HSBC USA Inc - FORM 10-K Part

RNS Number : 8226H

HSBC Holdings PLC

01 March 2010

 

 

Item 8.  Financial Statements and Supplementary Data

 

 

 

Our 2009 Financial Statements meet the requirements of Regulation S-X. The 2009 Financial Statements and supplementary financial information specified by Item 302 of Regulation S-K are set forth below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

HSBC USA Inc.:

We have audited the accompanying consolidated balance sheets of HSBC USA Inc. and subsidiaries (the Company), an indirect wholly-owned subsidiary of HSBC Holdings plc, as of December 31, 2009 and 2008, 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, 2009, and the accompanying consolidated balance sheets of HSBC Bank USA, National Association and subsidiaries (the Bank) as of December 31, 2009 and 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, and the financial position of the Bank as of December 31, 2009 and 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for other-than-temporary impairments of debt securities in 2009.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1, 2010 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/  KPMG LLP

New York, New York

March 1, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

HSBC USA Inc.:

We have audited HSBC USA Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2009 and 2008, 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, 2009, and the consolidated balance sheets of HSBC Bank USA, National Association and subsidiaries as of December 31, 2009 and 2008, and our report dated March 1, 2010 expressed an unqualified opinion on those consolidated financial statements.

/s/  KPMG LLP

New York, New York

March 1, 2010

CONSOLIDATED STATEMENT OF INCOME (LOSS)

Year Ended December 31,	2009	2008	2007
	(in millions)
Interest income:
Loans.......................................................................................................................................................................	$   5,652	$      5,618	$    6,089
Securities.................................................................................................................................................................	975	1,237	1,185
Trading assets........................................................................................................................................................	219	535	633
Short-term investments.........................................................................................................................................	89	411	901
Other........................................................................................................................................................................	46	219	230
Total interest income............................................................................................................................................	6,981	8,020	9,038
Interest expense:
Deposits..................................................................................................................................................................	991	2,426	3,840
Short-term borrowings..........................................................................................................................................	74	283	357
Long-term debt.......................................................................................................................................................	782	985	1,443
Total interest expense...........................................................................................................................................	1,847	3,694	5,640
Net interest income.................................................................................................................................................	5,134	4,326	3,398
Provision for credit losses.....................................................................................................................................	4,144	2,543	1,522
Net interest income after provision for credit losses......................................................................................	990	1,783	1,876
Other revenues (losses):
Credit card fees......................................................................................................................................................	1,356	879	817
Other fees and commissions................................................................................................................................	837	733	762
Trust income...........................................................................................................................................................	125	150	101
Trading revenue (loss)..........................................................................................................................................	347	(2,558)	129
Net other-than-temporary impairment losses(1)...............................................................................................	(124)	(231)	-
Other securities gains (losses), net.....................................................................................................................	304	82	112
Servicing and other fees from HSBC affiliates..................................................................................................	147	137	164
Residential mortgage banking revenue (loss)...................................................................................................	172	(11)	74
Gain (loss) on instruments designated at fair value and related derivatives...............................................	(253)	286	-
Other income (loss)...............................................................................................................................................	(197)	(254)	(312)
Total other revenues (losses)...............................................................................................................................	2,714	(787)	1,847
Operating expenses:
Salaries and employee benefits...........................................................................................................................	1,125	1,228	1,352
Support services from HSBC affiliates...............................................................................................................	1,618	1,184	1,162
Occupancy expense, net.......................................................................................................................................	281	278	243
Other expenses.......................................................................................................................................................	906	914	829
Total operating expenses.....................................................................................................................................	3,930	3,604	3,586
Income (loss) before income tax benefit (expense)............................................................................................	(226)	(2,608)	137
Income tax benefit...................................................................................................................................................	84	919	1
Net income (loss)....................................................................................................................................................	$     (142)	$    (1,689)	$       138

____________

(1)	During 2009, $208 million of gross other-than-temporary impairment ("OTTI") losses on securities available-for-sale were recognized, of which $84 million were recognized in accumulated other comprehensive loss ("AOCI").

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

CONSOLIDATED BALANCE SHEET

December 31,	2009	2008
	(dollars are in millions)
Assets
Cash and due from banks.................................................................................................................................................	$       3,159	$         2,972
Interest bearing deposits with banks.............................................................................................................................	20,109	15,940
Federal funds sold and securities purchased under agreements to resell................................................................	1,046	10,813
Trading assets....................................................................................................................................................................	25,815	31,292
Securities  available-for-sale............................................................................................................................................	27,806	24,908
Securities held to maturity (fair value of $2.9 billion at December 31, 2009 and 2008)............................................	2,762	2,875
Loans...................................................................................................................................................................................	79,489	81,113
Less - allowance for credit losses..................................................................................................................................	3,861	2,397
Loans, net........................................................................................................................................................................	75,628	78,716
Loans held for sale (includes $1.1 billion and $874 million designated under fair value option at December 31, 2009 and 2008, respectively)..........................................................................................................................................	2,908	4,431
Properties and equipment, net.........................................................................................................................................	533	559
Intangible assets, net........................................................................................................................................................	484	374
Goodwill..............................................................................................................................................................................	2,647	2,647
Other assets........................................................................................................................................................................	8,182	10,042
Total assets........................................................................................................................................................................	$   171,079	$     185,569
Liabilities
Debt:
Deposits in domestic offices:
Noninterest bearing.........................................................................................................................................................	$     20,813	$       17,663
Interest bearing (includes $4.2 billion and $2.3 billion designated under fair value option at December 31, 2009 and 2008, respectively).................................................................................................................................................	69,894	67,903
Deposits in foreign offices:
Noninterest bearing.........................................................................................................................................................	1,105	922
Interest bearing................................................................................................................................................................	26,525	32,550
Total deposits...................................................................................................................................................................	118,337	119,038
Short-term borrowings.....................................................................................................................................................	6,512	10,495
Long-term debt (includes $4.6 billion and $2.6 billion designated under fair value option at December 31, 2009 and 2008, respectively)..................................................................................................................................................	18,008	22,089
Total debt............................................................................................................................................................................	142,857	151,622
Trading liabilities...............................................................................................................................................................	8,010	16,323
Interest, taxes and other liabilities...................................................................................................................................	5,035	4,907
Total liabilities.................................................................................................................................................................	155,902	172,852
Shareholders' equity
Preferred stock...................................................................................................................................................................	1,565	1,565
Common shareholder's equity:
Common stock ($5 par; 150,000,000 shares authorized; 712 and 709 shares issued and outstanding at December 31, 2009 and 2008, respectively)...............................................................................................................	-	-
Additional paid-in capital...............................................................................................................................................	13,795	11,694
Retained earnings............................................................................................................................................................	45	245
Accumulated other comprehensive loss......................................................................................................................	(228)	(787)
Total common shareholder's equity...............................................................................................................................	13,612	11,152
Total shareholders' equity..............................................................................................................................................	15,177	12,717
Total liabilities and shareholders' equity...................................................................................................................	$   171,079	$     185,569

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

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

	2009	2008	2007
	(dollars are in millions)
Preferred stock
Balance, January 1 and December 31,....................................................................................	$             1,565	$              1,565	$              1,565
Common stock
Balance, January 1 and December 31,....................................................................................	-	-	-
Additional paid-in capital
Balance, January 1,...................................................................................................................	11,694	8,123	8,124
Capital contributions from parent...........................................................................................	2,167	3,563	4
Return of capital on preferred shares issued to CT Financial Services, Inc. ..................	(55)	-	-
Employee benefit plans and other..........................................................................................	(11)	8	(5)
Balance, December 31,..............................................................................................................	13,795	11,694	8,123
Retained earnings
Balance, January 1,...................................................................................................................	245	1,901	2,661
Adjustment to initially apply fair value measurement and fair value option accounting, net of tax.........................................................................................................................................	-	113	-
Adjustment to initially apply new guidance for  other-than-temporary impairment on debt securities, net of tax................................................................................................................	15	-	-
Balance at beginning of period, as adjusted.........................................................................	260	2,014	2,661
Net income (loss)......................................................................................................................	(142)	(1,689)	138
Cash dividends declared on preferred stock........................................................................	(73)	(80)	(98)
Cash dividends declared on common stock.........................................................................	-	-	(800)
Balance, December 31,..............................................................................................................	45	245	1,901
Accumulated other comprehensive loss
Balance, January 1,...................................................................................................................	(787)	(352)	(214)
Adjustment to initially apply new guidance for  other-than-temporary impairment on debt securities, net of tax................................................................................................................	(15)	-	-
Balance at beginning of period, as adjusted.........................................................................	(802)	(352)	(214)
Net change in unrealized gains (losses), net of tax on:
Securities  available-for-sale, not other-than-temporarily impaired..................................	444	(324)	11
Other-than-temporarily impaired debt securities available-for-sale (includes $208 million of gross OTTI losses less $124 million of gross losses recognized in other revenues (losses))...................................................................................................................................	(41)	-	-
Derivatives classified as cash flow hedges.........................................................................	171	(98)	(165)
Unrecognized actuarial gains, transition obligation and prior service costs relating to pension and postretirement benefits, net of tax.................................................................	-	2	12
Foreign currency translation adjustments, net of tax..........................................................	-	(15)	4
Other comprehensive income (loss), net of tax....................................................................	574	(435)	(138)
Balance, December 31,..............................................................................................................	(228)	(787)	(352)
Total shareholders' equity, December 31,..........................................................................	$           15,177	$            12,717	$            11,237
Comprehensive income (loss)
Net income (loss)......................................................................................................................	$               (142)	$             (1,689)	$                 138
Other comprehensive income (loss), net of tax....................................................................	574	(435)	(138)
Comprehensive income (loss)................................................................................................	$                 432	$             (2,124)	$                   -
Preferred stock
Balance at beginning of period..............................................................................................	25,947,600	25,947,600	25,948,850
Shares redeemed......................................................................................................................	(100)	-	(1,250)
Balance at end of period.........................................................................................................	25,947,500	25,947,600	25,947,600
Common stock
Issued
Balance at beginning of period..............................................................................................	709	706	706
Issuance of common stock to parent....................................................................................	3	3	-
Balance at end of period.........................................................................................................	712	709	706

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

CONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended December 31	2009	2008	2007
	(in millions)
Cash flows from operating activities
Net income (loss)..........................................................................................................................................	$         (142)	$       (1,689)	$           138
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization...................................................................................................................	358	201	415
Provision for credit losses..........................................................................................................................	4,144	2,543	1,522
Deferred income tax provision (benefit)...................................................................................................	(612)	(592)	(370)
Other-than-temporarily impaired  available-for-sale securities.............................................................	124	231	-
Realized losses (gains) on securities available-for-sale.........................................................................	(304)	(82)	(112)
Net change in other assets and liabilities................................................................................................	1,901	(848)	(1,151)
Net change in loans held for sale:
Originations of loans..................................................................................................................................	(6,485)	(8,808)	(9,458)
Sales and collections of loans held for sale............................................................................................	6,663	9,067	9,824
Loans attributable to tax refund anticipation loans program:
Originations of loans..................................................................................................................................	(9,020)	(12,628)	(17,433)
Sales of loans to HSBC Finance, including premium............................................................................	9,031	12,641	17,456
Net change in trading assets and liabilities.............................................................................................	(2,448)	6,081	(9,152)
LOCOM on receivables held for sale........................................................................................................	215	567	512
Mark-to-market on financial instruments designated at fair value and related derivatives.............	253	(286)	-
Net change in fair value of derivatives and hedged items....................................................................	(439)	(1,753)	770
Net cash provided by (used in) operating activities.............................................................................	3,239	4,645	(7,039)
Cash flows from investing activities
Net change in interest bearing deposits with banks...............................................................................	(4,169)	(11,199)	(3,697)
Net change in federal funds sold and securities purchased under agreements to resell..................	9,767	2,864	98
Securities  available-for-sale:
Purchases of securities available-for-sale................................................................................................	(37,342)	(18,868)	(14,175)
Proceeds from sales of securities available-for-sale...............................................................................	23,112	3,778	5,269
Proceeds from maturities of securities available-for-sale......................................................................	11,919	9,765	8,928
Securities held to maturity:
Purchases of securities held to maturity..................................................................................................	(229)	(432)	(260)
Proceeds from maturities of securities held to maturity.........................................................................	342	448	341
Change in loans:
Originations, net of collections.................................................................................................................	48,542	24,741	17,290
Recurring loans purchases from HSBC Finance.....................................................................................	(38,040)	(24,391)	(24,169)
Cash paid on bulk purchase of loans from HSBC Finance....................................................................	(8,821)	-	-
Loans sold to third parties.........................................................................................................................	4,502	6,960	-
Net cash used for acquisitions of properties and equipment................................................................	(44)	(61)	(99)
Other, net.......................................................................................................................................................	295	(144)	7
Net cash provided by (used in) investing activities............................................................................	9,834	(6,539)	(10,467)
Cash flows from financing activities
Net change in deposits................................................................................................................................	(917)	2,993	14,082
Net change in short-term borrowings........................................................................................................	(3,983)	(1,337)	6,759
Change in long-term debt:
Issuance of long-term debt........................................................................................................................	3,579	7,424	5,607
Repayment of long-term debt....................................................................................................................	(13,111)	(9,938)	(7,710)
Debt issued by consolidated VIE..............................................................................................................	(482)	(1,334)	-
Preferred stock redemption, net of issuance costs.................................................................................	-	-	(125)
Capital contribution from parent................................................................................................................	2,167	3,563	4
Return of capital on preferred shares issued by CT Financial Services, Inc. .....................................	(55)	-	-
Other increases (decreases) in capital surplus.........................................................................................	(11)	8	(5)
Dividends paid..............................................................................................................................................	(73)	(80)	(898)
Net cash provided by (used in) financing activities............................................................................	(12,886)	1,299	17,714
Net change in cash and due from banks...................................................................................................	187	(595)	208
Cash and due from banks at beginning of period....................................................................................	2,972	3,567	3,359
Cash and due from banks at end of period............................................................................................	$       3,159	$        2,972	$        3,567
Supplemental disclosure of cash flow information
Interest paid during the period...................................................................................................................	$       1,981	$        3,921	$        5,733
Income taxes paid during the period..........................................................................................................	27	75	475
Income taxes refunded during the period.................................................................................................	(263)	(156)	(13)
Supplemental disclosure of non-cash activities
Trading securities pending settlement......................................................................................................	$          387	$           675	$           315
Assumption of indebtedness from HSBC Finance related to bulk loan purchase.............................	6,077	-	-
Transfer of loans to held for sale...............................................................................................................	6,472	6,597	-
Securities received for loan settlement......................................................................................................	78	-	-

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

HSBC Bank USA, National Association

CONSOLIDATED BALANCE SHEET

December 31,	2009	2008
	(dollars are in millions)
Assets
Cash and due from banks.................................................................................................................................................	$      3,159	$        2,972
Interest bearing deposits with banks.............................................................................................................................	19,894	15,754
Federal funds sold and securities purchased under agreements to resell................................................................	1,046	10,813
Trading assets....................................................................................................................................................................	25,710	30,952
Securities  available-for-sale............................................................................................................................................	27,438	24,607
Securities held to maturity (fair value of $2.8 billion and $2.9 billion at December 31, 2009 and 2008, respectively)............................................................................................................................................................................................	2,712	2,811
Loans...................................................................................................................................................................................	77,070	78,791
Less - allowance for credit losses..................................................................................................................................	3,825	2,394
Loans, net.........................................................................................................................................................................	73,245	76,397
Loans held for sale (includes $1.1 billion and $874 million designated under fair value option at December 31, 2009 and 2008, respectively)..........................................................................................................................................	3,158	4,431
Properties and equipment, net.........................................................................................................................................	533	559
Intangible assets , net.......................................................................................................................................................	484	374
Goodwill..............................................................................................................................................................................	2,057	2,057
Other assets........................................................................................................................................................................	7,729	9,877
Total assets........................................................................................................................................................................	$  167,165	$    181,604
Liabilities
Debt:
Deposits in domestic offices:
Noninterest bearing..........................................................................................................................................................	$    20,809	$      17,659
Interest bearing (includes $4.2 billion and $2.3 billion designated under fair value option at December 31, 2009 and 2008, respectively)..................................................................................................................................................	69,894	67,903
Deposits in foreign offices:
Noninterest bearing..........................................................................................................................................................	1,105	922
Interest bearing.................................................................................................................................................................	32,172	39,707
Total deposits...................................................................................................................................................................	123,980	126,191
Short-term borrowings.....................................................................................................................................................	3,566	6,551
Long-term debt (includes $2.3 billion and $1.9 billion designated under fair value option at December 31, 2009 and 2008, respectively)..................................................................................................................................................	10,701	15,025
Total debt............................................................................................................................................................................	138,247	147,767
Trading liabilities...............................................................................................................................................................	7,821	16,351
Interest, taxes and other liabilities...................................................................................................................................	5,247	4,832
Total liabilities.................................................................................................................................................................	151,315	168,950
Shareholder's equity
Common shareholder's equity:
Common stock ($100 par; 50,000 shares authorized; 20,011 and 20,008 shares issued and outstanding at December 31, 2009 and 2008, respectively)................................................................................................................	2	2
Additional paid-in capital................................................................................................................................................	15,793	13,137
Retained earnings.............................................................................................................................................................	286	292
Accumulated other comprehensive loss.......................................................................................................................	(231)	(777)
Total shareholder's equity..............................................................................................................................................	15,850	12,654
Total liabilities and shareholder's equity...................................................................................................................	$  167,165	$    181,604

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note		Page
1	Organization.......................................................................................................................................................................................	114
2	Summary of Significant Accounting Policies and New Accounting Pronouncements.........................................................	115
3	Business Divestitures......................................................................................................................................................................	124
4	Federal Funds Sold and Securities Purchased Under Agreements to Resell..........................................................................	124
5	Trading Assets and Liabilities........................................................................................................................................................	125
6	Securities............................................................................................................................................................................................	125
7	Loans..................................................................................................................................................................................................	131
8	Allowance for Credit Losses...........................................................................................................................................................	133
9	Loans Held for Sale...........................................................................................................................................................................	134
10	Properties and Equipment, Net.......................................................................................................................................................	135
11	Intangible Assets..............................................................................................................................................................................	135
12	Goodwill..............................................................................................................................................................................................	136
13	Deposits.............................................................................................................................................................................................	136
14	Short-Term Borrowings....................................................................................................................................................................	137
15	Long-Term Debt................................................................................................................................................................................	137
16	Derivative Financial Instruments....................................................................................................................................................	139
17	Fair Value Option..............................................................................................................................................................................	144
18	Income Taxes.....................................................................................................................................................................................	146
19	Preferred Stock..................................................................................................................................................................................	150
20	Accumulated Other Comprehensive Loss....................................................................................................................................	151
21	Share-Based Plans............................................................................................................................................................................	151
22	Pension and Other Postretirement Benefits..................................................................................................................................	153
23	Related Party Transactions.............................................................................................................................................................	160
24	Business Segments...........................................................................................................................................................................	164
25	Retained Earnings and Regulatory Capital Requirements..........................................................................................................	168
26	Special Purpose Entities...................................................................................................................................................................	170
27	Guarantee Arrangements.................................................................................................................................................................	172
28	Fair Value Measurements................................................................................................................................................................	175
29	Collateral, Commitments and Contingent Liabilities....................................................................................................................	184
30	Concentration of Credit Risk...........................................................................................................................................................	185
	Financial Statements of HSBC USA Inc. (Parent)........................................................................................................................	186

1.  Organization

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

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

2.  Summary of Significant Accounting Policies and New Accounting Pronouncements

Significant Accounting Policies

Basis of Presentation The consolidated financial statements include the accounts of HSBC USA and all subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights, or where we exercise control, including all variable interest entities in which we are the primary beneficiary. Unaffiliated trusts to which we have transferred securitized receivables which are qualifying special purpose entities ("QSPEs") are not consolidated. Investments in companies in which the percentage of ownership is at least 20%, but not more than 50%, are generally accounted for under the equity method and reported as equity method investments in other assets. All significant intercompany accounts and transactions have been eliminated.

We assess whether an entity is a variable interest entity and, if so, whether we are its primary beneficiary at the time of initial involvement with the entity. Our involvement is subsequently reassessed only upon the occurrence of certain changes in the entity's governing documents or planned operations that result in changes to the entity's equity structure or its expected losses. A variable interest entity is an entity in which the equity investment at risk is not sufficient to finance the entity's activities, where the equity investors lack certain characteristics of a controlling financial interest, or where voting rights are not proportionate to the economic interests of a particular equity investor and the entity's activities are conducted primarily on behalf of the investor. A variable interest entity must be consolidated by its primary beneficiary, which is the entity that absorbs a majority of the variable interest entity's expected losses, receives a majority of the variable interest entity's expected residual returns, or both.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain reclassifications may be made to prior year amounts to conform to the current year presentation. Subsequent events have been evaluated through the time this Form 10-K was issued and filed with the U.S. Securities and Exchange Commission on March 1, 2010.

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

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

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

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

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

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

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

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

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

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

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

Premiums and discounts and purchase accounting fair value adjustments are recognized as adjustments to yield over the expected lives of the related loans. Interest income is recorded based on methods that result in level rates of return over the terms of the loans.

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

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

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

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

•     An analysis of individual exposures where applicable;

•     Current and historical loss experience;

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

•     Specific adverse situations and general economic conditions.

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

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

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

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

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

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

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

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

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

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

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

Transfers of Financial Assets and Securitizations Transfers of financial assets in which we surrender control over the transferred assets are accounted for as sales. Control is generally considered to have been surrendered when (i) the transferred assets are legally isolated from us and our consolidated affiliates, even in bankruptcy or other receivership, (ii) the transferee (or, if the transferee is a QSPE, the holders of its beneficial interests) has the right to pledge or exchange the assets (or beneficial interests held, for a holder of a QSPE's beneficial interests) without any constraints that would provide a benefit to us, and (iii) we have no obligation, right, or option to reclaim or repurchase the assets. If the sale criteria are met, the transferred assets are removed from our balance sheet and a gain or loss on sale is recognized. If the sale criteria are not met, the transfer is recorded as a secured borrowing in which the assets remain on our balance sheet and the proceeds from the transaction are recognized as a liability. For the majority of financial asset transfers, it is clear whether or not we have surrendered control. For other transfers, such as in connection with complex transactions or where we have continuing involvement such as servicing responsibilities, we generally obtain a legal opinion as to whether the transfer results in a true sale by law.

We securitize certain private label card and credit card receivables where securitization provides an attractive source of funding. All private label card and credit card securitization transactions have been structured as secured financings using trusts that are not QSPEs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hedge discontinuation We discontinue hedge accounting prospectively when:

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

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

•     It is unlikely that a forecasted transaction will occur;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

New Accounting Pronouncements Adopted

Financial Accounting Standards Board ("FASB") Accounting Standards Codification In July 2009, the FASB implemented the FASB Accounting Standards Codification (the "Codification") as the single source of authoritative U.S. generally accepted accounting principles. The Codification simplifies the classification of accounting standards into one online database under a common referencing system. Use of the Codification is effective for interim and annual periods ending after September 15, 2009. We began to use the Codification on the effective date and it had no impact on our financial statements. However, throughout this Form 10-K, all references to prior FASB, AICPA and EITF accounting pronouncements have been removed and all non-SEC accounting guidance is referred to in terms of the applicable subject matter.

Business combinations in consolidated financial statements In December 2007, the FASB issued guidance on the accounting and reporting of business combinations which requires recognition of all assets acquired, liabilities assumed and any noncontrolling interest in an acquiree at fair value as of the date of acquisition. This guidance also changes the recognition and measurement criteria for certain assets and liabilities including those arising from contingencies, contingent consideration, and bargain purchases and is effective for business combinations with an effective date beginning January 1, 2009 or later.

Non-controlling interests in consolidated financial statements In December 2007, the FASB issued guidance on the accounting and reporting of noncontrolling interests in consolidated financial statements which requires entities to report noncontrolling interests in subsidiaries as equity in the consolidated financial statements and to account for the transactions with noncontrolling interest owners as equity transactions provided the parent retains controlling interests in the subsidiary. The guidance also requires new and expanded disclosure and was effective from fiscal years beginning on or after December 15, 2008. Adoption did not have a material impact on our financial position or results of operations.

Transfers of financial assets In February 2008, the FASB issued guidance on the accounting for transfers of financial assets and repurchase financing transactions. Under this guidance, the initial transfer of a financial asset and a repurchase financing involving the same asset that is entered into contemporaneously with, or in contemplation of, the initial transfer, is presumptively linked and are considered part of the same arrangement. This guidance was effective for new transactions entered into in fiscal years beginning after November 15, 2008. Our adoption on January 1, 2009 did not have a material impact on our financial position or results of operations.

Disclosures about derivative instruments and hedging activities In March 2008, the FASB issued guidance which amended the existing derivative and hedging disclosure requirements, requiring increased disclosures about derivative instruments and hedging activities and their effects on an entity's financial position, financial performance and cash flows. This guidance was effective for fiscal years beginning after November 15, 2008. We adopted the guidance effective January 1, 2009. See Note 16, "Derivative Financial Instruments," in these consolidated financial statements.

Financial guarantee contracts In May 2008, the FASB issued guidance on the accounting and reporting for financial guarantee insurance contracts which applies to certain financial guarantee insurance (and reinsurance) contracts issued by enterprises that are not accounted for as derivative instruments. This guidance also requires expanded disclosures about financial guarantee insurance contracts and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. Our adoption on January 1, 2009 did not have an impact on our financial position or our results of operations.

Employers' disclosures about postretirement benefit plan assets In December 2008, the FASB issued guidance which requires more detailed disclosures about employers' plan assets, including investment strategies, major categories of plan assets, concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. We adopted the new disclosure requirements effective December 31, 2009, which are presented in Note 22, "Pension and Other Postretirement Benefits" in these consolidated financial statements.

Interim disclosures about fair value of financial instruments In April 2009, the FASB issued guidance that fair value disclosures required for financial instruments on an annual basis be presented for all interim reporting periods beginning with the first interim period ending after June 15, 2009 with earlier application permitted. We have adopted the disclosure requirements effective January 1, 2009. See Note 28, "Fair Value Measurements", in these consolidated financial statements.

Determining fair value when the volume and level of activity for the asset orliability have significantly decreased and identifying transactions that are not orderly In April 2009, the FASB issued additional guidance for estimating fair value when the volume and level of activity for the asset and liability have significantly decreased and also on identifying circumstances that indicate a transaction is not orderly. This guidance also requires expanded disclosure about how fair value is measured, changes to valuation methodologies, and additional disclosures for debt and equity securities. This guidance was effective for reporting periods ending after June 15, 2009 with earlier adoption permitted. We adopted this guidance effective January 1, 2009. See Note 28, "Fair Value Measurements", in these consolidated financial statements for the expanded disclosure.

The recognition and presentation of other-than-temporary impairment In April 2009, the FASB issued guidance which amends the recognition and presentation of other-than-temporary impairments of debt securities. Under this guidance, if we do not have the intention to sell and it is more-likely-than- not we will not be required to sell the debt security, we are required to segregate the difference between fair value and amortized cost into credit loss and other losses with only the credit loss recognized in earnings and other losses recorded to other comprehensive income. Where our intent is to sell the debt security or where it is more-likely-than-not that we will be required to sell the debt security, the entire difference between the fair value and the amortized cost basis is recognized in earnings. The guidance also requires additional disclosures regarding the calculation of credit losses and the factors considered in reaching a conclusion that the investment is not other-than-temporarily impaired and is effective for all reporting periods ending after June 15, 2009, with earlier adoption permitted. We adopted this guidance effective January 1, 2009. The cumulative effect of applying this guidance was recorded to opening retained earnings upon adoption. As a result, on January 1, 2009 we reclassified $15 million, net of taxes, from retained earnings to accumulated other comprehensive income (loss) related to the non-credit loss portion of other-than-temporary impairments on debt securities. See Note 6, "Securities," in these consolidated financial statements for additional information on other-than-temporary impairments.

Subsequent events In May 2009, the FASB issued guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. This guidance was effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. Adoption did not have an impact on our financial position or results of operations.

Determination of fair value of financial liabilities In August 2009, the FASB issued guidance to clarify how the fair value of liabilities should be determined when a quoted price for an identical liability is not available. The guidance requires in these circumstances that the fair value of financial liabilities be determined using either the quoted price of a similar liability, the quoted price of an identical or similar liability when traded as an asset or any other valuation methodology consistent with the Fair Value Framework. This guidance is effective for fiscal years beginning after the issuance of this guidance with early adoption encouraged. We adopted this guidance during the third quarter of 2009. Adoption did not have an impact on our financial position or results of operations.

3.  Business Divestiture

On December 31, 2007, we completed the sale of our Wealth and Tax Advisory Services ("WTAS") subsidiary to an independent firm formed by certain members of the WTAS management team. In exchange for the net assets of WTAS, we received cash and secured promissory notes, as well as an option to purchase a limited amount of common equity in future years. We recognized a small gain as a result of this transaction.

4.  Federal Funds Sold and Securities Purchased Under Agreements to Resell

Federal funds sold and securities borrowed or purchased under agreements to resell are summarized in the following table.

At December 31,	2009	2008
	(in millions)
Federal funds sold.......................................................................................................................................................................	$        -	$           -
Securities purchased under agreements to resell...................................................................................................................	1,046	10,813
Total..............................................................................................................................................................................................	$  1,046	$    10,813

Federal funds sold and securities purchased under agreements to resell were lower in 2009 as excess funds at December 31, 2009 were primarily held in the Federal Reserve account.

5.  Trading Assets and Liabilities

Trading assets and liabilities are summarized in the following table.

At December 31,	2009	2008
	(in millions)
Trading assets:
U.S. Treasury............................................................................................................................................................................	$        615	$           27
U.S. Government agency.........................................................................................................................................................	34	271
U.S. Government sponsored enterprises(1).........................................................................................................................	16	521
Asset backed securities..........................................................................................................................................................	1,815	1,698
Corporate and foreign bonds.................................................................................................................................................	2,369	1,614
Other securities.........................................................................................................................................................................	491	982
Precious metals.........................................................................................................................................................................	12,256	4,905
Fair value of derivatives..........................................................................................................................................................	8,219	21,274
	$  25,815	$    31,292
Trading liabilities:
Securities sold, not yet purchased........................................................................................................................................	$        131	$         406
Payables for precious metals..................................................................................................................................................	2,556	1,599
Fair value of derivatives..........................................................................................................................................................	5,323	14,318
	$     8,010	$    16,323

____________

(1)

Includes mortgage backed securities of $13 million and $328 million issued or guaranteed by the Federal National Mortgage Association (FNMA) and $3 million and $193 million issued or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC") at December 31, 2009 and December 31, 2008, respectively.

At December 31, 2009 and 2008, the fair value of derivatives included in trading assets has been reduced by $2.7 billion and $6.1 billion, respectively, relating to amounts recognized for the obligation to return cash collateral received under master netting agreements with derivative counterparties.

At December 31, 2009 and 2008, the fair value of derivatives included in trading liabilities has been reduced by $7.2 billion and $11.8 billion, respectively, relating to amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.

6.  Securities

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

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

December 31, 2008	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
	(in millions)
Securities  available-for-sale:
U.S. Treasury.....................................................................................................................................	$      3,544	$    154	$         (12)	$      3,686
U.S. Government sponsored enterprises(1)..................................................................................	11,271	187	(96)	11,362
U.S. Government agency issued or guaranteed...........................................................................	5,746	135	(6)	5,875
Obligations of U.S. states and political subdivisions.................................................................	699	2	(31)	670
Asset-backed securities...................................................................................................................	3,462	-	(987)	2,475
Other domestic debt securities.......................................................................................................	144	7	(7)	144
Foreign debt securities.....................................................................................................................	641	13	(9)	645
Equity securities(3)...........................................................................................................................	52	-	(1)	51
Total....................................................................................................................................................	$    25,559	$    498	$    (1,149)	$    24,908
Securities held to maturity:
U.S. Government sponsored enterprises(4)..................................................................................	$      1,892	$      73	$           (7)	$      1,958
U.S. Government agency issued or guaranteed...........................................................................	495	23	(2)	516
Obligations of U.S. states and political subdivisions.................................................................	217	8	(5)	220
Asset-backed securities...................................................................................................................	185	1	(31)	155
Foreign debt securities.....................................................................................................................	86	-	-	86
Total....................................................................................................................................................	$      2,875	$    105	$         (45)	$      2,935

____________

(1)	Includes securities at amortized cost of $38 million and $5.1 billion issued or guaranteed by the Federal National Mortgage Association ("FNMA") at December 31, 2009 and 2008, respectively, and $21 million and $5.9 billion issued or guaranteed by Federal Home Loan Mortgage Corporation ("FHLMC") at December 31, 2009 and 2008, respectively.
(2)	At December 31, 2009, other domestic debt securities included $677 million of securities at amortized cost fully backed by the Federal Deposit Insurance Corporation ("FDIC") and foreign debt securities consisted of $2.7 billion of securities fully backed by foreign governments.
(3)	Includes preferred equity securities at amortized cost issued by FNMA of $2.0 million at December 31, 2009 and 2008, respectively. Balances at December 31, 2009 and 2008 reflect other-than-temporary impairment charges of $203 million.
(4)	Includes securities at amortized cost of $678 million and $700 million issued or guaranteed by FNMA at December 31, 2009 and 2008, respectively, and $1.2 billion issued and guaranteed by FHLMC at December 31, 2009 and 2008, respectively.
(5)	For available-for-sale debt securities which are other-than-temporarily impaired, the non-credit loss component of OTTI is recorded in accumulated other comprehensive income (loss) beginning in 2009.

A summary of gross unrealized losses and related fair values as of December 31, 2009 and 2008 classified as to the length of time the losses have existed follows:

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

	One Year or Less			Greater Than One Year
December 31, 2008	Number of Securities	Gross Unrealized Losses	Aggregate Fair Value of Investment	Number of Securities	Gross Unrealized Losses	Aggregate Fair Value of Investment
	(dollars are in millions)
Securities  available-for-sale:
U.S. Treasury..............................................................................	5	$      (12)	$    1,251	-	$       -	$         -
U.S. Government sponsored enterprises...............................	136	(42)	1,361	101	(54)	2,295
U.S. Government agency issued or guaranteed....................	97	(1)	576	41	(5)	237
Obligations of U.S. states and political subdivisions..........	36	(7)	226	53	(24)	333
Asset backed securities............................................................	51	(419)	1,099	110	(568)	1,330
Other domestic debt securities................................................	3	(6)	71	1	(1)	4
Foreign debt securities.............................................................	1	-	5	5	(9)	97
Equity securities........................................................................	2	(1)	-	-	-	-
Securities  available-for-sale....................................................	331	$    (488)	$    4,589	311	$    (661)	$    4,296
Securities held to maturity:
U.S. Government sponsored enterprises...............................	18	$        (2)	$       113	7	$        (5)	$       132
U.S. Government agency issued or guaranteed....................	176	(2)	105	-	-	-
Obligations of U.S. states and political subdivisions..........	54	(5)	48	5	-	3
Asset backed securities............................................................	2	(10)	52	10	(21)	96
Securities held to maturity........................................................	250	$      (19)	$       318	22	$      (26)	$       231

Gross unrealized losses within the available-for-sale and held-to-maturity portfolios decreased overall primarily due to a reduction in credit spreads for asset backed securities during 2009 as market conditions improved. We have reviewed the securities for which there is an unrealized loss in accordance with our accounting policies for other-than-temporary impairment described below. During 2009, 28 debt securities were determined to be other-than-temporarily impaired in accordance with new accounting guidance related to the recognition of other-than-temporarily impairment associated with debt securities which we early adopted effective January 1, 2009 and is described more fully below. As a result, we recorded other-than-temporary impairment charges of $208 million during 2009 on these investments. Consistent with the new accounting guidance described below, the credit loss component of the applicable debt securities totaling $124 million was recorded as a component of net other-than-temporary impairment losses in the accompanying consolidated statement of income (loss), while the remaining non-credit portion of the impairment loss was recognized in other comprehensive income (loss).

