation and HSBC North America belong to a single controlled group of corporations and their Board of Directors and Audit and Risk Committees conduct their meetings simultaneously. He was also a member of the HSBC North America Compliance Committee from October 2009 to May 2011 and its chair from October 2010 to May 2011. Mr. Herdman has also served on the Board of Directors of Cummins Inc. since February 2008 and is the Chair of its Audit Committee, and on the Board of Directors of WPX Energy, Inc. and is Chair of its Audit Committee since December 2011. 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 of Westwood One, Inc. from 2005 to 2006.

Mr. Herdman is Chair of the Audit and Risk Committees. He was also Chair of the Compliance Committee from August 2010 to May 2011.

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 45, joined the HSBC USA Board in May 2008. He has also been a member of the HSBC North America Board since 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 and 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 Committees.

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 67, joined the HSBC USA Board in 2000 and the HSBC Bank USA Board in 1992. He has also been a member of the HSBC North America Board since 2008. 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, Chair of the Compliance Committee and a member of the Risk Committee. He was also a member of the Executive Committee until it was dissolved in December 2011, and a member of the Audit Committee through May 2011.

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 HSBC USA Board.

Executive Officers Information regarding the executive officers of HSBC USA as of February 27, 2012 is presented in the following table.


Name	Age	Year Appointed	Present Position
Irene M. Dorner.........................................	57	2010	President and Chief Executive Officer
John T. McGinnis......................................	45	2010	Executive Vice President and Chief Financial Officer
Stuart A. Alderoty.....................................	52	2011	Senior Executive Vice President and General Counsel
Stephen A. Bottomley..............................	52	2012	Senior Executive Vice President, Head of Commercial Banking
Jon N. Couture...........................................	46	2011	Senior Executive Vice President, Human Resources
Patrick A. Cozza.........................................	56	2010	Senior Executive Vice President and Regional Head of Insurance
C. Mark Gunton.........................................	55	2008	Senior Executive Vice President, Chief Risk Officer
Mark A. Hershey.......................................	59	2007	Senior Executive Vice President and Regional Head of Wholesale and Market Risk
Eric L. Larson.............................................	54	2011	Senior Executive Vice President and Chief Compliance Officer
Kevin R. Martin.........................................	51	2009	Senior Executive Vice President, Head of Retail Banking and Wealth Management
Mark Martinelli..........................................	52	2007	Senior Executive Vice President, Chief Auditor
Patrick M. Nolan........................................	46	2010	Senior Executive Vice President, Head of Global Banking and Markets Americas
Eli I. Sinyak.................................................	52	2011	Senior Executive Vice President, Chief Operating Officer
Jon R. Bottorff............................................	60	2010	Executive Vice President and Chief Financial Officer, Global Banking and Markets, USA
Eric K. Ferren..............................................	38	2010	Executive Vice President and Chief Accounting Officer
Loren C. Klug.............................................	51	2012	Executive Vice President, Head of Strategy and Planning
Patrick D. Schwartz....................................	54	2008	Executive Vice President and Secretary
Marlon Young............................................	56	2006	Executive Vice President, Head of 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 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).

Stuart A. Alderoty, Senior Executive Vice President and General Counsel since June 2011. He is also Senior Executive Vice President and General Counsel of HSBC North America since November 2010. Prior to joining HSBC in 2010, Mr. Alderoty was Managing Counsel with American Express from 2006 to 2010 and prior to that he was Chief Litigation Counsel for American Express from 2002 to 2006. Prior to joining American Express in 2002, he was a litigator in private practice for 17 years, the last 13 of which were with the firm of Leboeuf, Lamb, Greene and MacRae, where he was a partner since 2006. Mr. Alderoty serves on the Board of the Count Basie Theatre Foundation, a not-for-profit in Red Bank, New Jersey.

Stephen A. Bottomley, Senior Executive Vice President, Head of Commercial Banking since January 2012. Prior to this appointment, Mr. Bottomley was Regional Head of Strategy and Planning for HSBC Bank Middle East from 2009 to 2012. From 2008 to 2009 he was Head of European Strategy and from 2007 to 2008 he was Head of Commercial Banking UK. He joined HSBC in 1982 and has held a variety of positions in Commercial Banking and Corporate & Investment Banking.

Jon N. Couture, Senior Executive Vice President, Human Resources, since June 2011. Mr. Couture is also Senior Executive Vice President-Human Resources of HSBC Finance Corporation since December 2007 and Senior Executive Vice President-Human Resources of HSBC North America since February 2008. Mr. Couture joined HSBC in December 2007 as Executive Vice President and Head of Human Resources of HSBC North America. Mr. Couture was formerly with National City Corporation where he was Executive Vice President, Human Resources and Corporate Senior Vice President from May 2004 to December 2007. Prior to that Mr. Couture was with Siemens Business Services, Inc. from 1998 until May 2004 where he held the position of Senior Vice President, Human Resources. Mr. Couture has been a member of the Board of Directors of Banking Administration Institute since 2006.

Patrick A. Cozza, Senior Executive Vice President and 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.

C. Mark Gunton, Senior Executive Vice President, Chief Risk Officer of HSBC USA, HSBC North America and HSBC Finance Corporation 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 risk framework. 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 and Regional Head of Wholesale and Market Risk since January 2012. Previously he was Senior Executive Vice President and Chief Risk Officer from May 2007 to December 2011 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 and Chief Compliance Officer of HSBC USA, HSBC North America and HSBC Finance Corporation 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, Head of Retail Banking and Wealth Management (formerly Personal Financial Services) 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 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. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants. Mr. Martinelli has served on the Audit Committee of the New York Clearing House since 2007 and currently serves as its Chairman. He has been a director on the Baruch College Fund Board of Trustees since April 2010 and has served as the Chairman of its Audit Committee since September 2011.

Patrick M. Nolan, Senior Executive Vice President, Head of Global Banking and 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.

Eli I. Sinyak, Senior Executive Vice President, Chief Operating Officer, of HSBC USA, HSBC North America and HSBC Finance Corporation since September 2011. He was previously Senior Executive Vice President, Chief Technology & Services Officer of HSBC USA, HSBC North America and HSBC Finance Corporation from March 2011 to September 2011. Prior to that he was Chief Technology & Services Officer of The Hongkong and Shanghai Banking Corporation Limited and for HSBC Global Commercial Banking from 2008 to 2011. From 2005 to 2008 he was Chief Information Officer for HSBC Asia Pacific and for HSBC Global Commercial Banking. Mr. Sinyak joined HSBC in 1999 and has held a variety of senior information technology positions. He was appointed a Group General Manager in May 2010.

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 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.

Eric K. Ferren, Executive Vice President and Chief Accounting Officer of HSBC USA, HSBC North America and 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 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.

Loren C. Klug, Executive Vice President, Head of Strategy and Planning of HSBC USA, HSBC North America and HSBC Finance Corporation since January 2012. He was previously Executive Vice President - Strategy & Planning of HSBC Finance Corporation and HSBC North America from February 2008 through December 2011. From March 2004 to January 2008, he was Managing Director - Strategy and Development, and concurrently from January 2005 to November 2007 he was responsible for strategy development and customer group oversight for HSBC Group plc's global consumer finance activities. Mr. Klug joined HSBC Finance Corporation in 1989, and since that time has held a variety of commercial finance and strategy positions. Prior to such time he held positions in commercial real estate and banking.

Patrick D. Schwartz, Executive Vice President and Secretary since May 2008. He is also Executive Vice President and Corporate Secretary of HSBC North America and HSBC Finance Corporation since May 2008. Mr. Schwartz was previously the Deputy General Counsel-Corporate of HSBC USA from May 2010 to May 2011 and a Senior Vice President from September 2007 to May 2008. Mr. Schwartz has held several different titles for HSBC USA since September 2009, but served as its Secretary continuously since that time. Mr. Schwartz also was the General Counsel of HSBC Finance Corporation from June 2009 to April 2011, and its Deputy General Counsel-Corporate from February 2008 to June 2009. He also held that position with HSBC North America from February 2008 to April 2011. He has served as a senior legal advisor of HSBC Finance Corporation and HSBC North America since 2004 and as Corporate Secretary of each entity since 2007. Mr. Schwartz counsels management and the Board of Directors of HSBC USA, HSBC Finance Corporation and HSBC North America with respect to corporate governance matters.

Marlon Young, Executive Vice President, Head of Private Banking Americas since May 2010. He was previously Managing Director, Head of Private Banking Americas from October 2006 to May 2010. 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, including Head of the Northeast Region for Citigroup Private Bank, Head of Investment Finance and Senior Credit Officer for the U.S. Northeast and Mid-Atlantic Regions.

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.

Board of Directors - Committees and Charters The Board of Directors of HSBC USA has four standing committees: the Audit Committee, the Compliance Committee, the Fiduciary Committee and the Risk Committee. The charters of the Audit Committee, the Compliance Committee, the Fiduciary Committee and the Risk 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.

Audit Committee The Audit 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 effective systems of internal controls over financial reporting;

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

• the qualifications, independence, performance and remuneration of HSBC USA's independent auditors.

The Audit 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 and Louis Hernandez, Jr. 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 is responsible, on behalf of the Board of Directors, for monitoring and oversight of:

• HSBC Bank USA's adherence to the provisions of the AML/BSA Consent Order with the OCC and our efforts to achieve and maintain an effective BSA/AML compliance program;

• the corrective actions in the loan servicing, foreclosure processing and loss mitigation functions of HSBC Bank USA and to ensure that HSBC Bank USA complies with the OCC Servicing Consent Order; and

• HSBC USA's and HSBC Bank USA's Compliance function.

The Compliance Committee is currently comprised of the following directors: Richard A. Jalkut (Chair), Anthea Disney and Irene M. Dorner.

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 OCC, 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.

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

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

• our systems of risk management and internal control 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 Risk Committee is currently comprised of the following directors: Robert K. Herdman (Chair), William R. P. Dalton, Anthea Disney, Louis Hernandez, Jr. and Richard A. Jalkut.

Nominating and Compensation Committees The Board of Directors of HSBC USA does not maintain a standing nominating committee or compensation committee. The Nominating and Governance Committee of the HSBC North America Board of Directors (the "Nominating and Governance Committee") is responsible for, among other things, oversight and advice to the HSBC North America Board of Directors with respect to:

• making recommendations concerning the structure and composition of the HSBC North America Board of Directors and its committees and the Boards and committees of its subsidiaries, including HSBC USA, to enable these Boards to function most effectively; and

• identifying qualified individuals to serve on the HSBC North America Board of Directors and its committees and the Boards and committees of its subsidiaries, including HSBC USA.

The Nominating and Governance Committee also has specified responsibilities with respect to executive officer compensation. See Item 11. Executive Compensation - Compensation Discussion and Analysis - Oversight of Compensation Decisions. The Nominating and Governance Committee is currently comprised of the following directors: Anthea Disney (Chair), George A. Lorch and Larree Renda. Mr. Lorch currently serves as a director of HSBC North America and HSBC Finance Corporation.

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 - Delegation of Authority The HSBC North America Board of Directors has delegated its powers, authorities and discretion, to the extent they concern the management and day to day operation of the businesses and support functions of HSBC North America and its subsidiaries to a management Executive Committee comprised of senior executives from the businesses and staff functions. Under this authority the Executive Committee approves and addresses all matters which are of a routine or technical nature and relate to matters in the ordinary course of business. The HSBC USA Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, Chief Compliance Officer, Chief Operating Officer, Heads of each Business, Chief Credit Officer, Head of Internal Audit, Head of Strategy and Planning, General Counsel, Corporate Secretary and Head of Corporate Affairs are members of the HSBC North America Executive Committee.

The objective of the Executive Committee is to maintain a reporting and control structure in which all of the line operations of HSBC North America and all its subsidiaries, including HSBC USA, are accountable to individual members of the Executive Committee who report to the HSBC North America Chief Executive Officer, who in turn reports to the HSBC Chief Executive Officer.

