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, servicing arrangements, information technology, centralized support 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 Federal Deposit Insurance Corporation ("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:



At December 31,	2014		2013
	(in millions)
Assets:
Cash and due from banks	$	140	$	102
Interest bearing deposits with banks ⁽¹⁾	928		631
Trading assets ⁽²⁾	20,194		17,082
Loans	4,821		5,328
Other ⁽³⁾	983		1,219
Total assets	$	27,066	$	24,362
Liabilities:
Deposits	$	16,596	$	16,936
Trading liabilities ⁽²⁾	21,130		19,463
Short-term borrowings	847		1,514
Long-term debt	3,981		3,987
Other ⁽³⁾	459		573
Total liabilities	$	43,013	$	42,473


⁽¹⁾	Includes interest bearing deposits with HSBC Mexico S.A. of $800 million and $500 million at December 31, 2014 and 2013, respectively.


⁽²⁾	Trading assets and trading 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.



Year Ended December 31,	2014			2013			2012
	(in millions)
Income/(Expense):
Interest income	$	71		$	46		$	13
Interest expense	(66		)	(78		)	(91		)
Net interest income	$	5		$	(32	)	$	(78	)
Servicing and other fees from HSBC affiliate:
Fees and commissions:
HSBC Finance	$	77		$	86		$	72
HSBC Markets (USA) Inc. ("HMUS")	13			17			18
Other HSBC affiliates	56			51			74
Other HSBC affiliates income	53			48			38
Total affiliate income	$	199		$	202		$	202
Residential mortgage banking revenue	$	—		$	—		$	3
Support services from HSBC affiliates:
HSBC Finance	$	(11	)	$	(14	)	$	(27	)
HMUS	(233		)	(228		)	(326		)
HSBC Technology & Services (USA) ("HTSU")	(1,103		)	(1,000		)	(912		)
Other HSBC affiliates	(202		)	(217		)	(215		)
Total support services from HSBC affiliates	$	(1,549	)	$	(1,459	)	$	(1,480	)
Stock based compensation expense with HSBC ⁽¹⁾	$	(46	)	$	(34	)	$	(36	)


⁽¹⁾	Employees may 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 may participate in a defined benefit pension plan and other postretirement plans sponsored by HSBC North America which are discussed in Note 21, "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 floating rate senior debt with HSBC North America. Of this amount, $1.0 billion matures in August 2015 and $3.0 billion matures in October 2015. The debt bears interest at 90 day U.S. dollar LIBOR plus a spread, with each maturity at a different spread.

We have the following funding arrangements available with HSBC affiliates, although there were no outstanding balances at either December 31, 2014 or 2013:


•	$805 million committed line of credit with HSBC Investment (Bahamas) Limited, which was reduced from $900 million at December 31, 2013; and


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

At December 31, 2013, we also had a committed unused line of credit with HSBC of $500 million which matured during 2014.

We have also incurred short-term borrowings with certain affiliates. In addition, certain affiliates have also placed deposits with us.

Lending and Derivative Related Arrangements Extended to HSBC Affiliates:

At December 31, 2014 and 2013, we have the following loan balances outstanding with HSBC affiliates:



At December 31,	2014		2013
	(in millions)
HSBC Finance Corporation	$	3,014	$	3,015
HSBC Markets (USA) Inc. ("HMUS") and subsidiaries	563		199
HSBC Bank Brasil S.A.	1,108		1,000
Other short-term affiliate lending	136		1,114
Total loans	$	4,821	$	5,328

HSBC Finance Corporation - We have extended a $5.0 billion, 364-day uncommitted unsecured revolving credit agreement to HSBC Finance which expires during the fourth quarter of 2015. The credit agreement allows for borrowings with maturities of up to 5 years. At both December 31, 2014 and 2013, $3.0 billion 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. We have also extended a committed revolving credit facility to HSBC Finance of $1.0 billion which did not have any outstanding balance at either December 31, 2014 or 2013. This credit facility expires in May 2017.

HMUS and subsidiaries - We have extended loans and lines, some of them uncommitted, to HMUS and its subsidiaries in the amount of $6.7 billion and $3.8 billion at December 31, 2014 and 2013, respectively, of which $563 million and $199 million, respectively, was outstanding. The outstanding balances mature in 2015.

HSBC Bank Brasil S.A. - We have extended uncommitted lines of credit to HSBC Bank Brasil in the amount of $1.2 billion and $1.5 billion at December 31, 2014 and 2013, respectively, of which $1.1 billion and $1.0 billion, respectively, was outstanding. The outstanding balances mature at various stages between 2015 and 2017.

We have extended lines of credit to various other HSBC affiliates totaling $2.3 billion which did not have any outstanding balances at either December 31, 2014 and 2013.

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 December 31, 2014 and 2013, there were $136 million and $1,114 million, respectively, of these loans outstanding.

HUSI is also committed to provide liquidity facilities to backstop the liquidity risk in Regency, an asset-backed commercial paper conduit consolidated by our affiliate, in relation to assets originated in the U.S. The notional amount of the liquidity facilities provided by HUSI to Regency was approximately $2.7 billion as of December 31, 2014, 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 certain securities, 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 $1,082.6 billion and $1,210.6 billion at December 31, 2014 and 2013, respectively. The net credit exposure (defined as the net fair value of derivative assets and liabilities) related to the contracts was approximately $1,166 million and $845 million at December 31, 2014 and 2013, 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 $837 million and $983 million at December 31, 2014 and 2013, respectively) 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 that 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. In certain cases, for facilities used by HTSU, we may guarantee their performance under the lease agreements.


•	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 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

We received revenue from our affiliates for rent on certain office space, which has been recorded as a component of support services from HSBC affiliates. Rental revenue from our affiliates totaled $55 million, $50 million and $55 million during the years ended December 31, 2014, 2013 and 2012, respectively.

On December 19, 2014, we sold our GB&M London precious metals custody and clearing business to HSBC Bank plc. As the sale of this business was between affiliates under common control, the consideration received in excess of our carrying value resulted in an increase to additional paid-in-capital, net of tax, of $60 million.

In July 2004, we sold the account relationships associated with $970 million of credit card receivables to HSBC Finance and, thereafter on a daily basis, were purchasing new originations on these credit card receivables. As discussed in Note 10, "Intangible Assets," in March 2012 we re-purchased these account relationships from HSBC Finance and, as a result, we stopped purchasing new originations on these credit card accounts from HSBC Finance. During the first quarter of 2012, we purchased $492 million of credit card receivables from HSBC Finance. 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 were 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.

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 GM and UP portfolios from HSBC Finance with an outstanding principal balance of $12.4 billion at the time of sale, at a total net premium of $113 million. Additionally in December 2004, we purchased the private label credit card receivable portfolio as well as private label commercial and closed end loans from HSBC Finance. HSBC Finance retained the customer account relationships for both the GM and UP receivables and the private label credit card receivables and by agreement we 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 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 2012.