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

On-going Assessment for Other-Than-Temporary Impairment On a quarterly basis, we perform an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment. Subsequent to the adoption of new accounting principles related to the determination of other-than-temporary impairments on January 1, 2009, a debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. If impaired, we then assess whether the unrealized loss is other-than-temporary. Prior to January 1, 2009, unrealized losses that were determined to be temporary were recorded, net of tax, in other comprehensive income for available-for-sale securities, whereas unrealized losses related to held to maturity securities determined to be temporary were not recognized. Regardless of whether the security was classified as available-for-sale or held to maturity, unrealized losses that were determined to be other-than-temporary were recorded to earnings in their entirety. An unrealized loss was considered other-than-temporary if (i) it was not probable that the holder would collect all amounts due according to the contractual terms of the debt security, or (ii) the fair value was below the amortized cost of the debt security for a prolonged period of time and we did not have the positive intent and ability to hold the security until recovery or maturity.

Under the new accounting principles early adopted effective January 1, 2009, an unrealized loss is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security and, as a result, the credit loss component of an other-than-temporary impairment write-down is recorded in earnings as a component of net other-than-temporary impairment losses in the accompanying consolidated statement of loss, while the remaining portion of the impairment loss is recognized in other comprehensive income (loss), provided we do not intend to sell the underlying debt security and it is "more-likely-than-not" that we will not have to sell the debt security prior to recovery.

For all securities held in the available-for-sale or held to maturity portfolio for which unrealized losses have existed for a period of time, we do not have the intention to sell and believe we will not be required to sell the securities for contractual, regulatory or liquidity reasons as of the reporting date. Debt securities issued by U.S. Treasury, U.S. Government agencies and government sponsored entities accounted for 72 percent of total available-for-sale and held to maturity securities as of December 31, 2009. Our assessment for credit loss was concentrated on private label asset backed securities for which we evaluate for credit losses on a quarterly basis. We considered the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

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

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

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

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

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

•     The expected length of time and the extent of continuing financial guarantee to be provided by the monoline insurers after announcement of downgrade or restructure.

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

As of December 31, 2009, debt securities with other-than-temporary impairment for which a portion of the impairment loss remains in accumulated other comprehensive income (loss) consisted entirely of asset backed securities collateralized by residential mortgages or home equity loans. Specific market based assumptions were used on each individual security to appropriately model and value the securities due to the underlying loans' diversified geographical, FICO and vintage (2005-2007) for the credit component of Alt-A and second lien/Home equity mortgages mortgaged-backed securities, which has resulted in a wide range of assumptions presented in the table below. These collateral types comprise approximately 92% of the other-than-temporary impairments we have recognized as of December 31, 2009. The assumptions were as follows:

December 31, 2009	Alt-A	Second liens/Home equity mortgages
Cumulative default rate..................................................................................................................................................	6-58%	0-40%
Loss severity...................................................................................................................................................................	28-79%	100%
Prepayment speeds.........................................................................................................................................................	1-27%	0-33%

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

The following table summarizes the roll-forward of credit losses on debt securities held by us for which a portion of an other-than-temporary impairment is recognized in other comprehensive income:

Year Ended December 31,	2009
	(in millions)
Credit losses at the beginning of the period...........................................................................................................................................	$       5
Credit losses related to securities for which an  other-than-temporary impairment was not previously recognized..................	110
Increase in credit losses for which an other-than-temporary impairment was previously recognized..........................................	14
Ending balance of credit losses on debt securities held for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss)..............................................................................................................................	$  129

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

At December 31, 2008, we held 161 individual asset-backed securities in the available-for-sale portfolio of which 37 were wrapped by a monoline insurance company. These asset backed securities backed by a monoline wrap comprised $629 million of the total aggregate fair value of asset-backed securities of $2.5 billion at December 31, 2008. The gross unrealized losses on these securities were $404 million at December 31, 2008. As of December 31, 2008, we deemed these securities to be temporarily impaired as our analysis of the structure and our credit analysis of the monoline insurer resulted in the conclusion that it was probable we would receive all contractual cash flows from our investment, including amounts to be paid by the investment grade monoline insurers.

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

	Gross Realized Gains	Gross Realized (Losses)	Net Realized (Losses) Gains
	(in millions)
Year ended December 31, 2009:
Securities  available-for-sale...........................................................................................................................	$  312	$   (180)	$    132
Securities held to maturity(1)..........................................................................................................................	-	-	-
	$  312	$   (180)	$    132
Year ended December 31, 2008:
Securities  available-for-sale...........................................................................................................................	$      29	$    (263)	$    (234)
Securities held to maturity(1)..........................................................................................................................	-	-	-
	$      29	$    (263)	$    (234)
Year ended December 31, 2007:
Securities  available-for-sale...........................................................................................................................	$      67	$      (17)	$       50
Securities held to maturity(1)..........................................................................................................................	1	-	1
	$      68	$      (17)	$       51

____________

(1)	Maturities, calls and mandatory redemptions.

The amortized cost and fair values of securities available-for-sale and securities held to maturity at December 31, 2009, are summarized in the table below by contractual maturity. Expected maturities differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties in certain cases. Securities available-for-sale amounts exclude equity securities as they do not have stated maturities. The table below also reflects the distribution of maturities of debt securities held at December 31, 2009, together with the approximate taxable equivalent yield of the portfolio. The yields shown are calculated by dividing annual interest income, including the accretion of discounts and the amortization of premiums, by the amortized cost of securities outstanding at December 31, 2009. Yields on tax-exempt obligations have been computed on a taxable equivalent basis using applicable statutory tax rates.

			After One		After Five
	Within		But Within		But Within		After Ten
Taxable	One Year		Five Years		Ten Years		Years
Equivalent
Basis	Amount	Yield	Amount	Yield	Amount	Yield	Amount	Yield
	(dollars are in millions)
Available-for-sale:
U.S. Treasury........................................................................	$     -	-%	$  5,596	1.07%	$        -	-%	$     1,852	4.44%
U.S. Government sponsored enterprises..........................	-	-	108	2.82	1,337	3.82	562	4.53
U.S. Government agency issued or guaranteed..............	4	4.45	-	5.06	285	4.77	10,116	3.55
Obligations of U.S. states and political subdivisions....	-	-	-	-	308	4.22	433	4.44
Asset backed securities......................................................	43	2.14	121	5.32	185	3.97	1,924	3.75
Other domestic debt securities..........................................	19	.11	704	1.52	47	-	102	5.58
Foreign debt securities........................................................	10	1.73	2,990	2.58	35	3.22	-	-
Total amortized cost.............................................................	$     76	1.72%	$  9,519	1.65%	$  2,197	3.92%	$  14,989	3.76%
Total fair value.......................................................................	$     76		$  9,579		$  2,167		$  14,721
Held to maturity:
U.S. Government sponsored enterprises..........................	$     -	7.40%	$        32	7.98%	$          5	7.13%	$     1,817	6.14%
U.S. Government agency issued or guaranteed..............	-	7.69	-	7.44	6	7.59	448	6.58
Obligations of U.S. states and political subdivisions....	11	5.25	33	6.04	21	6.66	96	5.77
Asset backed securities......................................................	-	-	-	-	-	-	192	6.13
Foreign debt securities........................................................	101	2.64	-	-	-	-	-	-
Total amortized cost.............................................................	$  112	2.92%	$        65	7.01%	$        32	6.91%	$     2,553	6.20%
Total fair value.......................................................................	$  113		$        72		$        35		$     2,660

Investments in FHLB stock, FRB stock, and MasterCard Class B shares of $152 million, $476 million and $0 million, respectively, were included in other assets at December 31, 2009. Investments in FHLB stock, FRB stock and MasterCard Class B shares of $209 million, $349 million and $29 million, respectively, were included in other assets at December 31, 2008.

7.  Loans

Loans consisted of the following:

At December 31,	2009	2008
	(in millions)
Commercial loans:
Construction and other real estate........................................................................................................................................	$     8,858	$      8,885
Other commercial......................................................................................................................................................................	21,446	28,544
Total commercial.......................................................................................................................................................................	30,304	37,429
Consumer loans:
Home equity mortgages..........................................................................................................................................................	4,164	4,549
Other residential mortgages....................................................................................................................................................	13,722	17,948
Private label cards....................................................................................................................................................................	15,091	17,074
Credit cards...............................................................................................................................................................................	13,048	2,137
Auto finance.............................................................................................................................................................................	1,701	154
Other consumer........................................................................................................................................................................	1,459	1,822
Total consumer.........................................................................................................................................................................	49,185	43,684
Total loans..................................................................................................................................................................................	$  79,489	$    81,113

Secured financings of $550 million and $2.5 billion at December 31, 2009 are secured by $180 million and $2.6 billion of private label cards and credit cards, respectively, as well as restricted available-for-sale investments of $417 million and $721 million, respectively. Secured financings of $1.2 billion at December 31, 2008 were secured by $1.6 billion of private label cards.

We have loans outstanding to certain executive officers and directors. The loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other persons and do not involve more than normal risk of collectibility. The aggregate amount of such loans did not exceed 5% of shareholders' equity at December 31, 2009 and 2008.

Purchased Loan Portfolios In January 2009, we purchased the General Motors MasterCard receivable portfolio ("GM Portfolio") and the AFL-CIO Union Plus MasterCard/Visa receivable portfolio ("UP Portfolio") with an aggregate outstanding principal balance of $6.3 billion and $6.1 billion, respectively from HSBC Finance Corporation ("HSBC Finance"). The aggregate purchase price for the GM and UP Portfolios was $12.2 billion, which included the transfer of approximately $6.1 billion of indebtedness, resulting in a cash consideration of $6.1 billion. The purchase price was determined based on independent valuation opinions based on the fair values of the pool of loans in late November and early December 2008, the dates the transaction terms were agreed upon, respectively. HSBC Finance retained the customer relationships and by agreement we purchase additional loan originations generated under existing and future accounts from HSBC Finance on a daily basis at a sales price for each type of portfolio determined using a fair value which is calculated semi-annually. HSBC Finance continues to service the GM and UP Portfolios for us for a fee.

Purchased loans for which at the time of acquisition there was evidence of deterioration in credit quality since origination and for which it was probable that all contractually required payments would not be collected and that the associated line of credit has been closed were recorded upon acquisition at an amount based upon the cash flows expected to be collected. The difference between these expected cash flows and the purchase price represents accretable yield which is amortized to interest income over the life of the loan. The following table provides details on the loans obtained in connection with the acquisition of these portfolios subject to these accounting requirements (the "Purchased Credit-Impaired Loans"):

	GM Portfolio	UP Portfolio
	(in millions)
Outstanding contractual receivable balance at acquisition......................................................................................................	$    355	$    399
Cash flows expected to be collected at acquisition....................................................................................................................	164	167
Basis in acquired receivables at acquisition................................................................................................................................	122	114

The carrying amount of the Purchased Credit-Impaired Loans, net of credit loss reserves at December 31, 2009 totaled $63 million and $52 million for the GM and UP Portfolios, respectively, and is included in credit card loans. The outstanding contractual balances at December 31, 2009 for these receivables were $73 million and $86 million for the GM and UP Portfolios, respectively. During 2009, we established credit loss reserves of $18 million for the acquired GM and UP receivables subject to the accounting requirements for Purchased Credit-Impaired Loans due to a decrease in the expected future cash flows since the acquisition. The following summarizes the change in accretable yield associated with the Purchased Credit-Impaired Loans:

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

In January 2009, we also purchased auto finance loans from HSBC Finance with an aggregate outstanding principal balance of $3.0 billion for a purchase price of $2.8 billion. HSBC Finance continues to service these loans for us for a fee. The purchase price was determined based on independent valuation opinions based on the fair value of the loans in September 2008, at the date the transaction terms were agreed upon. None of the auto finance loans purchased were delinquent at the time of purchase and as such were not subject to the accounting requirements for Purchased Credit-Impaired Loans discussed above.

Contractual maturities

Contractual maturities of loans were as follows:

	At December 31, 2009
	2010	2011	2012	2013	2014	Thereafter	Total
	(in millions)
Commercial Loans
Construction and other real estate...............................................	$      3,033	$      1,556	$    1,503	$    1,155	$       838	$         773	$      8,858
Other commercial............................................................................	11,901	3,296	2,493	1,795	1,267	694	21,446
Consumer Loans:
Home equity mortgages.................................................................	65	3,263	67	62	55	652	4,164
Other residential mortgages..........................................................	1,177	346	323	314	306	11,256	13,722
Credit card receivables(1):
Private label cards..........................................................................	6,091	6,548	1,682	770	-	-	15,091
Credit Cards....................................................................................	8,025	4,237	242	242	302	-	13,048
Auto Finance...................................................................................	113	602	583	371	32	-	1,701
Other consumer...............................................................................	582	618	95	73	48	43	1,459
Total...................................................................................................	$    30,987	$    20,466	$    6,988	$    4,782	$    2,848	$    13,418	$    79,489

____________

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

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

	At December 31, 2009
	Over 1 But Within 5 Years	Over 5 Years
	(in millions)
Receivables at predetermined interest rates.......................................................................................................	$      7,694	$      4,790
Receivables at floating or adjustable rates.........................................................................................................	27,390	8,628
Total..........................................................................................................................................................................	$    35,084	$    13,418

Nonaccrual loans

Nonaccrual loans totaled $2.7 billion and $1.3 billion at December 31, 2009 and 2008, respectively. Interest income that would have been recorded if such nonaccrual loans had been current and in accordance with contractual terms was approximately $126 million in 2009 and $105 million in 2008. Interest income that was included in finance and other interest income on these loans was approximately $(6) million in 2009 and $6 million in 2008. For an analysis of reserves for credit losses, see Note 8, "Allowance for Credit Losses."

Troubled Debt Restructurings ("TDR")

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

At December 31,	2009	2008
	(in millions)
TDR Loans(1):
Commercial loans:
Construction and other real estate...................................................................................................................................................	$  100	$     26
Other commercial.................................................................................................................................................................................	68	18
Total commercial.................................................................................................................................................................................	168	44
Consumer loans:
Residential mortgages........................................................................................................................................................................	173	38
Private label cards...............................................................................................................................................................................	216	156
Credit cards..........................................................................................................................................................................................	102	13
Auto finance........................................................................................................................................................................................	52	-
Other consumer...................................................................................................................................................................................	-	-
Total consumer....................................................................................................................................................................................	543	207
Total TDR Loans...................................................................................................................................................................................	$  711	$   251

At December 31,	2009	2008
	(in millions)
Allowance for credit losses for TDR Loans(2):
Commercial loans:
Construction and other real estate...................................................................................................................................................	$    14	$      2
Other commercial.................................................................................................................................................................................	2	2
Total commercial..................................................................................................................................................................................	16	4
Consumer loans:
Residential mortgages........................................................................................................................................................................	34	6
Private label cards................................................................................................................................................................................	51	29
Credit cards..........................................................................................................................................................................................	24	3
Auto finance.........................................................................................................................................................................................	11	-
Other consumer....................................................................................................................................................................................	-	-
Total consumer....................................................................................................................................................................................	120	38
Total Allowance for credit losses for TDR Loans............................................................................................................................	$  136	$      42

____________

(1)	The TDR loan balances above include $12 million of auto finance loans held for sale at December 31, 2009 for which there are no credit loss reserves as these loans are carried at the lower of cost or fair value. There were no held for sale TDR loans at December 31, 2008.
(2)	Included in the allowance for credit losses.

The following tables present information about average TDR Loan balances and interest income recognized on TDR loans during 2009 and 2008:

Year Ended December 31,	2009	2008
	(in millions)
Average balance of TDR Loans.........................................................................................................................................................	$  503	$   222
Interest income recognized on TDR Loans......................................................................................................................................	33	14

8.  Allowance for Credit Losses

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

	2009	2008	2007
	(in millions)
Balance at beginning of year.............................................................................................................................	$    2,397	$      1,414	$         897
Provision for credit losses.................................................................................................................................	4,144	2,543	1,522
Charge-offs...........................................................................................................................................................	(3,414)	(1,837)	(1,269)
Recoveries............................................................................................................................................................	306	277	264
Allowance on loans transferred (to) from held for sale.................................................................................	(12)	-	-
Allowance related to bulk loan purchase from HSBC Finance.....................................................................	437	-	-
Other......................................................................................................................................................................	3	-	-
Balance at end of year........................................................................................................................................	$    3,861	$      2,397	$      1,414

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

9.  Loans Held for Sale

Loans held for sale consisted of the following:

At December 31,	2009	2008
	(in millions)
Commercial loans...........................................................................................................................................................................	$  1,126	$       874
Consumer loans:
Residential mortgages..................................................................................................................................................................	1,386	3,512
Auto finance..................................................................................................................................................................................	353	-
Other consumer.............................................................................................................................................................................	43	45
Total consumer..............................................................................................................................................................................	1,782	3,557
Total loans held for sale................................................................................................................................................................	$  2,908	$    4,431

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, 2009. The fair value of commercial loans held for sale under this program were $1.1 billion and $874 million at December 31, 2009 and 2008, respectively, all of which are recorded at fair value as we have elected to designate these loans under fair value option. During 2009, the market value of these loans increased due to narrowing credit spreads. See Note 17, "Fair Value Option," for additional information.

In addition to routine sales to government sponsored enterprises upon origination, we sold approximately $4.5 billion of prime adjustable and fixed rate residential mortgage loans in 2009 and recorded gains of $70 million. 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.

Residential mortgage loans held for sale include sub-prime residential mortgage loans with a fair value of $757 million and $1.2 billion at December 31, 2009 and 2008, 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 governmental agencies.

During 2009, we transferred $353 million of auto finance loans to held for sale. Other consumer loans held for sale consist of student loans.

Excluding the commercial loans designated under fair value option discussed above, loans held for sale are recorded at the lower of cost or fair value. The book value of loans held for sale continued to exceed fair value at December 31, 2009. We continue to experience increases to the valuation allowance primarily due to adverse conditions in the U.S. residential mortgage markets in 2009, although the dollar magnitude of the increases has been slowing. The valuation allowance on loans held for sale was $910 million and $869 million at December 31, 2009 and 2008, 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 are included in net interest income and trading revenue (loss) in the consolidated statement of income (loss), were gains of $86 million, $21 million and $29 million during 2009, 2008 and 2007, respectively.

10.  Properties and Equipment, Net

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

At December 31,	2009	2008	Depreciable             Life
	(in millions)
Land..............................................................................................................................................................	$        72	$         74	-
Buildings and improvements....................................................................................................................	893	867	10-40 years
Furniture and equipment...........................................................................................................................	373	371	3-30
Total..............................................................................................................................................................	1,338	1,312
Accumulated depreciation and amortization..........................................................................................	(805)	(753)
Properties and equipment, net..................................................................................................................	$      533	$       559

Depreciation and amortization expense totaled $70 million, $70 million and $71 million in 2009, 2008 and 2007, respectively.

11.  Intangible Assets

Intangible assets consisted of the following:

At December 31,	2009	2008
	(in millions)
Mortgage servicing rights...................................................................................................................................................................	$  457	$   341
Other.......................................................................................................................................................................................................	27	33
Intangible assets...................................................................................................................................................................................	$  484	$   374

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,	2009	2008
Annualized constant prepayment rate ("CPR")...........................................................................................	14.6%	39.4%
Constant discount rate....................................................................................................................................	17.9%	10.3%
Weighted average life......................................................................................................................................	4.8 years	3.1 years

Residential MSRs activity is summarized in the following table:

	2009	2008
	(in millions)
Fair value of MSRs:
Beginning balance...........................................................................................................................................................................	$  333	$     489
Additions related to loan sales.....................................................................................................................................................	113	153
Changes in fair value due to:
Change in valuation inputs or assumptions used in the valuation models..........................................................................	60	(213)
Realization of cash flows..............................................................................................................................................................	(56)	(96)
Ending balance................................................................................................................................................................................	$  450	$     333

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,	2009	2008
	(in millions)
Outstanding principal balances at period end......................................................................................................................	$  50,390	$    46,215
Custodial balances maintained and included in noninterest bearing deposits at period end.......................................	$        923	$         695

Servicing fees collected are included in residential mortgage banking revenue and totaled $129 million, $130 million and $116 million during 2009, 2008 and 2007, respectively.

Commercial Mortgage Servicing Rights Commercial MSRs, which are accounted for using the lower of cost or fair value method, totaled $7 million and $8 million at December 31, 2009 and 2008, respectively.

Other Intangible Assets Other intangible assets, which result from purchase business combinations, are comprised of favorable lease arrangements of $20 million and $24 million at December 31, 2009 and 2008, respectively, and customer lists of $7 million and $9 million at December 31, 2009 and 2008, respectively.

12.  Goodwill

Changes in the carrying amount of goodwill for continuing operations are as follows:

	2009	2008
	(in millions)
Balance at beginning of year(1).................................................................................................................................................	$  2,647	$    2,701
Goodwill impairment related to the Residential Mortgage business....................................................................................	-	(54)
Reduction related to business disposals.................................................................................................................................	-	-
Balance at end of year.................................................................................................................................................................	$  2,647	$    2,647

____________

(1)	The goodwill balance at both December 31, 2009 and 2008 includes total goodwill of $2,647 million which includes accumulated impairment losses of $54 million.

During the third quarter of 2009, we completed our annual impairment test of goodwill. At the testing date, we determined the fair value of all of our reporting units exceeded their carrying values, including goodwill. Additionally, as a result of the continued deterioration in economic and credit conditions in the U.S., we performed interim impairment tests of the goodwill of our Global Banking and Markets reporting unit during each quarter of 2009. Additionally, during the third and fourth quarters of 2009, we also performed an interim impairment test of the goodwill of our Private Banking reporting unit. As a result of these tests, we determined that the fair values of our Global Banking and Markets and Private Banking reporting units continue to exceed their carrying values including goodwill at each of these testing dates. At December 31, 2009, goodwill totaling $633 million and $415 million has been allocated to our Global Banking and Markets and Private Banking reporting units, respectively. Our goodwill impairment testing is, however, highly sensitive to certain assumptions and estimates used. In the event that further significant deterioration in the economic and credit conditions beyond the levels already reflected in our cash flow forecasts occur, or changes in the strategy or performance of our business or product offerings occur, additional interim impairment tests will again be required.

13.  Deposits

The aggregate amounts of time deposit accounts (primarily certificates of deposits), each with a minimum of $100,000 included in domestic office deposits, were approximately $7 billion and $17 billion at December 31, 2009 and 2008, respectively. At December 31, 2009 and 2008, deposits totaling $4.2 billion and $2.3 billion, respectively, were carried at fair value. The scheduled maturities of all time deposits at December 31, 2009 are summarized in the following table.

	Domestic    Offices	Foreign Offices	Total
	(in millions)
2010:
0-90 days.................................................................................................................................................................	$     5,165	$  8,526	$  13,691
91-180 days.............................................................................................................................................................	3,813	346	4,159
181-365 days...........................................................................................................................................................	3,236	175	3,411
	12,214	9,047	21,261
2011...........................................................................................................................................................................	993	-	993
2012...........................................................................................................................................................................	622	1	623
2013...........................................................................................................................................................................	749	-	749
2014...........................................................................................................................................................................	451	16	467
Later years................................................................................................................................................................	2,269	-	2,269
	$  17,298	$  9,064	$  26,362

Overdraft deposits, which are classified as loans, were approximately $1 billion and $1.6 billion at December 31, 2009 and 2008, respectively.

14.  Short-Term Borrowings

Short-term borrowings consisted of the following:

	December 31
	2009		Rate	2008		Rate
	(dollars are in millions)
Federal funds purchased (day to day)..................................................................	$        11			$      1,011
Securities sold under repurchase agreements.....................................................	767			1,830
Commercial paper(1)................................................................................................	2,960		.22%	3,956		3.11%
Average during year................................................................................................		$  3,396	.36%		$    4,255	3.11%
Maximum month-end balance................................................................................		3,828			5,040
Precious metals.........................................................................................................	2,284			1,409
Other..........................................................................................................................	490			2,289
Total short-term borrowings..................................................................................	$  6,512			$    10,495

____________

(1)	Exceeded 30 percent of shareholders' equity at December 31, 2008.

At December 31, 2009 and 2008, we had an unused line of credit from HSBC Bank plc of $2.5 billion. This line of credit does not require compensating balance arrangements and commitment fees are not significant. At December 31, 2009 and 2008, we also had an unused line of credit from our immediate parent, HNAI, of $150 million.

Certain of our consolidated subsidiaries have revolving lines of credit totaling $1.0 billion with HSBC Finance. There were no balances outstanding at December 31, 2009 and 2008.

As a member of the New York FHLB, we have a secured borrowing facility that is collateralized by residential mortgage loans and investment securities. At December 31, 2009 and 2008, the facility included $1.0 billion and $2.0 billion, respectively, 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, 2009 and 2008. See Note 15, "Long-Term Debt," for further information regarding these borrowings.

15.  Long-Term Debt

The composition of long-term debt is presented in the following table. Interest rates on floating rate notes are determined periodically by formulas based on certain money market rates or, in certain instances, by minimum interest rates as specified in the agreements governing the issues. Interest rates in effect at December 31, 2009 are shown in parentheses.

	At December 31,
	2009	2008
	(in millions)
Issued by HSBC USA:
Non-subordinated debt:
Medium-Term Floating Rate Notes due 2010-2023 (0.00% - 2.25)%................................................................................	$     2,415	$         704
Floating Rate Extendible Notes due 2009.............................................................................................................................	-	1,499
$700 million 1-Year Floating Rate Notes due 2009...............................................................................................................	-	699
$250 million 2-Year Floating Rate Notes due 2010 (1.27)%................................................................................................	250	250
$2,325 million 3.125% Guaranteed Notes due 2011..............................................................................................................	2,273	2,248
$350 million 3-Year Floating Rate Guaranteed Notes due 2011 (1.13)%...........................................................................	342	339
$250 million 2-Year Floating Rate Notes due 2011 (2.25)%................................................................................................	250	-
$1 billion 5-Year Floating Rate Note due 2014 (1.67)%.......................................................................................................	1,000	-
	6,530	5,739
Subordinated debt:
Fixed Rate Subordinated Notes due 2011-2097 (7.00% - 9.50)%......................................................................................	682	1,231
Perpetual Floating Rate Capital Notes (1.19)%....................................................................................................................	128	128
Junior Subordinated Debentures due 2026-2032 (7.75% - 8.38)%....................................................................................	867	866
	1,677	2,225
Total issued by HSBC USA:....................................................................................................................................................	8,207	7,964
Issued or acquired by HSBC Bank USA and its subsidiaries:
Non-subordinated debt:
Global Bank Note Program:
Medium-Term Notes due 2010-2040 (0.00% - 0.70)%.........................................................................................................	657	461
3.875% Fixed Rate Senior Global Bank Notes due 2009......................................................................................................	-	1,918
Floating Rate Senior Global Bank Notes due 2009..............................................................................................................	-	1,799
Floating Rate Non-USD Senior Global Bank Notes due 2009............................................................................................	-	1
4.95% Fixed Rate Senior Notes due 2012..............................................................................................................................	25	25
	682	4,204
Federal Home Loan Bank of New York advances:
Fixed Rate FHLB advances due 2009-2037 (2.57% - 7.24)%..............................................................................................	7	8
Floating Rate FHLB advance due 2036 (0.28)%...................................................................................................................	1,000	2,000
	1,007	2,008
Precious metal leases due 2010-2014 (1.46)%........................................................................................................................	632	768
Private label and credit card secured financings due 2010 (0.25% - 2.92)%....................................................................	2,965	1,199
Secured financings with Structured Note Vehicles(1).........................................................................................................	529	1,152
Other:
3.99% Non-USD Senior Debt..................................................................................................................................................	-	549
Other...........................................................................................................................................................................................	35	381
	35	930
Total non-subordinated debt..................................................................................................................................................	5,850	10,261
Subordinated debt:
4.625% Global Subordinated Notes due 2014......................................................................................................................	997	996
Other...........................................................................................................................................................................................	55	-
Global Bank Note Program:
Fixed Rate Global Bank Notes due 2017-2039 (5.63% - 7.00)%.........................................................................................	2,889	2,856
Total subordinated debt...........................................................................................................................................................	3,941	3,852
Total issued or acquired by HSBC Bank USA and its subsidiaries..................................................................................	9,791	14,113
Obligations under capital leases.............................................................................................................................................	10	12
Total long-term debt.................................................................................................................................................................	$  18,008	$    22,089

____________

(1)	See Note 26, "Special Purpose Entities," for additional information.

The table excludes $900 million of long-term debt at December 31, 2009 and 2008 due to us from HSBC Bank USA and its subsidiaries. Of this amount, the earliest note is due to mature in 2012 and the latest note is due to mature in 2097. Foreign denominated long-term debt was immaterial at December 31, 2009 and 2008.

At December 31, 2009 and 2008, we have elected fair value option accounting for some of our medium-term floating rate notes and certain subordinated debt. See Note 17, "Fair Value Option," for further details. At December 31, 2009 and 2008, medium term notes totaling $2.9 billion and $959 million, respectively, were carried at fair value. Subordinated debt of $1.7 billion was carried at fair value at December 31, 2009 and 2008.

The $1.5 billion Floating Rate Extendible Notes issued in April 2008 required the noteholders to decide each quarter whether or not to extend the maturity date of their notes by three months beyond the current maturity date at the time. On October 14, 2008, all of the noteholders elected not to extend the maturity date of their notes past October 15, 2009. The notes were paid in full in October 2009. Interest on these notes was paid quarterly and was based on three-month LIBOR plus the applicable spread for each interest period.

The $2,325 million 3.125% Guaranteed Notes due December 16, 2011 are senior unsecured notes that are guaranteed by the FDIC pursuant to the Debt Guarantee Program. The net proceeds from the sale of these notes were used for general corporate purposes and not used to prepay debt that was not guaranteed by the FDIC. Interest on these notes is paid semi-annually in June and December of each year, commencing June 16, 2009.

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

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

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

The Junior Subordinated Debentures due 2026-2032 are held by four capital funding trusts we established to issue guaranteed capital debt securities in the form of preferred stock backed by the debentures and which we guarantee. The trusts also issued common stock, all of which is held by us and recorded in other assets. The debentures issued to the capital funding trusts, less the amount of their common stock we hold, qualify as Tier 1 capital. Although the capital funding trusts are VIEs, our investment in their common stock is not deemed to be a variable interest because that stock is not deemed to be equity at risk. As we hold no other interests in the capital funding trusts and therefore are not their primary beneficiary, we do not consolidate them. During September 2007, we exercised our right to redeem $206 million of the 7.53% Junior Subordinated Debentures that had an original maturity date of December 4, 2026.

Maturities of long-term debt at December 31, 2009, including secured financings and conduit facility renewals, were as follows:

	(in millions)
2010...............................................................................................................................................................................................................	$     3,729
2011...............................................................................................................................................................................................................	4,721
2012...............................................................................................................................................................................................................	521
2013...............................................................................................................................................................................................................	402
2014...............................................................................................................................................................................................................	2,240
Thereafter.....................................................................................................................................................................................................	6,395
Total..............................................................................................................................................................................................................	$   18,008

16.  Derivative Financial Instruments

In our normal course of business, we enter into derivative contracts for trading and risk management purposes. For financial reporting purposes, a derivative instrument is designated in one of 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 our 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 $14 million and net gains of $7 million during 2009 and 2008, respectively, reported as other income (loss) in the consolidated statement of income (loss), which represented the ineffective portion of all fair value hedges. The interest accrual related to the derivative contract is recognized in interest income.

The changes in fair value of the hedged item designated in a qualifying hedge are captured as an adjustment to the carrying value of the hedged item (basis adjustment). If the hedging relationship is terminated and the hedged item continues to exist, the basis adjustment is amortized over the remaining term of the original hedge. We recorded basis adjustments for active fair value hedges which decreased the carrying value of our debt by $252 million and increased the carrying value of our debt by $370 million during 2009 and 2008, respectively. We amortized less than $1 million and $3 million of basis adjustments related to terminated and/or re-designated fair value hedge relationships during 2009 and 2008, respectively. The total accumulated unamortized basis adjustment amounted to an increase in the carrying value of our debt of $57 million and $8 million as of December 31, 2009 and 2008, respectively.

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

	Derivative Assets(1)			Derivative Liabilities(1)
	Balance Sheet	Fair Value as of		Balance Sheet	Fair Value as of
	Location	Dec. 31, 2009	Dec. 31, 2008	Location	Dec. 31, 2009	Dec. 31, 2008
	(in millions)
Interest rate contracts......................................	Other assets	$  133	$    372	Interest, taxes and other liabilities	$   15	$    207

____________

(1)

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

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

		Amount of Gain
		or (Loss)
		Recognized
	Location of Gain or (Loss)	in Income on Derivatives
	Recognized in Income on	Year Ended December 31,
	Derivatives	2009	2008
	(in millions)
Interest rate contracts..................................................................................................	Other income (loss)	$    (23)	$    228
Interest rate contracts..................................................................................................	Interest income	160	17
Total................................................................................................................................		$   137	$    245

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          (Loss)	Interest Income      (Expense)	Other Income          (Loss)
	(in millions)
Year Ended December 31, 2009:
Interest rate contracts/AFS Securities...................................................	$   (27)	$    243	$    106	$   (243)
Interest rate contracts/commercial loans...............................................	-	(1)	2	-
Interest rate contracts/subordinated debt.............................................	187	(265)	(283)	252
Total............................................................................................................	$  160	$     (23)	$   (175)	$         9
Year Ended December 31, 2008:
Interest rate contracts/AFS Securities...................................................	$      (6)	$    (182)	$       24	$     182
Interest rate contracts/commercial loans...............................................	3	(2)	1	2
Interest rate contracts/subordinated debt.............................................	20	377	(156)	(370)
Total............................................................................................................	$      17	$     193	$    (131)	$    (186)

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

Changes in fair value associated with the effective portion of a derivative instrument designated as a qualifying cash flow hedge are recognized initially in accumulated other comprehensive income (loss). When the cash flows for which the derivative is hedging materialize and are recorded in income or expense, the associated gain or loss from the hedging derivative previously recorded in accumulated other comprehensive income (loss) is released into the corresponding income or expense account. If a cash flow hedge of a forecasted transaction is de-designated because it is no longer highly effective, or if the hedge relationship is terminated, the cumulative gain or loss on the hedging derivative will continue to be reported in accumulated other comprehensive income (loss) unless the hedged forecasted transaction is no longer expected to occur, at which time the cumulative gain or loss is released into earnings. During 2009 and 2008, $44 million and $73 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 $10 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		Balance Sheet	Fair Value as of
	Location	Dec. 31, 2009	Dec. 31, 2008	Location	Dec. 31, 2009	Dec. 31, 2008
	(in millions)
Interest rate contracts......................................	Other assets	$ -	$   5	Interest, taxes and other liabilities	$  33	$    212

____________

(1)

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

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

						Location of Gain
						(Loss)
	Gain (Loss)					Recognized
	Recognized		Location of Gain	Gain (Loss) Reclassed		in Income	Gain (Loss)
	in AOCI on		(Loss) Reclassified	From AOCI		on the Derivative	Reclassed from
	Derivative		from AOCI	into Income		(Ineffective Portion and	AOCI into Income
	(Effective Portion)		into Income (Effective	(Effective Portion)		Amount Excluded from	(Ineffective Portion)
	2009	2008	Portion)	2009	2008	Effectiveness Testing)	2009	2008
	(in millions)
Interest rate contracts........................	$      173	$     (83)	Other income (loss)	$     (44)	$     (73)	Other income (loss)	$      5	$     (7)
Foreign exchange contracts...............	-	-	Other income (loss)	-	-	Other income (loss)	-	-
Total....................................................	$      173	$     (83)		$     (44)	$     (73)		$      5	$     (7)

Trading and Other Derivatives We enter into derivative instruments for short-term profit taking purposes, to repackage risks and structure trades to facilitate clients' needs for various risk taking and risk modification purposes. We manage our risk exposure by entering into offsetting derivatives with other financial institutions to mitigate the market risks, in part or in full, arising from our trading activities with our clients. In addition, we also enter into buy protection credit derivatives with other market participants to manage our counterparty credit risk exposure. Where we enter into derivatives for trading purposes, realized and unrealized gains and losses are recognized as trading revenue (loss). Credit losses arising from counterparty risks 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 (loss).