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 Committee, the Risk Committee and the Compliance Committee.

Audit Committee As set forth in our Audit Committee charter, the Audit Committee has the responsibility, power, direction and authority to receive regular reports from the Internal Audit Department concerning major findings of internal audits and to review the periodic reports from the Internal Audit Department that include an assessment of the adequacy and effectiveness of HSBC USA's processes for controlling activities and managing risks.

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

• receive regular reports from the Chief Risk Officer that enable the 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 internal control and risk management framework in relation to our strategic objectives 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 approve 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 and whether management has discharged its duty to maintain an effective internal control system;

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

• receive regular reports from HSBC USA's Asset Liability Management Committee ("ALCO") in order to assess major financial risk exposures and the steps management has taken to monitor and control such exposures; and

• review with senior management, and, as appropriate, approve, guidelines and policies to govern the process for assessing and managing various risk topics, including litigation risk and reputational risk.

At each quarterly 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 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 Compliance Committee As set forth in our Compliance Committee charter, the Compliance Committee has the responsibility, power, direction and authority to:

• receive regular reports from the Chief Compliance Officer that enable the Compliance 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 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, provide the Board with negative assurance as to such regulatory and legal requirements as the Compliance Committee deems possible.

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 2011 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 "2011 CD&A") summarizes the principles, objectives and factors considered in evaluating and determining the compensation of HSBC USA's executive officers in 2011. Specific compensation information relating to HSBC USA's Chief Executive Officer, Chief Financial Officer, and the next three most highly compensated executives is contained in this portion of the Form 10-K. Collectively, these officers are referred to as the Named Executive Officers ("NEOs").

Oversight of Compensation Decisions The Board of Directors of HSBC USA did not play a role in establishing remuneration policy for 2011 or determining executive officer compensation in any of the comparative periods discussed in this 2011 CD&A. The Board of Directors of HSBC USA did review fixed pay recommendations for 2012 and proposed annual discretionary variable pay awards related to 2011 performance for the NEOs and had the opportunity to recommend changes before awards were finalized.

Remuneration Committee The Board of Directors of HSBC Holdings plc ("HSBC") has a Remuneration Committee ("REMCO") which meets regularly to consider Human Resources issues, particularly terms and conditions of employment, remuneration and retirement benefits. With authority delegated by the HSBC Board, REMCO is responsible for approving the remuneration policy of HSBC, including the terms of variable pay plans, share plans and other long-term incentive plans worldwide. In this role, REMCO is also responsible for approving the individual remuneration packages for the most senior HSBC executives, generally those having an impact on HSBC's risk profile ("senior executives").

The members of REMCO are the following non-executive directors of HSBC: J L Thornton (Chairman), J D Coombe, W S H Laidlaw and G Morgan. 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 approved by REMCO.

Delegation of Authority from Remuneration Committee The remuneration of executives who are not "senior executives" within the broader view of HSBC is determined by HSBC executives who have the authority delegated to them by REMCO to endorse remuneration (up to pre-determined levels of compensation and levels of management that vary by level of delegated authority). At the highest level, REMCO delegates this authority to the HSBC Group Chief Executive, Stuart T. Gulliver ("Mr. Gulliver"). Within his powers, Mr. Gulliver further delegated this authority regionally to approve pay packages to Niall Booker ("Mr. Booker"), who as the Former Chief Executive Officer of HSBC North America had oversight and recommendation responsibility for HSBC North America and its subsidiaries. In a similar manner, Irene M. Dorner ("Ms. Dorner"), as HSBC USA's Chief Executive Officer, received delegated authority for approval over executive remuneration from Mr. Booker. Remuneration decisions can be further delegated to other relevant authorities within HSBC, as appropriate, depending on their level of responsibility and the scope of their role.

Those with delegated authority to approve remuneration for executives generally do so after consultation with HSBC's Group Managing Director of Human Resources as well as with the relevant heads of global business segments. For example, Mr. Gulliver also delegates authority for endorsement of executive remuneration for the Global Banking and Markets business to the Chief Executive, Global Banking and Markets, Samir Assaf ("Mr. Assaf"). As a result, Ms. Dorner shares oversight and recommendation responsibility for the Global Banking and Markets businesses of HSBC USA with Mr. Assaf.

Nominating and Governance Committee of the Board of Directors As of January 1, 2012, the responsibilities of a previously ad-hoc Nominating Committee of HSBC USA have been assumed by a permanent Nominating and Governance Committee of HSBC North America, and this Committee's role has been expanded to include oversight and endorsement of certain compensation matters. Given the timing of the formation of the Nominating and Governance Committee, certain responsibilities related to oversight and endorsements of compensation for 2011 performance were performed by the Board of Directors of HSBC USA. These duties will be assumed by the Nominating and Governance Committee in the future. The duties of the Nominating and Governance Committee, among others, include: i) reviewing the corporate governance framework to ensure that best practices are maintained and relevant stakeholders are effectively represented, ii) overseeing the framework for assessing risk in the responsibilities of employees, the determination of who are Covered Employees ("Covered Employees") under the Interagency Guidelines on Incentive Based Compensation Arrangements as published by the Federal Reserve Board, and the measures used to ensure that risk is appropriately considered in making variable compensation recommendations, iii) making recommendations concerning proposed performance assessments and incentive compensation award proposals for the Chief Executive Officer, direct reports of the Chief Executive Officer and certain other Covered Employees, including any recommendations for reducing or canceling incentive compensation previously awarded, and iv) reviewing the coverage and competitiveness of employee pension and retirement plans and general benefits. The recommendations related to employee compensation are incorporated into the submissions to REMCO, or to Mr. Gulliver and Ms. Dorner, in instances where REMCO has delegated remuneration authority. During the first quarter of 2012, the Board of Directors of HSBC USA reviewed final incentive compensation for performance in 2011 based on actual results and risk outcomes, and the Nominating and Governance Committee reviewed proposed reductions or cancellations of prior grants.

Compensation and Performance Management Governance Sub-Committee In 2010, HSBC North America established the Compensation and Performance Management Governance Sub-Committee ("CPMG Sub-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 in a comprehensive view of compensation practices and associated risks. The members of the CPMG Sub-Committee are senior executive representatives from HSBC North America's staff and control functions, consisting of Risk, Compliance, Legal, Finance, Audit, and Human Resources. The CPMG maintains the frameworks under which the risk in the responsibilities of employees is assessed and the determination of which employees are considered covered employees under guidelines on incentive compensation arrangements as published by the Federal Reserve Board is made. The CPMG also reviews the objectives assigned to employees and other measures used to ensure risk is appropriately considered in making variable compensation recommendations. These materials are provide to the HSBC North America Nominating and Governance Committee for review. The CPMG also makes recommendations to the HSBC North America Nominating and Governance Committee concerning the terms of any clawbacks of incentive compensation previously awarded to employees. The CPMG Sub-Committee held three meetings in 2011, as well as one meeting during the first quarter of 2012. During the first quarter of 2011, the CPMG Sub-Committee performed a review of incentive plans in place for 2011 and approved the list of Covered Employees and their mandatory scorecard objectives for 2011. Additionally, during the first quarter of 2012, the CPMG Sub-Committee reviewed the scope of reduction of incentive compensation for 2011 performance based on actual results and risk outcomes, as well as potential reductions or cancellations of grants previously awarded.

Objectives of HSBC USA's Compensation Program A global reward strategy for HSBC, as approved by REMCO, is utilized by HSBC USA. The usage of a global reward strategy promotes a uniform compensation philosophy throughout HSBC, common standards and practices throughout HSBC's global operations, and a particular framework for REMCO to use in carrying out its responsibilities. The reward strategy includes the following elements:

• A focus on total compensation (fixed pay and annual discretionary variable pay) with the level of annual discretionary variable pay (namely, cash, deferred 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 scorecard frameworks.

- Most HSBC employees, including John T. McGinnis ("Mr. McGinnis"), set objectives using a balanced scorecard, where objectives are established under four categories - financial, process, customer and people. Financial objectives are established considering the 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. People objectives include development of skills and knowledge of our teams to sustain HSBC over the short and medium term and retention of key talent.

- Beginning in 2011, our most senior executives, including Ms. Dorner and Patrick M. Nolan ("Mr. Nolan"), Eli Sinyak ("Mr. Sinyak") and C. Mark Gunton ("Mr. Gunton"), set objectives using a performance scorecard framework. Under a performance scorecard framework, objectives are separated into two categories, financial objectives and non-financial objectives, and the weighting between categories varies by executive. The performance scorecard also requires an assessment of the executive's adherence to HSBC values and behaviors consistent with managing a sound financial institution.

- In both balanced scorecards and performance scorecards, 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. Quantitative and qualitative objectives only provide some guidance with respect to 2011 compensation. However, in keeping with HSBC's reward strategy, discretion played a considerable role in establishing the annual discretionary 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, is inherently incapable of considering all factors affecting results and may encourage inappropriate risk taking. In addition, environmental factors and social and governance aspects 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, the final reward decision is not solely dependent on the achievement of one or all of the objectives;

• 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 (fixed pay, annual discretionary variable pay, and other benefits) that is competitive in relation to comparable organizations in each of the markets in which HSBC operates.

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 segments 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, as detailed herein.

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. HSBC seeks to offer competitive fixed pay 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 annual variable pay awards are based on individual and business performance, as more fully described under Elements of Compensation - Annual Discretionary Variable Pay Awards. Common objectives for the NEOs included: improvement in cost efficiency; enhancement in customer service; capital management; and mitigation of risk and compliance to regulatory and HSBC standards. Each NEO also had other individual objectives specific to his or her role.

We have a strong orientation to use variable pay to reward 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, including business results and the management of risk within his or her responsibilities.

As the determination of the variable pay awards relative to 2011 performance considered the overall satisfaction of objectives that could not be evaluated until the end of 2011, the final determination on 2011 total compensation was not made until February 2012. To make that evaluation, Mr. Gulliver and Ms. Dorner received reports from management concerning satisfaction of 2011 corporate, business unit and individual objectives.

Competitive Compensation Levels and Benchmarking 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. HSBC USA strives to maintain a compensation program that may attract and retain qualified executives but also has levels of compensation that vary based on performance.

In 2011, REMCO retained Towers Watson 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 the Comparator Group. Towers Watson provided competitive positions on the highest level executives in HSBC, including HSBC USA's NEOs with the exception of Mr. McGinnis. Comparative competitor information was provided to Messrs. Gulliver and Assaf and Ms. Dorner to evaluate the competitiveness of proposed executive compensation.

The Comparator Group consists of our global peers with comparable business operations located within U.S. borders. These organizations are publicly held companies that compete with HSBC for business, customers and executive talent. The Comparator Group is reviewed annually with the assistance of Towers Watson. The Comparator Group for 2011 consisted of:


Global Peers
Bank of America	JPMorgan Chase
Barclays	Santander
BNP Paribas	Standard Chartered
Citigroup	UBS
Deutsche Bank

The aggregate fee paid to Towers Watson for services provided to HSBC was $372,500, of which $15,739 was apportioned to HSBC USA. Separately, the management of HSBC North America retained Towers Watson to perform non-executive compensation consulting services. In 2011, the aggregate fee paid to Towers Watson by HSBC North America for these other services was $1,890,306. The amount disclosed in 2010 for aggregate fees paid to Towers Watson by HSBC North America for non-executive compensation consulting services was $642,284, but the amount excluded $376,143 in additional fees paid for risk and financial services consulting.

The total compensation review for Mr. McGinnis included comparative competitor information based on broader financial services industry data and general industry data that was compiled from compensation surveys prepared by third-party consulting firms McLagan and Towers Watson.

Elements of Compensation The primary elements of executive compensation, which are described in further detail below, are fixed pay and annual discretionary variable pay awards, which are delivered in cash, deferred cash and long-term equity incentive awards. 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.

