Retained Earnings and Regulatory Capital Requirements

6 Months Ended

Jun. 30, 2015

Banking and Thrift [Abstract]

Retained Earnings and Regulatory Capital Requirements

Retained Earnings and Regulatory Capital Requirements

Bank dividends are a potential source of funds used for payment of shareholder dividends and other HSBC USA cash needs. Any significant non-contractual dividend from HSBC Bank USA would require the approval of the Office of the Comptroller of the Currency ("the OCC"). Approval is also required if the total of all dividends HSBC Bank USA declares 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.

The following table summarizes the capital amounts and ratios of HSBC USA and HSBC Bank USA, calculated in accordance with banking regulations in effect as of June 30, 2015 and December 31, 2014:

	June 30, 2015							December 31, 2014
	Capital Amount		Well-Capitalized  Ratio(1)			Actual Ratio		Capital Amount		Well-Capitalized Ratio(1)			Actual Ratio
	(dollars are in millions)
Total capital ratio:(3)
HSBC USA	$	24,670	10.00	%		16.31	%	$	21,017	10.00	%		15.78	%
HSBC Bank USA	26,828		10.00			18.44		22,760		10.00			17.86
Tier 1 capital ratio:(3)
HSBC USA	18,859		6.00			12.47		15,205		6.00			11.41
HSBC Bank USA	22,212		8.00			15.26		17,215		8.00			13.51
Common equity Tier 1 ratio:(3)
HSBC USA	17,810		4.50		(2)	11.77		13,754		4.50		(2)	10.33
HSBC Bank USA	19,857		6.50			13.65		17,215		6.50			13.51
Tier 1 leverage ratio:
HSBC USA	18,859		4.00		(2)	9.50		15,205		4.00		(2)	8.54
HSBC Bank USA	22,212		5.00			11.58		17,215		5.00			10.06
Risk weighted assets:(3)
HSBC USA	151,286							133,211
HSBC Bank USA	145,521							127,456

⁽¹⁾  HSBC USA 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 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. The regulatory ratios for an institution to be well-capitalized under Basel III became effective beginning January 1, 2015 and the new ratios are shown for both periods.

⁽²⁾  There are no common equity Tier 1 or Tier 1 leverage ratio components in the definition of a well-capitalized bank holding company. The ratios shown in both periods are the required regulatory minimum ratios beginning in 2015.

⁽³⁾  Risk weighted assets are calculated under the Basel III Standardized Approach which came into effect on January 1, 2015, replacing the Basel I risk-based approach used in 2014.

In 2013, U.S. banking regulators issued a final rule implementing the Basel III capital framework in the U.S. ("the Basel III final rule") which, for banking organizations such as HSBC North America and HSBC Bank USA, took effect January 1, 2014 with certain provisions being phased in over time through the beginning of 2019. As a result, the capital ratios in the table above are reported in accordance with the Basel III transition rules within the final rule. In addition, the Basel III final rule introduced the Standardized Approach for risk weighted assets, which replaced the Basel I risk-based guidance for determining risk weighted assets for banking organizations and came into effect on January 1, 2015.

During the first quarter of 2015, HSBC USA repaid $4,000 million of senior long-term debt previously issued to HSBC North America and HSBC Bank USA repaid $900 million of subordinated long-term debt previously issued to HSBC USA. In conjunction with these repayments, HSBC USA received a capital contribution of $4,000 million from its immediate parent, HNAI, in exchange for one share of common stock and HSBC USA made capital contributions to its subsidiary, HSBC Bank USA, of $2,400 million in exchange for two shares of common stock and $2,500 million in exchange for 250 shares of non-cumulative preferred stock. These capital actions were taken to support our growth strategy and to strengthen the Basel III regulatory capital positions of both HSBC USA and HSBC Bank USA.

During the second quarter of 2015, HSBC USA exercised the option to call $560 million of junior subordinated debentures previously issued by HSBC USA to HSBC USA Capital Trusts I, II and III at the contractual call prices of 100.781 percent, 100.84 percent and 100.732 percent, respectively, which resulted in a net loss on extinguishment of approximately $11 million. The trusts used the proceeds to redeem the trust preferred securities previously issued to third party investors. During the second quarter of 2015, HSBC USA also redeemed all of its Adjustable Rate Cumulative Preferred Stock, Series D and its $2.8575 Cumulative Preferred Stock at their stated values of $100 per share and $50 per share, respectively, resulting in a total cash payment of $300 million. Under the Basel III final rule, the trust preferred securities and cumulative perpetual preferred stock will fully phase out of Tier 1 capital to Tier 2 capital by January 1, 2016. In addition, the trust preferred securities will start phasing out of Tier 2 capital in 2016 and fully phase out by January 1, 2022. In response to these rule changes, the capital instruments were redeemed and HSBC USA issued $850 million of Tier 2 subordinated debt to HSBC North America.