Derivative instruments designated as economic hedges that do not qualify for hedge accounting are recorded in a similar manner as derivative instruments held for trading. Realized and unrealized gains and losses are recognized in other income (loss) while the derivative asset or liability positions are reflected as other assets or other liabilities. As of December 31, 2009, we have entered into credit default swaps which are designated as economic hedges against the credit risks within our loan portfolio and certain own debt issuances. 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			Fair Value as of
	Location	Dec. 31, 2009	Dec. 31, 2008	Balance Sheet Location	Dec. 31, 2009	Dec. 31, 2008
	(in millions)
Interest rate contracts............	Trading assets	$   27,085	$       59,861	Trading liabilities	$   27,546	$       60,104
Foreign exchange contracts..	Trading assets	12,920	24,491	Trading liabilities	14,087	23,897
Equity contracts.....................	Trading assets	2,281	2,981	Trading liabilities	2,297	2,848
Precious metals contracts.....	Trading assets	918	2,667	Trading liabilities	897	2,258
Credit contracts......................	Trading assets	17,772	64,341	Trading liabilities	17,687	64,029
Other.........................................	Trading assets	6	-	Trading liabilities	23	-
Total.........................................		$   60,982	$     154,341		$   62,537	$     153,136

____________

(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.

Derivative assets and liabilities balances at December 31, 2009, were impacted by market volatilities as valuations of foreign exchange, interest rate and credit derivatives all reduced from significant spread tightening in all sectors. Specifically, credit derivatives had a large decrease as a number of transaction unwinds and commutations reduced the outstanding market value as we sought to actively reduce exposure.

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		Balance Sheet	Fair Value as of
	Location	Dec. 31, 2009	Dec. 31, 2008	Location	Dec. 31, 2009	Dec. 31, 2008
	(in millions)
Interest rate contracts.........	Other assets	$  229	$       779	Interest, taxes and	$   15	$        6
				other liabilities
Foreign exchange contracts................................................	Other assets	51	16	Interest, taxes and	2	42
				other liabilities
Equity contracts...................	Other assets	180	2	Interest, taxes and	16	244
				other liabilities
Credit contracts....................	Other assets	15	210	Interest, taxes and	16	70
				other liabilities
Other......................................	Other assets	-	-	Interest, taxes and	-	-
				other liabilities
Total.......................................		$   475	$    1,007		$   49	$    362

____________

(1)

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

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

		Amount of Gain or (Loss)
	Location of Gain or (Loss)	Recognized in Income on Derivatives
	Recognized In Income on	Year Ended December 31,
	Derivatives	2009	2008
	(in millions)
Interest rate contracts.......................................................................................	Trading revenue (loss)	$   (519)	$      (597)
Foreign exchange contracts.............................................................................	Trading revenue (loss)	854	716
Equity contracts.................................................................................................	Trading revenue (loss)	314	1,106
Precious metals contracts.................................................................................	Trading revenue (loss)	103	383
Credit contracts..................................................................................................	Trading revenue (loss)	(599)	(190)
Other....................................................................................................................	Trading revenue (loss)	63	(601)
Total.....................................................................................................................		$    216	$       817

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

		Amount of Gain or (Loss)
		Recognized in Income on Derivatives
	Location of Gain or (Loss)	Year Ended December 31,
	Recognized in Income on Derivatives	2009	2008
	(in millions)
Interest rate contracts......................................................................	Other income (loss)	$   (461)	$     774
Foreign exchange contracts............................................................	Other income (loss)	55	4
Equity contracts................................................................................	Other income (loss)	464	(558)
Credit contracts.................................................................................	Other income (loss)	(172)	176
Other...................................................................................................	Other income (loss)	11	-
Total....................................................................................................		$   (103)	$     396

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 products transaction. As of December 31, 2009, HSBC Bank USA was given credit ratings of AA and Aa3 by S&P and Moody's, respectively, and was given a short-term debt rating of A-1+ and P-1 by S&P and Moody's, respectively. 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, 2009, is $9.3 billion for which we have posted collateral of $8.1 billion.

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

Moody's	Long-Term Ratings
Short-Term Ratings	Aa3	A1	A2
	(in millions)
P-1..............................................................................................................................................................................................	$     -	$   140	$   209
P-2..............................................................................................................................................................................................	140	259	321

S&P	Long-Term Ratings
Short-Term Ratings	AA	AA-	A+
	(in millions)
A-1+..............................................................................................................................................................................	$     -	$        3	$      54
A-1................................................................................................................................................................................	176	179	230

We would be required to post $295 million of additional collateral on total return swaps if HSBC Bank USA is not rated by any two of the rating agencies at least A-1 (Moody's), A+ (Fitch), A+ (S&P), or not rated A (high) by DBRS.

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

	At December 31,
	2009	2008
	(in billions)
Interest rate:
Futures and forwards............................................................................................................................................................	$      156.0	$       281.6
Swaps.......................................................................................................................................................................................	1,221.5	1,593.4
Options written.......................................................................................................................................................................	59.5	99.9
Options purchased................................................................................................................................................................	66.0	90.3
	1,503.0	2,065.2
Foreign Exchange:
Swaps, futures and forwards................................................................................................................................................	486.2	560.2
Options written.......................................................................................................................................................................	43.0	31.2
Options purchased................................................................................................................................................................	43.1	31.4
Spot..........................................................................................................................................................................................	39.4	36.2
	611.7	659.0
Commodities, equities and precious metals:
Swaps, futures and forwards................................................................................................................................................	26.4	35.1
Options written.......................................................................................................................................................................	10.3	14.4
Options purchased................................................................................................................................................................	15.3	13.5
	52.0	63.0
Credit derivatives....................................................................................................................................................................	768.5	968.3
Total..........................................................................................................................................................................................	$   2,935.2	$    3,755.5

17.  Fair Value Option

HSBC complies with International Financial Reporting Standards (IFRSs) for its financial reporting. We have elected to apply fair value option accounting to selected financial instruments 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 the fair value option ("FVO") reporting to 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 and 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, 2009, commercial leveraged acquisition finance loans and unfunded commitments of $1.1 billion carried at fair value had an aggregate unpaid principal balance of $1.3 billion. As of December 31, 2008, commercial leveraged acquisition finance loans and unfunded commitments of $874 million carried at fair value had an aggregate unpaid principal balance of $1.3 billion. These loans are included in loans held for sale in the consolidated balance sheet. Interest from these loans is recorded as interest income in the consolidated statement of income (loss). Because substantially all 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, 2009 and 2008, no loans for which the fair value option has been elected are 90 days or more past due or are on nonaccrual status.

Long-Term Debt (Own Debt Issuances) We elected to apply FVO for 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 the 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 the interest rate.

Fixed rate debt accounted for under FVO at December 31, 2009 totaled $1.7 billion and had an aggregate unpaid principal balance of $1.8 billion. Fixed rate debt accounted for under FVO at December 31, 2008 totaled $1.7 billion and had an aggregate unpaid principal balance of $1.8 billion. Interest paid on the fixed rate debt elected for FVO is recorded as interest expense in the consolidated statement of income (loss). The components of gain (loss) related to long-term debt designated at fair value are summarized in the table below.

Hybrid Instruments Upon the adoption of accounting guidance related to certain hybrid financial instruments effective January 1, 2006, we elected to measure all hybrid instruments issued after January 1, 2006 that contain embedded derivatives which should be bifurcated from the debt host at fair value. Such election reduced the differences between IFRSs and U.S. GAAP. Fair value option accounting principles effective January 1, 2008 have incorporated accounting requirements similar to those for hybrid financial instruments and because fair value option accounting principles have a broader application than the accounting guidance for certain hybrid financial 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, 2009, interest bearing deposits in domestic offices included $4.2 billion of structured deposits accounted for under FVO which had an unpaid principal balance of $4.2 billion. As of December 31, 2008, interest bearing deposits in domestic offices included $2.3 billion of structured deposits accounted for under FVO which had an unpaid principal balance of $2.4 billion. Long-term debt at December 31, 2009 included structured notes of $2.9 billion accounted for under FVO which had an unpaid principal balance of $2.7 billion. Long-term debt at December 31, 2008 included structured notes of $959 million accounted for under FVO which had an unpaid principal balance of $1.2 billion. Interest incurred was recorded as interest expense in the consolidated statement of income (loss). The components of gain (loss) related to hybrid instruments designated at fair value which reflect the instruments described above are summarized in the table below.

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

	Year Ended December 31,
	2009				2008
	Loans	Long-    Term    Debt	Hybrid Instruments	Total	Loans	Long-    Term    Debt	Hybrid Instruments	Total
	(in millions)
Interest rate component..................................................	$     -	$    333	$   (611)	$   (278)	$       -	$    (419)	$     367	$    (52)
Credit risk component.....................................................	284	(327)	17	(26)	(431)	352	200	121
Total mark-to-market on financial instruments designated at fair value.................................................	284	6	(594)	(304)	(431)	(67)	567	69
Mark-to-market on the related derivatives...................	-	(571)	610	39	(1)	703	(489)	213
Net realized gain (loss) on the related derivatives......	-	71	(59)	12	-	34	(30)	4
Total gain (loss) on related derivatives........................	-	(500)	551	51	(1)	737	(519)	217
Gain (loss) on instruments designated at fair value and related derivatives..................................................	$  284	$   (494)	$     (43)	$   (253)	$    (432)	$     670	$       48	$    286

18.  Income Taxes

Total income taxes were as follows.

	Year Ended December 31,
	2009	2008	2007
	(in millions)
Income tax benefit.......................................................................................................................................................	$    (84)	$       (919)	$      (1)
Income taxes related to adjustments included in common shareholder's equity:
Unrealized gains (losses) on securities available-for-sale, net............................................................................	248	(151)	(4)
Unrealized gains (losses) on derivatives classified as cash flow hedges.........................................................	101	(72)	(72)
Employer accounting for post-retirement plans....................................................................................................	-	3	6
Other-than-temporary impairment............................................................................................................................	(31)	-	-
Foreign currency translation, net.............................................................................................................................	-	(8)	2
Total..............................................................................................................................................................................	$   234	$    (1,147)	$    (69)

The components of income tax (benefit) expense follow.

	Year Ended December 31,
	2009	2008	2007
	(in millions)
Current:
Federal............................................................................................................................................................................	$    464	$    (394)	$     301
State and local...............................................................................................................................................................	35	26	40
Foreign............................................................................................................................................................................	29	41	28
Total current...................................................................................................................................................................	528	(327)	369
Deferred, primarily federal.............................................................................................................................................	(612)	(592)	(370)
Total income tax (benefit) expense..............................................................................................................................	$     (84)	$    (919)	$        (1)

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,
	2009		2008		2007
	(dollars are in millions)
Tax benefit at the U.S. federal statutory income tax rate..........................................	$   (79)	(35.0)%	$    (913)	(35.0)%	$     48	35.0%
Increase (decrease) in rate resulting from:
State and local taxes, net of Federal benefit..............................................................	19	8.3	2	.2	20	14.3
Sale of minority stock interest.....................................................................................	74	32.7	-	-	-	-
Adjustment of tax rate used to value deferred taxes................................................	(2)	(.9)	(6)	(.2)	24	17.4
Goodwill related to disposition of WTAS business................................................	-	-	-	-	5	3.8
Valuation allowance......................................................................................................	4	1.7	87	1.6	6	4.4
Validation of deferred tax balances............................................................................	(1)	(.4)	(2)	(.1)	(28)	(20.5)
IRS audit settlement......................................................................................................	(8)	(3.6)	-	-	-	-
Accrual (release) of tax reserves.................................................................................	2	1.1	(12)	(.2)	(9)	(6.3)
Tax exempt interest income..........................................................................................	(14)	(6.2)	(16)	(.6)	(15)	(11.1)
Low income housing and miscellaneous other tax credits......................................	(78)	(34.4)	(51)	(2.0)	(47)	(34.1)
Non-taxable income.......................................................................................................	(6)	(2.7)	(6)	(.3)	(8)	(5.5)
Goodwill impairment charge........................................................................................	-	-	19	.7	-	-
Other................................................................................................................................	5	2.2	(21)	.7	3	1.9
Total income tax benefit................................................................................................	$   (84)	(37.2)%	$    (919)	(35.2)%	$      (1)	(.7)%

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, settlement of an IRS audit, increase in the state and local income tax valuation allowance and an increased level of low income housing credits. The effective tax rate for 2008 compared with 2007 was significantly impacted by the relative level of pre-tax income, a goodwill impairment recorded in 2008, an adjustment in 2007 for the validation of deferred tax balances, valuation allowances related to the realizability of excess tax credits and foreign losses, as well as a change in estimate in the state tax rate.

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

	At December 31,
	2009	2008
	(in millions)
Deferred tax assets:
Allowance for credit losses......................................................................................................................................................	$   1,377	$       886
Benefit accruals..........................................................................................................................................................................	113	115
Accrued expenses not currently deductible..........................................................................................................................	213	155
Fair value adjustments..............................................................................................................................................................	293	152
Unrealized losses on securities available-for-sale................................................................................................................	114	233
Cash flow hedges.......................................................................................................................................................................	12	204
Accrued pension cost...............................................................................................................................................................	5	2
Tax credit carry-forwards..........................................................................................................................................................	183	46
Total deferred tax assets before valuation allowance.........................................................................................................	2,310	1,793
Valuation allowance................................................................................................................................................................	(178)	(99)
Total deferred tax assets..........................................................................................................................................................	2,132	1,694
Less deferred tax liabilities:
Lease financing income accrued..............................................................................................................................................	-	(1)
Deferred gain recognition.........................................................................................................................................................	71	28
Depreciation and amortization.................................................................................................................................................	(8)	(50)
Interest and discount income...................................................................................................................................................	336	175
Deferred fees/costs....................................................................................................................................................................	29	39
Mortgage servicing rights........................................................................................................................................................	149	185
Net purchase discount on acquired companies....................................................................................................................	(2)	(5)
Other............................................................................................................................................................................................	(138)	(59)
Total deferred tax liabilities......................................................................................................................................................	437	312
Net deferred tax asset...............................................................................................................................................................	$   1,695	$    1,382

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,
	2009	2008
	(in millions)
State tax benefit loss limitations.....................................................................................................................................................	$     76	$   -
Foreign tax credit carryforward.......................................................................................................................................................	74	46
Foreign losses...................................................................................................................................................................................	24	53
Other...................................................................................................................................................................................................	4	-
Total....................................................................................................................................................................................................	$  178	$   99

Effective January 1, 2007, we adopted accounting guidance related to uncertainty in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows.

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

The state tax portion of this amount is reflected gross and not reduced by Federal tax effect. The total amount of unrecognized tax benefits at December 31, 2009 that, if recognized, would affect the effective income tax rate is $45 million. Our major taxing jurisdictions and the related tax years for which each remain subject to examination are as follows.

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

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

We recognize accrued interest and penalties, if any, related to unrecognized tax benefits in other operating expenses. As of January 1, 2009, we had accrued $23 million for the payment of interest associated with uncertain tax positions. In 2009, we increased our accrual for the payment of interest associated with uncertain positions by $2 million.

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 downturn, 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 the recent market conditions have created significant downward pressure and volatility on our near- term 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 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 net deferred tax assets of approximately $5.5 billion currently 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. In November 2009, President Obama signed into law The Worker, Homeownership, and Business Assistance Act of 2009 which allowed for an extended carryback period for certain Federal tax net operating losses. This allows the HNAH Group to carry back the Federal tax net operating loss arising in 2009 that would otherwise have been carried forward, reducing the deferred tax asset related to such losses at December 31, 2009 by approximately $1.6 billion as compared to what it would have been absent the new legislation. The resulting, lower net deferred tax assets are fully supported by the aforementioned tax planning strategies.

As it relates to the growth in the HSBC North America consolidated deferred tax asset, in the second quarter of 2009 HSBC decided to limit the level and duration of excess HNAH Group capital it would reinvest in the U.S. operations in future years as part of the primary tax planning strategy supporting the deferred tax asset. As a result, it was determined at that time that for the residual portion of net deferred tax assets above $5.9 billion, it was not more-likely-than-not that the expected benefits to be generated by the various tax planning strategies were sufficient to ensure full realization. However, as a result of the impact of the extended Federal tax net operating loss carryback on the HSBC North America consolidated deferred tax asset in the fourth quarter combined with improved financial forecasts, HSBC no longer considers it necessary to limit the capital it would reinvest as part of the primary tax planning strategy at December 31, 2009.

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

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

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

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

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

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

At December 31, 2009, we had foreign tax credit carryforwards of $74 million for U.S. federal income tax purposes which expire as follows: $13 million in 2015, $18 million in 2016, $10 million in 2017, $23 million in 2018 and $10 million in 2019.

At December 31, 2009, we had general business credit carryforwards of $108 million for U.S. federal income tax purposes which expire as follows: $25 million in 2026, $52 million in 2028 and $31 million in 2029.

At December 31, 2009 we had deferred tax assets recorded for the future benefit of various state net operating losses of $76 million, which primarily relates to New York State.

19.  Preferred Stock

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

			Amount
	Shares	Dividend	Outstanding
	Outstanding	Rate
December 31	2009	2009	2009	2008
	(dollars are in millions)
Floating Rate Non-Cumulative Preferred Stock, Series F ($25 stated value)................................	20,700,000	3.539%	$     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	4.044	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
CTUS Inc. Preferred Stock...................................................................................................................	-	-	-	-
			$ 1,565	$   1,565

In May 2006, we issued 14,950,000 depositary shares, each representing one-fortieth of a share of 6.50% Non-Cumulative Preferred Stock, Series H ($1,000 stated value). Total issue proceeds, net of $9 million of underwriting fees and other expenses, were $365 million. When and if declared by our Board of Directors, dividends of 6.50% per annum on the stated value per share will be payable quarterly on the first calendar day of January, April, July and October of each year. 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.

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.

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 ½% or more than 10 ½% 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.

We acquired CTUS Inc., a unitary thrift holding company, in 1997 from CT Financial Services Inc. (the Seller). CTUS owned First Federal Savings and Loan Association of Rochester (First Federal). The acquisition agreement provided that we issue preferred shares to the Seller. The preferred shares provide for, and only for, a contingent dividend or redemption equal to the amount of recovery, net of taxes and costs, if any, by First Federal resulting from the pending action against the United States government alleging breaches by the government of contractual obligations to First Federal following passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. We issued 100 preferred shares at a par value of $1.00 per share in connection with the acquisition. In March 2009, we recognized an $85 million gain relating to the resolution of a lawsuit whose proceeds were used to redeem the 100 preferred shares issued to the Seller. The $85 million received, net of applicable taxes, was remitted to Toronto Dominion, who held the beneficial ownership interest in CT Financial Services Inc., and the preferred shares were redeemed.

20.  Accumulated Other Comprehensive Loss

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

	2009	2008	2007
	(in millions)
Unrealized gains (losses) on securities available-for-sale, not other-than temporarily impaired, and interest-only strip receivables:
Balance at beginning of period....................................................................................................................................	$  (512)	$   (188)	$   (199)
Other comprehensive income for period:
Net unrealized holding gains (losses) arising during period, net of taxes of $(284) million, $237 million and $(15) million in 2009, 2008 and 2007, respectively.................................................................................................	526	(471)	42
Reclassification adjustment for (gains) losses realized in net income, net of taxes of $36 million, $(86) million and $19 million in 2009, 2008 and 2007, respectively............................................................................................	(82)	147	(31)
Total other comprehensive income for period..........................................................................................................	444	(324)	11
Balance at end of period...............................................................................................................................................	(68)	(512)	(188)
Unrealized gains (losses) on other-than-temporarily impaired debt securities available-for-sale:
Balance at beginning of period....................................................................................................................................	-	-	-
Adjustment to initially apply new other-than-temporarily impaired accounting guidance for debt securities  available-for-sale, net of taxes of $8 million............................................................................................................	(15)	-	-
Balance at beginning of period, as adjusted..............................................................................................................	(15)	-	-
Other comprehensive income for period:
Net unrealized other-than-temporary impairment arising during period, net of taxes of $30 million...............	(54)	-	-
Reclassification adjustment for paydowns and bond sales, net of taxes of $(7) million..................................	13	-	-
Total other comprehensive loss for period...............................................................................................................	(41)	-	-
Balance at end of period...............................................................................................................................................	(56)	-	-
Unrealized (losses) gains on derivatives classified as cash flow hedges:
Balance at beginning of period....................................................................................................................................	(271)	(173)	(8)
Other comprehensive loss for period:
Net gains (losses) arising during period, net of taxes of $(101) million, $72 million and $72 million in 2009, 2008 and 2007, respectively...............................................................................................................................................	171	(98)	(165)
Total other comprehensive income for period..........................................................................................................	171	(98)	(165)
Balance at end of period...............................................................................................................................................	(100)	(271)	(173)
Foreign currency translation adjustments:
Balance at beginning of period....................................................................................................................................	-	15	11
Other comprehensive loss for period:
Translation gains (losses), net of taxes of $0 million, $8 million and $(2) million in 2009, 2008 and 2007, respectively................................................................................................................................................................	-	(15)	4
Total other comprehensive income for period..........................................................................................................	-	(15)	4
Balance at end of period...............................................................................................................................................	-	-	15
Postretirement benefit liability:
Balance at beginning of period....................................................................................................................................	(4)	(6)	(18)
Other comprehensive loss for period:
Change in unfunded postretirement liability, net of taxes of $0 million, $(3) million and $(6) million in 2009, 2008 and 2007, respectively.....................................................................................................................................	-	2	12
Total other comprehensive income for period..........................................................................................................	-	2	12
Balance at end of period...............................................................................................................................................	$      (4)	$       (4)	$       (6)

21.  Share-Based Plans

Options have been granted to employees under the HSBC Holdings Group Share Option Plan (the Group Share Option Plan) and under the HSBC Holdings Savings-Related Share Option Plan (Sharesave). Since the shares and contribution commitment have been granted directly by HSBC, the offset to compensation expense was a credit to capital surplus, representing a contribution of capital from HSBC.

The following table presents information for each plan. Descriptions of each plan follow the table.

	At December 31,
	2009	2008	2007
	(dollars are in millions)
Restricted Share Plan:
Total compensation expense recognized...................................................................................	$                 51	$              66	$              68
Sharesave (5 year vesting period):
Total options granted....................................................................................................................	943,000	127,000	132,000
Fair value per option granted.......................................................................................................	$             2.08	$          4.08	$          4.09
Total compensation expense recognized...................................................................................	$                   1	$             -	$                1
Significant assumptions used to calculate fair value:
Risk free interest rate....................................................................................................................	2.10%	3.03%	4.55%
Expected life (years).....................................................................................................................	5	5	5
Expected volatility........................................................................................................................	30%	25%	17%
Sharesave (3 year vesting period):
Total options granted....................................................................................................................	1,447,000	395,000	445,000
Fair value per option granted.......................................................................................................	$             2.21	$          3.85	$          4.25
Total compensation expense recognized...................................................................................	$                   1	$                1	$                1
Significant assumptions used to calculate fair value:
Risk free interest rate....................................................................................................................	1.47%	2.49%	4.55%
Expected life (years).....................................................................................................................	3	3	3
Expected volatility........................................................................................................................	35%	25%	17%
Sharesave (1 year vesting period):
Total options granted....................................................................................................................	334,000	142,000	145,000
Fair value per option granted.......................................................................................................	$             2.06	$          3.05	$          3.71
Total compensation expense recognized...................................................................................	$                   1	$             -	$             -
Significant assumptions used to calculate fair value:
Risk free interest rate....................................................................................................................	.52%	1.85%	4.90%
Expected life (years).....................................................................................................................	1	1	1
Expected volatility........................................................................................................................	50%	25%	17%
Group Share Option Plan:
Total options granted....................................................................................................................	-	-	-
Fair value per option granted.......................................................................................................	$                 -	$             -	$             -
Total compensation expense recognized...................................................................................	$                 -	$             -	$              (2)

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

Sharesave Plans Sharesave is an employee share option plan that enables eligible employees to enter into savings contracts of one, three or five year lengths, with the ability to decide at the end of the contract term to either use their accumulated savings to purchase HSBC ordinary shares at a discounted option price or have the savings plus interest repaid in cash. Employees can save up to $500 per month over all their Sharesave savings contracts. The option price is determined at the beginning of the offering period of each plan year and represents a 20% discount, for the three and five year savings contracts, and a 15% discount for the one year contract, from the average price in London on the HSBC ordinary shares over the five trading days preceding the offering. On contracts of three year or five year terms, the options are exercisable at the 20% discounted stock option price within six months following the third or fifth anniversary of the beginning of the relevant savings contracts. Upon the completion of a one year savings contract, if the share price is higher than the option price, the option will automatically be exercised and the shares will be purchased at the 15% discounted stock option price. The shares will then be transferred to a holding account where they will be held for one additional year, or until the employee decides to sell the shares. If the share price is below the option price, employees have the ability to exercise the option during the three months following the maturity date if the share price rises. Regardless of the length of the savings contract, employees can decide to have their accumulated savings plus interest refunded to them at the end of the contract period, rather than choosing to exercise their purchase option.

Group Share Option Plan The Group Share Option Plan was a discretionary long-term incentive compensation plan available prior to 2005, to certain employees based on performance criteria. Options were granted at market value and are normally exercisable between the third and tenth anniversaries of the date of grant, subject to vesting conditions.

Since 2004 no options have been granted under the Group Share Option Plan, since the plan was terminated by HSBC in May 2005. In lieu of options, employees now receive grants of HSBC Holdings ordinary shares subject to certain vesting conditions (refer to Restricted Share Plans above). All stock option grants under the Group Share Option Plan have fully vested and the associated expense has been fully recognized. In addition, a credit of $2 million was recognized in 2007 which reflects an adjustment to the expense accrued on the stock options granted in 2004, which was the last year of stock option grants under the Group Share Option Plan.

22.  Pension and Other Postretirement Benefits

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

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

	Year Ended December 31,
	2009	2008	2007
	(in millions)
Service cost - benefits earned during the period .........................................................................................	$    24	$     29	$     31
Interest cost on projected benefit obligation.................................................................................................	77	77	72
Expected return on assets..................................................................................................................................	(54)	(89)	(91)
Amortization of prior service cost....................................................................................................................	-	1	1
Recognized losses..............................................................................................................................................	40	1	9
Partial plan termination.......................................................................................................................................	5	-	-
Pension expense..................................................................................................................................................	$    92	$     19	$     22

The overall increase in pension expense during 2009 reflects the amortization of a portion of the actuarial losses incurred by the HSBC North America Pension Plan and reduced expectations of returns on Plan assets as a result of the volatile capital markets that occurred in 2008.

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 will also be 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.

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

	2009	2008	2007
Discount rate.......................................................................................................................................................................	7.15%	6.55%	5.90%
Salary increase assumption...............................................................................................................................................	3.50	3.75	3.75
Expected long-term rate of return on Plan assets...........................................................................................................	8.00	8.00	8.00

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

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

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

The Plan's investment committee utilizes a proactive approach to managing the Plan's overall investment strategy. In 2009, this resulted in the Committee conducting four quarterly meetings including two strategic reviews and two in-depth manager performance reviews. These quarterly meetings are supplemented by the pension support staff tracking actual investment manager performance versus the relevant benchmark and absolute return expectations on a monthly basis. The pension support staff also monitors adherence to individual investment manager guidelines via a quarterly compliance certification process. A sub-committee consisting of the pension support staff and two members of the investment committee, including the chairman, are delegated responsibility for conducting in-depth reviews of managers performing below expectation. This sub-committee also provides replacement recommendations to the Committee when manager performance fails to meet expectations for an extended period. During the two strategic reviews in 2009, the Committee re-examined the Plan's asset allocation levels, interest rate hedging strategy and investment menu options. As a result, the Committee unanimously approved a change to the Plan's target asset allocation mix in 2009 from 70 percent equity securities, 29 percent fixed income securities and one percent cash to 60 percent equity securities, 39 percent fixed income securities and 1 percent cash. The strategic meetings also resulted in the Committee approving a dedicated 10 percent Treasury Inflation Protected Securities portfolio, while eliminating zero coupon Treasuries.

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 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 7.8 percent;

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

•     Above median performance of peer corporate pension plans.

HSBC North America's overall investment strategy for Plan assets is to achieve a mix of at least 95 percent of investments for long-term growth and up to five percent for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target allocations of Plan assets as determined by the Committee at December 31, 2009 are as follows:

	Percentage of Plan Assets at December 31, 2009
Domestic Large/Mid-Cap Equity....................................................................................................................................................	19.5%
Domestic Small Cap Equity..............................................................................................................................................................	12.0
International Equity..........................................................................................................................................................................	13.0
Global Equity......................................................................................................................................................................................	8.0
Emerging Market Equity...................................................................................................................................................................	7.5
Fixed Income Securities....................................................................................................................................................................	39.0
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,
	2009	2008
	(in millions)
Fair value of net Plan assets at beginning of year..............................................................................................	$   1,978	$    2,617
Actual return on plan assets..................................................................................................................................	129	(447)
Cash contributions by HSBC North America......................................................................................................	241	-
Benefits paid.............................................................................................................................................................	(207)	(192)
Fair value of net Plan assets at end of year.........................................................................................................	$   2,141	$    1,978

As a result of the capital markets improving since December 2008 as well as the $241 million contribution to the Plan during 2009, the fair value of Plan assets at December 31, 2009 has increased approximately 8 percent compared to 2008.

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. The revised Pension Funding Policy requires HSBC North America to contribute an amount annual equal to the greatest of:

•     The minimum contribution required under ERISA guidelines;

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

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

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

As a result, during 2009 HSBC North America made a contribution to the Plan of $241 million. Additional contributions during 2010 are anticipated in accordance with the revised Pension Funding Policy.

The following table presents the fair value hierarchy level within which the fair value of the Plan assets have been recorded as of December 31, 2009.

	Fair Value Measurement at December 31, 2009
	Total	(Level 1)	(Level 2)	(Level 3
	(in millions)
Investments at Fair Value:
Cash and short term investments...................................................................................	$         78	$         78	$     -	$   -
Equity Securities
U.S. Large-cap Growth(1)................................................................................................	518	510	8	-
U.S. Small-cap Growth(2).................................................................................................	317	205	112	-
International Equity(3).....................................................................................................	287	158	129	-
Global Equity....................................................................................................................	180	166	14	-
Emerging Market Equity..................................................................................................	46	-	46	-
U.S. Treasury.....................................................................................................................	382	382	-	-
U.S. government agency issued or guaranteed............................................................	41	2	39	-
Obligations of U.S. states and political subdivisions..................................................	13	-	11	2
Asset - backed securities................................................................................................	28	-	11	17
U.S. corporate debt securities(4).....................................................................................	274	-	273	1
Corporate stocks - preferred...........................................................................................	3	2	1	-
Foreign debt securities.....................................................................................................	96	-	95	1
Accrued interest................................................................................................................	13	5	8	-
Total Investments.............................................................................................................	2,276	1,508	747	21
Receivables:
Receivables from sale of investments in process of settlement.................................	20	20	-	-
Derivative financial asset(5)............................................................................................	21	-	21	-
Total Receivables..............................................................................................................	41	20	21	-
Total Assets.......................................................................................................................	2,317	$   1,528	$  768	$   21
Liabilities(6)......................................................................................................................	176
Total Net Assets................................................................................................................	$   2,141

____________

(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 investments in non-U.S. developed markets that generally track the MSCI EAFE index. MSCI EAFE is an equity market index of 21 developed market countries in Europe, Australia, Asia and the Far East.
(4)	This category represents predominantly investment grade bonds of U.S. issuers from diverse industries.
(5)	This category is comprised of interest rate swaps only.
(6)	Included in liabilities at December 31, 2009 was $154 million of derivative liabilities recorded at fair value under the Level 2 fair value hierarchy.

The following table summarizes additional information about changes in the fair value of Level 3 assets during the year ended December 31, 2009.

	International      Equity   Securities	Global Equity	U.S. Treasury	U.S. Government     Agency	Obligations of U.S. States &     Political Subdivisions	Asset Backed	U.S. Corporate     Debt Securities	Foreign     Debt Securities	Total
	(in millions)
Beginning balance at December 31, 2008...............	$    12	$    18	$    13	$    2	$    2	$     9	$  10	$    1	$   67
Actual return on Plan assets:
Return on assets held at reporting date.......................	-	-	-	-	-	-	-	1	1
Return on assets sold during period....................................	-	-	-	-	-	-	-	-	-
Purchases, sales and settlements...........................	(2)	(3)	(1)	-	2	5	(9)	(1)	(9)
Transfers in/out of Level 3...	(10)	(15)	(12)	(2)	(2)	3	-	-	(38)
Ending balance at December 31, 2009...............	$     -	$     -	$    -	$  -	$    2	$   17	$     1	$    1	$   21

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. Government securities - U.S. Treasury, U.S. government agency issued or guaranteed - 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. 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.

•     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 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-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.

	Year Ended        December 31
	2009	2008
	(in millions)
Projected benefit obligation at beginning of year...............................................................................................................	$   3,018	$    2,747
Service cost...............................................................................................................................................................................	83	104
Interest cost..............................................................................................................................................................................	182	174
Gain on curtailment..................................................................................................................................................................	(24)	(13)
Actuarial losses........................................................................................................................................................................	43	198
Special termination benefits....................................................................................................................................................	18	-
Benefits paid.............................................................................................................................................................................	(207)	(192)
Projected benefit obligation at end of year..........................................................................................................................	$   3,113	$    3,018

The accumulated benefit obligation for the HSBC North America Pension Plan was $2.9 billion and $2.7 billion at December 31, 2009 and 2008, 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:

	2009	2008	2007
Discount rate..........................................................................................................................................................................	5.95%	6.05%	6.55%
Salary increase assumption.................................................................................................................................................	3.50	3.50	3.75

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

	HSBC
	North America(1)
	(in millions)
2010......................................................................................................................................................................................................	$    165
2011......................................................................................................................................................................................................	168
2012......................................................................................................................................................................................................	173
2013......................................................................................................................................................................................................	177
2014......................................................................................................................................................................................................	184
2015-2019............................................................................................................................................................................................	974

____________

(1)	Future benefit payments for the HSBC North America Pension Plan included in this table take into consideration the plan to cease all future benefit accruals for legacy participants as discussed more fully below.