Fixed Pay Fixed pay helps HSBC attract and retain executive talent because it provides a degree of financial certainty and is less subject to risk than most other pay elements. In establishing individual fixed pay levels, consideration is given to market pay, as well as the specific responsibilities and experience of the NEO. Fixed Pay is reviewed annually and may be adjusted based on performance and changes in the competitive market. Consideration is given to compensation paid for similar positions at Comparator Group companies, particularly at the median level. Other factors such as potential for future advancement, specific job responsibilities, length of time in current position, pay history, and internal equity influence the final fixed pay recommendations for individual executives. Fixed pay 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 Pay Awards Annual discretionary variable pay ("variable pay") awards vary from year to year and are offered as part of the total compensation package to motivate and reward strong performance. 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. Variable pay awards may be granted as cash, deferred cash, and long-term equity incentive awards. Employees will become fully entitled to deferred cash over a three year vesting period.

Long-term equity incentive awards may be made in the form of stock options, restricted shares, and restricted share units ("RSUs"). 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 with a time vesting condition, in lieu of stock options. Starting in 2009, RSUs have been awarded as the long-term equity incentive component of variable discretionary pay. The restricted shares and RSUs granted consist of a number of shares to which the employee will become fully entitled, generally over a three year vesting period. The restricted shares and RSUs granted by HSBC also carry rights over dividend equivalents which are paid or accrue on all underlying share or share unit awards at the same rate paid to ordinary shareholders.

Following shareholder approval of the HSBC Share Plan 2011, HSBC introduced a new form of long-term equity incentive awards for senior executives under the Group Performance Share Plan ("GPSP"). Grants under the GPSP aim to achieve alignment between the interests of participants and the interests of shareholders and to encourage participants to take a long-term approach to the performance of the business. Grants under the GPSP are approved by REMCO, by considering performance delivered prior to the date of grant against a pre-determined scorecard. Performance measures on the scorecard are composed of 60 percent financial measures, such as return on equity, capital efficiency ratio, capital strength and dividends, and 40 percent non-financial measures, including strategy execution, brand equity, compliance, reputation and people. Grants under the GPSP comprise a number of shares to which the employee will become fully entitled, generally over a five year vesting period, subject to the individual remaining in employment. Shares which are released upon vesting of an award must be retained until the employee retires from or terminates employment with HSBC. Awards granted in June 2011 for performance in 2010 will vest in March 2016, which is slightly shorter than the typical five year vesting period. The delayed grant date and resulting shorter vesting period occurred because grants under the GPSP could not be made until the HSBC Share Plan 2011 was approved at the Annual General Meeting of HSBC.

Long-term equity incentive awards are granted 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. While share 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.

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. Nolan, Sinyak and Gunton 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 may be significant when compared to other compensation received by other executive officers of HSBC USA and can consist of housing expenses, children's education costs, car allowances, travel expenses and tax equalization. These benefits and perquisites are, however, consistent with those paid to similarly-situated international assignees subject to appointment to HSBC locations globally and are deemed appropriate by HSBC senior management. Perquisites are further described in the Summary Compensation Table.

Retirement Benefits HSBC North America offers a qualified defined benefit pension plan that HSBC USA executives may participate and receive a benefit equal to that provided to all eligible employees of HSBC USA with similar dates of hire. 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. Nolan and Gunton are accruing pension benefits under foreign-based defined benefit plans. Additional information concerning these plans is contained in the Pension Benefits Table.

Performance Year 2011 Compensation Actions HSBC and HSBC USA aim to have a reward policy that adheres to the governance initiatives of all relevant regulatory bodies and appropriately considers the risks associated with elements of total compensation.

In 2011, levels of fixed pay were reviewed and management determined that in one instance the market did warrant an adjustment to the fixed pay of one NEO. Mr. McGinnis received a fixed pay increase from $440,000 to $500,000 effective August 8, 2011.

Variable pay recommendations were driven by HSBC USA's financial performance in 2011 and are reflective of the strong progress HSBC USA has made in repositioning and transforming our business to ensure sustainable profitability and long-term growth. The Global Banking and Markets segment featured strong growth in outbound referrals and expanded connectivity for U.S. and international companies, but positive results were offset by weakened credit market conditions. In 2011, we had strong underlying performance in our Commercial Banking segment, with significant increases in overall loan growth and great strides in expanding our coastal presence. In the Retail Banking and Wealth Management segment, we continue to make steady progress in deepening our relationships with these key customers through investment, insurance and mortgage solutions. 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 all of the Named Executive Officers.

Variable pay awarded to most employees in respect of 2011 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 RSUs for HSBC Holdings plc that are subject to a three year vesting period. The deferral percentage increases in a graduated manner in relation to the amount of total variable pay awarded.

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 that 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 2011 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 and variable pay awards below $750,000 are subject to a 40% deferral rate. Deferral rates are applied to the total variable pay award less GPSP award amounts, if any. The deferral amounts are split equally between deferred cash and deferred RSUs. Thirty-three percent (33%) of the deferred cash and deferred RSUs vest on the first anniversary of the grant date, thirty-three percent (33%) on the second anniversary, and thirty-four percent (34%) on the third anniversary of the grant date. RSUs 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. At the end of the vesting period, deferred cash is credited with a notional rate of return equivalent to the annual dividend yield of HSBC Holdings plc shares over the period. Amounts not deferred are also split equally between non-deferred cash and non-deferred share awards. 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 tax obligations. Non-deferred cash awarded for 2011 performance will be paid on March 9, 2012. Deferred cash, deferred RSUs, and non-deferred shares will be granted on March 12, 2012.

Of the HSBC USA Named Executive Officers for 2011, Ms. Dorner and Messrs. Nolan and Sinyak were identified as Code Staff. As such, their respective variable pay awards for 2011 performance were paid in the following components:

• Ms. Dorner's total variable pay award for performance in 2011 is $2,350,000. She received a GPSP award of $350,000. The deferred portion of her variable pay consists of $600,000 in deferred cash and $600,000 in deferred RSUs. Ms. Dorner's remaining variable pay is delivered in equal parts non-deferred cash ($400,000) and immediately-vested shares ($400,000).

• Mr. Nolan's variable pay award for performance in 2011 is $2,206,500. The deferred portion of his variable pay consists of $661,950 in deferred cash and $661,950 in deferred RSUs. Mr. Nolan's remaining variable pay is delivered in equal parts non-deferred cash ($441,300) and immediately-vested shares ($441,300). Mr. Nolan did not receive a GPSP award.

• Mr. Sinyak's variable pay award for performance in 2011 is $875,000. He received a GPSP award of $350,000. The deferred portion of his variable pay consists of $105,000 in deferred cash and $105,000 in deferred RSUs. Mr. Sinyak's remaining variable pay is delivered in equal parts non-deferred cash ($157,500) and immediately-vested shares ($157,500).

Messrs. McGinnis and Gunton 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 and Gunton each will receive 40% and 35%, respectively, in RSUs as a percent of their total variable pay award for performance in 2011. Messrs. McGinnis and Gunton did not receive GPSP awards.

The following table summarizes the compensation decisions made with respect to the NEOs for the 2010 and 2011 performance years. The table below differs from the Summary Compensation Table because we determine equity award amounts after the performance year concludes, while SEC rules require that the Summary Compensation Table include equity compensation in the year granted. Also, the Summary Compensation Table includes changes in pension value and non-qualified deferred compensation earnings and other elements of compensation as part of total compensation and those amounts are not shown in the table below.


	Fixed Pay⁽¹⁾		Annual Discretionary Variable Cash⁽²⁾		Long-term Equity Incentive Award⁽³⁾		Total Compensation		Year over Year % Change
	2010	2011	2010	2011	2010	2011	2010	2011	Year over Year % Change
Irene M. Dorner.....................	$ 566,346	$ 700,000	$ 760,417	$ 1.000,000	$ 1,014,583	$ 1,350,000	$ 2,341,346	$ 3,050,000	30 %
President and Chief Executive Officer

John T. McGinnis.................	$ 418,462	$ 463,077	$ 487,500	$ 510,000	$ 262,500	$ 340,000	$ 1,168,462	$ 1,313,077	12 %
Executive Vice President and Chief Financial Officer

Patrick M. Nolan....................	N/A	$ 500,000	N/A	$ 1,103,250	N/A	$ 1,103,250	N/A	$ 2,706,500	- %
Senior Executive Vice President, Head of Global Banking and Markets Americas

Eli Sinyak⁽⁴⁾...........................	N/A	$ 578,846	N/A	$ 262,500	N/A	$ 612,500	N/A	$ 1,453,846	- %
Senior Executive Vice President and Chief Operating Officer

C. Mark Gunton⁽⁵⁾..................	$ 514,157	$ 523,144	$ 422,500	$ 446,550	$ 227,500	$ 240,450	$ 1,164,157	$ 1,210,144	4 %
Senior Executive Vice President, Chief Risk Officer

⁽¹⁾ For Ms. Dorner, the amount for 2010 is reflective of the rebalancing of total compensation that was completed in 2010 and which shifted a portion of total compensation pay to fixed pay. The rebalance adjustment was effective June 28, 2010. Effective July 12, 2010 upon his appointment as Chief Financial Officer, Mr. McGinnis received a fixed pay increase from $400,000 to $440,000, which was unrelated to the rebalancing. Mr. McGinnis also received a fixed pay increase from $440,000 to $500,000 effective August 8, 2011.

⁽²⁾ Annual Discretionary Variable Cash amount pertains to the performance year indicated and is paid in the first quarter of the subsequent calendar year. Amounts include cash and deferred cash.

⁽³⁾ Long-term Equity Incentive Award amount pertains to the performance year indicated and is typically awarded in the first quarter of the subsequent calendar year. For example, the Long-Term Equity Incentive Award indicated for 2011 is earned in performance year 2011 but will be granted in March 2012. However, as required in the Summary Compensation Table, the grant date fair market value of equity granted in March 2011 is disclosed for the 2011 fiscal year under the column of Stock Awards in that table. The grant date fair value of equity granted in March 2012 will be disclosed for the under the column of Stock Awards in the Summary Compensation Table reported for the 2012 fiscal year. Long-term Equity Incentive Award amount includes immediately-vested shares, deferred RSUs and GPSP awards.

An exception to the above description exists for GPSP awards granted to Ms. Dorner in June 2011, which are included in the Long-term Equity Incentive Award amount for performance year 2010 despite not being granted in the first quarter of the subsequent calendar year. These awards were delayed awaiting shareholder approval of the HSBC Share Plan 2011, which was approved on May 27, 2011. As a result of the delayed grant date, Ms. Dorner's award under the GPSP granted in June 2011 was also omitted from the HSBC USA Form 10-K for the year ending December 31, 2010.

⁽⁴⁾ In his role as Chief Operating Officer of HSBC North America, Mr. Sinyak has oversight over HSBC USA, as well as HSBC Finance Corporation. Amounts discussed within the 2011 CD&A and also the accompanying executive compensation tables represent the full compensation paid to Mr. Sinyak for his role as Senior Executive Vice President and Chief Operating Officer for all three companies. Amounts shown only reflect compensation received from HSBC USA, HSBC Finance Corporation and HSBC North America beginning February 28, 2011 and do not reflect compensation received for fulfilling other roles within HSBC but outside of HSBC USA, HSBC Finance Corporation and HSBC North America. Mr. Sinyak has also been disclosed as an NEO in the HSBC Finance Corporation Form 10-K for the year ended December 31, 2011.

⁽⁵⁾ In his role as Chief Risk Officer of HSBC North America, Mr. Gunton has oversight over HSBC USA, as well as HSBC Finance Corporation. Amounts discussed within the 2011 CD&A and also 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 an NEO in the HSBC Finance Corporation Form 10-K for the year ended December 31, 2011.

