Discontinued Operations

2012 Discontinued Operations:

Insurance During the second quarter of 2012, we decided to exit the manufacturing of all insurance products through the sale of our interest in substantially all of our insurance subsidiaries as this business did not fit with HSBC's core strategy in the United States and Canada. Insurance products will continue to be offered to HSBC customers through non-affiliate providers. As a result, our Insurance operations are part of a disposal group held for sale and we began reporting this business as discontinued operations in the second quarter of 2012. Since the carrying value of the disposal group was greater than its estimated fair value less costs to sell, during 2012 we recorded a pre-tax lower of amortized cost or fair value less cost to sell adjustment of $119 million ($90 million after-tax) which took into consideration foreign currency translation adjustments and unrealized gains on available-for-sale securities associated with the disposal group which were reflected in accumulated other comprehensive income. At December 31, 2012, disposal group assets consisted primarily of available-for-sale securities totaling $1,411 million and disposal group liabilities consisted primarily of insurance policy and claim reserves totaling $988 million.

On March 29, 2013, we sold our interest in substantially all of our insurance subsidiaries to Enstar for $153 million in cash and recorded a gain on sale of $21 million ($13 million after-tax), which is reflected in the table below.

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



Year Ended December 31,	2013			2012			2011
	(in millions)
Net interest income and other revenues⁽¹⁾⁽²⁾	$	70		$	167		$	362
Income (loss) from discontinued operations before income tax⁽²⁾	(10		)	(162		)	17

⁽¹⁾

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


⁽²⁾	For the year ended December 31, 2012 amounts include the lower of amortized cost or fair value adjustment of $119 million as discussed above which was reported as a component of other revenues.

Assets and liabilities of our discontinued Insurance operations, which are reported as a component of Assets of discontinued operations and Liabilities of discontinued operations in our consolidated balance sheet, consisted of the following:



	December 31, 2013		December 31, 2012
	(in millions)
Cash	$	—	$	2
Interest bearing deposits with banks	—		29
Available-for-sale securities	—		1,411
Other assets	—		226
Assets of discontinued operations	$	—	$	1,668
Insurance policy and claim reserves	$	—	$	988
Other liabilities	—		224
Liabilities of discontinued operations	$	—	$	1,212

Commercial Beginning in the second quarter of 2012, we have reported our Commercial business in discontinued operations as there are no longer any outstanding receivable balances or any remaining significant cash flows generated from this business. The following table summarizes the operating results of our discontinued Commercial business for the periods presented:



Year Ended December 31,	2013		2012		2011
	(in millions)
Net interest income and other revenues⁽¹⁾	$	22	$	23	$	10
Income from discontinued operations before income tax	14		20		6

⁽¹⁾

2011 Discontinued Operations:

Card and Retail Services On May 1, 2012, HSBC, through its wholly-owned subsidiaries HSBC Finance Corporation, HSBC USA Inc. and other wholly-owned affiliates, sold its Card and Retail Services business to Capital One Financial Corporation (“Capital One”) for a premium of 8.75 percent of receivables. In addition to receivables, the sale included real estate and certain other assets and liabilities which were sold at book value or, in the case of real estate, appraised value. Under the terms of the agreement, interests in facilities in Chesapeake, Virginia; Las Vegas, Nevada; Mettawa, Illinois; Volo, Illinois; Hanover, Maryland; Salinas, California; Sioux Falls, South Dakota and Tigard, Oregon were sold or transferred to Capital One, although we have entered into site-sharing arrangements for certain of these locations for a period of time. The total cash consideration was $11,786 million, which resulted in a pre-tax gain of $2,178 million ($1,421 million after-tax) being recorded during the second quarter of 2012. The majority of the employees in our Card and Retail Services business transferred to Capital One. As such, no significant one-time closure or severance costs were incurred as a result of this transaction. Our Card and Retail Services business is reported in discontinued operations.

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



Year Ended December 31,	2013			2012		2011
	(in millions)
Net interest income and other revenues⁽¹⁾⁽²⁾	$	1		$	3,342	$	3,729
Income (loss) from discontinued operations before income tax⁽²⁾⁽³⁾	(253		)	2,649		1,364

⁽¹⁾


⁽²⁾	For 2012, amounts include the gain on sale to Capital One of $2,178 million. For 2012, amounts also includes a gain of $79 million resulting from the sale of account relationships to HSBC Bank USA which we had previously purchased from HSBC Bank USA in July 2004.

⁽³⁾

For 2013, amount includes an incremental expense of $87 million recorded based on actions taken and to be taken in connection with an industry review of enhancement services products. Additionally for 2013, the amounts also reflect expenses related to activities to complete the separation of the credit card operational infrastructure between us and Capital One. We expect costs associated with the separation of the credit card operational infrastructure to continue into 2014. For 2013 amounts also reflect a legal accrual of $40 million. See Note 22, "Litigation and Regulatory Matters," for further discussion of the legal matter.

Assets and liabilities of our discontinued Card and Retail Services business, which are reported as a component of Assets of discontinued operations and Liabilities of discontinued operations in our consolidated balance sheet, consisted of the following:



	December 31, 2013		December 31, 2012
	(in millions)
Cash	$	23	$	197
Other assets⁽¹⁾	79		84
Assets of discontinued operations	$	102	$	281

Other liabilities⁽²⁾	$	102	$	283
Liabilities of discontinued operations	$	102	$	283


⁽¹⁾	At December 31, 2013 and December 31, 2012, other assets primarily consists of current and deferred taxes.


⁽²⁾	At December 31, 2013 and December 31, 2012, other liabilities primarily consists of certain legal accruals as discussed above.

2010 Discontinued Operations:

Taxpayer Financial Services ("TFS") In December 2010, it was determined that we would not offer any tax refund anticipation loans or related products for the 2011 tax season and we exited the TFS business. As a result of this decision, our TFS business was reported in discontinued operations. There were no assets or liabilities in our TFS business as of December 31, 2013 and 2012. The following summarizes the operating results of our TFS business for the periods presented:



Year Ended December 31,	2013		2012		2011
	(in millions)
Net interest income and other revenues⁽¹⁾	$	—	$	—	$	2
Income (loss) from discontinued operations before income tax	—		—		(4		)

⁽¹⁾

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

Auto Finance In March 2010, we sold our auto finance receivable servicing operations as well as a portion of our auto finance receivable portfolio to Santander Consumer USA Inc. (“SC USA”) and in August 2010, we sold the remainder of our auto finance receivable portfolio and other related assets to SC USA. As a result, our Auto Finance business, previously included in our Consumer Segment, is reported as discontinued operations. The assets and liabilities of our Auto Finance business as of December 31, 2013 and 2012 were not significant. The following summarizes the operating results of our Auto Finance business for the periods presented:



Year Ended December 31,	2013		2012		2011
	(in millions)
Net interest income and other revenues⁽¹⁾⁽²⁾	$	—	$	14	$	—
Income (loss) from discontinued operations before income tax⁽²⁾	—		14		(3		)

⁽¹⁾


⁽²⁾	For the year ended December 31, 2012, amounts reflect the receipt of a state sales tax refund from the state of California related to accounts that were charged-off prior to the sale of the Auto Finance business.