In November 2009, the Board of Directors of HSBC North America approved a plan to cease all future benefit accruals for legacy participants under the final average pay formula components of the HSBC North America Pension Plan effective January 1, 2011. Future accruals to legacy participants under the Plan will thereafter be provided under the cash balance based formula which is now used to calculate benefits for employees hired after December 31, 1996. Furthermore, all future benefit accruals under the Supplemental Retirement Income Plan described above will also cease effective January 1, 2011. Affected employees were informed of this decision in February 2010. These changes are expected to reduce pension costs for HSBC North America in future periods.

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 $31 million, $35 million and $36 million in 2009, 2008 and 2007, respectively.

Certain employees are participants in various defined contribution and other non-qualified supplemental retirement plans. Total expense recognized for these plans was immaterial in 2009, 2008 and 2007.

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
	2009	2008	2007
	(in millions)
Service cost - benefits earned during the period.................................................................................................................	$    1	$     1	$     1
Interest cost...............................................................................................................................................................................	5	5	6
Amortization of transition obligation.....................................................................................................................................	2	3	3
Amortization of recognized actuarial gain.............................................................................................................................	(1)	(1)	(1)
Curtailment gain.........................................................................................................................................................................	(1)	-	-
Net periodic postretirement benefit cost...............................................................................................................................	$    6	$     8	$     9

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

	December 31,
	2009	2008	2007
Discount rate..........................................................................................................................................................................	7.15%	6.55%	5.90%
Salary increase assumption.................................................................................................................................................	3.50	3.75	3.75

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

	Year Ended December 31,
	2009	2008
	(in millions)
Accumulated benefit obligation at beginning of year..............................................................................................	$   84	$     93
Service cost.....................................................................................................................................................................	-	1
Interest cost.....................................................................................................................................................................	5	5
Actuarial gains................................................................................................................................................................	(3)	(10)
Transfers..........................................................................................................................................................................	(7)	-
Benefits paid....................................................................................................................................................................	(6)	(5)
Curtailment gain..............................................................................................................................................................	(1)	-
Accumulated benefit obligation at end of year..........................................................................................................	$   72	$     84

Our postretirement benefit plans are funded on a pay-as-you-go basis. We currently estimate that we will pay benefits of approximately $6 million relating to our postretirement benefit plans in 2010. The funded status of our postretirement benefit plans was a liability of $72 million at December 31, 2009.

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

	(in millions)
2010...............................................................................................................................................................................................................	$     6
2011...............................................................................................................................................................................................................	6
2012...............................................................................................................................................................................................................	6
2013...............................................................................................................................................................................................................	6
2014...............................................................................................................................................................................................................	6
2015-2019......................................................................................................................................................................................................	27

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

	2009	2008
Discount rate........................................................................................................................................................................................	5.60%	6.05%
Salary increase assumption...............................................................................................................................................................	3.50	3.50

For measurement purposes, 7.9 percent (pre-65) and 7.4 percent (post-65) annual rates of increase in the per capita costs of covered health care benefits were assumed for 2009. These rates are assumed to decrease gradually reaching the ultimate rate of 4.50 percent in 2027, and remain at that level thereafter.

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

	One Percent    Increase	One Percent   Decrease
	(in millions)
Effect on total of service and interest    cost components.................................................................................................................................................................	$   0.1	$   (0.1)
Effect on accumulated postretirement       benefit obligation................................................................................................................................................................	1.3	(1.1)

23.  Related Party Transactions

In the normal course of business, we conduct transactions with HSBC and its subsidiaries. These transactions occur at prevailing market rates and terms. 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,
	2009	2008	2007
	(in millions)
Assets:
Cash and due from banks..................................................................................................................................	$        362	$         157	$           97
Interest bearing deposits with banks..............................................................................................................	198	138	134
Federal funds sold and securities purchased under agreements to resell.................................................	294	346	356
Trading assets(1)................................................................................................................................................	12,811	32,445	11,640
Loans....................................................................................................................................................................	1,476	2,586	2,007
Other.....................................................................................................................................................................	852	733	398
Total assets.........................................................................................................................................................	$  15,993	$    36,405	$    14,632
Liabilities:
Deposits...............................................................................................................................................................	$    9,519	$    10,285	$    13,050
Trading liabilities(1)...........................................................................................................................................	16,848	36,589	14,552
Short-term borrowings.......................................................................................................................................	446	1,831	982
Other.....................................................................................................................................................................	1,677	162	876
Total liabilities.....................................................................................................................................................	$  28,490	$    48,867	$    29,460

____________

(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,
	2009	2008	2007
	(in millions)
Income/(Expense):
Interest income.......................................................................................................................................................	$      178	$       195	$       178
Interest expense.....................................................................................................................................................	(28)	(190)	(442)
Net interest income (loss).....................................................................................................................................	$      150	$           5	$     (264)
HSBC affiliate income:
Fees and commissions:
HSBC Finance......................................................................................................................................................	$        10	$         10	$         13
HSBC Markets (USA) Inc. ("HMUS")..............................................................................................................	21	14	13
Other HSBC affiliates..........................................................................................................................................	94	80	81
Gains on sales of refund anticipation loans to HSBC Finance......................................................................	11	13	23
Other HSBC affiliates income..............................................................................................................................	11	20	34
Total affiliate income............................................................................................................................................	$      147	$       137	$       164
Support services from HSBC affiliates:
HSBC Finance.......................................................................................................................................................	$      725	$       473	$       468
HMUS.....................................................................................................................................................................	250	213	246
HSBC Technology & Services (USA) ("HTSU")............................................................................................	471	255	260
Other HSBC affiliates...........................................................................................................................................	172	243	188
Total support services from HSBC affiliates....................................................................................................	$   1,618	$    1,184	$    1,162
Stock based compensation expense with HSBC...............................................................................................	$        54	$         67	$         68

Transactions Conducted with HSBC Finance Corporation

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

•     In January 2009, we also purchased certain auto finance loans, with an outstanding principal balance of $3.0 billion from HSBC Finance at the time of sale, at a total net discount of $226 million. Discounts are amortized to interest income over the estimated life of the receivables purchased. HSBC Finance continues to service the auto finance loans for us for a fee. Information regarding these loans is summarized in the table below.

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

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

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

The following table summarizes the private label card, private label commercial and closed end loans, credit card (including the GM and UP credit card portfolios), auto finance and real estate secured loans serviced for us by HSBC Finance as well as the daily loans purchased during 2009, 2008 and 2007:

	Private Label		Credit Cards
	Cards	Commercial and        Closed End Loans(1)	General Motors	Union Privilege	Other	Auto Finance	Residential Mortgage	Total
	(in billions)
Loans serviced by HSBC Finance:
December 31, 2009..........................................................	$ 15.0	$  .6	$     5.4	$   5.3	$  2.1	$  2.1	$  1.8	$ 32.3
December 31, 2008..........................................................	17.1	.9	-	-	2.0	-	2.1	22.1
Total receivables purchased on a daily basis from HSBC Finance during:
2009...................................................................................	15.7	-	14.5	3.5	4.3	-	-	38.0
2008...................................................................................	19.6	-	-	-	4.8	-	-	24.4
2007...................................................................................	21.3	-	-	-	4.2	-	-	25.5

____________

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

Fees paid for servicing these loan portfolios totaled $697 million, $444 million and $434 million during 2009, 2008 and 2007, respectively.

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

•     In the fourth quarter of 2009, an initiative was begun to streamline the servicing of real estate secured receivables across North America. As a result, certain functions that we had previously performed for our mortgage customers are now being performed by HSBC Finance for all North America mortgage customers, including our mortgage customers. Additionally, we are currently performing certain functions for all North America mortgage customers where these functions had been previously provided separately by each entity. During 2009, we paid net servicing fees of $2 million for services provided by HSBC Finance.

•     Support services from HSBC affiliates include charges by HSBC Finance under various service level agreements for loan origination and servicing, including the servicing of the portfolios previously discussed, as well as other operational and administrative support. Fees paid for these services totaled $725 million $473 million and $468 million during 2009, 2008 and 2007, respectively.

•     In the second quarter of 2008, HSBC Finance launched a new program with HSBC Bank USA to sell loans originated in accordance with the Federal Home Loan Mortgage Corporation's ("Freddie Mac") underwriting criteria to HSBC Bank USA who then sells them to Freddie Mac under its existing Freddie Mac program. During 2009 and 2008, $51 million and $172 million, respectively, of real estate secured loans were purchased by HSBC Bank USA under this program. This program was discontinued in February 2009 as a result of the decision to discontinue new receivable originations in HSBC Finance's Consumer Lending business.

•     Our wholly-owned subsidiaries, HSBC Bank USA and HSBC Trust Company (Delaware), N.A. ("HTCD"), are the originating lenders for a federal income tax refund anticipation loan program for clients of third party tax preparers which are managed by HSBC Finance. By agreement, HSBC Bank USA and HTCD process applications, fund and subsequently sell these loans to HSBC Finance. HSBC Bank USA and HTCD originated approximately $9 billion in 2009, $13.0 billion in 2008 and $17.0 billion in 2007 of loans that were sold to HSBC Finance. This resulted in gains of $11 million in 2009, $13 million in 2008 and $23 million in 2007.

•     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, 2009 and 2008.

•     We extended a secured $1.5 billion uncommitted credit facility to HSBC Finance in December 2008. This is a 364 day credit facility and there were no balances outstanding at December 31, 2009 and 2008.

•     We extended a $1.0 billion committed credit facility to HSBC Bank Nevada, a subsidiary of HSBC Finance, in December 2008. This is a 364 day credit facility and there were no balances outstanding at December 31, 2009 and 2008.

•     We service a portfolio of residential mortgage loans owned by HSBC Finance with an outstanding principal balance of $1.5 billion and $2.0 billion at December 31, 2009 and 2008, respectively. The related servicing fee income was $6 million in 2009, $12 million in 2008 and $10 million in 2007 which is included in residential mortgage banking revenue in the consolidated statement of income (loss).

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

•     In 2006, we began acquiring residential mortgage loans at fair value from HSBC Finance with the original intent of selling these loans to HMUS. In 2007, we acquired $615 million of loans from HSBC Finance for a net discount of $12 million. This program was discontinued in the second half of 2007 and, as such, no similar transactions occurred during 2009 or 2008.

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 $4.1 billion, of which $1.0 billion and $1.5 billion was outstanding at December 31, 2009 and 2008, respectively. Interest income on these loans and lines totaled $34 million in 2009, $44 million in 2008 and $18 million in 2007.

Other Transactions with HSBC Affiliates

•     HSBC North America extended a $1.0 billion senior note to us in August 2009. This is a five year floating rate note which matures on August 28, 2014 with interest due quarterly beginning in November 2009.

•     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 in the first quarter of 2009.

•     We have an unused line of credit with HSBC Bank plc of $2.5 billion at December 31, 2009 and 2008.

•     We have an unused line of credit with HNAI of $150 million at December 31, 2009 and 2008.

•     We have extended loans and lines of credit to various other HSBC affiliates totaling $1.7 billion, of which $527 million and $715 million was outstanding at December 31, 2009 and 2008, respectively. Interest income on these lines totaled $13 million in 2009, $16 million in 2008 and $3 million in 2007.

•     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, 2009 and 2008, no ABCP was held.

•     We routinely enter into derivative transactions with HSBC Finance and other HSBC affiliates as part of a global HSBC strategy to offset interest rate or other market risks associated with debt issues and derivative contracts with unaffiliated third parties. The notional value of derivative contracts related to these contracts was approximately $673.3 billion and $903.9 billion at December 31, 2009 and 2008, respectively. The net credit exposure (defined as the recorded fair value of derivative receivables) related to the contracts was approximately $12.8 billion and $32.4 billion at December 31, 2009 and 2008, respectively. Our Global Banking and Markets business accounts for these transactions on a mark to market basis, with the change in value of contracts with HSBC affiliates substantially offset by the change in value of related contracts entered into with unaffiliated third parties.

•     In December 2008, HSBC Bank USA entered into derivative transactions with another HSBC affiliate to offset the risk associated with the contingent "loss trigger" options embedded in certain leveraged super senior (LSS) tranched credit default swaps. These transactions are expected to significantly reduce income volatility for HSBC Bank USA by transferring the volatility to the affiliate. The recorded fair value of derivative assets related to these derivative transactions was approximately $70 million and $1,108 million at December 31, 2009 and 2008, respectively.

•     Technology and some centralized operational and support 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 subsequent to January 1, 2004 are generally purchased and owned by HTSU. HTSU also provides certain item processing and statement processing activities which are included in Support services from HSBC affiliates in the consolidated statement of income (loss).

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

•     Employees participate in one or more stock compensation plans sponsored by HSBC. Our share of the expense of these plans on a pre-tax basis was $54 million in 2009, $67 million in 2008 and $68 million in 2007. As of December 31, 2009, our share of compensation cost related to nonvested stock compensation plans was approximately $54 million, which is expected to be recognized over a weighted-average period of 1.4 years. A description of these stock compensation plans can be found in Note 21, "Share-based Plans."

•     We use HSBC Global Resourcing (UK) Ltd., an HSBC affiliate located outside of the United States, to provide various support services to our operations including among other areas customer service, systems, collection and accounting functions. The expenses related to these services of $45 million in 2009 and $27 million in 2008 are included as a component of Support services from HSBC affiliates in the table above. During 2009 billing for these services was processed by HTSU.

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

•     We did not pay any dividends to our parent company, HNAI, in 2009 or 2008. In 2007, we declared and paid dividends of $800 million to HNAI.

24.  Business Segments

We have five distinct segments that we utilize for management reporting and analysis purposes, which are generally based upon customer groupings, as well as products and services offered.

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

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

Our segment results are presented under International Financial Reporting Standards ("IFRSs") (a non-U.S. GAAP financial measure) as operating results are monitored and reviewed, trends are evaluated and decisions about allocating resources, such as employees are made almost exclusively on an IFRSs basis since we report results to our parent, HSBC in accordance with its reporting basis, IFRSs. We continue to monitor capital adequacy, establish dividend policy and report to regulatory agencies on a U.S. GAAP legal entity basis. A summary of the significant differences between U.S. GAAP and IFRSs as they impact our results are summarized below:

Net interest income

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.

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 (losses).

Other operating income (Total other revenues (losses))

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

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

Loans held for sale - IFRSs requires loans designated as held for sale at the time of origination to be treated as trading assets and recorded at their fair market value. Under U.S. GAAP, loans designated as held for sale are reflected as loans and recorded at the lower of amortized cost or fair value. Under IFRSs, the income and expenses related to receivables held for sale are reported in net interest income on trading. Under U.S. GAAP, the income and expenses related to receivables held for sale are reported similarly to loans held for investment.

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

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

Fair value option - Reflects the impact of applying the fair value option under IFRSs to certain debt instruments issued, and includes an adjustment of the initial valuation of the debt instruments. Prior to January 1, 2008, the debt was accounted for at amortized cost under U.S. GAAP. This difference was eliminated upon the adoption of fair value option under U.S. GAAP on January 1, 2008. Also 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 the gain (loss) on instruments at fair value and related derivatives, which is a component of other revenues.

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

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

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

Securities - Effective January 1, 2009 under U.S. GAAP, the credit loss component of an other-than-temporary impairment of a debt security is recognized in earnings while the remaining portion of the impairment loss is recognized in accumulated other comprehensive income provided we have concluded we do not intend to sell the security and it is more-likely-than-not that we will have to sell the security prior to recovery. Under IFRSs, there is no bifurcation of other-than temporary impairment and the entire portion is recognized in earnings. There are also 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. During the second quarter of 2009 under IFRSs, we recorded income for the value of additional shares attributed to HSBC shares held for stock plans as a result of HSBC's rights offering earlier in 2009. The additional shares are not recorded under U.S. GAAP.

Loan impairment charges (Provision for credit losses)

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

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

Operating expenses

Pension costs - Costs under U.S. GAAP are higher than under IFRSs as a result of the amortization of the amount by which actuarial losses exceed gains beyond the 10 percent "corridor."

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

Assets

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.

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
	PFS	CF	CMB	Global Banking     and Markets	PB	Other	Adjustments/   Reconciling         Items	Total	(4)        IFRS Adjustments	(5)            IFRS Reclassifications	U.S. GAAP Consolidated        Totals
	(in millions)
December 31, 2009
Net interest income(1)..................................	$           916	$        2,101	$          725	$            810	$           172	$         17	$       (22)	$          4,719	$              133	$            282	$          5,134
Other operating income................................	262	353	353	651	106	(515)	22	1,232	1,196	286	2,714
Total operating income.................................	1,178	2,454	1,078	1,461	278	(498)	-	5,951	1,329	568	7,848
Loan impairment charges(3)........................	616	2,073	309	591	98	-	-	3,687	685	(228)	4,144
	562	381	769	870	180	(498)	-	2,264	644	796	3,704
Operating expenses(2)..................................	1,255	88	634	794	232	87	-	3,090	44	796	3,930
Profit (loss) before income tax expense......	$         (693)	$           293	$          135	$               76	$           (52)	$     (585)	$           -	$           (826)	$              600	$                -	$           (226)
Balances at end of period:
Total assets.....................................................	$      21,485	$      30,953	$     16,600	$     157,781	$        6,055	$         13	$           -	$      232,887	$        (59,861)	$       (1,947)	$      171,079
Total loans......................................................	16,845	28,118	14,849	17,360	5,355	-	-	82,527	(3,438)	3,308	82,397
Goodwill.........................................................	876	-	368	497	326	-	-	2,067	580	-	2,647
Total deposits.................................................	48,228	43	24,107	30,000	11,566	-	-	113,944	(2,749)	7,142	118,337
December 31, 2008
Net interest income(1)..................................	$           849	$        1,250	$          753	$            998	$           192	$         (5)	$     (204)	$          3,833	$             (146)	$            639	$          4,326
Other operating income................................	327	325	322	(1,895)	156	547	204	(14)	(589)	(184)	(787)
Total operating income.................................	1,176	1,575	1,075	(897)	348	542	-	3,819	(735)	455	3,539
Loan impairment charges(3)........................	520	1,650	288	165	17	-	-	2,640	12	(109)	2,543
	656	(75)	787	(1,062)	331	542	-	1,179	(747)	564	996
Operating expenses(2)..................................	1,353	46	594	774	268	-	-	3,035	5	564	3,604
Profit (loss) before income tax expense......	$         (697)	$         (121)	$          193	$        (1,836)	$             63	$       542	$           -	$        (1,856)	$             (752)	$                -	$        (2,608)
Balances at end of period:
Total assets.....................................................	$      28,440	$      20,047	$      19,923	$      260,970	$        5,511	$       388	$           -	$      335,279	$      (145,652)	$       (4,058)	$      185,569
Total loans......................................................	22,950	19,496	18,301	37,201	4,664	-	-	102,612	(5,230)	(11,838)	85,544
Goodwill.........................................................	876	-	368	497	326	-	-	2,067	580	-	2,647
Total deposits.................................................	45,512	27	22,824	39,275	12,306	2	-	119,946	(5,779)	4,871	119,038
December 31, 2007:
Net interest income(1)..................................	$        1,102	$           951	$          814	$            321	$           198	$       (12)	$     (652)	$          2,722	$                17	$            659	$          3,398
Other operating income................................	559	294	259	46	291	216	652	2,317	(313)	(157)	1,847
Total operating income.................................	1,661	1,245	1,073	367	489	204	-	5,039	(296)	502	5,245
Loan impairment charges(3)........................	139	1,187	126	35	10	-	-	1,497	33	(8)	1,522
	1,522	58	947	332	479	204	-	3,542	(329)	510	3,723
Operating expenses(2)..................................	1,302	33	558	803	345	4	-	3,045	30	511	3,586
Profit (loss) before income tax expense......	$           220	$             25	$          389	$           (471)	$           134	$       200	$           -	$             497	$             (359)	$              (1)	$             137
Balances at end of period:
Total assets.....................................................	$      37,289	$      22,145	$      17,884	$      162,757	$        6,191	$       193	$           -	$      246,459	$        (58,528)	$              34	$      187,965
Total loans......................................................	31,982	21,639	15,864	28,389	5,416	-	-	103,290	-	(7,464)	95,826
Goodwill.........................................................	925	-	368	497	325	-	-	2,115	586	-	2,701
Total deposits.................................................	42,642	35	18,164	41,983	12,247	2	-	115,073	-	1,097	116,170

____________

(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, 2009
Unquoted equity securities............................................................	$       -	$        35	$       -	$    -	$      35	$               -
Fair value option..............................................................................	-	-	-	-	-	-
Reclassification of financial assets...............................................	(384)	859	(143)	-	618	-
Securities...........................................................................................	-	58	-	-	58	-
Derivatives........................................................................................	(2)	(11)	-	-	(13)	(59,861)
Loan impairment...............................................................................	3	-	15	-	(12)	-
Property.............................................................................................	-	11	-	14	(3)	-
Pension costs...................................................................................	-	-	-	43	(43)	-
Purchased loan portfolios...............................................................	522	188	813	1	(104)	-
Servicing assets...............................................................................	-	(6)	-	-	(6)	-
Return of capital...............................................................................	-	55	-	-	55	-
Interest recognition.........................................................................	2	-	-	-	2	-
Other..................................................................................................	(8)	7	-	(14)	13	-
Total...................................................................................................	$    133	$   1,196	$    685	$    44	$    600	$     (59,861)
December 31, 2008
Unquoted equity securities............................................................	$       -	$       100	$       -	$     -	$     100	$               -
Fair value option..............................................................................	-	-	-	-	-	-
Reclassification of financial assets...............................................	(142)	(752)	-	-	(894)	-
Securities...........................................................................................	-	95	-	-	95
Derivatives........................................................................................	(1)	(14)	-	-	(15)	(145,652)
Loan impairment...............................................................................	11	-	12	-	(1)	-
Property.............................................................................................	-	(8)	-	15	(23)	-
Pension costs...................................................................................	-	-	-	2	(2)	-
Purchased loan portfolios...............................................................	-	-	-	-	-	-
Servicing assets...............................................................................	-	(19)	-	(3)	(16)	-
Return of capital...............................................................................	-	-	-	-	-	-
Interest recognition.........................................................................	(4)	-	-	-	(4)	-
Other..................................................................................................	(10)	9	-	(9)	8	-
Total...................................................................................................	$    (146)	$      (589)	$       12	$       5	$    (752)	$     (145,652)
December 31, 2007
Unquoted equity securities............................................................	$       -	$        (90)	$       -	$     -	$      (90)	$               -
Fair value option..............................................................................	(2)	(190)	-	-	(192)	-
Reclassification of financial assets...............................................	-	-	-	-	-	-
Securities...........................................................................................	-	-	-	(2)	2	-
Derivatives........................................................................................	(1)	1	-	-	-	(58,528)
Loan impairment...............................................................................	22	-	26	-	(4)	-
Property.............................................................................................	-	(7)	-	14	(21)	-
Pension costs...................................................................................	-	-	-	24	(24)	-
Purchased loan portfolios...............................................................	-	-	-	-	-	-
Servicing assets...............................................................................	-	1	-	-	1	-
Return of capital...............................................................................	-	-	-	-	-	-
Interest recognition.........................................................................	(9)	-	-	-	(9)	-
Other..................................................................................................	7	(28)	7	(6)	(22)	-
Total...................................................................................................	$       17	$      (313)	$       33	$     30	$    (359)	$       (58,528)

____________

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

25.  Retained Earnings and Regulatory Capital Requirements

Bank dividends are a major source of funds for payment by us of shareholder dividends, and along with interest earned on investments, cover our operating expenses which consist primarily of interest on outstanding debt. Under 12 USC 60, the approval of the OCC is required if the total of all dividends we declare in any year exceeds the cumulative net profits for that year, combined with the profits for the two preceding years reduced by dividends attributable to those years. Under a separate restriction, payment of dividends is prohibited in amounts greater than undivided profits then on hand, after deducting actual losses and bad debts. Bad debts are debts due and unpaid for a period of six months unless well secured, as defined, and in the process of collection. These rules restrict HSBC Bank USA from paying dividends to us as of December 31, 2009, as cumulative net profits for 2009, 2008 and 2007 are less than dividends attributable to those years.

The capital amounts and ratios of HSBC USA and HSBC Bank USA, calculated in accordance with current banking regulations, are summarized in the following table. In December 2007, U.S. regulators published a revision to the regulatory capital rules which went into effect on April 1, 2008. This revision has not significantly affected the ratios shown in the table below.

	December 31, 2009			December 31, 2008
	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. ...............................................	$    19,087	10.00%	14.19%	$      17,691	10.00%	12.04%
HSBC Bank USA..............................................	19,532	10.00	14.81	17,395	10.00	12.04
Tier 1 capital ratio:
HSBC USA Inc. ...............................................	12,934	6.00	9.61	11,156	6.00	7.60
HSBC Bank USA..............................................	13,354	6.00	10.13	10,822	6.00	7.49
Tier 1 leverage ratio:
HSBC USA Inc. ...............................................	12,934	3.00(2)	7.59	11,156	3.00(2)	5.96
HSBC Bank USA..............................................	13,354	5.00	8.07	10,822	5.00	5.90
Risk weighted assets:
HSBC USA Inc. ...............................................	134,553			146,878
HSBC Bank USA..............................................	131,854			144,507

____________

(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.

In 2009, we received capital contributions from HSBC North America Inc. ("HNAI") in an aggregate amount of $2.2 billion in exchange for 3 shares of common stock. During 2009, we contributed $2.7 billion to our subsidiary, HSBC Bank USA, in part to provide capital support for receivables purchased from our affiliate, HSBC Finance Corporation. See Note 23, "Related Party Transactions," for additional information.

As part of the regulatory approvals with respect to the aforementioned receivable purchases completed in January 2009, HSBC Bank USA and its ultimate parent HSBC committed that HSBC Bank USA will maintain a Tier 1 risk-based capital ratio of at least 7.62 percent, a total capital ratio of at least 11.55 percent and a Tier 1 leverage ratio of at least 6.45 percent for one year following the date of transfer. In addition, 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. In May 2009, we received further clarification from the Federal Reserve regarding HSBC Bank USA's regulatory reporting requirements with respect to these capital commitments in that the additional 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), should be 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 2009, HSBC Bank USA sold low-quality auto finance loans with a net book value of approximately $455 million to a non-bank subsidiary of HSBC USA Inc. to reduce this capital requirement. Capital ratios and amounts at December 31, 2009 and 2008 in the table above reflect this revised regulatory reporting. At December 31, 2009, we have exceeded our committed ratios and would have done so without the benefit associated with these low-quality asset sales.

In February 2009, the U.S. Treasury Department announced that U.S regulators would conduct a stress test of all U.S. bank holding companies with assets in excess of $100 billion. These tests have resulted in additional regulatory capital requirements for the companies that were subjected to the test. As a result of foreign ownership, we were not included in the group of bank holding companies subject to the regulatory stress test.

Regulatory guidelines impose certain restrictions that may limit the inclusion of deferred tax assets in the computation of regulatory capital. Continued losses, including losses associated with FVO elections, coupled with bad debt provisions that exceed charge-offs are creating additional deferred tax assets, which could, from time to time, result in such exclusion. We closely monitor the deferred tax assets for potential limitations or exclusions. At December 31, 2009, deferred tax assets of $331 million were excluded in the computation of regulatory capital.

26.  Special Purpose Entities

In the ordinary course of business, we have historically 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 of organizing the entities, the risk characteristics and the business activities of the SPEs. Special purpose entities can be a variable interest entity ("VIE"), a qualifying special purpose entity ("QSPE") or neither. A VIE is an entity that lacks sufficient equity at risk or whose equity investors do not have a controlling interest. A QSPE is an unconsolidated off-balance sheet entity whose activities are restricted and limited to holding and servicing financial assets and it meets certain other criteria in accordance with accounting principles related to transfers of financial assets. The financial Accounting Standards Board has issued accounting guidance to eliminate the concept of a QSPE and all entities previously classified as QSPEs will be assessed for consolidation effective January 1, 2010. We do not expect a significant incremental consolidation effect as a result of the removal of the QSPE concept.

Variable Interest Entities We consolidate VIEs in which we hold variable interests that absorb a majority of the risks and/or receive a majority of the benefits and therefore are deemed to be the primary beneficiary. We take into account all of our involvements in a VIE in identifying variable interests (explicit or implicit) 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 and (iv) help structure the transaction and retain a financial or servicing interest in the VIE.

In most 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. The quantitative analysis provides probability-weighted estimates of a range of potential outcomes and management judgment is required in determining the primary beneficiary.

Consolidated VIEs The following table summarizes the assets and liabilities of our consolidated VIEs as of December 31, 2009 and 2008:

	December 31, 2009		December 31, 2008
	Consolidated        Assets	Consolidated    Liabilities	Consolidated        Assets	Consolidated    Liabilities
	(in millions)
Securitization vehicles........................................................................................	$   3,883	$   3,003	$    1,588	$    1,200
Structured note vehicles....................................................................................	10	-	147	124
Low income housing limited liability partnership..........................................	669	663	-	-
Total......................................................................................................................	$   4,562	$   3,666	$    1,735	$    1,324

Securitization Vehicles We utilize entities that are structured as trusts to securitize certain private label and other credit card receivables where securitization provides an attractive source of low cost funding. We transfer certain credit card receivables to these trusts which in turn issue debt instruments collateralized by the transferred receivables. These trusts are considered VIEs and are consolidated as we are the primary beneficiary at December 31, 2009 and 2008.

At December 31, 2009 and 2008, the consolidated assets of these trusts were $3.9 billion and $1.6 billion, respectively and were reported in loans and securities available-for-sale. Debt securities issued by these VIEs are reported as secured financings in long-term debt. The increase in the consolidated assets of these trusts since December 31, 2008 largely reflects securitization vehicles associated with the credit card receivables purchased from HSBC Finance in January 2009.

Structured Note Vehicles In the normal course of business, we enter into derivative transactions with SPE's organized by HSBC affiliates and by third parties for the purpose of issuing structured debt instruments to facilitate clients' investment demand. These entities, which are deemed to be VIEs, are organized as trusts and issue fixed or floating rate debt instruments backed by the financial assets they hold. They were established to create investments with specific risk profiles for investors.

At December 31, 2009 we held all or substantially all of the debt securities issued by one VIE trust that was organized to issue structured notes. We held securities issued by several such VIE trusts at December 31, 2008. The consolidated assets of these VIEs were $10 million and $147 million at December 31, 2009 and 2008, respectively, and are reported in trading assets. Debt instruments issued by these VIEs and held by us were eliminated in consolidation. Debt instruments issued by these VIEs and held by third parties were not material.

The assets of consolidated VIEs serve as collateral for the obligations of the VIEs. The holders of debt instruments issued by consolidated VIEs have no recourse to our general credit. There are no communications or contractual arrangements that constitute an obligation by us to provide financial support to the VIEs or the holders of debt securities issued by the VIEs.

Low Income Housing Limited Liability Partnership During the third quarter of 2009, certain 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. We have concluded that we are the primary beneficiary of the LLP as a result of 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 a liability in our consolidated financial statements.

Unconsolidated VIEs We also had significant involvement with other VIEs that were not consolidated at December 31, 2009 or 2008 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, 2009 and 2008:

	December 31, 2009				December 31, 2008
	Variable Interests Held Classified        as Assets	Variable Interests Held Classified    as Liabilities	Total Assets in Unconsolidated          VIEs	Maximum      Exposure        to Loss	Total Assets in Unconsolidated          VIEs	Maximum      Exposure        to Loss
	(in millions)
Asset-backed commercial paper conduits...........................................	$     46	$     -	$   10,485	$   5,050	$    28,112	$    7,782
Structured investment vehicles......	15	-	2,995	15	4,768	34
Structured note vehicles.................	101	184	7,890	569	8,221	1,842
Low income housing partnerships	4	-	121	13	211	40
Total...................................................	$  166	$  184	$   21,491	$   5,647	$    41,312	$    9,698

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

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

Each seller of assets to an ABCP conduit typically provides collateral in the form of excess assets and therefore bears the risk of first loss related to the specific assets transferred. We do not transfer our own assets to the conduits. We have no ownership interests in, perform no administrative duties for, and do not service any of the assets held by the conduits. We are not the primary beneficiary and do not consolidate any of the ABCP conduits to which we provide liquidity facilities. Credit risk related to the liquidity facilities provided is managed by subjecting them to our normal underwriting and risk management processes. The $5.1 billion maximum exposure to loss presented in the table above represents the maximum amount of loans and asset purchases we could be required to fund under the liquidity facilities. The maximum loss exposure is estimated assuming the facilities are fully drawn and the underlying collateralized assets are in default with zero recovery value.

Structured Investment Vehicles In 2009, we provided a liquidity facility to a single structured investment vehicle ("SIV") sponsored by a third party. This entity, which was deemed to be a VIE, invested in mostly highly rated longer-dated fixed income instruments and funded those investments by issuing cheaper short-term, highly rated commercial paper and medium term notes. In October 2009, the assets of the SIV were transferred to a newly formed SIV in order to foreclose upon the assets within the original SIV. Creditors received their respective share in the new SIV transaction by exchanging their current exposure for notes in the new trust. The notes will accrue interest at a spread over LIBOR to be determined based upon the collections (contingent interest). The notes that we hold related to the new SIV are recorded as available for sale securities on our consolidated balance sheet. We do not transfer our own assets to the SIV. We have no ownership interests in, perform no administrative duties for, and do not service any of the assets the SIV holds. We are not the primary beneficiary of the SIV and therefore do not consolidate the SIV.

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, 2009, we recorded approximately $169 million of trading assets and $205 million of long-term liabilities on our balance sheet as a result of "failed sale" accounting treatment for certain transfers of financial assets. As of December 31, 2008, we recorded approximately $539 million of trading assets and $829 million of long-term liabilities on our balance sheet as a result of "failed sale" accounting treatment. The financial assets and financial liabilities were not legally ours and we have no control over the financial assets which are restricted solely to satisfy the liability.

In addition to our variable interests, we also hold credit default swaps with these structured note VIEs under which we receive credit protection on specified reference assets in exchange for the payment of a premium. Through these derivatives, the VIEs assume the credit risk associated with the reference assets which is 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.

Low Income Housing Partnerships Separately from the formation of the LLC discussed above, we invest as a limited partner in a number of low-income housing partnerships that operate qualified affordable housing projects and generate tax benefits, including federal low-income housing tax credits, for investors. Some of the partnerships are deemed to be VIEs because they do not have sufficient equity investment at risk or are structured with non-substantive voting rights. We are not the primary beneficiary of these VIEs and do not consolidate them.