Compensation-Related Policies

Reduction or Cancellation of Deferred Cash and Long-Term Equity Incentive Awards, including "Clawbacks" RSUs 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 RSUs or the amount of deferred cash awarded may be reduced or the entire award of shares or cash may be cancelled outright.

Circumstances that 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; and 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.

Employment Contracts and Severance Protection There are no employment agreements between HSBC USA and the NEOs.

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 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. 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 to all employees a stock purchase plan under its Sharesave Plan in which an employee who commits to contributing up to 250 GBP each month for one, three or five years is awarded options to acquire HSBC ordinary shares. At the end of the term, the employee may opt to use the accumulated amount, plus interest, if any, to purchase shares under the option. The exercise price for each 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).

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 Committee Interlocks and Insider Participation As described in the 2011 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. While the HSBC North America Board of Directors and HSBC USA Board of Directors were presented with information on proposed compensation for performance in 2011, the final decisions regarding remuneration policies and executive officer awards were made by REMCO or by Mr. Gulliver or Ms. Dorner, where REMCO has delegated final decisions. We, the members of the Board of Directors of HSBC USA, have reviewed the 2011 CD&A and discussed it with management, and have been advised that management of HSBC has reviewed the 2011 CD&A and believes it accurately reflects the policies and practices applicable to HSBC USA executive compensation in 2011. HSBC USA senior management has advised us that they believe the 2011 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 2011 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.

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, 2011 to (i) Ms. Irene M. Dorner who served as HSBC USA's Chief Executive Officer, (ii) Mr. John T. McGinnis, who served as HSBC USA's Chief Financial Officer, and (iii) 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, 2011.

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⁾................	2011	$ 700,000	$ 1,000,000	$ 1,014,583	$ -	$ -	$ 509,947	$ 424,952	$ 3,649,482
President and Chief	2010	$ 566,346	$ 760,417	$ 493,120	$ -	$ -	$ 364,959	$ 121,881	$ 2,306,723
Executive Officer

John T. McGinnis⁽⁶⁾............	2011	$ 463,077	$ 510,000	$ 262,500	$ -	$ -	$ (14,741 )	$ 532,766	$ 1,753,602
Executive Vice	2010	$ 418,462	$ 487,500	$ 200,000	$ -	$ -	$ 47,166	$ 40,521	$ 1,193,649
President and Chief
Financial Officer

Patrick M. Nolan⁽⁶⁾...............	2011	$ 500,000	$ 1,103,250	$ 1,165,750	$ -	$ -	$ 136,387	$ 411,325	$ 3,316,712
Senior Executive Vice
President, Head of Global
Banking and Markets
Americas

Eli Sinyak^(6,7)......................	2011	$ 578,846	$ 262,500	$ 753,228	$ -	$ -	$ 237,586	$ 1,336,304	$ 3,168,464
Senior Executive Vice
President and Chief
Operating Officer

C. Mark Gunton⁽⁶⁾...............	2011	$ 523,144	$ 446,550	$ 227,500	$ -	$ -	$ 446,837	$ 540,587	$ 2,184,618
Senior Executive Vice	2010	$ 514,157	$ 422,500	$ 300,000	$ -	$ -	$ 159,083	$ 797,513	$ 2,193,253
President, Chief Risk
Officer

⁽¹⁾ Mr. McGinnis received a fixed pay increase from $440,000 to $500,000 effective August 8, 2011.

For Ms. Dorner, the amount for 2010 is reflective of rebalancing of total compensation that was completed in 2010 and which shifted a portion of total compensation pay to fixed pay. The rebalance adjustment was effective June 28, 2010. Separately, Mr. McGinnis received a fixed pay increase from $400,000 to $440,000 effective July 12, 2010 upon his appointment as Chief Financial Officer.

⁽²⁾ The amounts disclosed in 2011 are related to 2011 performance but were paid in March 2012. For Ms. Dorner and Messrs. Nolan and Sinyak, the amounts include a portion granted in the form of deferred cash, as disclosed under the Performance Year 2011 Compensation Actions. Ms. Dorner and Messrs. Nolan and Sinyak will become fully entitled to the deferred cash over a three year vesting period, and at the end of the vesting period, the deferred cash will be credited with a notional rate of return equivalent to the annual dividend yield of HSBC Holdings plc shares over the period.

⁽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. 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 dividends paid on shares of HSBC Holding plc.

⁽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 - $316,828 (DBS Scheme, Samuel Montagu Section), $193,119 (UURBS); Mr. McGinnis - $5,565 (Pension Plan), $1,270 (SRIP), $(21,576) (NQDCP); Mr. Nolan - $136,387 (DBS Scheme, Midland Section); Mr. Sinyak - $170,423 (Pension Plan), $67,163 (SRIP); Mr. Gunton - $446,837 (ISRBS).

⁽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/or Executive Tax Services for Ms. Dorner and Messrs. Nolan and Sinyak were $579, $579, and $590, respectively; Executive Travel Allowances for Ms. Dorner and Messrs. Nolan, Sinyak, and Gunton were $54,686, $38,945, $13,673, and $65,036, respectively; Housing, Storage and Furniture Allowances for Ms. Dorner and Messrs. Nolan, Sinyak, and Gunton were $34,402, $274,839, $271,780, and $123,771, respectively; Relocation Expenses for Messrs. McGinnis and Sinyak were $518,066 and $205,962, respectively; Executive Physical and Medical Expenses for Ms. Dorner and Mr. Nolan were $8,504 and $171, respectively; Tax Equalization resulted in net payments to Ms. Dorner and Messrs. Nolan, Sinyak and Gunton of $324,606, $935, $844,299 and $242,588, respectively; Mortgage Subsidies for Mr. Gunton were $13,277; Children's Educational Allowances for Messrs. Nolan and Gunton were $94,119 and $52,279, respectively; Additional Compensation for Ms. Dorner and Messrs. Nolan and Gunton were $2,175, $1,737, and $136, respectively.

All Other Compensation also includes HSBC USA's contribution of $14,700 for the Mr. McGinnis's participation in the HSBC - North America (U.S.) Tax Reduction Investment Plan ("TRIP") in 2011. In addition, Mr. Gunton had a company contribution in the HSBC International Retirement Benefit Plan ("IRBP") for International Managers in amount of $43,500. The value of Mr. Gunton's company contribution in the IRBP was calculated using an exchange rate from GBP to U.S. dollars of 1.5483. TRIP 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 year 2009 so the table only reflects each of their compensation for fiscal years 2010 and 2011. Messrs. Nolan and Sinyak were not Named Executive Officers in fiscal years 2009 and 2010 so the table only reflects each of their compensation for fiscal year 2011. Amounts shown for Mr. Sinyak represent compensation earned for his service as Chief Operating 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, 2011.

⁽⁷⁾ For Mr. Sinyak, amounts shown in salary, bonus, stock awards, and all other compensation columns only reflects compensation received from HSBC USA, HSBC Finance Corporation and HSBC North America beginning February 28, 2011 and does not reflect compensation received for fulfilling other roles within HSBC but outside of HSBC USA, HSBC Finance Corporation and HSBC North America.

Grants of Plan-Based Awards Table


		Estimated Future Payouts Under Non- Equity Incentive Plan Awards			Estimated Future Payouts Under Equity Incentive Plan Awards			All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Sh)	Grant Date Fair Value of Stock and Option Awards ($)
Name	Grant Date	Thres- hold ($)	Target ($)	Maxi- mum ($)	Thres- hold (#)	Target (#)	Maxi- mum (#)			Exercise or Base Price of Option Awards ($/Sh)	Grant Date Fair Value of Stock and Option Awards ($)
Irene M. Dorner.....................................	03/15/2011 ⁽¹⁾							49,739			$ 518,750
President and Chief	03/15/2011 ⁽²⁾							33,159			$ 345,833
Executive Officer	03/15/2011 ⁽³⁾		$ 518,750
	06/23/2011 ⁽⁴⁾							15,412			$ 150,000

John T. McGinnis................................. ............................................................	03/15/2011 ⁽⁵⁾							25,169			$ 262,500
Executive Vice President and Chief Financial Officer

Patrick M. Nolan...................................	03/15/2011 ⁽¹⁾							67,066			$ 699,450
Senior Executive Vice	03/15/2011 ⁽²⁾							44,710			$ 466,300
President, Head of Global	03/15/2011 ⁽³⁾		$ 699,450
Banking and Markets
Americas

Eli Sinyak.............................................	03/15/2011 ⁽¹⁾							34,704			$ 361,937
Senior Executive Vice	03/15/2011 ⁽²⁾							23,136			$ 241,291
President and Chief	03/15/2011 ⁽³⁾		$ 361,937
Operating Officer	06/23/2011 ⁽⁴⁾							15,412			$ 150,000

C. Mark Gunton....................................	03/15/2011 ⁽⁵⁾							21,813			$ 227,500
Senior Executive Vice President, Chief Risk Officer

⁽¹⁾ Reflects grant of RSUs, which vests thirty-three percent (33%) on the first anniversary of the grant date, thirty-three percent (33%) on the second anniversary of the grant date, and thirty-four percent (34%) on the third anniversary of the grant date. Upon vesting, RSUs are subject to an additional six-month retention period, with provision made for the release of shares as required to meet associated income tax obligations. The total grant date fair value is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 15, 2011 of GBP 6.50 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.6045.

⁽²⁾ Reflects grant of immediately-vested shares, yet subject to an additional six-month retention period, with provision made for the release of shares as required to meet associated income tax obligations. The total grant date fair value is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 15, 2011 of GBP 6.50 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.6045.

⁽³⁾ Reflects grant of deferred cash, which vests thirty-three percent (33%) on the first anniversary of the grant date, thirty-three percent (33%) on the second anniversary of the grant date, and thirty-four percent (34%) on the third anniversary of the grant date. At the end of the vesting period, deferred cash is credited with a notional rate of return equal to the annual dividend yield of HSBC Holdings plc shares over the period. Mr. Sinyak's deferred cash award was converted into U.S. dollars using the HKD exchange rate as of the date of grant which was 0.1284.

⁽⁴⁾ Reflects grant of GPSP awards, which vests one-hundred percent (100%) on March 15, 2016. The total grant date fair value is based on 100% of the fair market value of the underlying HSBC ordinary shares on June 23, 2011 of GBP 6.06 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.6071.

⁽⁵⁾ Reflects grant of RSUs, which vest thirty-three percent (33%) on the first anniversary of the grant date, thirty-three percent (33%) on the second anniversary of the grant date, and thirty-four percent (34%) on the third anniversary of the grant date. The total grant date fair value is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 15, 2011 of GBP 6.50 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.6045.

Outstanding Equity Awards At Fiscal Year-End Table


	Option Awards					Stock Awards
							Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)


Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)⁽¹⁾			Market Value of Shares or Units of Stock that Have Not Vested ($)⁽²⁾
Irene M. Dorner.........................						106,728 ⁽³⁾	$ 811,445
President and Chief						34,376 ⁽⁴⁾	$ 261,358
Executive Officer						51,920 ⁽⁵⁾	$ 394,744
						15,762 ⁽⁶⁾	$ 119,837

John T. McGinnis.....................						37,619 ⁽³⁾	$ 286,015
Executive Vice						23,522 ⁽⁷⁾	$ 178,836
President and Chief						13,942 ⁽⁴⁾	$ 106,000
Financial Officer						26,272 ⁽⁵⁾	$ 199,744

Patrick M. Nolan........................						126,542 ⁽³⁾	$ 962,090
Senior Executive Vice						63,274 ⁽³⁾	$ 481,068
President, Global						132,522 ⁽⁸⁾	$ 1,007,555
Banking And Markets Americas						70,006 ⁽⁵⁾	$ 532,251

Eli Sinyak.................................	45,901 ⁽⁹⁾			GBP 7.9606	11/03/2013	114,488 ⁽³⁾	$ 870,444
Senior Executive	45,901 ⁽⁹⁾			GBP 7.2181	4/30/2014	38,283 ⁽⁴⁾	$ 291,063
Vice President and						36,225 ⁽⁵⁾	$ 275,416
Chief Operating Officer						15,762 ⁽⁶⁾	$ 119,837

C. Mark Gunton..........................						17,857 ⁽³⁾	$ 135,765
Senior Executive Vice						20,913 ⁽⁴⁾	$ 159,000
President, Chief Risk Officer						22,769 ⁽⁵⁾	$ 173,111

⁽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, 2011 was GBP 4.9105 and the exchange rate from GBP to U.S. dollars was 1.5483.

