Related Party Transactions

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



	September 30, 2013		December 31, 2012
	(in millions)
Assets:
Cash and due from banks	$	343	$	114
Interest bearing deposits with banks ⁽¹⁾	1,028		714
Trading assets ⁽²⁾	17,169		21,370
Loans	5,854		4,514
Other ⁽³⁾	765		858
Total assets	$	25,159	$	27,570
Liabilities:
Deposits	$	16,577	$	13,863
Trading liabilities ⁽²⁾	19,692		23,910
Short-term borrowings	1,950		2,721
Long-term debt	3,990		3,990
Other ⁽²⁾	606		459
Total liabilities	$	42,815	$	44,943


⁽¹⁾	Includes interest bearing deposits with HSBC Mexico S.A. of $800 million and $500 million at September 30, 2013 and December 31, 2012, respectively.


⁽²⁾	Trading assets and liabilities do not reflect the impact of netting which allows the offsetting of amounts relating to certain contracts if certain conditions are met. Trading assets and liabilities primarily consist of derivatives contracts.


⁽³⁾	Other assets and other liabilities primarily consist of derivative contracts.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
							(in millions)
Income/(Expense):
Interest income	$	31		$	19		$	143		$	117
Interest expense	(19		)	(23		)	(59		)	(70		)
Net interest income (loss)	$	12		$	(4	)	$	84		$	47
Servicing and other fees from HSBC affiliate:
Fees and commissions:
HSBC Finance Corporation	$	20		$	21		$	67		$	51
HSBC Markets (USA) Inc. (“HMUS”)	4			4			13			14
Other HSBC affiliates	9			17			39			59
Other HSBC affiliates income	8			21			35			41
Total affiliate income	$	41		$	63		$	154		$	165
Residential mortgage banking revenue	$	—		$	—		$	—		$	3
Support services from HSBC affiliates:
HSBC Finance Corporation	$	(2	)	$	(5	)	$	(11	)	$	(22	)
HMUS	(58		)	(87		)	(164		)	(248		)
HSBC Technology & Services (USA) (“HTSU”)	(274		)	(237		)	(749		)	(711		)
Other HSBC affiliates	(44		)	(43		)	(140		)	(162		)
Total support services from HSBC affiliates	$	(378	)	$	(372	)	$	(1,064	)	$	(1,143	)
Stock based compensation expense with HSBC ⁽¹⁾	$	(7	)	$	(8	)	$	(29	)	$	(27	)


⁽¹⁾	Employees participate in one or more stock compensation plans sponsored by HSBC. These expenses are included in Salaries and employee benefits in our consolidated statement of income (loss). Employees also participate in a defined benefit pension plan and other postretirement plans sponsored by HSBC North America which are discussed in Note 13, “Pension and Other Postretirement Benefits.”

Funding Arrangements with HSBC Affiliates:

We use HSBC affiliates to fund a portion of our borrowing and liquidity needs. Long-term debt with affiliates reflects $4.0 billion in senior debt with HSBC North America. Of this amount, $1.0 billion is a 5 year floating rate note which matures in August 2014 and $3.0 billion that matures in three equal installments of $1.0 billion in April 2015, 2016 and 2017. The debt bears interest at 90 day USD Libor plus a spread, with each maturity at a different spread.

We have the following funding arrangements available with HSBC affiliates, although there are no outstanding balances at either September 30, 2013 and December 31, 2012:


•	$900 million committed line of credit with HSBC Investment (Bahamas) Limited;


•	$500 million committed line of credit with HSBC Holdings plc; and


•	$150 million uncommitted line of credit with HSBC North America Inc. (“HNAI”).

We have also incurred short-term borrowings with certain affiliates, largely related to metals activity. In addition, certain affiliates have also placed deposits with us.

Lending and Derivative Related Arrangements Extended to HSBC Affiliates:

At September 30, 2013 and December 31, 2012, we have the following loan balances outstanding with HSBC affiliates:



	September 30, 2013		December 31, 2012
	(in millions)
HSBC Finance Corporation	$	3,015	$	2,019
HSBC Markets (USA) Inc. ("HMUS") and subsidiaries	929		310
HSBC Bank Brasil S.A.	1,000		1,000
HSBC Bank Panama S.A.	200		372
Other short-term affiliate lending	710		813
Total assets	$	5,854	$	4,514

HSBC Finance Corporation - We have extended a $4.0 billion, 364 day uncommitted unsecured revolving credit agreement to HSBC Finance which allows for borrowings with maturities of up to 15 years. As of September 30, 2013 and December 31, 2012, $3.0 billion and $2.0 billion, respectively, was outstanding under this credit agreement with $512 million maturing in September 2017, $1.5 billion maturing in January 2018 and $1.0 billion maturing in September 2018.

HMUS and subsidiaries - We have extended loans and lines, some of them uncommitted, to HMUS and its subsidiaries in the amount of $3.8 billion at September 30, 2013 and December 31, 2012, of which $929 million and $310 million, respectively, was outstanding. The outstanding balances at September 30, 2013 mature in 2013.

HSBC Bank Brasil S.A. - We have extended uncommitted lines of credit to HSBC Bank Brasil in the amount of $1.5 billion and $1.0 billion at September 30, 2013 and December 31, 2012, respectively, of which $1.0 billion was outstanding at both September 30, 2013 and December 31, 2012. The outstanding balances mature at various stages between 2014 and 2015.

HSBC Bank Panama S.A. - We have extended an uncommitted line of credit to HSBC Panama in the amount of $752 million at September 30, 2013 and December 31, 2012, of which $200 million and $372 million, respectively, was outstanding. In October 2013, this outstanding loan amount was repaid in full.