These investments in low-income housing partnerships are recorded using the equity method of accounting and are included in other assets on the consolidated balance sheet. The maximum exposure to loss shown in the table represents the recorded investment net of estimated expected reductions in future tax liabilities and potential recapture of tax credits allowed in prior years.

27.  Guarantee Arrangements

As part of our normal operations, we enter into 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 major off-balance sheet guarantee arrangements as of December 31, 2009 and 2008. Following the table is a description of the various arrangements.

	December 31, 2009		December 31, 2008
	Carrying        Value	Notional/Maximum Exposure to Loss	Carrying        Value	Notional/Maximum Exposure to Loss
	(in millions)
Credit derivatives(1),(4)........................................................................	$   (5,751)	$   387,225	$    (59,640)	$     493,583
Financial standby letters of credit, net of participations(2),(3).......	-	4,545	-	4,444
Performance (non-financial) guarantees............................................	-	3,100	-	3,800
Liquidity asset purchase agreements(3)............................................	-	5,050	-	7,782
Total.........................................................................................................	$   (5,751)	$   399,920	$    (59,640)	$     509,609

____________

(1)  Includes $57.3 billion and $103.4 billion issued for the benefit of HSBC affiliates at December 31, 2009 and 2008, respectively.

(2)  Includes $774 million and $732 million issued for the benefit of HSBC affiliates at December 31, 2009 and 2008, 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. Although we do not specifically identify whether the derivative counterparty retains the reference obligation, we have disclosed information about all credit derivatives that could meet the accounting definition of a financial guarantee. 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. The collateral amount presented in the previous table only includes those derivative contracts or transactions where specific collateral can be identified.

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, 2009 and 2008:

	December 31, 2009		December 31, 2008
	Carrying (Fair)         Value	Notional	Carrying (Fair)         Value	Notional
	(in millions)
Sell-protection credit derivative positions.....................................................	$   (5,751)	$   387,225	$    (59,640)	$     493,583
Buy-protection credit derivative positions....................................................	6,693	381,258	59,737	474,677
Net position........................................................................................................	$       942	$        5,967	$             97	$       18,906

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, 2009, the total amount of outstanding financial standby letters of credit (net of participations) and performance guarantees were $4.5 billion and $3.1 billion, respectively. As of December 31, 2008, the total amount of outstanding financial standby letters of credit (net of participations) and performance guarantees were $4.4 billion and $3.8 billion, respectively.

The issuance of a standby letter of credit is subject to our credit approval process and collateral requirements. We charge fees for issuing letters of credit commensurate with the customer's credit evaluation and the nature of any collateral. Included in other liabilities are deferred fees on standby letters of credit, which represent the fair value of the stand-ready obligation to perform under these guarantees, amounting to $48 million and $33 million at December 31, 2009 and 2008, respectively. Also included in other liabilities is an allowance for credit losses on unfunded standby letters of credit of $27 million and $30 million at December 31, 2009 and 2008, 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, 2009 as an indicative proxy of payment risk:

		Credit Ratings of the Obligors or the Transactions
	Average
	Life	Investment	Non-Investment
Notional/Contractual Amounts	(in years)	Grade	Grade	Total
	(dollars are in millions)
Sell-protection Credit Derivatives(1)
Single name CDS................................................................................................	3.4	$   154,090	$   69,292	$   223,382
Structured CDS...................................................................................................	3.2	48,255	2,988	51,243
Index credit derivatives.....................................................................................	3.5	95,764	3,431	99,195
Total return swaps.............................................................................................	8.3	12,588	817	13,405
Subtotal.................................................................................................................		310,697	76,528	387,225
Standby Letters of Credit(2)..............................................................................	1.2	6,777	868	7,645
Total......................................................................................................................		$   317,474	$   77,396	$   394,870

____________

(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 loss from a customer as either low risk, satisfactory risk, fair risk, watch, substandard, doubtful or loss. 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 agencies benchmarks, where possible, at the time of formal review and regularly monitor whether our risk ratings are comparable to the external ratings benchmark data.

Written Put Options, Non Credit-Risk Related Guarantees 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, 2009 and 2008, we have issued $5.1 billion and $7.8 billion, respectively, of liquidity facilities to provide liquidity support to the commercial paper issued by various conduits.

Principal Protected Products We structure and sell products that guarantee the return of principal to investors on a future date. These structured products have various reference assets and we are obligated to cover any shortfall between the market value of the underlying reference portfolio and the principal amount at maturity. We manage such shortfall risk by, among other things, establishing structural and investment constraints. Additionally, the structures require liquidation of the underlying reference portfolio when certain pre-determined triggers are breached and the proceeds from liquidation are required to be invested in zero-coupon bonds that would generate sufficient funds to repay the principal amount upon maturity. We may be exposed to market (gap) risk at liquidation and, as such, may be required to make up the shortfall between the liquidation proceeds and the purchase price of the zero coupon bonds. These principal protected products are accounted for on a fair value basis. The notional amounts of these principal protected products were not material as of December 31, 2009 and 2008. We have not made any payment under the terms of these structured products and we consider the probability of payments under these guarantees to be remote.

Sale of Mortgage Loans We originate and sell mortgage loans to government sponsored entities 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 representations and warranties are breached. Our estimated liability for obligations arising from the breach of representations and warranties was $66 million and $13 million as of December 31, 2009 and 2008, respectively.

Visa Covered Litigations We are an equity member of Visa Inc. ("Visa"). Prior to its initial public offering ("IPO") on March 19, 2008, Visa completed a series of transactions to reorganize and restructure its operations and to convert membership interests into equity interests. Pursuant to the restructuring, we, along with all the Class B shareholders, agreed to indemnify Visa for the claims and obligations arising from certain specific covered litigations. Class B shares are convertible into listed Class A shares upon (i) settlement of the covered litigations or (ii) the third anniversary of the IPO, whichever is earlier. The indemnification is subject to the accounting and disclosure requirements. Visa used a portion of the IPO proceeds to establish a $3.0 billion escrow account to fund future claims arising from those covered litigations (the escrow was subsequently increased to $4.1 billion). In July 2009, Visa exercised its rights to sell shares of existing Class B shareholders in order to increase the escrow account and announced that it had deposited an additional $700 million into the escrow account. As a result, we re-evaluated the contingent liability we have recorded relating to this litigation and reduced our liability by $8.6 million during 2009.

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

28.  Fair Value Measurements

Accounting principles related to fair value measurements provide a framework for measuring fair value and focuses on an exit price in the principal (or alternatively, the most advantageous) market accessible in an orderly transaction between willing market participants (the "Fair Value Framework"). The Fair Value Framework establishes a three-tiered fair value hierarchy with Level 1 representing quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs are inputs that are observable for the 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 disorderly, 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.

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, 2009 and 2008, 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, 2009
	Level 1	Level 2	Level 3	Gross     Balance	Netting(1)	Net     Balance
	(in millions)
Assets:
Trading Securities:
U.S. Treasury. U.S. Government agencies and sponsored enterprises.................................................	$       615	$          50	$         -	$             665	$               -	$       665
Obligations of U.S. states and political subdivisions.........................................................................................	-	-	-	-	-	-
Residential mortgage-backed securities......................	-	129	821	950	-	950
Commercial mortgage-backed securities.....................	-	-	-	-	-	-
Collateralized debt obligations......................................	-	-	831	831	-	831
Other asset-backed securities.......................................	-	9	25	34	-	34
Other domestic debt securities.....................................	-	792	1,202	1,994	-	1,994
Debt Securities issued by foreign entities..................	-	213	196	409	-	409
Equity securities..............................................................	-	436	21	457	-	457
Precious metals trading..................................................	-	12,256	-	12,256	-	12,256
Derivatives(2)..................................................................	129	58,391	3,074	61,594	(52,763)	8,831
Securities  available-for-sale:
U.S. Treasury. U.S. Government agencies and sponsored enterprises.................................................	9,291	10,639	3	19,933	-	19,933
Obligations of U.S. states and political subdivisions.........................................................................................	-	749	-	749	-	749
Residential mortgage-backed securities......................	-	350	515	865	-	865
Commercial mortgage-backed securities.....................	-	558	8	566	-	566
Collateralized debt obligations......................................	-	-	-	-	-	-
Other asset-backed securities.......................................	-	273	217	490	-	490
Other domestic debt securities.....................................	-	864	-	864	-	864
Debt Securities issued by foreign entities..................	-	3,076	-	3,076	-	3,076
Equity securities..............................................................	-	1,263	-	1,263	-	1,263
Loans(3)............................................................................	-	1,122	4	1,126	-	1,126
Intangible(4).....................................................................	-	-	450	450	-	450
Total assets.....................................................................	$  10,035	$  91,170	$  7,367	$      108,572	$     (52,763)	$  55,809
Liabilities:
Deposits in domestic offices(5)....................................	$           -	$    2,589	$  1,643	$          4,232	$               -	$    4,232
Trading liabilities, excluding derivatives.....................	34	2,653	-	2,687	-	2,687
Derivatives(2)..................................................................	213	60,639	1,781	62,633	(57,214)	5,419
Long-term debt(6)...........................................................	-	4,149	419	4,568	-	4,568
Total liabilities................................................................	$       247	$  70,030	$  3,843	$        74,120	$      (57,214)	$  16,906

	Fair Value Measurements on a Recurring Basis as of December 31, 2008
	Level 1	Level 2	Level 3	Gross     Balance	Netting(1)	Net     Balance
	(in millions)
Assets:
Trading assets, excluding derivatives..............................	$         74	$         8,051	$      1,893	$       10,018	$               -	$    10,018
Derivatives(2).......................................................................	523	145,259	7,837	153,619	(130,936)	22,683
Securities  available-for-sale...............................................	4,856	19,581	471	24,908	-	24,908
Loans(3).................................................................................	-	738	136	874	-	874
Intangible assets(4).............................................................	-	-	333	333	-	333
Total assets..........................................................................	$    5,453	$     173,629	$    10,670	$     189,752	$     (130,936)	$    58,816
Liabilities:
Deposits in domestic offices(5).........................................	$         -	$         2,059	$         234	$         2,293	$               -	$      2,293
Trading liabilities, excluding derivatives..........................	206	1,799	-	2,005	-	2,005
Derivatives(2).......................................................................	412	148,819	2,554	151,785	(136,686)	15,099
Long-term debt(6)................................................................	-	2,570	57	2,627	-	2,627
Total liabilities.....................................................................	$       618	$     155,247	$      2,845	$     158,710	$     (136,686)	$    22,024

____________

(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 $8.2 billion and $21.3 billion and trading derivative liabilities of $5.3 billion and $14.3 billion as of December 31, 2009 and 2008, respectively, as well as derivatives held for hedging and commitments accounted for as derivatives.

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

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

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

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

The following table summarizes additional information about changes in the fair value of Level 3 assets and liabilities during year ended December 31, 2009 and 2008. As a risk management practice, we may risk manage the Level 3 assets and liabilities, in whole or in part, using securities and derivative positions that are classified as Level 1 or Level 2 measurements within the fair value hierarchy. Since those Level 1 and Level 2 risk management positions are not included in the table below, the information provided does not reflect the effect of such risk management activities related to the Level 3 assets and liabilities.

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

		Total Gains and (Losses) Included in(1)
	January 1,         2008	Trading     (Loss)   Revenue	Other Revenue	Other Comprehensive       Income	Net Purchases,     Issuances and   Settlements	Transfers     Into or Out of Level 3	Dec. 31,       2008	Current Period    Unrealized Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives.............................	$        77	$    (1,148)	$       -	$ -	$       848	$    2,116	$   1,893	$    (1,011)
Derivatives, net(2)...................	709	1,219	19	-	1,663	1,673	5,283	2,653
Securities  available-for-sale..	1	-	-	2	(71)	539	471	2
Loans(3)....................................	829	-	(70)	-	(621)	(2)	136	-
Other assets, excluding derivatives(4).........................	489	-	(309)	-	153	-	333	(203)
Total........................................	$   2,105	$           71	$    (360)	$   2	$    1,972	$    4,326	$    8,116	$      1,441
Liabilities:
Deposits in domestic offices..	$     (192)	$          -	$       19	$ -	$      (160)	$         99	$    (234)	$             4
Long-term debt.........................	(63)	-	27	-	50	(71)	(57)	7
Total........................................	$     (255)	$          -	$       46	$ -	$      (110)	$         28	$    (291)	$           11

____________

(1)  Includes realized and unrealized gains and losses.

(2)  Level 3 net derivatives included derivative assets of $3.1 billion and $7.8 billion and derivative liabilities of $1.8 billion and $2.6 billion as of December 31, 2009 and 2008, respectively.

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

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

Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis Certain financial and non-financial assets are measured at fair value on a non-recurring basis and therefore, are not included in the tables above. These assets include (a) mortgage and consumer loans classified as held for sale reported at the lower of cost or fair value and (b) impaired loans or assets that are written down to fair value based on the valuation of underlying collateral during the period. These instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustment in certain circumstances (e.g., impairment). The following table presents the fair value hierarchy level within which the fair value of the financial and non-financial assets has been recorded as of December 31, 2009 and 2008. The gains (losses) in 2009 and 2008 are also included.

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

					Total Gains (Losses)
	Non-Recurring Fair Value Measurements as of December 31, 2008				For Year Ended
	Level 1	Level 2	Level 3	Total	Dec. 31 2008
	(in millions)
Residential mortgage loans held for sale(1)...................................................	$ -	$    1,055	$    1,278	$    2,333	$    (556)
Other consumer loans held for sale(1)...............................................................	-	-	45	45	-
Impaired loans(2)..................................	-	-	133	133	46
Real estate owned(3)............................	-	61	-	61	-
Total assets at fair value on a non-recurring basis....................................	$ -	$    1,116	$    1,456	$    2,572	$    (510)

____________

(1)  As of December 31, 2009 and 2008, the fair value of the loans held for sale was below cost.

(2)  Represents impaired commercial loans. We use the fair value estimate of the underlying collateral to approximate the fair value of the commercial loans.

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

During the second quarter of 2009, we wrote down the carrying value of a data center building held for use to its fair value. The fair value was determined based on management's best estimate of the exit price that would be received in a current transaction with market participants at the reporting date. In determining the fair value, management considered, among other things, the features of the property, potential uses of the property that could maximize value to market participants, estimated marketing period given the current economic conditions and challenges for market participants to secure financing. Changes in fair value of this asset are reflected in occupancy expense in the consolidated statement of income (loss).

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 quarterly report.

The following table summarizes the carrying value and estimated fair value of our financial instruments at December 31, 2009 and 2008.

	December 31, 2009		December 31, 2008
	Carrying       Value	Fair       Value	Carrying       Value	Fair       Value
	(in millions)
Financial assets:
Short-term financial assets..........................................................................................	$     24,094	$     24,094	$      19,845	$       19,845
Federal funds sold and securities purchased under resale agreements...............	1,046	1,046	10,813	10,813
Non-derivative trading assets....................................................................................	17,596	17,596	10,018	10,018
Derivatives.....................................................................................................................	8,831	8,831	22,683	22,683
Securities........................................................................................................................	30,568	30,686	27,783	27,843
Commercial loans, net of allowance for credit losses..............................................	29,366	29,298	36,857	33,822
Commercial loans designated under fair value option and held for sale..............	1,126	1,126	874	874
Consumer loans, net of allowance for credit losses................................................	46,262	41,877	41,859	35,309
Consumer loans held for sale:
Residential mortgages..................................................................................................	1,386	1,389	3,512	3,521
Auto finance..................................................................................................................	353	353	-	-
Other consumer.............................................................................................................	43	43	45	45
Financial liabilities:
Short-term financial liabilities......................................................................................	$     11,121	$     11,121	$      14,701	$       14,701
Deposits:
Without fixed maturities.............................................................................................	106,890	106,890	103,207	103,207
Fixed maturities............................................................................................................	7,215	7,259	13,538	13,608
Deposits designated under fair value option...........................................................	4,232	4,232	2,293	2,293
Non-derivative trading liabilities................................................................................	2,687	2,687	2,005	2,005
Derivatives.....................................................................................................................	5,419	5,419	15,099	15,099
Long-term debt..............................................................................................................	13,440	13,693	19,462	19,331
Long-term debt designated under fair value option................................................	4,568	4,568	2,627	2,627

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 deteriorating economic conditions during the past 3 years, including house price depreciation, rising unemployment, changes in consumer behavior, and changes in investor composition The estimated fair values at December 31, 2009 and 2008 reflect these market conditions. For certain consumer loans, investors may assume a higher charge-off level and lower overall cash flows than what we, as the servicer of these receivables, believe will ultimately be the case. We believe most investors are non-bank financial institutions or hedge funds with high equity levels and a high cost of debt, which yields a significant pricing discount resulting to the seller.

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

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

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 characteristics.

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

•     Mortgage Loans Held for Sale - Certain residential mortgage loans are classified as held for sale and are recorded at the lower of cost or fair value. As of December 31, 2009, the fair value of these loans is below their amortized cost. The fair value of these mortgage loans is determined based on the valuations observed in the securitization market, which is deemed to be the principal exit market for these loans. Where mortgage securitization does not regularly occur, we utilize valuation information observed in alternative exit markets such as the whole loan market. In any event, the determination of fair value for mortgage loans takes into account factors such as the location of the collateral, the loan-to-value ratio, the estimated rate and timing of default, the probability of 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 are 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 defaults and recoveries, discounted at the rate demanded by market participants under current market conditions. In those cases, we also consider the specific loan characteristics 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 borrower's credit risks, 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.

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

Model inputs include estimates of future interest rates, prepayment speeds, loss curves and market discount rates reflecting management's estimate of the rate that would be required by investors in the current market given the specific characteristics and inherent credit risk of the receivables. Some of these inputs are influenced by home price changes and unemployment rates. To the extent available, such inputs are derived principally from or corroborated by observable market data by correlation and other means. We perform periodic validations of our valuation methodologies and assumptions based on the results of actual sales of such receivables. In addition, from time to time, we may engage a third party valuation specialist to measure the fair value of a pool of receivables. Portfolio risk management personnel provide further validation through discussions with third party brokers and other market participants. Since an active market for these receivables does not exist, the fair value measurement process uses unobservable significant inputs which are 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 $48 million and $33 million at December 31, 2009 and 2008, respectively.

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 types:

•     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 - 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. We determine whether adjustments to independent pricing information are necessary as a result of investigations and inquiries about the reasonableness of the inputs used and the methodologies employed by the independent pricing services.

•     Other domestic debt 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 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.

We perform periodic 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, make reference to external analysts' estimates such as probability of default, loss recovery and prepayment speeds and apply discount rates that would be demanded by investors under the current market conditions given the specific characteristics and inherent risks of the underlying collateral. In addition, we also consider whether the volume and level of activity for a security has significantly decreased and whether the transaction is orderly. 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 as a result of 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 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.

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.

Real Estate Owned - Fair value is determined based on third party appraisals obtained at the time we take title to the property and, if less than the carrying value of the loan, the carrying value of the loan is adjusted to the fair value. After three months on the market the carrying value is further reduced, if necessary, to reflect observable local market data including local area sales data.

Mortgage Servicing Rights - We elected to measure residential mortgage servicing rights, which are classified as intangible assets, at fair value when we adopted accounting principles related to the servicing of financial assets effective January 1, 2006. 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 and discount rates. 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. 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 was 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.

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 - Due to judgment being more significant in determining the fair value of Level 3 instruments, additional factors for Level 3 instruments are considered that may not be considered for Level 1 and Level 2 valuations and we record additional valuation adjustments as a result of these considerations. Some of the valuation adjustments are:

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

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

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

29.  Collateral, Commitments and Contingent Liabilities

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

At December 31,	2009	2008
	(in millions)
Interest bearing deposits with banks..................................................................................................................................	$    1,496	$      3,338
Trading assets(1)....................................................................................................................................................................	708	1,085
Securities available- for-sale(2).............................................................................................................................................	11,416	9,919
Securities held to maturity.....................................................................................................................................................	457	623
Loans(3)...................................................................................................................................................................................	3,933	3,926
Other assets(4)........................................................................................................................................................................	6,459	6,872
Total..........................................................................................................................................................................................	$  24,469	$    25,763

____________

(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.
(3)	Loans are primarily private label card and credit card receivables in 2009 and private label card receivables in 2008 pledged against long-term secured borrowings and residential mortgage loans pledged against long-term borrowings from the Federal Home Loan Bank.
(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 $2.0 billion and $2.4 billion at December 31, 2009 and 2008, respectively.

The fair value of collateral we accepted but not reported on the consolidated balance sheet that can be sold or repledged was $2.9 billion and $11.2 billion at December 31, 2009 and 2008, respectively. This collateral was obtained under security resale agreements. Of this collateral, $598 million and $429 million has been sold or repledged as collateral under repurchase agreements or to cover short sales at December 31, 2009 and 2008, respectively.

Lease Obligations We are obligated under a number of noncancellable leases for premises and equipment. Certain leases contain renewal options and escalation clauses. Office space leases generally require us to pay certain operating expenses. Net rental expense under operating leases was $144 million in 2009, $137 million in 2008 and $128 million in 2007.

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)
2010.................................................................................................................................................................................	$    125	$      (8)	$   117
2011.................................................................................................................................................................................	120	(7)	113
2012.................................................................................................................................................................................	113	(6)	107
2013.................................................................................................................................................................................	107	(3)	104
2014.................................................................................................................................................................................	100	(3)	97
Thereafter......................................................................................................................................................................	314	(9)	305
Net minimum lease commitments...............................................................................................................................	$    879	$    (36)	$   843

Litigation: We and certain of our subsidiaries are party to various legal proceedings, including actions that are or purport to be class actions, resulting from ordinary business activities relating to our current and/or former operations and that affect all of our reportable segments.

Due to the uncertainties in litigation and other factors, we cannot be certain that we will ultimately prevail in each instance. Also, as the ultimate resolution of these proceedings is influenced by factors that are outside of our control, it is reasonably possible our estimated liability under these proceedings may change. However, based upon our current knowledge, our defenses to these actions have merit and any adverse decision should not materially affect our consolidated financial condition, results of operations or cash flows.

30.  Concentration of Credit Risk

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

Our loan portfolio includes the following types of loans:

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

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

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

The following table summarizes the balances of high LTV, interest-only and ARM loans in our loan portfolios, including loans held for sale, at December 31, 2009 and 2008.

At December 31,	2009	2008
	(in billions)
Residential mortgage loans with high LTV and no mortgage insurance(1)..............................................................................	$  1.2	$     1.6
Interest-only residential mortgage loans........................................................................................................................................	3.3	4.2
ARM loans(2).....................................................................................................................................................................................	7.7	10.5

____________

(1)  Residential mortgage loans with high LTV and no mortgage insurance includes both fixed rate and adjustable rate mortgages. Excludes $232 million and $274 million of sub-prime residential mortgage loans held for sale at December 31, 2009 and 2008, respectively.

(2)  ARM loan balances above exclude $209 million and $342 million of sub-prime residential mortgage loans held for sale at December 31, 2009 and 2008, respectively. In 2010 and 2011, approximately $.9 billion and $.5 billion, respectively of ARM loans will experience their first interest rate reset.

Concentrations of first and second liens within the outstanding residential mortgage loan portfolio are summarized in the following table. Amounts in the table exclude closed end first lien loans held for sale of $1.4 billion and $3.5 billion at December 31, 2009 and 2008, respectively.

At December, 31	2009	2008
	(in millions)
Closed end:
First lien.....................................................................................................................................................................................	$  13,722	$    17,948
Second lien................................................................................................................................................................................	570	756
Revolving:
Second lien................................................................................................................................................................................	3,594	3,793
Total............................................................................................................................................................................................	$  17,886	$    22,497

Regional exposure at December 31, 2009 for certain loan portfolios is summarized in the following table.

December 31, 2009	Commercial    Construction and  Other Real    Estate Loans	Residential Mortgage     Loans	Credit      Card Receivables
New York State........................................................................................................................................	46.07%	37.55%	10.42%
North Central United States..................................................................................................................	3.99	8.98	27.41
North Eastern United States..................................................................................................................	10.69	9.96	14.61
Southern United States..........................................................................................................................	21.46	18.70	26.67
Western United States...........................................................................................................................	17.33	24.79	20.54
Others.......................................................................................................................................................	.46	.02	.35
Total..........................................................................................................................................................	100.00%	100.00%	100.00%

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

Condensed parent company financial statements follow.

Balance Sheet At December 31	2009	2008
	(in millions)
Assets:
Cash and due from banks......................................................................................................................................................	$           -	$           -
Interest bearing deposits with banks..................................................................................................................................	64	65
Trading assets.........................................................................................................................................................................	490	751
Securities  available-for-sale.................................................................................................................................................	358	288
Securities held to maturity (fair value $51 and $60)...........................................................................................................	50	64
Loans........................................................................................................................................................................................	338	148
Receivables from subsidiaries..............................................................................................................................................	7,182	8,654
Receivables from other HSBC affiliates...............................................................................................................................	1,540	2,187
Investment in subsidiaries at amount of their net assets:
Banking...................................................................................................................................................................................	15,929	12,735
Other........................................................................................................................................................................................	224	120
Goodwill...................................................................................................................................................................................	589	589
Other assets.............................................................................................................................................................................	486	200
Total assets.............................................................................................................................................................................	$  27,250	$    25,801
Liabilities:
Interest, taxes and other liabilities........................................................................................................................................	$        231	$         160
Payables due to subsidiaries................................................................................................................................................	534	536
Payables due to other HSBC affiliates.................................................................................................................................	142	468
Short-term borrowings...........................................................................................................................................................	2,960	3,956
Long-term debt(1)...................................................................................................................................................................	6,334	7,095
Long-term debt due to subsidiary and other HSBC affiliates(1).....................................................................................	1,872	869
Total liabilities.........................................................................................................................................................................	12,073	13,084
Shareholders' equity..............................................................................................................................................................	15,177	12,717
Total liabilities and shareholders' equity............................................................................................................................	$  27,250	$    25,801

____________

(1)	Contractual scheduled maturities for the debt over the next five years are as follows: 2010 - $999 million; 2011 - $4,055 million; 2012 - $315 million; 2013 - $141 million; 2014 - $1,188 million; and thereafter - $1,508 million.

Statement of Income (Loss) Year Ended December 31,	2009	2008	2007
	(in millions)
Income:
Dividends from banking subsidiaries................................................................................................................	$         7	$             7	$       800
Dividends from other subsidiaries.....................................................................................................................	2	40	2
Interest from subsidiaries....................................................................................................................................	70	130	223
Interest from other HSBC affiliates.....................................................................................................................	46	56	12
Other interest income...........................................................................................................................................	27	31	26
Securities transactions.........................................................................................................................................	2	-	6
Other income from subsidiaries..........................................................................................................................	(20)	168	(189)
Other income from other HSBC Affiliates.........................................................................................................	173	344	(1)
Other income..........................................................................................................................................................	(189)	(495)	235
Total income...........................................................................................................................................................	118	281	1,114
Expenses:
Interest to subsidiaries.........................................................................................................................................	70	70	81
Interest to other HSBC Affiliates........................................................................................................................	9	2	1
Other Interest Expense.........................................................................................................................................	241	353	379
(Credit) provision for credit losses....................................................................................................................	-	-	(2)
Other expenses with subsidiaries.......................................................................................................................	9	5	5
Other expenses with Other HSBC Affiliates.....................................................................................................	4	5	4
Other expenses......................................................................................................................................................	4	-	8
Total expenses........................................................................................................................................................	337	435	476
Income before taxes and equity in undistributed income of subsidiaries.....................................................	(219)	(154)	638
Income tax (benefit) expense................................................................................................................................	(96)	(87)	(54)
Income before equity in undistributed income of subsidiaries.......................................................................	(123)	(67)	692
Equity in undistributed (loss) income of subsidiaries......................................................................................	(19)	(1,622)	(554)
Net income (loss)...................................................................................................................................................	$  (142)	$    (1,689)	$       138

Statement of Cash Flows Year Ended December 31,	2009	2008	2007
	(in millions)
Cash flows from operating activities:
Net income..........................................................................................................................................................	$      (142)	$    (1,689)	$       138
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and deferred taxes.............................................................................................	152	186	2
Provision for credit losses..............................................................................................................................	-	-	(2)
Net change in other accrued accounts.........................................................................................................	329	(1,339)	(90)
Net change in fair value of non-trading derivatives...................................................................................	321	408	308
Undistributed loss of subsidiaries.................................................................................................................	19	1,622	554
Other, net...........................................................................................................................................................	359	1,210	(173)
Net cash provided by operating activities..................................................................................................	1,038	398	737
Cash flows from investing activities:
Net change in interest bearing deposits with banks....................................................................................	1	75	(963)
Purchases of securities.....................................................................................................................................	(9,948)	(26)	(38)
Sales and maturities of securities....................................................................................................................	9,912	11	33
Net originations and maturities of loans........................................................................................................	(190)	65	(343)
Net change in investments in and advances to subsidiaries.....................................................................	(1,428)	(7,138)	283
Other, net............................................................................................................................................................	(14)	(9)	110
Net cash used in investing activities...........................................................................................................	(1,667)	(7,022)	(918)
Cash flows from financing activities:
Net change in short-term borrowings............................................................................................................	(996)	31	1,511
Issuance of long-term debt, net of issuance costs......................................................................................	2,630	3,352	-
Repayment of long-term debt..........................................................................................................................	(3,033)	(250)	(306)
Dividends paid...................................................................................................................................................	(73)	(80)	(898)
Additions (reductions) of capital surplus.....................................................................................................	(66)	8	(5)
Preferred stock issuance, net of redemptions...............................................................................................	-	-	(125)
Capital contribution from HNAI......................................................................................................................	2,167	3,563	4
Net cash provided by financing activities..................................................................................................	629	6,624	181
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................................................................................................................................................................	$        352	$         410	$       475

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

HSBC USA Inc.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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

	2009				2008
	Fourth	Third	Second	First	Fourth	Third	Second	First
	(in millions)
Net interest income..................................................	$   1,249	$   1,260	$   1,277	$   1,348	$      1,106	$    1,169	$    1,090	$     961
Provision for credit losses......................................	897	1,006	1,067	1,174	781	658	606	498
Net interest income after provision for credit losses......................................................................	352	254	210	174	325	511	484	463
Other revenues (losses)..........................................	492	895	577	750	(1,121)	270	149	(85)
Operating expenses.................................................	950	919	1,089	972	890	969	925	820
Income (loss) before income tax (expense) benefit.....................................................................	(106)	230	(302)	(48)	(1,686)	(188)	(292)	(442)
Income tax (expense) benefit..................................	141	(69)	53	(41)	585	52	118	164
Net income (loss).....................................................	$        35	$      161	$    (249)	$       (89)	$    (1,101)	$     (136)	$     (174)	$   (278)

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 2009.

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, 2009 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, 2009. 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, 2009, 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, 2009 has been audited by HSBC USA's independent registered public accounting firm, KPMG LLP, as stated in their report appearing on page 107, which expressed an unqualified opinion on the effectiveness of HSBC USA's internal control over financial reporting as of December 31, 2009.

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers and Corporate Governance

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

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

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

Salvatore H. Alfiero, age 72, joined the HSBC USA Board in 2000, the HSBC Bank USA Board in 1996 and the HSBC North America Board in 2005. Mr. Alfiero has been the Chairman and Chief Executive Officer of Protective Industries, LLC since 2001. He is also a director of Southwire Company and Fresh Del Monte Produce Company. Mr. Alfiero was also a director of Phoenix Companies, Inc. through the end of 2009.

Mr. Alfiero is Chair of the Audit Committee.

Mr. Alfiero served as Chief Executive Officer of Protective Industries for nine years. In addition, he has been Chairman of the Board of Protective Industries, as well as a board member of Southwire Company, DelMonte Produce Company and Phoenix Companies, Inc. for a number of years. Mr. Alfiero was also founder and former Chairman and Chief Executive Officer of Mark IV Industries, Inc., a NYSE listed company, from 1969 to 2000. In these roles, Mr. Alfiero was 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, as well as having expertise in evaluating financial statements, raising capital and understanding SEC reporting requirements. He has also been a member of the Audit, Finance, Compensation and Governance committees of the multiple boards he has served on as a member. Mr. Alfiero has served on the Board of HSBC Bank USA since September 1996 and the HSBS USA Board since 2000, and, as a result, he is able to provide a historical perspective to the Board of HSBC USA.

William R. P. Dalton, age 66, joined the HSBC USA Board in May 2008. He was a member of HSBC Finance's Board from April 2003 to May 2008. Mr. Dalton retired in May 2004 as an Executive Director of HSBC Holdings plc, a position he held from April 1998. He also served HSBC as Global Head of Personal Financial Services from August 2000 to May 2004. From April 1998 to January 2004 he was Chief Executive of HSBC Bank plc. Mr. Dalton held positions with various HSBC entities for 25 years. Mr. Dalton currently serves as a director of TUI Travel plc, Associated Electric and Gas Insurance Services ("AEGIS"), AEGIS Managing Agency for Lloyds of London Syndicate 1225, United States Cold Storage Inc., and Talisman Energy Inc. He is a Trustee of HRH Duke of Edinburghs Commonwealth Study Conference (UK Fund) and a Governor of the Center for the Study of Financial Innovation, London.

Mr. Dalton is a member of the Audit Committee.

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

Anthea Disney, age 65, 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 has held various positions with The NewsCorporation Limited since 1989. 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 a director of The CIT Group from 1998 to 2001. Currently she serves on the boards of NYU-Wagner Graduate School of Public Service and New Milford Hospital (Connecticut).

Ms. Disney is a member of the Audit and Executive Committees.

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

Irene M. Dorner, age 55, joined the HSBC USA, HSBC Bank USA and HSBC North America Boards and was appointed President and Chief Executive Officer of HSBC USA and HSBC Bank USA effective in January 2010. Ms. Dorner joined HSBC in 1986 and has held numerous positions in the United Kingdom and Asia. She previously held the position of Deputy Chairman and Chief Executive Officer of HSBC Bank Malaysia Berhard 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 is a member of the Executive Committee.

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.

Louis Hernandez, Jr., age 43, joined the HSBC USA Board in May 2008. He was a member of HSBC Finance's Board from April 2007 to May 2008. Mr. Hernandez serves as Chief Executive Officer of Open Solutions Inc., a leading provider of software and services to financial institutions, since 1999. He also became Chairman of Open Solutions Inc. in 2000. Open Solutions converted from a publicly traded company to a privately owned entity in 2007. Mr. Hernandez serves on the board of directors of Avid Technology, Inc., a publicly traded company, as well as Unica Corporation, a publicly traded company. He served on the board of Mobius Management Systems, Inc., a publicly traded company, which was sold during 2007. Mr. Hernandez is a member of the board of trustees of the Connecticut Center for Science & Exploration, a member of the board of the Connecticut Children's Medical Center. Additionally, Mr. Hernandez serves in an Advisory role to the SoccerPlus Education Center, a Connecticut based non-profit utilizing educational opportunities to enrich the development of youth soccer players.

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

Mr. Hernandez's knowledge and experience as the Chief Executive Officer of Open Solutions Inc., a company which provides software and services to financial institutions, provides a particular expertise in evaluating and advising HSBC USA on technology issues with specific relevance to financial institutions. In 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 65, joined the HSBC USA Board in 2000 and the HSBC Bank USA Board in 1992. Mr. Jalkut is the President and Chief Executive Officer of Telepacific Communications. He was a director of Birch Telecom, Inc. until June 2006. Formerly, he was the President and Chief Executive of Pathnet and, prior to that, President and Group Executive, NYNEX Telecommunications. Mr. Jalkut was also a director of IKON Office Solutions and Covad until 2008. Mr. Jalkut is a Trustee of Lesley University in Cambridge, Massachusetts.