⁽³⁾ This award will vest in full on March 5, 2012.

⁽⁴⁾ Thirty-three percent (33%) of this award vested on February 28, 2011, thirty-three percent (33%) vests on February 27, 2012, and thirty-four percent (34%) will vest on February 25, 2013.

⁽⁵⁾ Thirty-three percent (33%) of this award will vest on March 15, 2012, thirty-three percent (33%) will vest on March 15, 2013, and thirty-four percent (34%) will vest on March 17, 2014.

⁽⁶⁾ This award will vest in full on March 15, 2016.

⁽⁷⁾ This award will vest in full on April 30, 2012.

⁽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....................................................................................................................			94,065 ⁽³⁾	$ 982,531
President and Chief Executive Officer

John T. McGinnis.................................................................................................................			45,872 ⁽⁴⁾	$ 482,808
Executive Vice President and Chief Financial Officer

Patrick M. Nolan..................................................................................................................			62,626 ⁽⁵⁾	$ 650,993
Senior Executive Vice President, Head of Global Banking and Markets Americas

Eli Sinyak...............................................................................................................................			88,504 ⁽⁶⁾	$ 935,719
Senior Executive Vice President and Chief Operating Officer

C. Mark Gunton....................................................................................................................			33,258 ⁽⁷⁾	$ 351,965
Senior Executive Vice President, Chief Risk Officer

⁽¹⁾ Value realized on exercise or vesting uses the GBP fair market value on the date of exercise or release and the exchange rate 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 33,572 shares granted on March 3, 2008, the partial release of 47,494 shares granted on March 1, 2010, and the release of 33,159 shares granted on March 15, 2011.

⁽⁴⁾ Includes the release of 30,222 shares granted on March 31, 2008 and the partial release of 19,262 shares granted on March 1, 2010.

⁽⁵⁾ Includes the partial release of 42,303 shares granted on March 3, 2008 and the release of 33,159 shares granted on March 15, 2011.

⁽⁶⁾ Includes the release of 38,181 shares granted on October 31, 2008, the partial release of 52,892 shares granted on March 1, 2010, and the release of 23,136 shares granted on March 15, 2011.

⁽⁷⁾ Includes the release of 17,991 shares granted on March 31, 2008 and the partial release of 28,894 shares granted on March 1, 2010.

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 - Montagu	25.5	$ 2,367,747 ⁽²⁾	$ 0
President and Chief Executive Officer	UURBS	25.5	$ 673,668	$ 0

John T. McGinnis.....................................................	Pension Plan - Account Based	5.8	$ 30,670	$ 0
Executive Vice President and Chief Financial Officer	SRIP	4.8	$ 49,199	$ 0

Patrick M. Nolan......................................................	DBS Scheme - Midland Post	24.3	$ 546,414 ⁽²⁾	$ 0
Senior Executive Vice President, Head of Global Banking and Markets Americas.....................................................

Eli Sinyak..................................................................	Pension Plan - Household	12.8	$ 461,180	$ 0
Senior Executive Vice President and Chief Operating Officer	SRIP	11.8	$ 899,789	$ 0

C. Mark Gunton........................................................	ISRBS	33.0	$ 3,743,915 ⁽²⁾	$ 0
Senior Executive Vice President, Chief Risk Officer

⁽¹⁾ Plan described under Savings and Pension Plans.

⁽²⁾ The amount was converted from GBP to USD using the exchange rate of 1.5483 as of December 31, 2011.

Savings and Pension Plans

Pension Plan 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. As further described in Note 22, "Pension and Other Postretirement Benefits" in the accompanying consolidated financial statements, effective January 1, 2011, all employees who are eligible to participate in the Pension Plan will earn benefits under the Cash Balance formula only and not under any of the legacy formulas. However, the Legacy Household Formula (New) was amended in 2011 to provide an Adjusted Benefit Formula to all participants who were actively employed by of HSBC North America and its U.S. subsidiaries at any time in 2011 and do not meet the requirements for early retirement eligibility upon their termination of employment. The Adjusted Benefit Formula accelerated the service proration component of the Legacy Household benefit calculation that previously would have occurred only upon satisfying the age and service requirements for early retirement eligibility. This change was made to ensure full compliance with applicable regulations and eliminate the need to complete annual testing of early retirement benefits.

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. 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 have accrued or will accrue under SRIP after December 31, 2010.

Formula for Calculating Benefits

Legacy Household Formula (New): Applies to executives who were hired after December 31, 1989, but prior to January 1, 2000, by Household International, Inc. The normal retirement benefit at age 65 is the sum of (i) 51% of average salary that does not exceed the integration amount and (ii) 57% of average compensation in excess of the integration amount. For this purpose, compensation includes total fixed pay and cash variable (as earned); provided, effective January 1, 2008, compensation is reduced by any amount deferred under the NQDCP, and is averaged over the 48 highest consecutive months selected from the 120 consecutive months preceding date of retirement. The integration amount is an average of the Social Security taxable wage bases for the 35 year period ending with the year of retirement. The benefit is reduced pro-rata for executives who retire with less than 30 years of service. If an executive has more than 30 years of service, the percentages in the formula, (the 51% and 57%) are increased 1/24 of 1 percentage point for each month of service in excess of 30 years, but not more than 5 percentage points. Executives who are at least age 55 with 10 or more years of service may retire before age 65 in which case the benefit percentages (51% and 57%) are reduced.

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 fixed pay for each calendar year of employment. For this purpose, compensation includes total fixed pay 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 2011 is $245,000. The limit for years after 2011 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 fixed pay 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 fixed pay is the average basic annual fixed pay 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 fixed pay 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 fixed pay is the actual fixed pay paid during the final 12 months of service for those earning an annualized fixed pay that is less than or equal to GBP100,000 at the time of retirement and the average fixed pay for the last three years before retirement for those earning an annualized fixed pay 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 (Jersey) ("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 fixed pay 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 fixed pay for each completed month in the executive section, 1.25/480 of his final fixed pay for each completed month in the senior management section, and 1.50/480 of his final fixed pay 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 fixed pay 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, 2011.

For other formulas: The present value of the 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, 2011. 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, 2011.

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 for 2011 (plus an additional $5,500 catch-up contribution for participants age 50 and over for 2011), 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 59¹/2. 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 exceeded limits imposed by the Internal Revenue Code. Beginning January 1, 2008, STRIP participants received 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. STRIP participants will no longer receive Employer contributions to STRIP were terminated effective December 31, 2010.

Non-Qualified Deferred Compensation Plan HSBC North America maintains the NQDCP for the highly compensated employees in the organization, including executives of HSBC USA. Certain Named Executive Officers are eligible to contribute up to 80 percent of their fixed pay and/or cash variable pay 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") for International Managers 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 fixed pay and may elect to contribute 2.5% of fixed pay as non-mandatory employee contributions, which contributions are matched by employer contributions. Additionally, participants can make unlimited additional voluntary contributions of fixed pay. 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	Executive Contributions in 2011⁽¹⁾	Employer Contributions in 2011⁽²⁾	Aggregate Earnings in 2011	Aggregate Withdrawals/ Distributions in 2011	Aggregate Balance at 12/31/2011
Irene M. Dorner..........................................................................	N/A	N/A	N/A	N/A	N/A
President and Chief Executive Officer

John T. McGinnis......................................................................	$ 57,035 ⁽³⁾	$ 0	($ 21,326 )	$ 0	$ 341,762
Executive Vice President and Chief Financial Officer

Patrick M. Nolan.........................................................................	N/A	N/A	N/A	N/A	N/A
Senior Executive Vice President, Head of Global Banking and Markets Americas

Eli Sinyak..................................................................................	N/A	$ 0	($886 )	$ 0	$ 180,562
Senior Executive Vice President, Chief Operating Officer

C. Mark Gunton.........................................................................	$ 31,071	$ 43,500	($ 12,023 )	N/A	$ 155,802
Senior Executive Vice President and Chief Risk Officer

⁽¹⁾ For Mr. McGinnis, amount reflects contributions under the HSBC-North America Non-Qualified Deferred Compensation Plan ("NQDCP"). For Mr. Gunton, amount reflects contributions under the International Retirement Benefit Plan ("IRBP") for International Managers, converted from GBP to USD using the exchange rate of 1.5483 as of December 31, 2011. Both the NQDCP and the IRBP for International Managers are described under Savings and Pension Plans.

⁽²⁾ For Mr. Sinyak and Mr. Gunton, amounts reflect contributions under the Supplemental HSBC Finance Corporation Tax Reduction Investment Plan ("STRIP"), which is described under Savings and Pension Plans. Employer contributions were 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. Effective December 31, 2010, no additional employer contributions under STRIP will be made. Distributions are made in a lump sum upon termination of employment.

For Mr. Gunton, amount reflects contributions under the IRBP for International Managers, converted from GBP to USD using the exchange rate of 1.5483 as of December 31, 2011.

⁽³⁾ Mr. McGinnis' elective deferrals into the NQDCP during 2011 consist of $27,785 of the 2011 fixed pay disclosed in the Summary Compensation Table and $29,250 of the 2010 cash variable pay disclosed in the Summary Compensation Table.

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, 2011 to Ms. Dorner and Messrs. McGinnis, Nolan, Sinyak and Gunton as a result of termination, retirement, disability or death or a change in control of the company as of that date. These amounts shown are in addition to those generally available to salaried employees, such as disability benefits, accrued vacation pay and COBRA continuation coverage or are specific to the Named Executive Officers, such as the amounts under the HSBC - North America (U.S.) Severance Pay Plan which is dependent on an employee's fixed pay. The specific circumstances that would trigger such payments are identified, and the terms of such payments are defined under the HSBC - North America (U.S.) Severance Pay Plan and the particular terms of deferred cash awards and long-term equity incentive awards. As indicated in the 2011 CD&A, there are no employment agreements between HSBC USA and the Named Executive Officers.

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
Fixed Pay.........................
Restricted Stock/Units.........		$ 1,587,385 ⁽¹⁾	$ 1,587,385 ⁽¹⁾	$ 1,587,385 ⁽¹⁾		$ 1,587,385 ⁽¹⁾	$ 1,587,385 ⁽¹⁾	$ 1,587,385 ⁽¹⁾
Deferred Cash.....................		$ 518,750 ⁽²⁾	$ 518,750 ⁽²⁾	$ 518,750 ⁽²⁾		$ 518,750 ⁽²⁾	$ 518,750 ⁽²⁾	$ 518,750 ⁽²⁾

⁽¹⁾ This amount represents a full vesting of the outstanding restricted shares assuming "good leaver" status is granted by REMCO and a termination date of December 31, 2011, and the amount is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2011.

⁽²⁾ This amount represents a full vesting of the outstanding deferred cash assuming "good leaver" status is granted by REMCO and a termination date of December 31, 2011.

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
Fixed Pay................................				$ 250,000 ⁽¹⁾
Restricted Stock/Units...............		$ 770,595 ⁽²⁾	$ 770,595 ⁽²⁾	$ 770,595 ⁽²⁾		$ 770,595 ⁽²⁾	$ 770,595 ⁽²⁾	$ 770,595 ⁽²⁾

⁽¹⁾ Under the terms of the HSBC - North America (U.S.) Severance Pay Plan, Mr. McGinnis would receive 26 weeks of his current fixed pay 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 and a termination date of December 31, 2011, and the amount is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2011.