Other Short-term Affiliate Lending - In addition to loans and lines extended to affiliates discussed above, from time to time we may extend loans to affiliates which are generally short term in nature. At September 30, 2013 and December 31, 2012, there were $710 million and $813 million of loans outstanding primarily related to metals activities.

The following summarizes lending arrangements we have extended to HSBC affiliates which do not have any outstanding balances at either September 30, 2013 and December 31, 2012:


•	$1.5 billion uncommitted secured credit facility extended to certain subsidiaries of HSBC Finance which matures in November 2013 and is currently expected to be renewed. Any draws on this credit facility by HSBC Finance require regulatory approval;


•	$2.0 billion committed revolving credit facility extended to HSBC Finance which expires in May 2017.


•	We have extended lines of credit to various other HSBC affiliates totaling 2.6 billion.

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 September 30, 2013 and December 31, 2012, no ABCP issued by such conduits was held. Pursuant to a global restructure of HSBC sponsored ABCP conduits, certain assets previously originated and funded by Bryant Park, an ABCP conduit organized by HUSI, have been refinanced by Regency, another ABCP conduit organized and consolidated by our affiliate. HUSI is committed to provide liquidity facilities to backstop the liquidity risk in Regency in relation to assets originated in the U.S. region. The notional amount of the liquidity facilities provided by HUSI to Regency was approximately $2.5 billion as of September 30, 2013, which is less than half of Regency's total liquidity facilities.

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, we routinely enter into derivative transactions with HSBC Finance and other HSBC affiliates. The notional value of derivative contracts related to these contracts was approximately $1,164.1 billion and $1,066.5 billion at September 30, 2013 and December 31, 2012, respectively. The net credit exposure (defined as the net fair value of derivative assets and liabilities) related to the contracts was approximately $789 million and $691 million at September 30, 2013 and December 31, 2012, 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.

Services Provided Between HSBC Affiliates:

Under multiple service level agreements, we provide services to and receive services from various HSBC affiliates. The following summarizes these activities:

•

Servicing activities for residential mortgage loans across North America are performed both by us and HSBC Finance. As a result, we receive servicing fees from HSBC Finance for services performed on their behalf and pay servicing fees to HSBC Finance for services performed on our behalf. The fees we receive from HSBC Finance are reported in Servicing and other fees from HSBC affiliates. Fees we pay to HSBC Finance are reported in Support services from HSBC affiliates. This includes fees paid for the servicing of residential mortgage loans (with a carrying amount of $1.0 billion and $1.2 billion at September 30, 2013 and December 31, 2012) that we purchased from HSBC Finance in 2003 and 2004.

•

HSBC North America's technology and certain centralized support services including human resources, corporate affairs, risk management, legal, compliance, tax, finance and other shared services are centralized within HTSU. HTSU also provides certain item processing and statement processing activities to us. The fees we pay HTSU for the centralized support services and processing activities are included in Support services from HSBC affiliates. We also receive fees from HTSU for providing certain administrative services to them. The fees we receive from HTSU are included in Servicing and other fees from HSBC affiliates.


•	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 are included in Support services from HSBC affiliates.

•

We utilize HSBC Securities (USA) Inc. (“HSI”) for broker dealer, debt underwriting, customer referrals, loan syndication and all 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. Customer referral fees paid to HSI are netted against customer fee income, which is included in other fees and commissions.

Other Transactions with HSBC Affiliates

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 purchased new originations on these credit card receivables. As discussed in Note 8, “Intangible Assets,” on March 29, 2012 we re-purchased these account relationships from HSBC Finance on $746 million of credit card receivables on that date for $108 million and as a result, we stopped purchasing new originations on these credit card accounts from HSBC Finance. We purchased $492 million of credit card receivables from HSBC Finance during the three months ended March 31, 2012. HSBC Finance continued to service these loans for us through April 30, 2012 for a fee which was included in Support services from affiliates. Effective with the close of the sale of our GM and UP credit card receivables and our private label credit card and closed-end receivables on May 1, 2012, these loans had been serviced by Capital One for a fee. In September 2013, the outsourcing arrangement with Capital One ended and we resumed the servicing of our remaining credit card portfolio. Premiums previously paid are amortized to interest income over the estimated life of the receivables purchased.

In addition to purchases of U.S. Treasury and U.S. Government Agency securities, we purchased both foreign-denominated and USD denominated marketable securities from certain affiliates including HSI, HSBC Asia-Pacific, HSBC Mexico, HSBC London, HSBC Brazil, HSBC Chile and HSBC Canada. Marketable securities outstanding from these purchases are reflected in trading assets and were immaterial in all periods.

Transactions with HSBC Affiliates involving our Discontinued Operations:

As it relates to our discontinued credit card and private label operations, in January 2009 we purchased the General Motors (“GM”) and Union Plus (“UP”) portfolios from HSBC Finance with an outstanding principal balance of $12.4 billion at the time of sale, at a total net premium of $113 million. Additionally in December 2004, we purchased the private label credit card receivable portfolio as well as private label commercial and closed end loans from HSBC Finance. HSBC Finance retained the customer account relationships for both the GM and UP receivables and the private label credit card receivables and by agreement we purchased on a daily basis substantially all new originations from these account relationships from HSBC Finance prior to the sale of these accounts to Capital One on May 1, 2012. Premiums paid for these receivables were amortized to interest income over the estimated life of the receivables purchased and are included as a component of Income from discontinued operations. HSBC Finance serviced these credit card loans for us for a fee through April 30, 2012. During the nine months ended September 30, 2012, we purchased a total of $9.9 billion of loans on a daily basis from HSBC Finance. Fees paid for servicing these loan portfolios, which are included as a component of Income from discontinued operations, totaled $199 million during the nine months ended September 30, 2012, respectively.