Mr. Jalkut is Co-Chair of the Fiduciary Committee and a member of the Audit and Executive Committees.

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

Brendan P. McDonagh, age 51, was appointed as a director and Chairman of the Board in May 2009. He also serves as Chairman of the Board of HSBC Finance. Since February 2008, he has served as Chief Executive Officer and a member of the Board of Directors of HSBC North America. In 2008, he was appointed as a Group Managing Director of HSBC and, since August 2005, he has served as a Group General Manager of HSBC. He is a member of the HSBC Group Management Board. From February 2007 to February 2008, Mr. McDonagh served as Chief Executive Officer of HSBC Finance and Chief Operating Officer of HSBC North America. Mr. McDonagh served as Chief Operating Officer of HSBC Finance prior to his appointment as Chief Executive Officer in February 2007. From September 2006 to February 2007, Mr. McDonagh held the title of Group Executive of HSBC Finance. From October 2004 to December 2006, he served as Chief Operating Officer of HSBC Bank USA. An international manager for the HSBC Group for more than twenty five years, Mr. McDonagh began his career with HSBC in 1979, completing various assignments throughout the world. In September 2002, he transferred to the United States to run the retail and commercial banking operations of HSBC Bank USA. Mr. McDonagh is a member of several U.S. and U.K. organizations including the Institute of Financial Services, the Chartered Management Institute and the Chicago Regional Board of the American Ireland Fund. Mr. McDonagh is a past Chairman of the Consumer Bankers Association.

Mr. McDonagh is the former Chief Operating Officer of HSBC HSBC Bank USA and the current Chief Executive Officer of its parent, HSBC North America. In those capacities, Mr. McDonagh brings particular knowledge and insight into both HSBC USA's and HSBC North America's strategies and operations as part of the global HSBC organization. Mr. McDonagh has held several roles with HSBC, including his current role as Group Managing Director. His extensive global experience with HSBC and his role as a senior executive of HSBC and HSBC North America are essential to the successful implementation of HSBC's global strategy in North America, including the contributions to the implementation of that made by HSBC USA.

Executive Officers

Information regarding the executive officers of HSBC USA as of March 1, 2010 is presented in the following table.

Name	Age	Year Appointed	Present Position
Irene M. Dorner	55	2010	President and Chief Executive Officer
Gerard Mattia	45	2007	Senior Executive Vice President & Chief Financial Officer
Andrew Armishaw	47	2008	Senior Executive Vice President, Chief Technology & Services Officer
Janet L. Burak	54	2004	Senior Executive Vice President & General Counsel
Christopher Davies	47	2007	Senior Executive Vice President, Head of Commercial Banking
Mark C. Gunton	53	2008	Senior Executive Vice President, Chief Risk Officer
Mark A. Hershey	57	2007	Senior Executive Vice President & Chief Credit Officer
Kevin R. Martin	49	2009	Senior Executive Vice President, Personal Financial Services and Marketing
Anthony J. Murphy	50	2009	Senior Executive Vice President, Head of Global Banking and Markets Americas
Matthew Smith	50	2009	Senior Executive Vice President, Head of Strategy and Planning
Suzanne Brienza	52	2008	Executive Vice President, Human Resources
Mark Martinelli	50	2007	Executive Vice President, Chief Auditor
John T. McGinnis	43	2009	Executive Vice President, Chief Accounting Officer
Lesley M. Midzain	46	2008	Executive Vice President, Compliance
Marlon Young	54	2006	Managing Director, Private Banking Americas

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

Gerard Mattia, Senior Executive Vice President & Chief Financial Officer since March 2007. He is also Chief Financial Officer, Global Banking and Markets Americas, and has responsibility for financial management and oversight of HSBC's Global Banking and Markets businesses in the region. Mr. Mattia joined HSBC as Managing Director, Chief Financial Officer, CIBM North America in 2004. Prior to joining HSBC, he held various finance and senior management positions with Bank of America and its predecessor entities, most recently as Chief Operating Officer, Quick & Reilly, Bank of America's retail brokerage firm. Prior to that, Mr. Mattia was a C.P.A. and worked with KPMG Peat Marwick for six years.

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

Janet L. Burak, Senior Executive Vice President & General Counsel of HSBC USA and HSBC Bank USA since April 2004, and Secretary of HSBC USA and HSBC Bank USA from April 2004 until September 1, 2007. In 2007, Ms. Burak was also appointed Regional Compliance Officer for HSBC North America, and Senior Executive Vice President & General Counsel for HSBC North America. Prior to April 2004, Ms. Burak served as an attorney with Household International, Inc. for twelve years, most recently as Group General Counsel. Prior to joining Household International, Inc. , she was an associate with Shearman & Sterling and an attorney with Citigroup. Ms. Burak is a director of Citizens Committee for New York City, a non-profit organization.

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

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

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

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

Anthony J. Murphy, Senior Executive Vice President, Head of Global Banking and Markets Americas since September 2009. Previously, Senior Executive Vice President - Strategy Implementation of HSBC Finance and of HSBC North America. from 2008 to 2009. Senior Executive Vice President - Portfolio Management of HSBC Finance and of HSBC North America from February 2007 to May 2008. Prior to his appointment to this position, Mr. Murphy was President and Chief Executive Officer of HSBC Securities (USA) Inc. and Chief Operating Officer of Global Banking and Markets (formerly known as CIBM Americas). He was also Co-Head of Corporate, Investment Banking and Markets of Global Banking and Markets North America since November 2004. Mr. Murphy has been with the HSBC Group since 1990. Prior to his appointment as Chief Executive Officer of HSBC Securities (USA) Inc. in April 2003, Mr. Murphy served as Chief Strategic Officer of Global Banking and Markets from 2000. Prior to that assignment, he was Head of Market Risk Management for HSBC Bank plc and HSBC Investment Bank in London from 1996. Mr. Muphy joined HSBC in 1990.

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

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

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

John T. McGinnis, Executive Vice President, Chief Accounting Officer of HSBC USA since August 2009, and Executive Vice President and Controller of HSBC North America Holdings Inc. since March 2006. Mr. McGinnis has also been Executive Vice President and Chief Accounting Officer of HSBC Finance since July 2008. Mr. McGinnis is responsible for accounting and financial reporting for HSBC USA. 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).

Lesley M. Midzain, Executive Vice President, Compliance since September 2009. From 2004 to April 2008, Ms. Midzain was Vice President and Chief Compliance Officer, HSBC Bank Canada, as well as Area Compliance Officer, Canada, for HSBC. She joined HSBC in 1997 as Legal Counsel.

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

Corporate Governance

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

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

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

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

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

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

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

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

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

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

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

Audit Committee The primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities relating to HSBC USA's system of internal controls over financial reporting and its accounting, auditing and financial reporting practices. The Audit Committee also plays a principal role in oversight of risk management within HSBC USA, including, but not limited to credit, liquidity, interest rate, market, operational, reputational and strategic risk. 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): Salvatore H. Alfiero (Chair), William R. P. Dalton, Anthea Disney, Louis Hernandez, Jr. and Richard A. Jalkut. The Board of Directors has determined that each of these individuals is financially literate. The Board of Directors has also determined that Mr. Alfiero qualifies as an Audit Committee financial expert.

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

Fiduciary Committee The primary purpose of the Fiduciary Committee is to supervise the fiduciary activities of HSBC Bank USA to ensure the proper exercise of its fiduciary powers in accordance with 12 U.S.C. § 92a - Trust Powers of National Banks and related regulations promulgated by the Office of the Comptroller of the Currency. Louis Hernandez, Jr. (Co-Chair) and Richard A. Jalkut (Co-Chair) are members of the Fiduciary Committee. All members of the Fiduciary Committee are independent directors under our Corporate Governance Standards.

Board of Directors - Director Qualifications HSBC and the Board of Directors believe a Board comprised of members from diverse professional and personal backgrounds who provide a broad spectrum of experience in different fields and expertise best promotes the strategic objectives of HSBC USA. HSBC and the Board of Directors evaluate the skills and characteristics of prospective Board members in the context of the current makeup of the Board of Directors. This assessment includes an examination of whether a candidate is independent, as well as consideration of diversity, skills and experience in the context of the needs of the Board of Directors, including experience as a chief executive officer or other senior executive or in fields such financial services, finance, technology, communications and marketing, and an understanding of and experience in a global business. Although there is no formal written diversity policy, the Board considers a broad range of attributes, including experience, professional and personal backgrounds and skills, to ensure there is a diverse Board. A majority of the non-executive Directors are expected to be active or retired senior executives of large companies, educational institutions, governmental agencies, service providers or non-profit organizations. Advice and recommendations from others, such as executive search firms, may be considered, as the Board of Directors deems appropriate. Such advice was sought for the Board of Directors elected in 2008 to specifically seek highly qualified candidates who would also broaden the race and gender diversity of the Board of Directors. As a result of that search, Mr. Hernandez became a Board member and continues to sit on the Board.

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

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

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

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

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

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

•     assist in affirmatively representing HSBC to the world;

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

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

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

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

Board of Directors - Risk Oversight by Board HSBC USA has a comprehensive risk management framework to identify, measure, monitor and manage risk, including credit, liquidity, interest rate, market, operational risk, reputational and strategic risk. 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 its Audit Committee. The Charter of the Audit Committee specifically states the Committee's responsibilities related to risk, including meeting with the Chief Risk Officer and representatives of the Asset and Liability Committee ("ALCO") and the Disclosure Committee and reviewing reports from management of steps taken to monitor and control risk exposures. At each quarterly Audit Committee, the Chief Risk Officer makes a presentation to the committee describing all areas of potential key risks for HSBC USA, including operational and internal controls, market, credit, information security, capital management, liquidity, compliance and litigation. Each head of each Risk functional area also reports to the Audit Committee and provides a review of particular potential risks to HSBC USA and management's plan for mitigating these risks.

In addition, 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 and compliance risks. The 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 this committee's charter and framework.

Certain other committees report to the Risk Management Committee, including ALCO, the New Product Committee and the Disclosure Committee. For 2010, the role of the New Product Committee will be assumed by the HSBC North America New Product Committee which will report to both the HSBC North America and HSBC USA Risk Committees.

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 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.

Along with ALCO and the Disclosure Committee, the Fiduciary Risk and the Operational Risk and Internal Control Committees 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.

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 2009 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 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 "2009 CD&A") summarizes the principles, objectives and factors considered in evaluating and determining the compensation of HSBC USA's executive officers in 2009. Specific compensation information relating to HSBC USA's Chief Executive Officer (the "HSBC USA CEO"), Chief Financial Officer and the next three most highly compensated executives is contained in this portion of the Form 10-K (these officers are referred to collectively as the "Named Executive Officers").

Oversight of Compensation Decisions

The Board of Directors of HSBC USA did not play a role in establishing remuneration policy or determining executive officer compensation for 2009 or any of the comparative periods discussed in this 2009 CD&A.

Role of HSBC's Remuneration Committee and HSBC CEO

The Board of Directors of HSBC has the authority to delegate any of its powers, authorities and judgments to any committee consisting of one or more directors, and has established a Remuneration Committee ("REMCO") which meets regularly to consider Human Resources issues, particularly terms and conditions of employment, remuneration and retirement benefits. Within the authority delegated by the HSBC Board, REMCO is responsible for approving the remuneration policy of HSBC. This includes the terms of bonus plans, share plans and other long-term incentive plans and for agreeing to the individual remuneration packages for the most senior HSBC executives. This includes those having an impact on the Group's risk profile ("senior executives").

As an indirect wholly owned subsidiary of HSBC, HSBC USA is subject to the remuneration policy established by HSBC, and the Chief Executive Officer of HSBC USA is one of the senior executives whose compensation is reviewed and endorsed by REMCO. Unless an executive is a "senior executive" as described above, REMCO delegates its authority for endorsement of base salaries and annual cash incentive awards to Michael F. Geoghegan, the HSBC Group Chief Executive ("Mr. Geoghegan"). Pursuant to a further delegation of authority from Mr. Geoghegan, Stuart T. Gulliver, the Chief Executive for Global Banking and Markets, has approval authority over executives within the Global Banking and Markets businesses. As the Chief Executive Officer of HSBC North America, Brendan McDonagh ("Mr. McDonagh"), shares oversight and recommendation responsibility with Mr. Gulliver for the Global Banking and Markets businesses in North America. For 2009, Mr. Paul J. Lawrence was the Chief Executive Officer of HSBC USA ("Mr. Lawrence").

The members of REMCO are Sir M Moody-Stuart (Chairman), J.D. Coombe, W.S.H. Laidlaw, G. Morgan and J. L. Thornton, the Chairman of HSBC North America. J. L. Thornton became a member of REMCO on April 24, 2009. All REMCO members are non-executive directors of HSBC. Deloitte LLP provided independent advice on executive compensation issues during the year. Towers Watson provides compensation data to REMCO.

Role of HSBC USA's Senior Management

In February 2009, Mr. Lawrence reviewed the compensation packages for Messrs. Mattia and Young and recommended base salaries for 2009 and performance-based cash awards and equity-based long-term incentive awards for 2008 performance awarded in 2009. Additionally, Mr. Lawrence reviewed the compensation package for Mr. Davies with the Executive Director and Chairman for Group Personal Financial Services and Commercial Banking. Ms. Burak's compensation package was reviewed by Mr. Lawrence. The recommendations were submitted to HSBC's Group Managing Director of Human Resources in London for submission to Mr. Geoghegan. With respect to Mr. Lawrence's salary, cash bonus and equity-based long term incentive award, Mr. McDonagh provided a recommendation to REMCO and REMCO endorsed the recommendation, while Mr. Geoghegan exercised authority to approve final recommendations with respect to Messrs. Mattia and Young.

In February 2010 Mr. Geoghegan reviewed the recommendation for total 2009 compensation for Mr. Lawrence as provided by Mr. McDonagh in consultation with the Chief Executive for Global Banking and Markets and HSBC's Group Managing Director of Human Resources. The recommendation included a variable pay award relating to 2009 performance. The recommendation was then submitted to REMCO for endorsement. In addition, Mr. McDonagh reviewed the 2009 total compensation recommendations provided by Mr. Lawrence with respect to Ms. Burak, and for Messrs. Mattia and Young whose recommendations were developed in consultation with the Chief Executive for Global Banking and Markets and HSBC's Group Managing Director of Human Resources. Mr. Geoghegan also reviewed the 2009 total compensation recommendation provided by Mr. Lawrence with respect to Mr. Davies, whose recommendation was developed in conjunction with the Executive Director and Chairman for Group Personal Financial Services and Commercial Banking and HSBC's Group Managing Director of Human Resources.

The total compensation review includes year-over-year comparison for individual executives, together with comparative competitor information from Towers Watson based on a "Comparator Group" which is comprised of both U.S.-based organizations and our global peers with comparable business operations located within U.S. borders. Most of these organizations are publicly held companies that compete with us for business, customers and executive talent. The Comparator Group is reviewed annually with the assistance of Towers Watson. Accordingly, our compensation program is designed to provide the flexibility to offer compensation that is competitive with the Comparator Group so that we may attract and retain the highest performing executives. The Comparator Group for 2009 consisted of:

Global Peers	U.S.-Based Organizations
Bank of America	American Express
Barclays	Capital One Financial
BNP Paribas	Fifth Third Bancorp
Citigroup	PNC Bank
Deutsche Bank	Regions Bank
JPMorgan Chase	Suntrust
Santander	US Bancorp
Standard Chartered	Wells Fargo
UBS

Comparator Group market data was referenced by Mr. Geoghegan to evaluate the competitiveness of proposed executive compensation. As the determination of the variable pay awards relative to 2009 performance considered the overall satisfaction of objectives that could not be evaluated until the end of 2009, the final determination on total 2009 compensation was not made until February 2010. Common objectives for the Named Executive Officers included: cost management; customer satisfaction; decrease of operational losses; and employee engagement. Each Named Executive Officer also had other individual financial, process, customer focus and employee related objectives. To make that evaluation, Mr. Geoghegan and Mr. McDonagh received reports from management concerning satisfaction of 2009 corporate, business unit and individual objectives as more fully described below. REMCO, Mr. Geoghegan or Mr. McDonagh, as appropriate, approved or revised the original recommendations.

Compensation Consultants

In 2009, REMCO retained Towers Watson to perform executive compensation services with regard to the highest level executives in HSBC Group, including the Named Executive Officers. Specifically, Towers Watson was requested to provide REMCO with market trend information for use during the annual pay review process and advise REMCO as to the competitive position of HSBC's total direct compensation levels in relation to its peers. The aggregate fee paid to Towers Watson for services provided was $450,000. While the fee for services provided was paid by HSBC, the amount that may be apportioned to HSBC USA is approximately $20,000.

Separately, the management of HSBC North America retained Towers Watson to perform non-executive compensation consulting services. The aggregate fee paid to Towers Watson by HSBC North America for these other services was $722,137.

Objectives of HSBC USA's Compensation Program

HSBC USA's compensation program is based upon the specific direction of HSBC management and REMCO as HSBC seeks to implement a uniform compensation philosophy by employing common standards and practices throughout HSBC's global operation.

A global reward strategy for HSBC was approved by REMCO in November 2007. This strategy provided a framework for REMCO in carrying out its responsibilities during the year and includes the following key elements as applied to HSBC USA:

•     An assessment of reward with reference to clear and relevant objectives set within a balanced scorecard framework. This framework facilitates a rounded approach to objective setting. Under this framework, objectives are established under four categories - financial, process (including risk mitigation), customer and people. The individual financial objectives are established considering prior year's business performance, expectations for the upcoming year for business and individual goals, HSBC USA's annual business plan, HSBC's business strategies, and objectives related to building value for HSBC shareholders. Process objectives include consideration of risk mitigation and cost efficiencies. Customer objectives include standards for superior service and enhancement of HSBC's brand. People objectives include employee engagement measures and development of skills and knowledge of our teams to sustain HSBC over the short and medium term. Certain objectives have quantitative standards that may include meeting designated financial performance targets for the company or the executive's respective business unit, increasing employee engagement, and achieving risk management objectives. Qualitative objectives may include key strategic business initiatives or projects for the executive's respective business unit. For 2009, HSBC USA's qualitative objectives included process enhancements and improvements to customer experience. Each Named Executive Officer was evaluated against his or her respective individual objectives in each of these areas. Quantitative and qualitative objectives provided some guidance with respect to 2009 compensation. Furthermore, in keeping with HSBC's compensation strategy, discretion played a considerable role in establishing the variable pay awards for HSBC USA's senior executives.

•     A focus on total compensation (salary, bonus and the value of long-term incentives) with the level of variable pay (namely cash bonus and the value of long-term equity incentives) differentiated by performance;

•     The use of considered discretion to assess the extent to which performance has been achieved rather than applying a formulaic approach which, by its nature, may encourage inappropriate risk taking and cannot consider results not necessarily attributable to the executive and is inherently incapable of considering all factors affecting results. In addition, environmental factors and strategic organizational goals that would otherwise not be considered by applying absolute financial metrics may be taken into consideration. While there are specific quantitative goals as outlined above, achievement of one or all of the objectives are just considerations in the final reward decision;

•     Delivery of a significant proportion of variable pay in deferred HSBC shares to align recipient interests to the future performance of HSBC, and to retain key talent; and

•     A total remuneration package (salary, bonus, long-term incentive awards and other benefits) that is competitive in relation to comparable organizations in each of the markets in which HSBC operates.

REMCO also takes into account environmental, social and governance aspects when determining executive officers' remuneration and oversees senior management incentive structures to ensure that such structures take account of possible inadvertent consequences from these aspects.

Internal Equity

HSBC USA's executive officer compensation is analyzed internally at the direction of HSBC's Group Managing Director of Human Resources at the macro level globally with a view to align treatment across countries, business lines and functions, taking into consideration individual responsibilities, size and scale of the businesses the executives lead and contributions of each executive, along with geography and local labor markets. These factors are then calibrated for business and individual performance within the context of their business environment against their respective comparator group.

Link to Company Performance

HSBC's compensation plans are designed to motivate its executives to improve the overall performance and profitability of HSBC as well as the specific region, unit or function to which they are assigned. Each executive's individual performance and contribution is considered in determining the amount of discretionary variable pay to be paid in cash and in HSBC equity-based award grants each year.

HSBC seeks to offer competitive base salaries with a significant portion of variable compensation components determined by measuring overall performance of the executive, his or her respective business unit, legal entity and HSBC. The discretionary cash awards are based on individual and business performance, as more fully described under Elements of Compensation - Annual Discretionary Bonus Awards, emphasizing efficiency, profits and key financial and non-financial performance measures.

Competitive Compensation Levels and Benchmarking

HSBC USA endeavors to maintain a compensation program that is competitive, but utilizes the full market range for total compensation received by similarly situated executives in our Comparator Group. Executives may be rewarded with higher levels of compensation for differentiated performance.

When making compensation decisions, HSBC looks at the compensation paid to similarly-situated executives in our Comparator Group, a practice referred to as "benchmarking." Benchmarking provides a point of reference for measurement, but does not supplant analyses of internal pay equity and individual performance of the executive officers that HSBC considers when making compensation decisions.

The comparative compensation information is just one of several data points used. Messrs. McDonagh and Lawrence and the Chief Executive for Global Banking and Markets also exercise judgment and discretion in recommending executive compensation packages. We have a strong orientation to pay for performance through variable pay. Consequently, variable pay makes up a significant proportion of total compensation while maintaining an appropriate balance between fixed and variable elements. Actual compensation paid will increase or decrease based on the executive's individual performance and business results.

Elements of Compensation

The primary elements of executive compensation are base salary and annual discretionary awards paid in cash and as long-term equity-based awards that vest based solely upon continued employment or also require satisfaction of certain performance conditions. HSBC conducts internal comparisons of its executives globally, and compares business performance relative to the Comparator Group. Base salary and variable compensation are sized within the context of a total compensation package that is intended to be appropriately market competitive in the U.S. for U.S. executives.

In addition, executives are eligible to receive company funded retirement benefits that are offered to employees at all levels who meet the eligibility requirements of such qualified and non-qualified plans. Although perquisites are provided to certain executives, they typically are not a significant component of compensation.

Base Salary

Base salary helps HSBC attract and retain executive talent because it provides a degree of financial certainty since it is less subject to risk than most other pay elements. In establishing individual executive salary levels, consideration is given to market pay, the specific responsibilities and experience of the Named Executive Officer. Base salary is reviewed annually and may be adjusted based on performance and changes in the competitive market. When establishing base salaries for executives, consideration is given to compensation paid for similar positions at companies included in the Comparator Group, targeting the 50th percentile. Other factors such as potential for future advancement, specific job responsibilities, length of time in current position, individual pay history, and comparison to comparable internal positions (internal equity) influences the final base salary recommendations for individual executives. Salary increases proposed by senior management are prioritized towards high performing employees and those who have demonstrated rapid development.

In 2009 salaries were reviewed and management determined that the market did not warrant adjustments.

Annual Discretionary Cash Awards

Annual discretionary cash awards vary from year to year and are offered as part of the total compensation package to Named Executive Officers to motivate and reward strong performance. Superior performance is encouraged by placing a significant 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.

HSBC USA's financial performance in 2009 exceeded expectations, and our Global Banking and Markets segment demonstrated significantly higher performance when compared to 2008. We believe the foresight, strategic planning and execution of our executive officers helped to preserve and protect HSBC's interests and that of HSBC's shareholders. Therefore, bonus recommendations for HSBC USA executives were slightly higher than 2008, while bonus recommendations for executives in our Global Banking & Market segment were considerably higher than 2008. Recommended bonuses were approved to be awarded to Mr. Lawrence and each of the other four Named Executive Officers. In addition, a substantial portion of the total discretionary variable pay component was deferred by awarding Restricted Share Units (defined below), subject to a three-year vesting period.

Long-term Equity Awards

Long-term awards are made in the form of equity-based compensation. 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, 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 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 since 2004 as in 2005 HSBC shifted to Restricted Shares for equity-based compensation.

Restricted Shares and Restricted Share Units

Restricted Shares with a time vesting condition are generally awarded as deferred variable pay in recognition of past performance and to further motivate and retain executives. Dividend equivalents are paid or accrue on all underlying share or share unit awards at the same rate paid to ordinary shareholders. Starting in 2009, units of Restricted Shares ("Restricted Share Units") are now awarded as the long-term incentive or deferred compensation component of variable discretionary pay and also carry dividend rights.

Restricted Share awards comprise a number of shares to which the employee will become entitled, generally after three years, subject to the individual remaining in employment. The amount granted is based on general guidelines reviewed each year by Mr. Geoghegan and endorsed by REMCO and in consideration of the individual executive's total compensation package, individual performance, goal achievement and potential for growth. In March 2009, HSBC USA's Named Executive Officers received Restricted Share Unit awards for 2008 performance.

In March 2010, certain HSBC USA executives, including all of the Named Executive Officers, will be awarded Restricted Share Units for 2009 performance. For Mr. Lawrence, the Restricted Share Units will represent 60% of his total variable pay award. Mr. Mattia, Ms. Burak, Mr. Davies and Mr. Young will each receive 60%, 60%, 50% and 100%, respectively, in Restricted Share Units as a percent of their total variable pay award.

Performance Shares

Performance Share awards may be granted to the most senior executives whose business units have the ability to have a direct impact on HSBC's consolidated results and contain both time and corporate performance-based vesting conditions. The performance-based condition is evaluated under two independent measures, each comprising 50% of the total possible reward, HSBC's Total Shareholder Return ("TSR"), which is ranked against a comparator group and growth in Earnings per Share ("EPS"), which is measured over a three-year performance period. Awards are forfeited to the extent that they have not been met.

The comparator group for the TSR award comprises the 28 banks based upon their market capitalization, geographic diversity and the nature of their activities:

ABN AMRO(1)	Mitsubishi UFJ Financial Group
Banco Santander	Mizuho Financial Group
Bank of America	Morgan Stanley
Bank of New York	National Australia Bank
Barclays	Royal Bank of Canada
BBVA	Royal Bank of Scotland
BNP Paribas	Societe Generale
Citigroup	Standard Chartered
Credit Agricole	UBS
Credit Suisse Group	UniCredito Italiano
Deutsche Bank	US Bancorp
HBOS(1)	Wachovia(1)
JP Morgan Chase	Wells Fargo
Lloyds Banking Group	Westpac Banking Corporation

____________

(1)	ABN AMRO, HBOS and Wachovia have delisted since the start of the performance period for the 2006 awards. These comparators have been replaced from the point of delisting by Fortis, Commonwealth Bank of Australia and Toronto Dominion Bank, respectively.

The extent to which the TSR award will vest will be determined on a sliding scale based on HSBC's relative TSR ranking, measured over the three years, against the comparator group. No portion of the award may vest if HSBC's TSR is lower than 14 entities in the comparator group.

The percentage of the EPS award that vests depends upon the absolute growth in EPS achieved over three years. Thirty percent of the shares will vest if the incremental EPS over three years is 24% or more of EPS in the "base year" (the EPS for the financial year preceding that of the award). The percentage of shares vesting will rise on a straight line proportionate basis to 100% if HSBC's incremental EPS over the three years is 52% or more of EPS in the base year. Incremental EPS is calculated by expressing as a percentage of the EPS of the base year the difference each year of the three-year performance period between the EPS of that year and the EPS of the base year. These percentages are then aggregated to arrive at the total incremental EPS for the performance period.

REMCO maintains discretion to determine that a Performance Share award will not vest unless satisfied that HSBC's financial performance has shown sustained improvement since the date of the award. REMCO may also waive, amend or relax performance conditions if it believes the performance conditions have become unfair or impractical and believes it appropriate to do so.

In April 2009, performance tests were conducted on Performance Shares granted in 2006. The EPS performance test failed. Consequently, the EPS portion of the award did not vest. HSBC's TSR for the performance period was between the 13th- and 14th-ranked companies in the comparator group. Therefore, 39.49% of the 50% of the award (i.e. 19.75% of the total number of performance shares awarded) that was conditioned upon relative TSR was vested and distributed.

No Performance Shares have been awarded to HSBC USA executive officers since 2006 as equity awards have been made in the form of Restricted Shares and Restricted Share Units.

Reduction or Cancellation of Long-term Equity Award, including "Clawbacks"

Long-term Equity awards granted after January 1, 2010, 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 shares awarded may be reduced or the entire award may be cancelled outright.

Circumstances which may prompt such action by REMCO include, but are not limited to: participant conduct considered to be detrimental or bringing the business into disrepute; evidence that past performance was materially worse than originally understood; prior financial statements are materially restated, corrected or amended; or evidence that the employee or the employee's business unit engaged in improper or inadequate risk analysis or failed to raise related concerns.

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.

Mr. Lawrence participated in general benefits available to executives of HSBC USA and HBUS and certain additional benefits and perquisites available to HSBC's international managers. Compensation packages for international managers are modeled to be competitive globally and within the country of assignment, and attractive to the executive in relation to the significant commitment he/she must make in connection with a global posting. The additional benefits and perquisites that were significant when compared to other compensation received by other executive officers of HSBC USA and HBUS consist of housing expenses, area allowance, children's education costs, travel expenses and tax equalization. These benefits and perquisites are, however, consistent with those paid to similarly-placed HSBC international managers who are subject to appointment to HSBC locations globally as deemed appropriate by HSBC senior management. The additional perquisites and benefits are further described below in the Summary Compensation Table.

Retirement Benefits

HSBC North America offers a defined benefit retirement plan in which HSBC USA executives may participate that provides a benefit equal to that provided to all eligible employees of HSBC USA with similar dates of hire. At present, both qualified and non-qualified defined benefit plans are maintained so that the level of pension benefit may be continued without regard to certain Internal Revenue Service limits. We also maintain a qualified defined contribution plan with a 401(K) feature and company matching contributions. Ms. Burak, as a former executive of HSBC Finance, also participates in a defined contribution non-qualified deferred compensation plan that provides executives and certain other highly compensated employees with a benefit measured by a company contribution on certain compensation exceeding Internal Revenue Code limits. 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 an international manager, Mr. Lawrence is accruing pension benefits under a foreign-based defined benefit plan that includes member contributions. Mr. Davies, as an international assignee from the United Kingdom, is accruing pension benefits under a foreign-based defined benefit plan. Additional information concerning these plans is contained below in this 2009 CD&A in the table entitled Pension Benefits.

Employment Contracts and Severance Protection

There are no employment agreements between HSBC USA and its executive officers.

The HSBC-North America (U.S.) Severance Pay Plan and the HSBC-North America (U.S.) Supplemental Severance Pay Plan provide any eligible employees with severance pay for a specified period of time in the event that his/her employment is involuntarily terminated for certain reasons, including displacement or lack of work or rearrangement of work. Regular U.S. full-time or part-time employees who are scheduled to work 20 or more hours per week are eligible. Employees are required to sign an employment release as a condition for receiving severance benefits. Benefit amounts vary according to position. However, the benefit is limited for all employees to a 52-week maximum.

Repricing of Stock Options and Timing of Option Grants

For HSBC equity option plans, the exercise price of awards made in 2003 and 2004 was the higher of the average market value for HSBC ordinary shares on the five business days preceding the grant date or the market value on the date of the grant.

HSBC also offers all employees a stock purchase plan in which options to acquire HSBC ordinary shares are awarded when an employee commits to contribute up to 250 GBP (or approximately $350) each month for one, three or five years under its Sharesave Plan. At the end of the term, the accumulated amount, plus interest if any, may be used to purchase shares under the option, if the employee chooses to do so. The exercise price for each such option is the average market value of HSBC ordinary shares on the five business days preceding the date of the invitation to participate, less a 15 to 20 percent discount (depending on the term).

HSBC USA does not, and our parent, HSBC, does not, reprice stock option grants. In addition, neither HSBC USA nor HSBC has ever engaged in the practice known as "back-dating" of stock option grants, nor have we attempted to time the granting of historical stock options in order to gain a lower exercise price.

Dilution from Equity-Based Compensation

While dilution is not a primary factor in determining award amounts, there are limits to the number of shares that can be issued under HSBC equity-based compensation programs. These limits, more fully described in the various HSBC Share Plans, were established by vote of HSBC's shareholders.

Accounting Considerations

We account for all of our stock-based compensation awards including share options, Restricted Share and Restricted Share Unit awards and the employee stock purchase plan, using the fair value method of accounting under Statement of Financial Accounting Standards No. 123(Revised 2004), "Share-Based Payment" ("SFAS 123(R)").

The fair value of the rewards granted is recognized as expense over the vesting period. The fair value of each option granted, measured at the grant date, is calculated using a binomial lattice methodology that is based on the underlying assumptions of the Black-Scholes option pricing model.

Compensation expense relating to Restricted Share and Restricted Share Unit awards is based upon the market value of the share on the date of grant.

Tax Considerations

Limitations on the deductibility of compensation paid to executive officers under Section 162(m) of the Internal Revenue Code are not applicable to HSBC USA, as it is not a public corporation as defined by Section 162(m). As such, all compensation to our executive officers is deductible for federal income tax purposes, unless there are excess golden parachute payments under Section 4999 of the Internal Revenue Code following a change in control.

Compensation of Officers Reported in the Summary Compensation Table

In determining compensation for each of our executives, senior management, Mr. Geoghegan, Mr. Gulliver and REMCO carefully considered the individual contributions of each executive to promote HSBC's interests and those of its shareholders. The relevant comparisons considered for each executive were year-over-year company performance relative to year-over-year total compensation, individual performance against balanced score card objectives, and current trends in the market place. Another consideration was the current positioning of the executive and the role he or she would be expected to fulfill in the current challenging business environment. We believe incentives and rewards play a critical role, and that outstanding leadership as evidenced by positive results must be recognized. Consequently, variable pay recommendations were submitted for our executives to incent strong performance by HSBC USA relative to plan and in effectively managing risk in recessionary economic conditions.

VARIABLE COMPENSATION

			Discretionary		Long Term Equity				Year over
	Base Salary		Annual Bonus(1)		Award(2)		Total Compensation		Year %
	2008	2009(4)	2008	2009	2008	2009	2008	2009	Change
Paul J. Lawrence(3)	$      759,017	$      747,247	$      540,600	$      760,000	$        1,212,400	$        1,140,000	$        2,512,017	$        2,647,247	5.4%
President and Chief Executive Officer, Head of Global Banking and Markets, Americas
Gerard Mattia(5)	255,000	264,808	450,000	560,000	750,000	840,000	1,455,000	1,664,808	14.4%
Senior Executive Vice President & Chief Financial Officer
Janet L. Burak	550,000	571,154	440,000	420,000	510,000	630,000	1,500,000	1,621,154	8.1%
Senior Executive Vice President & General Counsel and Regional Compliance Officer North America
Christopher Davies	325,000	337,500	400,000	412,500	400,000	412,500	1,125,000	1,162,500	3.3%
Senior Executive Vice President, Head of Commercial Banking
Marlon Young(6)	375,000	389,423	490,000	0	960,000	750,000	1,825,000	1,139,423	(37.6)%
Managing Director, Private Banking Americas

____________

(1)	Discretionary Annual Bonus amount pertains to the performance year indicated and is paid in the first quarter of the subsequent calendar year.
(2)	Long-term Equity Award amount disclosed above pertains to the performance year indicated and is awarded in the first quarter of the subsequent calendar year. For example, the Long-Term Equity Award indicated above for 2009 is earned in performance year 2009 but will be granted in March 2010. However, as required in the Summary Compensation Table, the grant date fair market value of equity granted in 2009 is disclosed for the 2009 fiscal year under the column of Stock Awards in that table.
(3)	Mr. Lawrence's compensation is tied to an international notional standard denominated in Special Drawing Rights (SDRs). The average SDR to USD conversion rate in effect for 2009 was lower than that for 2008. As such, it appears Mr. Lawrence incurred a decrease in base salary when in fact his annual rate denominated in SDR remained constant.
(4)	No base salaries were increased for 2009. However, since HSBC USA administered twenty-seven (27) pay periods during 2009, base salary amounts disclosed above reflect cash paid during the year.
(5)	The year-over-year increase in total compensation for Mr. Mattia is driven by strong individual performance, in particular the execution of efficiency initiatives.
(6)	The year-over-year decrease in total compensation for Mr. Young is attributable to Private Banking business results.