Patrick M. Nolan


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
Fixed Pay..................
Restricted Stock/ Units...................		$ 2,982,963 ⁽¹⁾	$ 2,982,963 ⁽¹⁾	$ 2,982,963 ⁽¹⁾		$ 2,982,963 ⁽¹⁾	$ 2,982,963 ⁽¹⁾	$ 2,982,963 ⁽¹⁾
Deferred Cash..............		$ 699,450 ⁽²⁾	$ 699,450 ⁽²⁾	$ 699,450 ⁽²⁾		$ 699,450 ⁽²⁾	$ 699,450 ⁽²⁾	$ 699,450 ⁽²⁾

⁽²⁾ This amount represents a full vesting of the outstanding deferred cash assuming "good leaver" status is granted by REMCO and a termination date of December 31, 2011.

Eli Sinyak


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
Fixed Pay...........				$ 350,000 ⁽¹⁾
Restricted Stock/Units...		$ 1,556,760 ⁽²⁾	$ 1,556,760 ⁽²⁾	$ 1,556,760 ⁽²⁾		$ 1,556,760 ⁽²⁾	$ 1,556,760 ⁽²⁾	$ 1,556,760 ⁽²⁾
Deferred Cash......		$ 361,937 ⁽³⁾	$ 361,937 ⁽³⁾	$ 361,937 ⁽³⁾		$ 361,937 ⁽³⁾	$ 361,937 ⁽³⁾	$ 361,937 ⁽³⁾

⁽¹⁾ Under the terms of the HSBC - North America (U.S.) Severance Pay Plan, Mr. Sinyak would receive 26 weeks of his current fixed pay upon separation from the company.

⁽³⁾ This amount represents a full vesting of the outstanding deferred cash assuming "good leaver" status is granted by REMCO and a termination date of December 31, 2011.

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
Fixed Pay................
Restricted Stock/ Units.................		$ 467,877 ⁽¹⁾	$ 467,877 ⁽¹⁾	$ 467,877 ⁽¹⁾		$ 467,877 ⁽¹⁾	$ 467,877 ⁽¹⁾	$ 467,877 ⁽¹⁾

Director Compensation The following tables and narrative footnotes discuss the compensation earned by our Non-Executive Directors in 2011. As an Executive Director, Ms. Dorner does not receive any additional compensation for her service on the Board of Directors. Additionally, as a former Executive Director, Mr. Booker received no additional compensation for his service on the Board of Directors. Mr. Booker's service on the Board of Directors concluded October 31, 2011.

During 2011, HSBC North America, HSBC USA and HSBC Finance Corporation adjusted compensation for the Non-Executive Directors in response to increased demands upon the Directors and the revised committee structure of the Board of Directors. The table below outlines the differences in the annual compensation program for Non-Executive Directors for the first half of 2011 compared to the second half of 2011.

Annualized Compensation Rates for Non-Executive Directors

Related to Service on the Board of Directors and Committees for HSBC USA and HSBC North America



	Effective through June 30, 2011		Effective beginning July 1, 2011
Board Retainer
HSBC North America & HSBC USA	$ 210,000	HSBC North America	$ 105,000
		HSBC USA	$ 105,000
Audit Committee and Risk Committee
Audit and Risk Committee Chair for HSBC North America	$ 85,000	Audit Committee Chair for HSBC North America, HSBC USA and HSBC Finance Corporation	$ 80,000
Audit and Risk Committee Chair for HSBC USA	$ 65,000	Audit Committee Member for HSBC North America and HSBC USA	$ 20,000
Audit and Risk Committee Member for HSBC North America	$ 15,000
Audit and Risk Committee Member for HSBC USA	$ 15,000
-		Risk Committee Chair for HSBC North America, HSBC USA and HSBC Finance Corporation	$ 80,000
-		Risk Committee Member for HSBC North America and HSBC USA	$ 20,000
Fiduciary Committee
HSBC USA Co-Chair	$ 10,000	HSBC USA Co-Chair	$ 10,000
Compliance Committee
-		Compliance Committee Chair for HSBC North America and HSBC USA	$ 80,000
-		Compliance Committee Member for HSBC North America and HSBC USA	$ 50,000
Nominating Committee
-		Nominating Committee Chair for HSBC North America and HSBC USA	$ 40,000
-		Nominating Committee Member for HSBC North America and HSBC USA	$ 20,000

The 2011 total compensation of our Non-Executive Directors in their capacities as directors of HSBC North America and HSBC USA, and in the case of Mr. Herdman, also as the director of HSBC Finance Corporation, is shown in the following table:


Name	Fees Earned or Paid in Cash ($)⁽¹⁾	Stock Awards ($)⁽²⁾	Option Awards ($)⁽²⁾	Change in Pension Value And Non-Qualified Deferred Compensation Earnings ($)⁽³⁾	All Other Compensation ($)⁽⁴⁾	Total ($)
William R.P. Dalton..............................................	$ 237,500	$ -	$ -	$ -	$ 2,625	$ 240,125
Anthea Disney......................................................	$ 272,500	$ -	$ -	($ 27,015 )	$ 2,625	$ 248,110
Robert K. Herdman...............................................	$ 465,000	$ -	$ -	$ -	$ 919	$ 465,919
Louis Hernandez, Jr..............................................	$ 247,500	$ -	$ -	$ -	$ 2,625	$ 250,125
Richard A. Jalkut..................................................	$ 285,000	$ -	$ -	$ -	$ 2,625	$ 287,625

⁽¹⁾ Represents aggregate compensation for service on Board of Directors and Committees of HSBC North America, HSBC USA and, in the case of Mr. Herdman, HSBC Finance Corporation.

Fees paid to Mr. Dalton include the following amounts for service from January 1, 2011 to July 1, 2011: $105,000 as part of annual cash retainer for membership on the HSBC North America and HSBC USA boards and $7,500 for membership on the HSBC USA Audit and Risk Committee. Fees paid to Mr. Dalton also include the following amounts for service from July 1, 2011 to December 31, 2011: $52,500 annual cash retainer for membership on each of the HSBC North America and HSBC USA boards; $3,333 for membership on the HSBC North America Audit Committee, and $6,667 for membership on the HSBC USA Audit Committee; $3,333 for membership on the HSBC North America Risk Committee, and $6,667 for membership on the HSBC USA Risk Committee.

Fees paid to Ms. Disney include the following amounts for service from January 1, 2011 to July 1, 2011: $105,000 as part of annual cash retainer for membership on the HSBC North America and HSBC USA boards and $7,500 for membership on the HSBC USA Audit and Risk Committee. Fees paid to Ms. Disney also include the following amounts for service from July 1, 2011 to December 31, 2011: $52,500 annual cash retainer for membership on each of the HSBC North America and HSBC USA boards; $8,333 for membership on the HSBC North America Compliance Committee, $16,667 for membership on the HSBC USA Compliance Committee; $6,667 for serving as Chair of the Nominating Committee for HSBC North America, $13,333 for serving as Chair of the Nominating Committee for HSBC USA; $3,333 for membership on the HSBC North America Risk Committee, and $6,667 for membership on the HSBC USA Risk Committee.

Fees paid to Mr. Herdman include the following amounts for service from January 1, 2011 to July 1, 2011: $105,000 as part of annual cash retainer for membership on the HSBC North America and HSBC Finance Corporation boards; $42,500 for serving as Chair of the HSBC North America Audit and Risk Committee, $27,500 for serving as Chair of the HSBC Finance Corporation Audit and Risk Committee, $32,500 for serving as Chair of the HSBC USA Audit and Risk Committee; and $20,000 in grandfathered fees related to his level of compensation in 2007. Fees paid to Mr. Herdman also include the following amounts for service from July 1, 2011 to December 31, 2011: $52,500 annual cash retainer for membership on each of the HSBC North America, HSBC Finance Corporation and HSBC USA boards; $13,333 for serving as Chair of each of the Audit Committees of HSBC North America, HSBC Finance Corporation and HSBC USA; and $13,333 for serving as Chair of each of the Risk Committees of HSBC North America, HSBC Finance Corporation and HSBC USA.

Fees paid to Mr. Hernandez include the following amounts for service from January 1, 2011 to July 1, 2011: $105,000 as part of annual cash retainer for membership on the HSBC North America and HSBC USA boards; $5,000 for serving as Co-Chair of the HSBC USA Fiduciary Committee; and $7,500 for membership on the HSBC USA Audit and Risk Committee. Fees paid to Mr. Hernandez also include the following amounts for service from July 1, 2011 to December 31, 2011: $52,500 annual cash retainer for membership on each of the HSBC North America and HSBC USA boards; $5,000 for serving as Co-Chair of the HSBC USA Fiduciary Committee; $3,333 for membership on the HSBC North America Audit Committee, and $6,667 for membership on the HSBC USA Audit Committee; $3,333 for membership on the HSBC North America Risk Committee, and $6,667 for membership on the HSBC USA Risk Committee.

Fees paid to Mr. Jalkut include the following amounts for service from January 1, 2011 to July 1, 2011: $105,000 as part of annual cash retainer for membership on the HSBC North America and HSBC USA boards; $5,000 for serving as Co-Chair of the HSBC USA Fiduciary Committee; $7,500 for membership on the HSBC North America Audit and Risk Committee; and $7,500 for membership on the HSBC USA Audit and Risk Committee. Fees paid to Mr. Jalkut also include the following amounts for service from July 1, 2011 to December 31, 2011: $52,500 annual cash retainer for membership on each of the HSBC North America and HSBC USA boards; $5,000 for serving as Co-Chair of the HSBC USA Fiduciary Committee; $13,333 for serving as Chair of the Compliance Committee for HSBC North America, $26,667 for serving as Chair of the Compliance Committee for HSBC USA; $3,333 for membership on the HSBC North America Risk Committee, and $6,667 for membership on the HSBC USA Risk Committee.

⁽²⁾ HSBC USA does not grant stock awards or stock options to its Non-Executive Directors.

⁽³⁾ The HSBC USA Director Retirement Plan covers Non-Executive Directors elected prior to 1998. As an eligible Non-Executive Director with at least five years of service, Mr. Jalkut is eligible for the maximum retirement benefit upon the conclusion of his service on the Board. Mr. Jalkut will receive quarterly retirement benefit payments commencing at the later of age 65 or retirement from the Board, and continuing for ten years. Because he has completed at least 15 years of service, the annual amount of the retirement benefit he will receive is the annual retainer in effect at the time of the last Board meeting Mr. Jalkut will attend. If Mr. Jalkut should die, his beneficiary will receive a death benefit calculated as if Mr. Jalkut had retired on the date of death. If Mr.Jalkut is retired and dies before receiving retirement benefit payments for the ten year period, the balance of the payments will be continued to his beneficiary. The plan is unfunded and payment will be made out of the general funds of HSBC USA or HSBC Bank USA.

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 2011 retainer into the HSBC USA/HBUS Plan for Deferral of Directors' Fees.

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. Directors have the ability to defer up to 100% of their annual retainers and/or fees into the HSBC-North America Directors Non-Qualified Deferred Compensation Plan. Under this plan, pre-tax dollars may be deferred with the choice of receiving payouts while still serving on the Board of HSBC USA according to a schedule established by the Director at the time of deferral or a distribution after leaving the Board in either lump sum or quarterly installments. Amounts shown for Ms. Disney reflect the gains or losses calculated by reference to the actual earnings of the investment choices.

⁽⁴⁾ Components of All Other Compensation are disclosed in 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 for which the company paid a premium of $200 per annum for each participating Director and a $10,000,000 personal excess liability insurance policy for which the company paid premium of $1,706 per annum for each participating Director. Mr. Herdman declined the personal excess liability insurance policy; the amount shown pertains to the annual premium for AD&D insurance exclusively. Premiums are pro-rated to the calendar quarter for participating Directors with less than one full calendar year of service on the Board. Additionally, in 2011, we provided to the Non-Executive Directors an Apple^® iPad^® tablet, at a cost of $719 per device.

