Discontinued Operations

12 Months Ended

Dec. 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

2012 Discontinued Operations:

Commercial In 2012, we began reporting our Commercial business in discontinued operations as there were no longer any outstanding receivable balances or any remaining significant cash flows generated from this business. At December 31, 2016 and December 31, 2015, assets of our Commercial business totaled $9 million and $5 million, respectively. Liabilities of our Commercial business totaled $5 million at December 31, 2016. There were no liabilities in our Commercial business at December 31, 2015. The following table summarizes the operating results of our discontinued Commercial business for the periods presented:

Year Ended December 31,	2016		2015		2014
	(in millions)
Net interest income and other revenues	$	7	$	14	$	10
Income from discontinued operations before income tax	3		8		6

2011 Discontinued Operations:

Card and Retail Services In 2012, HSBC, through its wholly-owned subsidiaries HSBC Finance Corporation, HSBC USA Inc. ("HSBC USA") and other wholly-owned affiliates, sold its Card and Retail Services business to Capital One Financial Corporation ("Capital One"). 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.

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

Year Ended December 31,	2016		2015			2014
	(in millions)
Net interest income and other revenues(1)	$	44	$	—		$	—
Income (loss) from discontinued operations before income tax(1)(2)	39		(62		)	(33		)

⁽¹⁾  For 2016, the amount includes a $44 million gain on sale of Visa Class B Shares as discussed more fully below.

⁽²⁾  For 2015 and 2014, the amounts reflect an increase in our accrual of $41 million and $7 million, respectively, related to an industry review of credit card enhancement services products. During 2016, we reduced our accrual by $9 million related to this industry review. Additionally, the amounts for 2015 and 2014 include expenses related to activities to complete the separation of the credit card operational infrastructure between us and Capital One and in 2015, additional legal accruals.

At December 31, 2016 and December 31, 2015, assets of our discontinued Card and Retail Services business totaled $7 million and $8 million, respectively. Liabilities of our Card and Retail Services business totaled $52 million and $102 million at December 31, 2016 and December 31, 2015, respectively. At December 31, 2016, liabilities consist of certain legal accruals, tax liabilities and a derivative related liability which is discussed more fully below. At December 31, 2015, liabilities consist of certain legal accruals.

In 2008, we received Class B shares as part of Visa's initial public offering ("Class B Shares"). The Class B Shares are not eligible to be converted into publicly traded Class A shares ("Class A Shares") until certain ongoing credit card litigation is settled which will be indemnified by Visa members including us as described in Note 20, "Litigation and Regulatory Matters". Accordingly, the Class B Shares are considered restricted and are transferable under limited circumstances, including to other Class B shareholders. In December 2016, we sold our Class B Shares. Simultaneously, our affiliate, HSBC USA, also sold Class B Shares to the same purchaser. Under the terms of the sale agreement, HSBC USA entered into a derivative instrument with the purchaser to retain the litigation risk associated with all of the Class B Shares sold by both us and HSBC USA until the credit card litigation is settled and the Class B Shares can be converted into Class A Shares. Immediately following the execution of the sale agreement, we entered into a derivative instrument with HSBC USA to retain the litigation risk associated with our portion of the Class B Shares sold to the purchaser. The derivative instrument we entered into with HSBC USA requires us to (a) make periodic fixed payments, calculated by reference to the market price of Class A Shares and (b) make or receive payments based on subsequent changes in the conversion rate of Class B Shares into Class A Shares. The payments under the derivative will continue until the Class B Shares are able to be converted into Class A Shares. The fair value of our derivative with HSBC USA is estimated using a discounted cash flow methodology and is dependent upon the final resolution of the credit card litigation. Changes in fair value between periods will be recognized in income (loss) from discontinued operations before income tax. We recorded a net pre-tax gain on sale of $44 million as a component of income (loss) from discontinued operations before income tax as a result of these related transactions. The notional amount of this derivative contract totaled $50 million at December 31, 2016. The fair value of the derivative related liability was $5 million at December 31, 2016 and is included as a component of liabilities of discontinued operations.

See Note 20, "Litigation and Regulatory Matters," for discussion regarding a consent order issued by the Office of the Comptroller of the Currency ("OCC") on April 13, 2016 related to customers who purchased a certain credit monitoring product which was previously marketed and administered by our discontinued Card and Retail Services business.