Compensation Committee Interlocks and Insider Participation

As described in the 2009 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. The HSBC USA CEO is one of the senior executives whose compensation is reviewed and endorsed by REMCO. In 2009, the HSBC USA CEO made recommendations to the HSBC North America CEO and the HSBC Managing Director and Head of Global Banking and Markets, as appropriate, with respect to the compensation of HSBC USA's four other Named Executive Officers. The Board of Directors was not engaged in deliberations for the purpose of determining executive officer compensation in 2009. Until May 1, 2008, HSBC USA had a Compensation Committee which assisted the Board of Directors in discharging its responsibilities related to 2007 and prior years' compensation of the HSBC USA CEO, other officers of HSBC USA holding a title of executive vice president and above and such other officers as were designated by the Board of Directors.

Compensation Committee Report

HSBC USA does not have a Compensation Committee. The Board of Directors did not play a role in establishing remuneration policy or determining executive officer compensation for 2009. We, the members of the Board of Directors of HSBC USA, have reviewed the 2009 CD&A and discussed it with management, and have been advised that management of HSBC has reviewed the 2009 CD&A and believes it accurately reflects the policies and practices applicable to HSBC USA executive compensation in 2009. HSBC USA senior management has advised us that they believe the 2009 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 2009 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.

Salvatore H. Alfiero

William R. P. Dalton

Anthea Disney

Irene M. Dorner

Louis Hernandez. Jr.

Richard A. Jalkut

Brendan P. McDonagh

Executive Compensation

The following tables and narrative text discuss the compensation awarded to, earned by or paid as of December 31, 2009 to (i) Mr. Paul J. Lawrence who served as HSBC USA's Chief Executive Officer during 2009, (ii) Mr. Gerard Mattia, who served as HSBC USA's Chief Financial Officer during 2009, 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, 2009.

Summary Compensation Table

Name and Principal Position	Year	Salary(2)	Bonus(3)	Stock     Awards(4)	Option Awards	Non-          Equity       Incentive            Plan Compensation	Change in Pension Value       and Non-      Qualified        Deferred Compensation    Earnings(5)	All Other Compensation(6)	Total
Paul J. Lawrence(1).....................	2009	$747,247	$   760,000	$1,212,400	$ -	$           -	$  391,875	$  300,271	$3,411,793
President and Chief	2008	$759,017	$   540,600	$1,461,243	$ -	$           -	$             0	$  278,444	$3,039,304
Executive Officer,	2007	$642,986	$1,825,254	$   831,740	$ -	$           -	$  502,728	$  847,730	$4,650,438
Head of Global Banking and Markets, Americas
Gerard Mattia...............................	2009	$264,808	$   560,000	$   750,000	$ -	$           -	$    83,766	$    14,700	$1,673,274
Senior Executive Vice	2008	$255,000	$   450,000	$   490,000	$ -	$           -	$      5,219	$    10,334	$1,210,553
President & Chief	2007	$255,000	$   910,000	$   315,000	$ -	$           -	$      8,287	$    15,245	$1,503,532
Financial Officer
Janet L. Burak..............................	2009	$571,154	$   420,000	$   510,000	$ -	$           -	$  628,493	$    39,831	$2,169,478
Senior Executive Vice	2008	$550,000	$   440,000	$   600,000	$ -	$           -	$  149,832	$    33,219	$1,773,051
President & General	2007	$431,287	$             -	$   500,000	$ -	$  800,000	$  383,822	$    74,253	$2,189,362
Counsel and Regional Compliance Officer North America
Christopher P. Davies(7).............	2009	$337,500	$   412,500	$   400,000	$ -	$           -	$  173,308	$  375,972	$1,699,280
Senior Executive Vice	2008	$325,000	$   400,000	$   700,000	$ -	$           -	$             0	$  275,171	$1,700,171
President, Head of Commercial Banking
Marlon Young(7)..........................	2009	$389,423	$              0	$   960,000	$ -	$           -	$      5,421	$    10,385	$1,365,229
Managing Director,	2008	$375,000	$   490,000	$1,065,000	$ -	$           -	$      5,012	$    36,305	$1,971,317
Private Banking Americas

____________

(1)	Mr. Lawrence's compensation is tied to an international notional standard denominated in Special Drawing Rights (SDRs). The average SDR to USD conversion rate in effect for 2009 was lower than that for 2008. As such, it appears Mr. Lawrence incurred a decrease in base salary when in fact his annual rate denominated in SDR remained constant. Also, due to Mr. Lawrence's position with HSBC, his bonus level additionally reflects his HSBC management position.
(2)	No base salaries were increased for 2009. However, since HSBC USA administered twenty-seven (27) pay periods during 2009, base salary amounts disclosed above reflect cash flow paid during the year.
(3)	The amounts disclosed represent the discretionary cash bonus relating to 2009 performance but paid in February 2010.
(4)	Reflects the aggregate grant date fair value of awards granted during the year. The grants are subject to various time vesting conditions as disclosed in the footnotes to the Outstanding Equity Awards at Fiscal Year End Table and will be released as long as the named executive officer is still in the employ of HSBC USA at the time of vesting. HSBC USA records expense based on the fair value over the vesting period, which is 100 percent of the face value on the date of the award. Dividend equivalents, in the form of cash or additional shares, are paid on all underlying shares of restricted stock at the same rate as paid to ordinary share shareholders.
(5)	The HSBC - North America (U.S.) Retirement Income Plan ("RIP"), 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"), and the HSBC International Staff Retirement Benefit Scheme (Jersey) ("ISRBS") are described under Savings and Pension Plans.
	Increase in values by plan for each participant are: Mr. Lawrence - $391,875 (ISRBS, net of mandatory 2009 contributions), increases is due to conversion of the benefit from GBP to USD and lump sum factors for purposes of this disclosure; Mr. Mattia - $5,598 (RIP), $78,168 (NQDCP); Mr. Davies - $173,308 (DBS Scheme) ($173,308 increase is due to conversion of the benefit from GBP to USD for purposes of this disclosure as well as increase in accumulated benefit); Mr. Young - $5,421 (RIP); and Ms. Burak - $121,777 (RIP), $395,338 (SRIP), $111,378 (NQDCP).
(6)	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 2009. The following itemizes perquisites and other benefits for each named executive officer who received perquisites and other benefits in excess of $10,000: Executive Tax Services for Messrs. Lawrence and Davies were $565 and $834, respectively; Executive Travel Allowances for Messrs. Lawrence and Davies were $97,877 and $36,688, respectively; Housing and Furniture Allowances for Messrs. Lawrence and Davies were $403,524 and $269,195, respectively; Children's Education Allowance for Mr. Lawrence was $51,498; Mr. Lawrence received $4,221 in Loan Subsidy; Medical Expenses for Messrs. Lawrence and Davies were $11,843 and $4,758, respectively; Tax Equalization for Mr. Lawrence resulted in a net refund to HSBC of $321,507, and a payment to Mr. Davies of $49,504; Additional Compensation for Messrs. Lawrence and Davies were $13,259 and $14,994, respectively; Area Allowance for Mr. Lawrence was $37,501; and Mr. Lawrence received a Special Payment of $1,491.
	All Other Compensation also includes HSBC USA's contribution for the named executive officer's participation in the HSBC - North America (U.S.) Tax Reduction Investment Plan ("TRIP") in 2009, as follows: Mr. Mattia and Ms. Burak each had a $14,700 contribution and Mr. Young had a $10,385 contribution. In addition, Ms. Burak had a company contribution in the Supplemental HSBC Finance Corporation Tax Reduction Investment Plan ("STRIP") of $25,131 in 2009. TRIP and STRIP are described under Savings and Pension Plans - Deferred Compensation Plans.
(7)	This table only reflects officers who were named executive officers for the particular referenced years above. Messrs. Davies and Young were not named executive officers in fiscal year 2007 so the table only reflects each of their compensation for fiscal years 2008 and 2009.

Grants Of Plan-Based Awards Table

								All Other	All Other
								Stock	Option
		Estimated Future						Awards:	Awards:	Exercise	Grant Date
		Payouts Under			Estimated Future			Number	Number of	or Base	Fair Value
		Non-Equity Incentive			Payouts Under			of Shares	Securities	Price of	of Stock
		Plan Awards			Equity Incentive Plan Awards			of Stock	Underlying	Option	and Option
		Threshold	Target	Maximum	Threshold	Target	Maximum	or Units	Options	Awards	Awards
Name	Grant Date	($)	($)	($)	(#)	(#)	(#)	(#)	(#)	($/Sh)	($)(1)
Paul J. Lawrence.....................................	03/02/2009							211,307			$        1,212,400
President and Chief Executive Officer, Head of Global Banking and Markets, Americas
Gerard Mattia.........................................	03/02/2009							130,716			$           750,000
Senior Executive Vice President & Chief Financial Officer
Janet L. Burak..........................................	03/02/2009							88,887			$           510,000
Senior Executive Vice President & General Counsel and Regional Compliance Officer North America
Christopher Davies..................................	03/02/2009							69,715			$           400,000
Senior Executive Vice President, Head of Commercial Banking
Marlon Young..........................................	03/02/2009							167,316			$           960,000
Managing Director, Private Banking Americas

____________

(1)	The total grant date fair value reflected is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 2, 2009 (the date of grant) of GBP 3.99 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.438.

Outstanding Equity Awards At Fiscal Year-End Table

	Option Awards					Stock Awards
								Equity
								Incentive	Equity
								Plan	Incentive
			Equity					Awards:	Plan Awards:
			Incentive					Number of	Market or
			Plan			Number	Market	Unearned	Payout Value
			Awards:			of Shares	Value of	Shares,	of Unearned
	Number of	Number of	Number of			or Units	Shares or	Units or	Shares,
	Securities	Securities	Securities			of Stock	Units of	Other	Units or
	Underlying	Underlying	Underlying			That	Stock that	Rights	Other Rights
	Unexercised	Unexercised	Unexercised	Option	Option	Have Not	Have Not	That Have	That Have
	Options (#)	Options (#)	Unearned	Exercise	Expiration	Vested	Vested	Not Vested	Not Vested
Name	Exercisable	Unexercisable	Options (#)	Price	Date	(#)(1)	($)(2)	(#)	($)
Paul J. Lawrence.................................................................						7,600(3)	$           87,382
President and Chief Executive						24,699(4)	$        283,979
Officer, Head Global Banking of						94,688(5)	$     1,088,683
and Markets, Americas						211,307(6)	$     2,429,521
Gerard Mattia.....................................................................						5,984(7)	$           68,802
Senior Executive Vice President						31,699(5)	$        364,462
& Chief Financial Officer						130,716(6)	$     1,502,919
Janet L. Burak(13)............................................................	30,696(8)			$16.0344	11/13/2010	28,603(4)	$        328,865
Senior Executive						36,267(9)	$        416,983
Vice President &General Counsel						88,887(6)	$     1,021,986
and Regional Compliance Officer North America
Christopher Davies............................................................	5,164(8)			GBP 7.5919	04/23/2011	3,230(3)	$           37,137
Senior Executive Vice President,
Head of Commercial Banking	5,738(8)			GBP 7.3244	05/07/2012	42,311(9)	$        486,474
						69,715(6)	$        801,554
Marlon Young.....................................................................						4,131(10)	$           47,497
Managing Director,						42,746(11)	$        491,476
Private Banking Americas						46,008(12)	$        528,981
						167,316(6)	$     1,923,730

____________

(1)	Share amounts do not include additional awards accumulated over the vesting periods, including any adjustments for the rights issue completed in April 2009.
(2)	The market value of the shares on December 31, 2009 was GBP 7.088 and the exchange rate from GBP to U.S. dollars was 1.62212.
(3)	One-third of this award vested on March 5, 2008, one-third on March 5, 2009 and one-third will vest on February 28, 2010.
(4)	This award will vest in full on March 30, 2010.
(5)	This award will vest in full on March 3, 2011.
(6)	This award will vest in full on March 5, 2012.
(7)	One-third of this award vested on March 3, 2008 and one-third on March 3, 2009. One-third of this award will vest on March 3, 2010.
(8)	Reflects fully vested options adjusted for rights issue completed in April 2009.
(9)	This award will vest in full on March 31, 2011.
(10)	Sixty-five percent of the original award amount vested over 2007 and 2008, twenty-two percent vested on March 5, 2009. Thirteen percent will vest on January 31, 2010.
(11)	This award will vest in full on March 5, 2010.
(12)	One-third of this award vested on March 3, 2009. One-third of this award will vest on March 5, 2010 and one-third will vest on February 28, 2011.
(13)	Option awards shown for Ms. Burak were awarded prior to joining HSBC USA.

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)
Paul J. Lawrence..................................................................................			8,604(3)	$       48,714
President and Chief Executive Officer, Head of Global Banking and Markets, Americas			8,145(4)	$       52,604
Gerard Mattia........................................................................................			6,776(5)	$       38,365
Senior Executive Vice President & Chief Financial Officer
Janet L. Burak......................................................................................			39,480(6)	$     226,674
Senior Executive Vice President & General Counsel and Regional Compliance Officer North America			22,955(7)	$     168,571
Christopher Davies..............................................................................	3,441(14)	$    3,160	2,486(8)	$       14,075
Senior Executive Vice President, Head of Commercial Banking			3,657(9)	$       20,705
Marlon Young........................................................................................			24,282(11)	$     137,481
Managing Director, Private Banking Americas			39,634(12)	$     285,689
			28,586(13)	$     161,849
			8,049(10)	$       45,572

____________

(1)	Value realized on exercise or vesting uses the GBP fair market value on the date of exercise/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 7,599 shares granted on March 5, 2007.
(4)	Includes the release of 5,979 performance shares granted on March 6, 2006.
(5)	Includes the release of 5,984 shares granted on March 5, 2007.
(6)	Includes the release of 29,513 shares granted on March 31, 2006.
(7)	Includes the release of 20,004 performance based restricted stock rights awarded on April 30, 2004.
(8)	Includes the release of 2,118 shares granted on March 6, 2006.
(9)	Includes the release of 3,230 shares granted on March 5, 2007.
(10)	Includes the release of 6,991 shares granted on April 28, 2006.
(11)	Includes the release of 23,004 shares granted on March 3, 2008
(12)	Includes the release of 29,628 shares granted on April 28, 2006.
(13)	Includes the release of 24,898 shares granted on April 28, 2006.
(14)	Includes the exercise of 2,999 options granted on April 3, 2000.

Pension Benefits

Name	Plan Name(1)	Number of        Years     Credited    Service (#)	Present Value              of Accumulated      Benefit ($)	Payments      During Last    Fiscal Year ($)
Paul J. Lawrence(2)........................................................	ISRBS	26.8	$    2,702,066(3)
President and Chief Executive Officer, Head of Global Banking and Markets, Americas
Gerard Mattia..................................................................	RIP - Account Based	5.3	$          24,507
Senior Executive Vice President & Chief Financial Officer
Janet L. Burak................................................................	RIP - Household	17.8	$        470,544
Senior Executive Vice President & General Counsel and	SRIP - Household	17.8	$     1,763,302
Regional Compliance Officer North America
Christopher Davies.........................................................	DBS Scheme	24.3	$       608,912(3)
Senior Executive Vice President, Head of Commercial Banking
Marlon Young..................................................................	RIP - Account Based	3.8	$          19,540
Managing Director, Private Banking Americas

(1)	Plan described under Savings and Pension Plans.
(2)	Value of age 53 benefit. Participant is also eligible for an immediate early retirement benefit with a value of $3,159,032.
(3)	The amount was converted from GBP to USD using the exchange rate of 1.62212 as of December 31, 2009.

Savings and Pension Plans

Retirement Income Plan (RIP)

The HSBC - North America (U.S.) Retirement Income Plan ("RIP") is a non-contributory, defined benefit pension plan for employees of HSBC North America and its U.S. subsidiaries who are at least 21 years of age with one year of service and not part of a collective bargaining unit. Benefits are determined under a number of different formulas that vary based on year of hire and employer.

Supplemental Retirement Income Plan (SRIP)

The Supplemental HSBC Finance Corporation Retirement Income Plan ("SRIP") is a non-qualified defined benefit retirement plan that is designed to provide benefits that are precluded from being paid to legacy Household employees by the RIP due to legal constraints applicable to all qualified plans. For example, the maximum amount of compensation during 2009 that can be used to determine a qualified plan benefit is $245,000 and the maximum annual benefit commencing at age 65 in 2009 is $195,000. SRIP benefits are calculated without regard to these limits but are reduced effective January 1, 2008, for compensation deferred to the HSBC-North America Non-Qualified Deferred Compensation Plan ("NQDCP"). The resulting benefit is then reduced by the value of qualified benefits payable by RIP 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.

Formulas for Calculating Benefits

Household Formula: 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 base wages and bonuses (as earned) (effective January 1, 2008, compensation is reduced by any amount deferred under the NQDCP) and are 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. As further described in Note 22, "Pension and Other Postretirement Benefits" in the accompanying consolidated financial statements, effective January 1, 2011, a cash balance based formula will replace this formula and impact the calculation of these benefits as of January 1, 2011.

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 Retirement Income Plan on January 1, 2005, or were hired by HSBC after March 28, 2003. The formula provides for a notional account that accumulates 2% of annual salary for each calendar year of employment. For this purpose, compensation includes total base wages and cash incentives (as paid) (effective January 1, 2008, compensation is reduced by any amount deferred under the NQDCP.) At the end of each calendar year, interest is credited on the notional account using the value of the account at the beginning of the year. The interest rate is based on the lesser of average yields for 10-year and 30-year Treasury bonds during September of the preceding calendar year. The notional account is payable at termination of employment for any reason after three years of service although payment may be deferred to age 65.

Provisions Applicable to All Formulas: The amount of compensation used to determine benefits is subject to an annual maximum that varies by calendar year. The limit for 2009 is $245,000. The limit for years after 2009 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 International Staff Retirement Benefits Scheme (ISRBS)

The ISRBS is a defined benefit plan maintained for certain international managers, administered in Jersey in the Channel Islands. Each member during his service must contribute 5% of his salary to the plan 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% of his salary. In addition, a member may make voluntary contributions, but the total of voluntary and mandatory contributions cannot exceed 15% of his total compensation. Upon leaving service, the value of the member's voluntary contribution fund, if any, shall be commuted for a retirement benefit.

The annual pension payable at normal retirement is 1/480 of the member's final salary for each completed month in the executive membership section, 1.25/480 of his final salary for each completed month in the senior management section, and 1.50/480 of his final salary for each completed month in the general management section. A member's normal retirement date is the first day of the month coincident with or next following his 53rd birthday. Participants may continue to accrue benefits should they remain in service as a Scheme member beyond age 53. Payments may be deferred or suspended but not beyond age 75.

If a member leaves before normal retirement date with at least 15 years of service, he will receive a pension which is reduced by .25% for each complete month by which termination precedes normal retirement date. If he terminates with at least 5 years of service, he will receive an immediate lump sum equivalent in value to his reduced pension.

If a member dies before age 53 while he is still accruing benefits in the ISRBS then both a lump sum and a widow's pension will be payable immediately.

The lump sum payable would be the cash sum equivalent of the member's Anticipated Pension, where the Anticipated Pension is the notional pension to which the member would have been entitled if he had continued in service until age 53, computed on the assumption that his Final Salary remains unaltered. In addition, where applicable, the member's voluntary contributions fund will be paid as a lump sum.

In general, the widow's pension payable would be equal to one half of the member's Anticipated Pension. As well as this, where applicable, a children's allowance is payable on the death of the Member equal to 25% of the amount of the widow's pension.

If the member retires before age 53 on the grounds of infirmity he will be entitled to a pension as from the date of his leaving service equal to his Anticipated Pension, where Anticipated Pension has the same definition as in the previous section.

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 Midland Section for Post 74 Joiners of the DBS applies to executives who were hired after December 31, 1974, but prior to July 1, 1996, by HSBC Bank plc. The normal retirement benefit at age 60 is 1/60th of final salary multiplied by number of years and complete months of Midland Section membership plus pensionable service credits up to a maximum of 40, reduced by 1/80th of the single person's Basic State Pension for the 52 weeks prior to leaving pensionable service multiplied by number of years and complete months of Midland Section membership. For this purpose, final salary is the actual salary paid during the final 12 months of service for those earning an annualized salary that is less than or equal to GBP100,000 at the time of retirement and the average salary for the last three years before retirement for those earning an annualized salary that is greater than GBP100,000 at the time of retirement. Executives who are at least age 50 may retire before age 60 in which case the retirement benefit is reduced actuarially.

Present Value of Accumulated Benefits

For the Account Based formula: The value of the notional account balances currently available on December 31, 2009.

For other formulas: The present value of benefit payable at assumed retirement using interest and mortality assumptions consistent with those used for financial reporting purposes under SFAS 87 with respect to the company's audited financial statements for the period ending December 31, 2009. 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, 2009.

Deferred Compensation Plans

Tax Reduction Investment Plan HSBC North America maintains the HSBC-North America (U.S.) Tax Reduction Investment Plan ("TRIP"), which is a deferred profit-sharing and savings plan for its eligible employees. With certain exceptions, a U.S. employee who has been employed for 30 days and who is not part of a collective bargaining unit may contribute into TRIP, on a pre-tax and after-tax basis (after-tax contributions are limited to employees classified as non-highly compensated), up to 40 percent of the participant's cash compensation (subject to a maximum annual pre-tax contribution by a participant of $16,500 (plus an additional $5,500 catch-up contribution for participants age 50 and over), as adjusted for cost of living increases, and certain other limitations imposed by the Internal Revenue Code) and invest such contributions in separate equity or income funds.

If the employee has been employed for at least one year, HSBC USA contributes three percent of compensation on behalf of each participant who contributes one percent and matches any additional participant contributions up to four percent of compensation. However, matching contributions will not exceed six percent of a participant's compensation if the participant contributes four percent or more of compensation. The plan provides for immediate vesting of all contributions. With certain exceptions, a participant's after-tax contributions which 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 which have been matched may be withdrawn after five years of participation in the plan. A participant's pre-tax contributions and our matching contributions after 1998 may not be withdrawn except for an immediate financial hardship, upon termination of employment, or after attaining age 59 ½. Participants may borrow from their TRIP accounts under certain circumstances.

Supplemental Tax Reduction Investment Plan HSBC North America also maintains the Supplemental HSBC Finance Corporation Tax Reduction Investment Plan ("STRIP"), which is an unfunded plan for eligible employees of HSBC USA and its participating subsidiaries who are legacy Household employees and whose compensation exceeds limits imposed by the Internal Revenue Code. Beginning January 1, 2008, STRIP participants receive a 6% contribution for such excess compensation, reduced by any amount deferred under the NQDCP, invested in STRIP through a credit to a bookkeeping account maintained by us which deems such contributions to be invested in equity or income funds selected by the participant.

Non-Qualified Deferred Compensation Plan HSBC North America maintains the NQDCP for the highly compensated employees in the organization, including executives of HSBC USA. The named executive officers are eligible to contribute up to 80 percent of their salary and/or cash bonus compensation in any plan year. Participants are required to make an irrevocable election with regard to the percentage of compensation to be deferred and the timing and manner of future payout. Two types of distributions are permitted under the plan, either a scheduled in-service withdrawal which must be scheduled at least 2 years after the end of the plan year in which the deferral is made, or payment upon termination of employment.

For either the scheduled in-service withdrawal or payment upon termination, the participant may elect either a lump sum payment, or if the participant has over 10 years of service, installment payments over 10 years. Due to the unfunded nature of the plan, participant elections are deemed investments whose gains or losses are calculated by reference to actual earnings of the investment choices. In order to provide the participants with the maximum amount of protection under an unfunded plan, a Rabbi Trust has been established where the participant contributions are segregated from the general assets of HSBC USA. The Investment Committee for the plan endeavors to invest the contributions in a manner consistent with the participant's deemed elections reducing the likelihood of an underfunded plan.

Non-Qualified Defined Contribution and Other Non-Qualified Deferred Compensation Plans

Name	Non-Qualified       Deferred Compensation        Plan(1)      Executive Contributions in          2009	Supplemental Tax Reduction     Investment        Plan(2)     HSBC USA Contributions in          2009	Aggregate     Earnings in 2009	Aggregate Withdrawals/ Distributions	Aggregate   Balance at 12/31/2009
Paul J. Lawrence........................................................................	N/A	N/A	N/A	N/A	N/A
President and Chief Executive Officer, Head of Global Banking and Markets
Gerard Mattia..............................................................................	$74,146(3)	N/A	$78,168	$0	$238,704
Senior Executive Vice President & Chief Financial Officer
Janet L. Burak............................................................................	$101,116(4)	$25,131	$162,313	$0	$963,615
Senior Executive Vice President & General Counsel and Regional Compliance Officer North America
Christopher Davies....................................................................	N/A	N/A	N/A	N/A	N/A
Senior Executive Vice President, Head of Commercial Banking
Marlon Young..............................................................................	N/A	N/A	N/A	N/A	N/A
Managing Director, Private Banking Americas

____________

(1)	The HSBC-North America Non-Qualified Deferred Compensation Plan ("NQDCP") is described under Savings and Pension Plans.
(2)	The Supplemental HSBC Finance Corporation Tax Reduction Investment Plan ("STRIP") is described under Savings and Pension Plans. Company contributions are invested in STRIP through a credit to a bookkeeping account, which deems such contributions to be invested in equity or income mutual funds selected by the participant. Distributions are made in a lump sum upon termination of employment. These figures are also included in the "Change in Pension Value and Non-Qualified Deferred Compensation Earnings" column of the Summary Compensation Table.
(3)	Mr. Mattia's elective deferrals into the NQDCP during 2009 consist of $74,146 of the 2009 base salary disclosed in the Summary Compensation Table.
(4)	Ms. Burak's elective deferrals into the NQDCP during 2009 consist of $57,116 of the 2009 base salary disclosed in the Summary Compensation Table and $44,000 of the 2008 bonus 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, 2009, to Mr. Lawrence, Mr. Mattia, Ms. Burak, Mr. Davies and Mr. Young as a result of their termination, retirement, disability or death or a change in control of the company as of that date. The specific circumstances that would trigger such payments are identified in the tables. The amounts and terms of such payments are defined by HSBC's employment and severance policies, and the particular terms of any equity-based awards.

Paul J. Lawrence

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability	Normal      Retirement	Involuntary   Not for Cause     Termination	For Cause Termination	Voluntary for    Good Reason     Termination	Death	Change in         Control     Termination
Cash Compensation
Base Salary..............................................................................................
Bonus........................................................................................................
Long Term Award
Restricted Stock........................................................................................		$       340,625(1)	$       340,625(1)	$       340,625(1)		$       340,625(1)	$       371,591(2)	$       371,591(2)
Restricted Stock/Units...............................................................................		$    4,397,229(2)	$    4,397,229(2)	$    4,397,229(2)		$    4,397,229(2)	$    4,397,229(2)	$    4,397,229(2)

____________

(1)	This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2009, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2009.
(2)	This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2009, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2009.

Gerard Mattia

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability	Normal      Retirement	Involuntary Not For Cause     Termination	For Cause Termination	Voluntary for    Good Reason     Termination	Death	Change in         Control     Termination
Cash Compensation
Base Salary............................................................................................				$       127,500(1)
Bonus......................................................................................................
Long Term Award
Restricted Stock/Units.............................................................................		$    2,347,025(2)	$    2,347,025(2)	$    2,347,025(2)		$    2,347,025(2)	$    2,347,025(2)	$    2,347,025(2)

____________

(1)	Under the terms of the HSBC-North America (U.S.) Severance Pay Plan, Mr. Mattia would receive 26 weeks of his current salary upon separation from the company.
(2)	This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2009, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2009.

Janet L. Burak

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability	Normal      Retirement	Involuntary Not for              Cause         Termination	For Cause Termination	Voluntary for    Good Reason     Termination	Death	Change in         Control     Termination
Cash Compensation
Base Salary....................................................................................				$       359,615(1)
Bonus..............................................................................................
Long Term Award
Restricted Stock..............................................................................		$       696,493(2)	$       696,493(2)	$       696,493(2)		$       696,493(2)	$       948,091(3)	$       948,091(3)
Restricted Stock/Units		$    1,218,491(3)	$    1,218,491(3)	$    1,218,491(3)		$    1,218,491(3)	$    1,218,491(3)	$    1,218,491(3)

____________

(1)	Under the terms of the HSBC-North America (U.S.) Severance Pay Plan, Ms. Burak would receive 34 weeks of her current salary upon separation from the company.
(2)	This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2009, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2009.
(3)	This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2009, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2009.

Christopher P. Davies

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability	Normal      Retirement	Involuntary Not for              Cause         Termination	For Cause Termination	Voluntary for    Good Reason     Termination	Death	Change in         Control     Termination
Cash Compensation
Base Salary......................................................................................
Bonus................................................................................................
Long Term Incentive
Restricted Stock................................................................................		$       352,375(1)	$       352,375(1)	$       352,375(1)		$       352,375(1)	$       604,072(2)	$       604,072(2)
Restricted Stock/Units.......................................................................		$    1,005,211(2)	$    1,005,211(2)	$   1,005,211(2))		$    1,005,211(2)	$    1,005,211(2)	$    1,005,211(2)

____________

(1)	This amount represents accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming "good leaver" status is granted by REMCO, a termination date of December 31, 2009, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2009.
(2)	This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2009, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2009.

Marlon Young

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability	Normal      Retirement	Involuntary   Not for Cause     Termination	For Cause Termination	Voluntary for    Good Reason     Termination	Death	Change in         Control     Termination
Cash Compensation
Base Salary............................................................................................				$         86,538(1)
Bonus......................................................................................................
Long Term Award
Restricted Stock:
Unvested and Accelerated....................................................................		$    3,686,862(2)	$    3,686,862(2)	$    3,686,862(2)		$    3,686,862(2)	$    3,686,862(2)	$    3,686,862(2)

____________

(1)	Under the terms of the HSBC-North America (U.S.) Severance Pay Plan, Mr. Young would receive 12 weeks of his current salary upon separation from the company.
(2)	This amount represents a full vesting of the outstanding restricted shares assuming a termination date of December 31, 2009, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2009.

Director Compensation

The following table and narrative text discusses the compensation awarded to, earned by or paid to our Non-Executive Directors in 2009. Executive directors Brendan P. McDonagh and Michael F. Geoghegan receive no additional compensation for their service on the Board of Directors.

Director Compensation

Name	Fees Earned or        Paid in         Cash         ($)(1)	Stock Awards   ($)(2)	Option Awards   ($)(3)	Non-Equity Incentive Plan Compensation        ($)(4)	Change in Pension Value          And Non-Qualified      Deferred Compensation Earnings ($)(5)	All Other Compensation        ($)(6)	Total        ($)
Salvatore H. Alfiero.............................................	$     290,000	$   0	$   0	$   0	$       37,500	$    1,730	$  329,230
William R.P. Dalton.............................................	$     225,000	$   0	$   0	$   0	$                0	$    1,730	$  226,730
Anthea Disney.....................................................	$     225,000	$   0	$   0	$   0	$     185,849	$    1,730	$  412,579
Michael F. Geoghegan(8)...................................	$                0	$   0	$   0	$   0	$                0	$           0	$             0
Louis Hernandez, Jr. ...........................................	$     235,000	$   0	$   0	$   0	$                0	$    1,730	$  236,730
Richard A. Jalkut.................................................	$     235,000	$   0	$   0	$   0	$                0	$    1,730	$  236,730
Brendan P. McDonagh(7)..................................	$                0	$   0	$   0	$   0	$                0	$           0	$             0

____________

(1)	The non-management Directors of HSBC USA receive an annual cash retainer of $210,000 for board membership on HSBC North America and HSBC USA. Mr. Alfiero's compensation is grandfathered at an amount equal to his 2007 Board and Committee compensation; he received an additional $80,000 accordingly. Ms. Disney and Messrs. Dalton, Hernadez and Jalkut each receive $15,000 for their membership on the HSBC USA Audit Committee. Messrs. Hernandez and Jalkut also receive $10,000 for their membership on the HSBC USA Fiduciary Committee. Other than as stated above, HSBC USA does not pay additional compensation for committee membership, or meeting attendance fees to its Directors. Directors who are employees of HSBC USA or any of its affiliates do not receive any additional compensation related to their Board service.
	Non-management 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 2009 retainer into the HSBC USA/HBUS Plan for Deferral of Directors' Fees. Ms. Disney, however, participates in the HSBC North America Directors Non-Qualified Deferred Compensation Plan and elected to defer all fees earned in 2009.
(2)	HSBC USA does not grant stock awards to its non-management directors nor do any portions of employee directors' stock awards reflect services related to their Board positions.
(3)	HSBC USA does not grant stock option awards to its non-management directors.
(4)	HSBC USA does not award non-equity incentive plan compensation to its non-management directors nor does any portion of the employee directors' non-equity incentive plan compensation reflect compensation for services related to their Board positions.
(5)	The HSBC USA Director Retirement Plan covers non-management directors elected prior to 1998 and excludes those serving as directors at the request of HSBC. Eligible directors with at least five years of service will receive quarterly retirement benefit payments commencing at the later of age 65 or retirement from the Board, and continuing for ten years. The annual amount of the retirement benefit is a percent of the annual retainer in effect at the time of the last Board meeting the director attended. The percentage is 50 percent after five years of service and increases by five percent for each additional year of service to 100 percent upon completion of 15 years of service. If a director who has at least five years of service dies before the retirement benefit has commenced, the director's beneficiary will receive a death benefit calculated as if the director had retired on the date of death. If a retired director dies before receiving retirement benefit payments for the ten year period, the balance of the payments will be continued to the director's beneficiary. The plan is unfunded and payment will be made out of the general funds of HSBC USA or HSBC Bank USA.
(6)	Non-management directors are offered, on terms that are not more favorable than those available to the general public, a MasterCard/Visa credit card issued by one of our subsidiaries with a credit limit of $15,000. HSBC USA guarantees the repayment of amounts charged on each card. We provide each Director with $250,000 of accidental death and dismemberment insurance and a $10,000,000 personal excess liability insurance policy for which the company paid premium of $1,730 per annum for each participating director. Premiums are pro-rated to the calendar quarter for participating Directors with less than one full calendar year of service on the Board. Under HSBC USA's Matching Gift Program, HSBC USA matches charitable gifts to qualified organizations (subject to a maximum of $10,000 per year), with a double match for the first $500 donated to higher education institutions (both public and private) and eligible non-profit organizations which promote neighborhood revitalization or economic development for low and moderate income populations. Each current independent Director may ask us to contribute up to $10,000 annually to charities of the Director's choice which qualify under our philanthropic program.
(7)	Service on the Board began May 7, 2009.
(8)	Service on the Board concluded May 7, 2009.