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.

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 variable pay 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 remuneration policy is that it is risk informed, seeking to ensure that risk-adjusted returns on capital are factored into the determination of annual variable pay and that variable pay pools are calculated only after appropriate risk-adjusted 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 pay levels and target a 12% to 15% return on shareholder equity. These requirements are built into the performance scorecard or 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 performance scorecard or the balanced scorecard, ensuring that key risk measures are included.

The use of a performance scorecard or a balanced scorecard framework ensures an aligned set of objectives and impacts the level of individual pay received, as achievement of objectives is considered when determining the level of variable pay awarded under the annual discretionary cash award plan. On a performance scorecard, objectives are separated into two categories: financial and non-financial. On a balanced scorecard, objectives are set under four categories: financial, process (including risk mitigation), customer, and people. Financial objectives, as well as 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 performance and 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 were established and monitored for employees who were identified as having the potential to expose the organization to material risks, or who are responsible for controlling those risks.

The Nominating and Governance Committee of HSBC North America and the Compensation and Performance Management Governance Sub-Committee ("CPMG Sub-Committee") have been established, which among other duties, have oversight for objectives-setting and risk monitoring. As of January 1, 2012, the responsibilities of a previously ad-hoc Nominating Committee of Board of Directors of HSBC USA have been assumed by a permanent Nominating and Governance Committee of HSBC North America, and this Committee's role has been expanded to include oversight and endorsement of certain compensation matters. As part of its duties, the Nominating and Governance Committee oversees the framework for assessing risk in the responsibilities of employees, the determination of who are Covered Employees ("Covered Employees") under the Interagency Guidelines on Incentive Based Compensation Arrangements as published by the Federal Reserve Board, and the measures used to ensure that risk is appropriately considered in making variable pay recommendations. The Nominating and Governance Committee also can make recommendations concerning proposed performance assessments and incentive compensation award proposals for the Chief Executive Officer, direct reports of the Chief Executive Officer and certain other Covered Employees, including any recommendations for reducing or canceling incentive compensation previously awarded. The recommendations related to employee compensation are incorporated into the submissions to the HSBC Holdings plc Remuneration Committee ("REMCO") of the Board of Directors of HSBC, or to Mr. Gulliver and Ms. Dorner, in instances where REMCO has delegated remuneration authority.

In 2010, HSBC North America established the CPMG Sub-Committee within 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 to ensure the involvement of the appropriate levels of leadership in a comprehensive view of compensation practices and associated risks. The members of the CPMG Sub-Committee are senior executive representatives from HSBC North America's staff and control functions, consisting of Risk, Compliance, Legal, Finance, Audit and Human Resources. The CPMG maintains the frameworks under which the risk in the responsibilities of employee is assessed and the determination of which employees are considered covered employees under guidelines on incentive compensation arrangements as published by the Federal Reserve Board is made. The CPMG also reviews the objectives assigned to employees and other measures used to ensure risk as appropriately considered in making variable compensation recommendations. These materials are provided to the HSBC North America Nominating and Governance Committee for review. The CPMG also makes recommendations to the HSBC North America Nominating and Governance Committee concerning the terms of any clawbacks of incentive compensation previously awarded to employees.

Risk oversight of formulaic plans is ensured through HSBC's formal policies 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 set by the Board of HSBC and is annually reviewed and approved by the HSBC North America Risk Management Committee and the HSBC North America Board of Directors.

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 recommendations, subject to appropriate oversight. When making award recommendations for an employee participating in the discretionary plan, performance against the objectives established in the performance scorecard or balanced scorecard is considered. 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 2011, ranging from 0 to 60%, increase in relation to the level of variable pay earned and in respect of an employee's classification under the United Kingdom's Financial Services Authority ("FSA") Remuneration Code ("the Code"), as further described under the section "Performance Year 2011 Compensation Actions" in the 2011 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. At the end of the vesting period, deferred cash is credited with a notional rate of return equivalent to the annual dividend yield of HSBC Holdings plc shares over the period. 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. Grants under the Group Performance Share Plan ("GPSP") consist of a number of shares to which the employee will become fully entitled, generally over a five-year vesting period, subject to the individual remaining in employment. Shares that are released upon vesting of an award must be retained until the employee retires from or terminates employment with HSBC. An employee who retires from or terminates employment with "good leaver" status will have vested awards under the GPSP released immediately. An employee who terminates employment without "good leaver" status will have vested awards under the GPSP released in three equal installments on the first, second and third anniversaries of the termination of employment with HSBC.

An employee who terminates employment without "good leaver" status being granted by REMCO forfeits all unvested equity and deferred cash. A clawback provision has been added to deferred variable pay awards, as further described under the section "Reduction or Cancellation of Long-Term Equity Awards" in the 2011 CD&A. Additionally, all employees with unvested awards or awards subject to a retention period are 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.

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 performance or balanced scorecard achievements. Payments under the discretionary plan are not tied to a formula, which enables payments to be adjusted as appropriate based on individual performance, business performance, and risk assessment. Performance or 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 in light of 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, 2012, of HSBC ordinary shares or interests in HSBC ordinary shares and any of HSBC USA's outstanding series of preferred stock, held 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 and any HSBC USA outstanding series of preferred stock. No director or executive officer of HSBC USA owned any of HSBC's American Depositary Shares, Series A at January 31, 2012.


	Number of Shares Beneficially Owned of HSBC Holdings plc⁽¹⁾⁽²⁾	HSBC Shares That May Be Acquired Within 60 Days By Exercise of Options⁽ ³⁾	HSBC Restricted Shares Released Within 60 Days⁽ ⁴⁾	Number of HSBC Ordinary Share Equivalents^{( 5)}	Total HSBC Ordinary Shares⁽ ²⁾	HSBC USA Preferred Stock
Directors
Irene M. Dorner⁽⁶⁾.................................	18,951	-	141,035	-	159,986	-
William R. P. Dalton.............................	71,296	-	-	-	71,296	-
Anthea Disney.....................................	12	-	-	-	12	-
Robert K. Herdman..............................	82	-	-	-	82	-
Louis Hernandez, Jr.............................	50	-	-	-	50	-
Richard A. Jalkut..................................	50	-	-	-	50	-
Named Executive Officers
John T. McGinnis................................	44,227	-	53,254	-	97,481	-
C. Mark Gunton....................................	693	-	35,827	-	36,520	-
Patrick M. Nolan..................................	72,510	-	279,179	-	351,689	-
Eli Sinyak...............................................	6,421	91,802	145,568	-	243,791	-
All directors and executive officers as a group........................................	327,547	495,447	1,393,569	-	2,216,563	-

⁽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: Directors and executive officers as a group, 64,461.

⁽²⁾ Some of the shares included in the table above were held in American Depositary Shares, each of which represents five HSBC ordinary shares.

⁽³⁾ Represents the number of ordinary shares that may be acquired by HSBC USA directors and executive officers through April 1, 2012 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, 2012 pursuant to the satisfaction of certain conditions.

⁽⁵⁾ Represents the number of ordinary share equivalents owned by executive officers under the HSBC-North America Employee Non-Qualified Deferred Compensation Plan. Some of the shares are held in American Depositary Shares, each of which represents five HSBC ordinary shares.

⁽⁶⁾ Also a Named Executive Officer.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Transactions with Related Persons During the fiscal year ended December 31, 2011, 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 2011, 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 Committee..............................................................................................	Chair and all voting members
Compliance Committee...................................................................................	A majority of voting members
Fiduciary Committee.......................................................................................	Chair and all voting members
Risk Committee................................................................................................	Chair and all voting members

Ms. Disney and Messrs. Dalton, Herdman, 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. She also serves as a director and Chief Executive Officer of HSBC North America and a Group Managing Director at HSBC. Because of the positions held by Ms. Dorner, she is not considered to be an independent director. Niall S.K. Booker served as Chairman of the Board of HSBC Finance Corporation from July 12, 2010 until October 31, 2011. He was also Chief Executive Officer and a director of HSBC North America and a Group General Manager of HSBC. Because of the positions held by Mr. Booker, 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 during both fiscal years ended December 31, 2011 and 2010 were $6 million. 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, 2011 and 2010 was $63,000 and $960,000, 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 year ended December 31, 2010 was $40,000. There were no such fees for the fiscal year ended December 31, 2011. 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 The aggregate amount billed by KPMG LLP for other services performed during the fiscal year ended December 31, 2011 was $15,239. There were no such fees for the fiscal year ended December 31, 2010. These services included fees related to corporate governance matters.

All of the fees described above were approved by HSBC USA's Audit Committee.

The Audit 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 Committee annually pre-approves the audit fee and terms of the audit services engagement. The Audit 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 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 Committee for approval and to the full Audit 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 27, 2012 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, Exhibit 3 to HSBC USA Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, Exhibits 3.2 and 3.3 to HSBC USA Inc.'s Current Report on Form 8-K filed April 4, 2005; Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K filed October 14, 2005 and Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K filed May 22, 2006).

3(ii)		By-Laws (incorporated by reference to Exhibit 3.3 to HSBC USA Inc.'s Current Report on Form 8-K filed 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).


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, Exhibit 4.16 to HSBC USA Inc.'s Current Report on Form 8-K filed April 21, 2006, Exhibit 4.17 to HSBC USA Inc.'s Current Report on Form 8-K filed August 15, 2008, Exhibit 4.18 to HSBC USA Inc.'s Current Report on Form 8-K filed August 15, 2008, Exhibit 4.19 to HSBC USA Inc.'s Current Report on Form 8-K filed December 16, 2008, and Exhibit 4.20 to HSBC USA Inc.'s Current Report on Form 8-K filed 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, and Exhibit 4.1 to HSBC USA Inc.'s Current Report on Form 8-K filed 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, and Exhibit 4.1 to HSBC USA Inc.'s Current Report on Form 8-K filed 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).

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.

101.INS		XBRL Instance Document^(1,2)

101.SCH		XBRL Taxonomy Extension Schema Document^(1,2)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document^(1,2)

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document^(1,2)

101.LAB		XBRL Taxonomy Extension Label Linkbase Document^(1,2)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document^(1,2)

¹ Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in HSBC USA Inc.'s Annual Report on Form 10-K for the year ended December 31, 2011, formatted in eXentsible Business Reporting Language ("XBRL") interactive data files: (i) the Consolidated Statement of Income for the year ended December 31, 2011, 2010 and 2009, (ii) the Consolidated Balance Sheet as of December 31. 2011 and 2010, (iii) the Consolidated Statement of Changes in Shareholders' Equity for the year ended December 31, 2011, 2010 and 2009, (iv) the Consolidated Statement of Cash Flows for the year ended December 31, 2011, 2010 and 2009, and (v) the Notes to Consolidated Financial Statements.

² As provided in Rule 406T of Regulation S-T, this information shall be not be deemed "filed" for purposes of Section 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

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

policies (critical)

policies (significant)

Assets:

by business segment

consolidated average balances

fair value measurements

nonperforming

trading

Asset-backed commercial paper conduits

Asset-backed securities

Audit committee

Auditors' report:

financial statement opinion

internal control opinion

Balance sheet:

consolidated

consolidated average balances

review

Basel II

Basel III

Basis of reporting

Business:

consolidated performance review

operations

organization history

Capital:

2012 funding strategy

common equity movements

consolidated statement of changes

regulatory capital

selected capital ratios

Cash flow (consolidated)

Cautionary statement regarding forward-looking statements

Collateral - pledged assets

Collateralized debt obligations

Commercial banking segment results (IFRSs)

Committees

Competition

Compliance risk

Contingent liabilities

Controls and procedures

Corporate governance and controls

Customers

Credit card fees

Credit quality

Credit risk:

accounting policy

adjustment

component of fair value option

concentration

critical accounting policy

exposure

management

related contingent features

related arrangements

Compliance risk

Critical accounting policies and estimates

Current environment

Deferred tax assets

Deposits

Derivatives:

accounting policy

cash flow hedges

critical accounting policy

fair value hedges

notional value

trading and other

Directors:

biographies

board of directors

executive

compensation (executives)

responsibilities

Discontinued operations

Employees:

compensation and benefits

number of

Equity:

consolidated statement of changes

ratios

Equity securities available-for-sale

Estimates and assumptions

Eurozone exposures

Executive overview

Fair value measurements:

assets and liabilities recorded at fair value on a recurring basis

assets and liabilities recorded at fair value on a non-recurring basis

control over valuation process

financial instruments

hierarchy

transfers into/out of level one and two

transfers into/out of level two and three

valuation techniques

Fiduciary risk

Financial assets:

designated at fair value

reclassification under IFRSs

Financial highlights metrics

Financial liabilities:

designated at fair value

fair value of financial liabilities

Forward looking statements

Funding

Future prospects

Gain on instruments designated at fair value and related derivatives

Gains less losses from securities

Global Banking and Markets:

balance sheet data (IFRSs)

loans and securities reclassified (IFRSs)

segment results (IFRSs)

Geographic concentration of receivables

Goodwill :

accounting policy

critical accounting policy

Guarantee arrangements

Impairment:

available-for-sale securities

credit losses

nonperforming loans

impaired loans

Income (loss) from financial instruments designated at fair value, net

Income statement

Intangible assets

Income taxes:

accounting policy

critical accounting policy - deferred taxes

expense

Internal control

Interest rate risk

Key performance indicators

Legal proceedings

Leveraged finance transactions

Liabilities:

commitments, lines of credit

deposits

financial liabilities designated at fair value

long-term debt

short-term borrowings

trading

Lease commitments

Liquidity and capital resources

Liquidity risk

Litigation and regulatory matters

Loans:

by category

by charge-off (net)

by delinquency

criticized assets

geographic concentration

held for sale

impaired

nonperforming

overall review

purchases from HSBC Finance

risk concentration

troubled debt restructures

Loan impairment charges - see Provision for credit losses

Loan-to-deposits ratio

Market risk

Market turmoil:

current environment

exposures

impact on liquidity risk

structured investment vehicles

variable interest entities

Monoline insurers

Mortgage lending products

Mortgage servicing rights

Net interest income

New accounting pronouncement adopted

New accounting pronouncements to be adopted in future periods

Off balance sheet arrangements

Operating expenses

Operational risk

Other revenue

Other segment results (IFRSs)

Pension and other postretirement benefits:

accounting policy

Performance, developments and trends

Pledged assets

Private banking segment results (IFRSs)

Profit (loss) before tax:

by segment - IFRSs

consolidated

Properties

Property, plant and equipment

accounting policy

Provision for credit losses

Ratios:

capital

charge-off (net)

credit loss reserve related

delinquency

earnings to fixed charges - Exhibit 12

efficiency

financial

loans-to-deposits

Real estate owned

Reconciliation of U.S. GAAP results to IFRSs

Refreshed loan-to-value

Regulation

Related party transactions

Reputational risk

Results of operations

Retail banking and wealth management segment results (IFRSs)

Risks and uncertainties

Risk elements in the loan portfolio

Risk factors

Risk management:

credit

compliance

fiduciary

interest rate

liquidity

market

operational

reputational

strategic

Securities:

fair value

impairment

maturity analysis

Segment results - IFRSs basis:

retail banking and wealth management

commercial banking

global banking and markets

private banking

other

overall summary

Selected financial data

Senior management:

biographies

Sensitivity:

projected net interest income

Share-based payments:

accounting policy

Statement of changes in shareholders' equity

Statement of changes in comprehensive income

Statement of income (loss)

Strategic risk

Stress testing

Table of contents

Tax expense

Trading:

assets

derivatives

liabilities

portfolios

Trading revenue (net)

Troubled debt restructures

Value at risk

Variable interest entities

Unresolved staff comments

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 27th day of February 2012.


HSBC USA INC.

By:		/s/ Irene M. Dorner
	Irene M. Dorner
	President and 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 27th day of February 2012.


Signature	Title

/S/ (I. M. DORNER) (I. M. Dorner)	President, Chief Executive Officer, Chairman and Director (as Principal Executive Officer)
/S/ (I. M. DORNER) (I. M. Dorner)

/S/ (W. R. P. DALTON) (W. R. P. Dalton)	Director
/S/ (W. R. P. DALTON) (W. R. P. Dalton)

/S/ (A. DISNEY) (A. Disney)	Director
/S/ (A. DISNEY) (A. Disney)

/S/ (R. K. HERDMAN) (R. K. Herdman)	Director
/S/ (R. K. HERDMAN) (R. K. Herdman)

/S/ (L. HERNANDEZ, JR.) (L. Hernandez, Jr.)	Director
/S/ (L. HERNANDEZ, JR.) (L. Hernandez, Jr.)

/S/ (R. A. JALKUT) (R. A. Jalkut)	Director
/S/ (R. A. JALKUT) (R. A. Jalkut)

/S/ (J. T. MCGINNIS) (J. T. McGinnis)	Executive Vice President and Chief Financial Officer (as Principal Financial Officer)
/S/ (J. T. MCGINNIS) (J. T. McGinnis)

/S/ (E. K. FERREN) (E. K. Ferren)	Executive Vice President and Chief Accounting Officer (as Principal Accounting Officer)
/S/ (E. K. FERREN) (E. K. Ferren)

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, Exhibit 3 to HSBC USA Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, Exhibits 3.2 and 3.3 to HSBC USA Inc.'s Current Report on Form 8-K filed April 4, 2005; Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K filed October 14, 2005 and Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K filed May 22, 2006).
3(ii)	By-Laws (incorporated by reference to Exhibit 3.3 to HSBC USA Inc.'s Current Report on Form 8-K filed 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).
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, Exhibit 4.16 to HSBC USA Inc.'s Current Report on Form 8-K filed April 21, 2006, Exhibit 4.17 to HSBC USA Inc.'s Current Report on Form 8-K filed August 15, 2008, Exhibit 4.18 to HSBC USA Inc.'s Current Report on Form 8-K filed August 15, 2008, Exhibit 4.19 to HSBC USA Inc.'s Current Report on Form 8-K filed December 16, 2008, and Exhibit 4.20 to HSBC USA Inc.'s Current Report on Form 8-K filed 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, and Exhibit 4.1 to HSBC USA Inc.'s Current Report on Form 8-K filed 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, and Exhibit 4.1 to HSBC USA Inc.'s Current Report on Form 8-K filed 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).
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.
101.INS	XBRL Instance Document^(1,2)
101.SCH	XBRL Taxonomy Extension Schema Document^(1,2)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document^(1,2)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document^(1,2)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document^(1,2)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document^(1,2)

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,
	2011	2010	2009	2008	2007
	(dollars are in millions)
Ratios excluding interest on deposits:
Income (loss) from continuing operations......................................................	$ 455	$ 1,006	$ (167 )	$ (1,698 )	$ 114
Income tax (benefit) expense.............................................................................	227	439	(98 )	(924 )	(14 )
Less: Undistributed equity earnings................................................................	-	28	28	35	-
Fixed charges:
Interest on:
Borrowed funds........................................................................................	44	78	61	279	354
Long-term debt..........................................................................................	600	492	514	826	1,193
Others.........................................................................................................	99	5	-	-	-
One third of rents, net of income from subleases.....................................	31	29	24	24	29

Total fixed charges, excluding interest on deposits.......................................	774	604	599	1,129	1,576
Earnings (loss) from continuing operations before taxes and fixed charges, net of undistributed equity earnings..........................................	$ 1,456	$ 2,021	$ 306	$ (1,528 )	$ 1,676

Ratio of earnings (loss) to fixed charges.........................................................	1.88	3.35	.51	(1.35 )	1.06

Total preferred stock dividend factor⁽¹⁾............................................................	$ 110	$ 106	$ 116	$ 122	$ 102

Fixed charges, including the preferred stock dividend factor......................	$ 884	$ 710	$ 715	$ 1,251	$ 1,678

Ratio of earnings (loss) from continuing operations to combined fixed charges and preferred stock dividends......................................................	1.65	2.85	.43	(1.22 )	1.00

Ratios including interest on deposits:
Total fixed charges, excluding interest on deposits.......................................	$ 774	$ 604	$ 599	$ 1,129	$ 1,576
Add: Interest on deposits..................................................................................	251	329	551	1,851	3,115

Total fixed charges, including interest on deposits.......................................	$ 1,025	$ 933	$ 1,150	$ 2,980	$ 4,691

Earnings (loss) from continuing operations before taxes and fixed charges, net of undistributed equity earnings.....................................	$ 1,456	$ 2,021	$ 306	$ (1,528 )	$ 1,676
Add: Interest on deposits..................................................................................	251	329	551	1,851	3,115

Total......................................................................................................................	$ 1,707	$ 2,350	$ 857	$ 323	$ 4,791

Ratio of earnings to fixed charges....................................................................	1.67	2.52	.75	.11	1.02

Fixed charges, including the preferred stock dividend factor......................	$ 884	$ 710	$ 715	$ 1,251	$ 1,678
Add: Interest on deposits..................................................................................	251	329	551	1,851	3,115

Fixed charges, including the preferred stock dividend factor and interest on deposits.....................................................................................................	$ 1,135	$ 1,039	$ 1,266	$ 3,102	$ 4,793

Ratio of earnings (loss) from continuing operations to combined fixed charges and preferred stock dividends......................................................	1.50	2.26	.68	.10	1.00

⁽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
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 (USA) LP......................................................................................................................................................................	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 Investment Corporation (Delaware)..........................................................................................................................................	Delaware
HSBC Jade Limited Partnership.............................................................................................................................................................	Nevada
HSBC Land Title Agency (USA) LLC..................................................................................................................................................	New York
HSBC Logan Holdings USA, 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 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 VII.................................................................................................................................................................	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
REDUS Halifax Landing, LLC................................................................................................................................................................	Delaware
Republic Overseas Capital Corporation...............................................................................................................................................	New York
Somers & Co............................................................................................................................................................................................	New York
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
TPBC Acquisition Corp..........................................................................................................................................................................	Florida
Trumball Management, Inc....................................................................................................................................................................	New York
West 56th and 57th Street Corp............................................................................................................................................................	New York
Westminster House, LLC.......................................................................................................................................................................	Delaware

Non-U.S. Affiliates:

Names of Subsidiaries	Country Organized
HSBC Alternative Investments (Guernsey) Limited...........................................................................................................................	Guernsey
HSBC Financial Services (Uruguay) S.A.............................................................................................................................................	Uruguay

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 27, 2012, with respect to the consolidated balance sheets of HSBC USA Inc. and subsidiaries as of December 31, 2011 and 2010, 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, 2011, and the consolidated balance sheets of HSBC Bank USA, National Association and subsidiaries as of December 31, 2011 and 2010, and the effectiveness of internal control over financial reporting as of December 31, 2011, which reports appear in the December 31, 2011 annual report on Form 10-K of HSBC USA Inc.

/s/ KPMG LLP

New York, New York

February 27, 2012

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, Chief Executive Officer and Chairman of the Board 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 27, 2012

/s/ IRENE M. DORNER

Irene M. Dorner

President, Chief Executive

Officer and Chairman of the Board

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.;

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 27, 2012

/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, 2011 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, Chief Executive Officer and Chairman of the Board 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 27, 2012

/s/ IRENE M. DORNER

Irene M. Dorner

President, Chief Executive

Officer and Chairman of the Board

Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

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 27, 2012

/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.

This information is provided by RNS

The company news service from the London Stock Exchange

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