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 position held and individual and business performance. Employees participate in either the annual discretionary cash award plan, the primary incentive compensation plan for all employees, or in formulaic plans, which are maintained for specific groups of employees who are typically involved in production/call center or direct sales environments.

A key feature of HSBC's compensation policy is that it is risk informed, seeking to ensure that risk based returns on capital are factored into the determination of variable compensation and that bonus pools are calculated only after appropriate risk based return has accrued on shareholders' capital. We apply Economic Profit (calculated as the average annual difference between return on invested capital and HSBC's benchmark cost of capital) and other metrics to develop variable compensation levels and target a 15% to 19% return on shareholder funds. These requirements are built into the balanced scorecard of the senior HSBC executives and are incorporated in regional and business scorecards in an aligned manner, thereby ensuring that return, risk, and efficient capital usage shape reward considerations. The HSBC Group Chief Risk Officer and the Global Risk Function of HSBC provide input into the balanced scorecard, ensuring that key risk measures are included.

The use of a balanced scorecard framework ensures an aligned set of objectives and impacts the level of individual compensation received, as achievement of objectives is an important determinant of the level of variable compensation awarded under the annual discretionary cash award plan. Objectives are set under four categories; Financial, Process (including risk mitigation), Customer, and People. While the achievement of financial objectives is very important, the other objectives relating to efficiency and risk mitigation, customer development and the productivity of human capital are also key measures of performance that influence reward levels.

Risk oversight of formulaic plans is ensured through formal policies of HSBC requiring that the HSBC North America Chief Credit Officer 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 at all times. The Risk Management Framework is governed by a defined risk committee structure, which oversees the development, implementation, and monitoring of the risk appetite process for HSBC USA. Risk Appetite is annually reviewed and approved by the HSBC North America Risk Management Committee and HSBC North America Board Audit Committee.

Risk Adjustment of Incentive Compensation

HSBC USA uses a number of techniques to ensure that the amount of incentive compensation received by an employee appropriately reflects risk and risk outcomes, including risk adjustment of awards, deferral of payment, appropriate performance periods, and reducing sensitivity to short-term performance. The techniques used vary depending on whether the incentive compensation is paid under the general discretionary cash award plan or a formulaic plan.

The discretionary plan is designed to allow managers to exercise judgment in making variable pay award recommendations, subject to appropriate oversight. A primary consideration when making award recommendations for an employee participating in the discretionary plan is performance against the objectives established in the balanced scorecard. Where objectives have been established with respect to risk and risk outcomes, managers consider performance against these objectives when making variable pay award recommendations.

Participants in the discretionary plan are subject to minimum deferral guidelines for variable pay awards. Deferral rates applicable to variable pay for performance year 2009, payable in 2010, range from 0-60% and increase relative to the level of total compensation earned. Variable pay is deferred through the use of Restricted Share Units with three-year graded vesting so that the economic value of amounts deferred will ultimately be determined by the ordinary share price and foreign exchange rate in effect when each tranche of shares awarded is released. Employees who terminate employment as "bad leavers" forfeit all unvested equity awards. A claw back provision has been added to all awards granted after January 1, 2010, as further described under the section "Reduction or Cancellation of Long-Term Equity Awards" under Compensation Discussion and Analysis.

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 plan participants.

Incentive Compensation Monitoring

HSBC North America monitors and evaluates the performance of its incentive compensation arrangements, both the discretionary and formulaic plans, to ensure adequate focus and control.

The nature of the discretionary plan allows for compensation decisions to reflect individual and business performance based on balanced scorecard achievements. Payments under the discretionary plan are not tied to formula, which enables payments to be adjusted as appropriate based on individual performance, business performance, and risk assessment. Balanced scorecards may also be updated as needed by leadership during the performance year to reflect significant changes in the operating plan, risk, or business strategy of HSBC USA. Additionally, the discretionary plan is reviewed annually by REMCO to ensure that it is meeting the desired objectives. The review includes a comparison of actual payouts against the targets established, a cost/benefit analysis, the ratio of payout to overall business performance, and a review of any unintended consequences (e.g., deteriorating service standards).

Formulaic programs are reviewed and revised annually by HSBC North America Human Resources using an incentive plan review template, which highlights basic identifiers for overall plan performance. The review includes: an examination of overall plan expenditures versus actual business performance versus planned expenditures; an examination of individual pay out levels within plans; a determination of whether payment levels align with expected performance levels and market indicators; and a determination of whether the compensation mix is appropriate for the role utilizing market practice and business philosophy.

In addition to the annual review, plan performance is monitored regularly by the business management and periodically by HSBC North America Human Resources, which tracks plan expenditures and plan performance to ensure that plan payouts are consistent with expectations. Calculations for plans are performed systematically based on plan measurement factors to ensure accurate calculation of incentives and all performance payouts are subject to the review of the designated plan administrator to ensure payment and performance of the plan are tracking in line with expectations. Plan inventories are refreshed during the course of the year to identify plans to be eliminated, consolidated, or restructured based on analysis of effectiveness. 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, 2010, of HSBC ordinary shares or interests in HSBC ordinary shares and HSBC's American Depositary Shares, Series A, by each director and each executive officer named in the Summary Compensation Table, individually, and the directors and executive officers as a group. Each of the individuals listed below and all directors and executive officers as a group own less than one percent of the HSBC ordinary shares. No director or executive officer of HSBC USA owned any of HSBC USA's outstanding series of preferred stock at January 31, 2010.

	Number of      HSBC   Ordinary     Shares Beneficially Owned(1)(2)	HSBC Ordinary     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	HSBC    Holdings plc   American Depositary     Shares, Series A(6)
Directors
Salvatore H. Alfiero.......................................................	583,655	-	-	-	583,655	456,000
William R. P. Dalton.......................................................	71,296	-	-	-	83,251	-
Anthea Disney...............................................................	60	30,696	-	-	30,756	-
Irene M. Dorner..............................................................	37,955	-	11,751	-	49,706	-
Louis Hernandez, Jr. .....................................................	250	-	-	-	250	-
Richard A. Jalkut............................................................	250	-	-	-	250	-
Brendan P. McDonagh.................................................	142,327	-	47,177	-	189,504	-
Named Executive Officers
Paul J. Lawrence.............................................................	180	-	42,458	-	42,638	-
Gerard Mattia..................................................................	23,253	-	7,985	-	31,238	-
Janet L. Burak.................................................................	97,956	30,696	37,427	-	166,079	-
Christopher Davies........................................................	18,145	10,902	4,309	-	33,356	-
Marlon Young................................................................	693	-	62,398	-	63,091	-
All directors and executive officers as a group.......	1,246,868	303,426	360,343	-	1,910,637	456,000

____________

(1)  Directors and executive officers have sole voting and investment power over the shares listed above, except that the number of ordinary shares held by spouses, children and charitable or family foundations in which voting and investment power is shared (or presumed to be shared) is as follows: Mr. Alfiero, 16,995; Ms. Burak, 1,285; and Mr. Dalton, 59,341; and directors and executive officers as a group, 77,621.

(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, 2010 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, 2010 pursuant to the satisfaction of certain conditions.

(5)  Represents the number of ordinary share equivalents owned by executive officers under HSBC-North America (U.S.) Tax Reduction Investment Plan and HSBC-North America Employee Non-Qualified Deferred Compensation Plan. Some of the shares included in the table above were held in American Depositary Shares, each of which represents five HSBC ordinary shares.

(6)  Each depositary share represents one-fortieth of a share of HSBC's 6.20% Non-Cumulative Dollar Preference Shares, Series A. Mr. Alfiero has sole voting and investment power over the shares listed above, except that for the 6,000 shares held by immediate family, voting and investment power is shared (or presumed to be shared).

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

Transactions with Related Persons

During the fiscal year ended December 31, 2009, 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 2009, 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 committee 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 HSBC USA's 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
Fiduciary Committee...................................................................	Chair and all voting members
Executive Committee..................................................................	Chair and all voting members, other than the Chief Executive Officer

Ms. Disney and Messrs. Alfiero, Dalton, Hernandez and Jalkut are considered to be independent directors. Ms. Dorner currently serves as President and Chief Executive Officer of HSBC USA and HSBC Bank USA. Mr. McDonagh currently serves as a director and Chief Executive Officer of HSBC North America and Group Managing Director at HSBC. Because of the positions held by Ms. Dorner and Mr. McDonagh, they are not considered to be independent directors. Michael F. Geoghegan was a director until May 2009 and is currently a director of HSBC North America. Mr. Geoghegan serves as Group Chief Executive at HSBC. Because of the positions held by Mr. Geoghegan, 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 the fiscal years ended December 31, 2009 and 2008 was $6 million and $9 million, respectively. 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, 2009 and 2008 was $416,000 and $704,000, respectively. Audit related services include employee benefit plan audits, and audit or attestation services not required by statute or regulation.

Tax Fees.  Total fees billed by KPMG LLP for tax related services for the fiscal years ended December 31, 2009 and 2008 were $8,000 and $11,000, respectively. These services include tax related research, general tax services in connection with transactions and legislation and tax services for review of Federal and state tax accounts for possible over assessment of interest and/or penalties.

All Other Fees.  Other than those fees described above, there were no other fees billed for services performed by KPMG LLP during the fiscal years ended December 31, 2009 and December 31, 2008.

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 March 1, 2010 with respect thereto, are included in this Form 10-K pursuant to Item 8. Financial Statements and Supplementary Data of this Form 10-K.

HSBC USA Inc. and Subsidiaries:

Report of Independent Registered Public Accounting Firm

Consolidated Statement of Income (Loss)

Consolidated Balance Sheet

Consolidated Statement of Cash Flows

Consolidated Statement of Changes in Shareholders' Equity

HSBC Bank USA, National Association and Subsidiaries:

Consolidated Balance Sheet

Notes to Financial Statements

(a)(2) Not applicable.

(a)(3) Exhibits

3(i)	Articles of Incorporation and amendments and supplements thereto (incorporated by reference to Exhibit 3(a) to HSBC USA Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999, filed with the Securities and Exchange Commission on March 30, 2000; Exhibit 3 to HSBC USA Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, filed with the Securities and Exchange Commission on November 9, 2000; Exhibits 3.2 and 3.3 to HSBC USA Inc.'s Current Report on Form 8-K dated March 30, 2005, filed with the Securities and Exchange Commission on April 4, 2005; Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K dated October 11, 2005, filed with the Securities and Exchange Commission on October 14, 2005 and Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K dated May 18, 2006, filed with the Securities and Exchange Commission on May 22, 2006).
3(ii)	By-Laws (incorporated by reference to Exhibit 3.3 of HSBC USA Inc.'s Current Report on Form 8-K dated February 20, 2009, filed with the Securities and Exchange Commission on February 24, 2009).
4.1	Senior Indenture, dated as of March 31, 2009, by and between HSBC USA Inc. and Wells Fargo Bank, National Association, as trustee, as amended and supplemented (incorporated by reference to Exhibit 4.1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-158358, filed with the Securities and Exchange Commission on April 2, 2009).
4.2	Senior Indenture, dated as of March 31, 2006, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas, as trustee, as amended and supplemented (incorporated by reference to Exhibit 4.1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-133007, filed with the Securities and Exchange Commission on April 5, 2006; Exhibit 4.16 to HSBC USA Inc.'s Current Report on Form 8-K dated April 21, 2006 and filed with the Securities and Exchange Commission on April 21, 2006; Exhibit 4.17 to HSBC USA Inc.'s Current Report on Form 8-K dated August 15, 2008 and filed with the Securities and Exchange Commission on August 15, 2008; Exhibit 4.18 to HSBC USA Inc.'s Current Report on Form 8-K dated August 15, 2008 and filed with the Securities and Exchange Commission on August 15, 2008; Exhibit 4.19 to HSBC USA Inc.'s Current Report on Form 8-K dated December 16, 2008 and filed with the Securities and Exchange Commission on December 16, 2008; and Exhibit 4.20 to HSBC USA Inc.'s Current Report on Form 8-K dated December 17, 2008 and filed with the Securities and Exchange Commission on December 17, 2008).
4.3	Senior Indenture, dated as of October 24, 1996, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas (as successor in interest to Bankers Trust Company), as trustee, as amended and supplemented (incorporated by reference to Exhibits 4.1 and 4.2 to Post-Effective Amendment No. 1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-42421, filed with the Securities and Exchange Commission on April 3, 2002; and Exhibit 4.1 to HSBC USA Inc.'s Current Report on Form 8-K dated November 21, 2005 and filed with the Securities and Exchange Commission on November 28, 2005).
4.4	Subordinated Indenture, dated as of October 24, 1996, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas (as successor in interest to Bankers Trust Company), as trustee, as amended and supplemented (incorporated by reference to Exhibits 4.3, 4.4, 4.5 and 4.6 to Post-Effective Amendment No. 1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-42421, filed with the Securities and Exchange Commission on April 3, 2002).
12	Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends.
14	Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14 to HSBC USA Inc.'s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on March 5, 2007).
21	Subsidiaries of HSBC USA Inc.
23	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
24	Power of Attorney (included on page 232 of this Form 10-K).
31	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Upon receiving a written request, we will furnish copies of the exhibits referred to above free of charge. Requests should be made to HSBC USA Inc., 26525 North Riverwoods Boulevard, Mettawa, Illinois 60045, Attention: Corporate Secretary.

Index

Accounting:

new pronouncements  115,123

policies (critical)  29

policies (significant)115

Assets:

by business segment  167

consolidated average balances  104

fair value measurements  175

nonperforming  62

trading   39,125

Asset-backed commercial paper conduits  171

Asset-backed securities    34,82,125,126

Audit committee   84,196

Auditors' report:

financial statement opinion  106

internal control opinion  107

Balance sheet:

consolidated  109

consolidated average balances  104

Review  36

Basel II   10,13,26

Basis of reporting   27,115

Business:

consolidated performance review  23

operations  5

organization history  3

Capital:

funding strategy  74

common equity movements  72

consolidated statement of changes  110

regulatory capital  168

selected capital ratios   72,168

Cash flow (consolidated)  111

Cautionary statement regarding forward-looking

statements  11

Collateral - pledged assets  184

Collateralized debt obligations   34,82

Commercial banking segment results (IFRSs)   54,164

Consumer finance segment results (IFRSs)   52,164

Committees  84,196

Competition  11

Contingent liabilities  184

Controls and procedures  190

Corporate governance and controls  11,197

Customers  5

Credit card fees  44

Credit quality  26,59

Credit risk:

accounting policy  116

adjustment  22,184

component of fair value option  145

concentration  185

critical accounting policy  29

exposure  69

management  85

related contingent features  143

related guarantees  172

Critical accounting policies and estimates  29

Current environment  21

Deferred tax   36,147

Deposits   40,71,136

Derivatives:

accounting policy  120

cash flow hedges  141

critical accounting policy   32,33

fair value hedges  140

notional value  144

trading and other  142

Directors:

biographies  190

board of directors  190

executive  193

compensation (executives)  198

responsibilities  195

Employees:

compensation and benefits  198

number of  5

Events after balance sheet date  115

Equity:

consolidated statement of changes  110

ratios   72,169

Equity securities available-for-sale  126

Estimates and assumptions   29,115

Executive overview  20

Fair value measurements:

assets and liabilities recorded at fair value on a

recurring basis  176

assets and liabilities recorded at fair value on a

non-recurring basis  179

control over valuation process  79

financial instruments  179

hierarchy  79

transfers into (out of) level three  81

valuation techniques  180

Financial assets:

designated at fair value  144

reclassification under IFRSs  55

Financial highlights metrics  20

Financial liabilities:

designated at fair value  145

fair value of financial liabilities  176,180

Forward looking statements  11

Funding   5,26,70

Future prospects  27

Gains less losses from securities   47,130

Global Banking and Markets:

balance sheet data (IFRSs)  164

loans and securities reclassified (IFRSs)  55

segment results (IFRSs)   55,164

Geographic concentration of receivables  186

Goodwill:

accounting policy  119

critical accounting policy  31

impairment  31

Guarantee arrangements  172

Impairment:

available-for-sale securities  125

credit losses   22,43,64,133

nonperforming loans  62

impaired loans  63

Income (loss) from financial instruments designated at

fair value, net   48,144

Income statement (consolidated)  108

Intangible assets  135

Income taxes:

accounting policy  121

critical accounting policy - deferred taxes  36

expense  146

Internal control  190

Interest rate risk  89

Key performance indicators  20

Legal proceedings  19

Leveraged finance transactions  144

Liabilities:

commitments, lines of credit  76,174

deposits   40,70,136

financial liabilities designated at

fair value  144

long-term debt  41,137

short-term borrowings  41,137

Trading  39,125

Lease commitments  74

Liquidity and capital resources  70

Liquidity risk  87

Litigation  19,184

Loans:

by category  37,131

by charge-off (net)  61

by delinquency  59

criticized assets  63

geographic concentration  186

held for sale   38,134

impaired  63

nonperforming  62

overall review  37

purchases from HSBC Finance  22,131,164

risk concentration  185

troubled debt restructures  133

Loan impairment charges - see Provision for

credit losses

Market risk  91

Market turmoil:

current environment  21

exposures  22

impact on liquidity risk  70

special purpose entities  170

structured investment vehicles  170

Monoline insurers   22

Mortgage lending products  37,131

Mortgage servicing rights  35,135

Net interest income  41

New accounting pronouncements  99,123

Off balance sheet arrangements  75

Operating expenses  49

Operational risk  95

Other revenue  44

Other segment results (IFRSs)  58,167

Pension and other postretirement benefits:

accounting policy  122

Performance, developments and trends  23

Personal financial services segment

results (IFRSs)  50,167

Pledged assets  184

Private banking segment results (IFRSs)  57,167

Profit (loss) before tax:

by segment - IFRSs  167

consolidated  108

Properties  18

Property, plant and equipment:

accounting policy  119

Provision for credit losses  22

Ratios:

capital  72,169

charge-off (net)  61

credit loss reserve related  64

earnings to fixed charges - Exhibit

efficiency  24

financial  20

loans to deposits  20

Reconciliation of U.S. GAAP results to IFRSs  27

Refreshed loan-to-value  38

Regulation  7

Related party transactions  160

Results of operations  41

Risks and uncertainties  12

Risk elements in the loan portfolio  185

Risk factors  12

Risk management:

credit  85

compliance  97

fiduciary  98

interest rate  89

liquidity and capital  70,87

market, (turmoil)  21,91

operational  95

reputational  98

Securities:

fair value  125,176

impairment  127

maturity analysis  130

Segment results - IFRSs basis:

personal financial services  50

consumer finance  52

commercial banking  54

global banking and markets  55

private banking  57

other  58

overall summary  50,167

Selected financial data  20

Senior management:

biographies  193

Sensitivity:

projected net interest income  90

Share-based payments:

accounting policy  122

Special purpose entities  170

Statement of changes in shareholders' equity

(consolidated)  110

Statement of changes in comprehensive income

(consolidated)  110

Statement of income (loss) (consolidated)  108

Stress testing  170

Table of contents  2

Tax expense  146

Trading:

assets   39,125

derivatives   39,45,125

liabilities   39,125

portfolios  125

Trading revenue (net)  14

Troubled debt restructures  133

Value at risk  90

Unresolved staff comments  18

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 1st day of March 2010.

                                                                                                                HSBC USA INC.

                                                                                                                By: /s/  Irene M. Dorner                                                     

                                                                                                                Irene M. Dorner

                                                                                                                President & Chief Executive Officer

Each person whose signature appears below constitutes and appoints P.D. Schwartz and M.J. Forde as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her in his/her name, place and stead, in any and all capacities, to sign and file, with the Securities and Exchange Commission, this Form 10-K and any and all amendments and exhibits thereto, and all documents in connection therewith, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of HSBC USA Inc. and in the capacities indicated on this the 1st day of March 2010.

Signature	Title
/s/  (I. M. DORNER)                                       (I. M. Dorner)	President & Chief Executive Officer, Director (as Principal Executive Officer)
/s/  (S. H. ALFIERO)                                       (S. H. Alfiero)	Director
/s/  (W. R. P. DALTON)                                    (W. R. P. Dalton)	Director
/s/  (A. DISNEY)                                          (A. Disney)	Director
/s/  (L. HERNANDEZ, JR.)                                  (L. Hernandez, Jr.)	Director
/s/  (R. A. JALKUT)                                       (R. A. Jalkut)	Director
/s/  (B. P. MCDONAGH)                                   (B. P. McDonagh)	Chairman and Director
/s/  (G. MATTIA)                                         (G. Mattia)	Senior Executive Vice President and Chief Financial Officer (as Principal Financial Officer)
/s/  (J. T. MCGINNIS)                                      (J. T. McGinnis)	Executive Vice President and Chief Accounting Officer (as Principal Accounting Officer)

Exhibit Index

3(i)	Articles of Incorporation and amendments and supplements thereto (incorporated by reference to Exhibit 3(a) to HSBC USA Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999, filed with the Securities and Exchange Commission on March 30, 2000; Exhibit 3 to HSBC USA Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, filed with the Securities and Exchange Commission on November 9, 2000; Exhibits 3.2 and 3.3 to HSBC USA Inc.'s Current Report on Form 8-K dated March 30, 2005, filed with the Securities and Exchange Commission on April 4, 2005; Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K dated October 11, 2005 and filed with the Securities and Exchange Commission on October 14, 2005 and Exhibit 3.2 to HSBC USA Inc.'s Current Report on Form 8-K dated May 18, 2006, filed with the Securities and Exchange Commission on May 22, 2006).
3(ii)	By-Laws (incorporated by reference to Exhibit 3.3 of HSBC USA Inc.'s Current Report on Form 8-K dated February 20, 2009 and filed with the Securities and Exchange Commission on February 24, 2009).
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 supplement (incorporated by reference to Exhibit 4.1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-158358, filed with the Securities and Exchange Commission on April 2, 2009).
4.2	Senior Indenture, dated as of March 31, 2006, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas, as trustee, as amended and supplemented (incorporated by reference to Exhibit 4.1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-133007, filed with the Securities and Exchange Commission on April 5, 2006; Exhibit 4.16 to HSBC USA Inc.'s Current Report on Form 8-K dated April 21, 2006 and filed with the Securities and Exchange Commission on April 21, 2006; Exhibit 4.17 to HSBC USA Inc.'s Current Report on Form 8-K dated August 15, 2008 and filed with the Securities and Exchange Commission on August 15, 2008; Exhibit 4.18 to HSBC USA Inc.'s Current Report on Form 8-K dated August 15, 2008 and filed with the Securities and Exchange Commission on August 15, 2008; Exhibit 4.19 to HSBC USA Inc.'s Current Report on Form 8-K dated December 16, 2008 and filed with the Securities and Exchange Commission on December 16, 2008; and Exhibit 4.20 to HSBC USA Inc.'s Current Report on Form 8-K dated December 17, 2008 and filed with the Securities and Exchange Commission on December 17, 2008).
4.3	Senior Indenture, dated as of October 24, 1996, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas (as successor in interest to Bankers Trust Company), as trustee, as amended and supplemented (incorporated by reference to Exhibits 4.1 and 4.2 to Post-Effective Amendment No. 1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-42421, filed with the Securities and Exchange Commission on April 3, 2002; and Exhibit 4.1 to HSBC USA Inc.'s Current Report on Form 8-K dated November 21, 2005 and filed with the Securities and Exchange Commission on November 28, 2005).
4.4	Subordinated Indenture, dated as of October 24, 1996, by and between HSBC USA Inc. and Deutsche Bank Trust Companies Americas (as successor in interest to Bankers Trust Company), as trustee, as amended and supplemented (incorporated by reference to Exhibits 4.3, 4.4, 4.5 and 4.6 to Post-Effective Amendment No. 1 to HSBC USA Inc.'s registration statement on Form S-3, Registration No. 333-42421, filed with the Securities and Exchange Commission on April 3, 2002).
12	Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends.
14	Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14 to HSBC USA Inc.'s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on March 5, 2007).
21	Subsidiaries of HSBC USA Inc.
23	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
24	Power of Attorney (included on page 232 of this Form 10-K).
31	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Upon receiving a written request, we will furnish copies of the exhibits referred to above free of charge. Requests should be made to HSBC USA Inc., 26525 North Riverwoods Boulevard, Mettawa, Illinois 60045, Attention: Corporate Secretary.

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,
	2009	2008	2007	2006	2005
	(dollars are in millions)
Ratios excluding interest on deposits:
Net (loss) income..............................................................................................................	$     (142)	$    (1,689)	$       138	$    1,036	$       976
Income tax (benefit) expense...........................................................................................	(84)	(919)	(1)	530	566
Less: Undistributed equity earnings.............................................................................	28	35	-	34	73
Fixed charges:
Interest on:
Borrowed funds..............................................................................................................	74	283	357	300	270
Long-term debt...............................................................................................................	782	985	1,443	1,457	1,025
One third of rents, net of income from subleases.......................................................	24	24	29	25	19
Total fixed charges, excluding interest on deposits....................................................	880	1,292	1,829	1,782	1,314
(Loss) earnings before taxes and fixed charges, net of undistributed equity earnings...........................................................................................................................	$      626	$    (1,351)	$    1,966	$    3,314	$    2,783
Ratio of (loss) earnings to fixed charges.......................................................................	.71	(1.05)	1.07	1.86	2.12
Total preferred stock dividend factor(1).......................................................................	$      116	$         122	$         99	$       133	$         71
Fixed charges, including the preferred stock dividend factor....................................	$      996	$      1,414	$    1,928	$    1,915	$    1,385
Ratio of (loss) earnings to combined fixed charges and preferred stock dividends.........................................................................................................................	.63	(.95)	1.02	1.73	2.01
Ratios including interest on deposits:
Total fixed charges, excluding interest on deposits....................................................	$      880	$      1,292	$    1,829	$    1,782	$    1,314
Add: Interest on deposits...............................................................................................	991	2,426	3,840	3,113	1,771
Total fixed charges, including interest on deposits....................................................	$   1,871	$      3,718	$    5,669	$    4,895	$    3,085
(Loss) earnings before taxes and fixed charges, net of undistributed equity earnings..........................................................................................................................	$      626	$    (1,351)	$    1,966	$    3,314	$    2,783
Add: Interest on deposits...............................................................................................	991	2,426	3,840	3,113	1,771
Total....................................................................................................................................	$   1,617	$      1,075	$    5,806	$    6,427	$    4,554
Ratio of earnings to fixed charges..................................................................................	.86	0.29	1.02	1.31	1.48
Fixed charges, including the preferred stock dividend factor....................................	$      996	$      1,414	$    1,928	$    1,915	$    1,385
Add: Interest on deposits...............................................................................................	991	2,426	3,840	3,113	1,771
Fixed charges, including the preferred stock dividend factor and interest on deposits...........................................................................................................................	$   1,987	$      3,840	$    5,768	$    5,028	$    3,156
Ratio of earnings to combined fixed charges and preferred stock dividends.........	.81	.28	1.01	1.28	1.44

____________

(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      US 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
Cross-LA Realty, Inc. ........................................................................................................................................................................	Louisiana
Crossturkey, Inc. ................................................................................................................................................................................	New York
Cross Zou Holding Corp. ..................................................................................................................................................................	New York
Delaware Securities Processing Corp. .............................................................................................................................................	Delaware
Eagle Rock Holdings, Inc. .................................................................................................................................................................	New York
Ellenville Holdings, Inc. .....................................................................................................................................................................	New York
F-Street Holdings, Inc. .......................................................................................................................................................................	Delaware
Giller Ltd. ..............................................................................................................................................................................................	New York
GWML Holdings, Inc. .......................................................................................................................................................................	Delaware
High Meadow Management, Inc. ....................................................................................................................................................	New York
HSBC Affinity Corporation I.............................................................................................................................................................	Delaware
HSBC AFS (USA) LLC.......................................................................................................................................................................	New York
HSBC Bank USA, National Association..........................................................................................................................................	USA
HSBC Business Credit (USA) Inc. ...................................................................................................................................................	Delaware
HSBC Columbia Funding, LLC..........................................................................................................................................................	Delaware
HSBC Funding (USA) Inc. V.............................................................................................................................................................	Delaware
HSBC Global Asset Management (USA) Inc. ................................................................................................................................	New York
HSBC Insurance Agency (USA) Inc. ..............................................................................................................................................	New York
HSBC Insurance Services (USA) Inc. .............................................................................................................................................	New York
HSBC International Finance Corporation (Delaware)....................................................................................................................	USA
HSBC International Investments Corporation (Delaware)............................................................................................................	Delaware
HSBC Investment Corporation (Delaware)......................................................................................................................................	Delaware
HSBC Jade Limited Partnership.........................................................................................................................................................	Nevada
HSBC Land Title Agency (USA) LLC..............................................................................................................................................	New York
HSBC Logan Holdings USA, LLC....................................................................................................................................................	Delaware
HSBC McKinley Finance, LLC..........................................................................................................................................................	Delaware
HSBC Mortgage Corporation (USA)................................................................................................................................................	Delaware
HSBC Motor Credit (USA) Inc. ........................................................................................................................................................	Delaware
HSBC Overseas Corporation (Delaware).........................................................................................................................................	Delaware
HSBC Overseas Investments Corporation (New York).................................................................................................................	Maryland
HSBC Private Bank International......................................................................................................................................................	USA
HSBC Ranier Investments, LLC........................................................................................................................................................	Delaware
HSBC Realty Credit Corporation (USA)..........................................................................................................................................	Delaware
HSBC Receivables Acquisition Corporation (USA) III.................................................................................................................	Delaware
HSBC Receivables Acquisition Corporation (USA) IV.................................................................................................................	Delaware
HSBC Receivables Funding Inc. I.....................................................................................................................................................	Delaware
HSBC Reinsurance (USA) Inc. .........................................................................................................................................................	Vermont
HSBC Retail Credit (USA) Inc. .........................................................................................................................................................	New York
HSBC Trust Company (Delaware), National Association.............................................................................................................	USA
HSBC USA Capital Trust I.................................................................................................................................................................	Delaware
HSBC USA Capital Trust II................................................................................................................................................................	Delaware
HSBC USA Capital Trust III..............................................................................................................................................................	Delaware
HSBC USA Capital Trust V................................................................................................................................................................	Delaware
HSBC USA Capital Trust VI..............................................................................................................................................................	Delaware
HSBC USA Capital Trust VII.............................................................................................................................................................	Delaware
HSBC Whitney Finance, LLC............................................................................................................................................................	Delaware
Katonah Close Corp. ..........................................................................................................................................................................	New York
Marine Midland Overseas Corporation...........................................................................................................................................	Delaware
MM Mooring #2 Corp. ......................................................................................................................................................................	New York
Northridge Plaza, Inc. .........................................................................................................................................................................	Delaware
Oakwood Holdings, Inc. ....................................................................................................................................................................	New York
One Main Street, Inc. .........................................................................................................................................................................	Florida
Property Owner (USA) LLC...............................................................................................................................................................	Delaware
R/CLIP Corp. .......................................................................................................................................................................................	Delaware
Republic Overseas Capital Corporation...........................................................................................................................................	New York
Republic New York Securities Corporation.....................................................................................................................................	Maryland
Sub 1-211, Inc. .....................................................................................................................................................................................	Pennsylvania
Sub 2-211, Inc. .....................................................................................................................................................................................	Pennsylvania
Timberlink Settlement Services (USA) Inc. ....................................................................................................................................	Delaware
Tower Holding New York Corp. .......................................................................................................................................................	New York
Tower L.I.C. Corp. ..............................................................................................................................................................................	New York
Tower Pierrepont Corp. .....................................................................................................................................................................	New York
TPBC Acquisition Corp. ....................................................................................................................................................................	Florida
Trumball Management, Inc. ..............................................................................................................................................................	New York
West 56(th) and 57(th) Street Corp. .................................................................................................................................................	New York

Non-U.S. Affiliates:

Names of Subsidiaries	Country Organized
HRMG Nominees Limited............................................................................................................................................................	Guernsey
HSBC Alternative Investments Limited....................................................................................................................................	United Kingdom
HSBC Alternative Investments (Guernsey) Limited...............................................................................................................	Guernsey
HSBC Financial Services (Uruguay) S.A. ................................................................................................................................	Uruguay
HSBC Investment Holdings (Guernsey) Limited.....................................................................................................................	Guernsey
HSBC Life Insurance (Cayman) Limited....................................................................................................................................	Cayman Islands
HSBC Management (Guernsey) Limited...................................................................................................................................	Guernsey
Republic Bullion (Far East) Limited...........................................................................................................................................	Hong Kong

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

HSBC USA Inc.:

We consent to the incorporation by reference in the Registration Statements (No. 333-158385, 333-133007, 333-42421, 333-127603 and 033-49507) on Form S-3 of HSBC USA Inc. of our reports dated March 1, 2010, with respect to the consolidated balance sheets of HSBC USA Inc. and subsidiaries as of December 31, 2009 and 2008, 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, 2009, and the consolidated balance sheets of HSBC Bank USA, National Association and subsidiaries as of December 31, 2009 and 2008, and the effectiveness of internal control over financial reporting as of December 31, 2009, which reports appear in the December 31, 2009 annual report on Form 10-K of HSBC USA Inc. Our report dated March 1, 2010 on the consolidated financial statements referred to above included an explanatory paragraph describing that the Company changed its method of accounting for other-than-temporary impairments of debt securities in 2009.

/s/  KPMG LLP

New York, New York

March 1, 2010

EXHIBIT 31

Ccertification of Chief Executive Officer and Chief Financial Officer

Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer

I, Irene M. Dorner, President and Chief Executive Officer of HSBC USA Inc., certify that:

1. I have reviewed this annual report on Form 10-K of HSBC USA Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: March 1, 2010

   /s/  IRENE M. DORNER                                     

   Irene M. Dorner

   President and Chief Executive Officer

Certification of Chief Financial Officer

I, Gerard Mattia, Senior Executive Vice President and Chief Financial Officer of HSBC USA Inc.,

certify that:

1. I have reviewed this annual report on Form 10-K of HSBC USA Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 1, 2010

   /s/  GERARD MATTIA                                     

   Gerard Mattia

   Senior 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, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code.

I, Irene M. Dorner, President and Chief Executive Officer of the Company, certify that:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of HSBC USA Inc.

Date: March 1, 2010

   /s/  IRENE M. DORNER                                     

   Irene M. Dorner

   President and Chief Executive Officer

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

Section 906 of the Sarbanes-Oxley Act of 2002

The certification set forth below is being submitted in connection with the HSBC USA Inc. (the "Company") Annual Report on Form 10-K for the period ending December 31, 2009 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, Gerard Mattia, Senior 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: March 1, 2010

   /s/  GERARD MATTIA                                     

   Gerard Mattia

   Senior Executive Vice President and

   Chief Financial Officer

These certifications accompany each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by HSBC USA Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Signed originals of these written statements required by Section 906 of the Sarbanes-Oxley Act of 2002 have been provided to HSBC USA Inc. and will be retained by HSBC USA Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

END

 

 

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