Litigation and Regulatory Matters

The following supplements, and should be read together with, the disclosure in Note 28, "Litigation and Regulatory Matters," in our 2014 Form 10-K and our Form 10-Q for the three month period ended March 31, 2015 (the "2015 First Quarter Form 10-Q"). Only those matters with significant updates and new matters since our disclosure in our 2014 Form 10-K and our 2015 First Quarter Form 10-Q are reported herein.

In addition to the matters described below, and in our 2014 Form 10-K and our 2015 First Quarter Form 10-Q, in the ordinary course of business, we are routinely named as defendants in, or as parties to, various legal actions and proceedings relating to activities of our current and/or former operations. These legal actions and proceedings may include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief. In the ordinary course of business, we also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In connection with formal and informal inquiries by these regulators, we receive numerous requests, subpoenas and orders seeking documents, testimony and other information in connection with various aspects of our regulated activities.

In view of the inherent unpredictability of legal matters, including litigation, governmental and regulatory matters, particularly where the damages sought are substantial or indeterminate or when the proceedings or investigations are in the early stages, we cannot determine with any degree of certainty the timing or ultimate resolution of such matters or the eventual loss, fines, penalties or business impact, if any, that may result. We establish reserves for litigation, governmental and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. Once established, reserves are adjusted from time to time, as appropriate, in light of additional information. The actual costs of resolving litigation and regulatory matters, however, may be substantially higher than the amounts reserved for those matters.

For the legal matters disclosed below, including litigation and governmental and regulatory matters, as well as for the legal matters disclosed in Note 28, "Litigation and Regulatory Matters," in our 2014 Form 10-K and in Note 19 "Litigation and Regulatory Matters" in our 2015 First Quarter Form 10-Q as to which a loss in excess of accrued liability is reasonably possible in future periods and for which there is sufficient currently available information on the basis of which management believes it can make a reliable estimate, we believe a reasonable estimate could be as much as $100 million for HUSI. The legal matters underlying this estimate of possible loss will change from time to time and actual results may differ significantly from this current estimate.

Based on the facts currently known, in respect of each of the below investigations, it is not practicable at this time for us to determine the terms on which these ongoing investigations will be resolved or the timing of such resolution or for us to estimate reliably the amounts, or range of possible amounts, of any fines and/or penalties. As matters progress, it is possible that any fines and/or penalties could be significant.

Given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could have a material adverse effect on our consolidated financial statements in any particular quarterly or annual period.

Credit Card Litigation In May 2015, the parties settled the Speedy Stop Food Stores LLC v. Visa Inc. (Tex. Dist. Ct., Victoria City, No. 13-10-75377-A) case. The settlement was consistent with the allocation under the Interchange settlement and judgment sharing agreements and within our reserves for these matters.

Checking Account Overdraft Litigation At a hearing held in July 2015, the court in Ofra Levin et al v. HSBC Bank USA, N.A. et al. (N.Y. Sup. Ct. 650562/11) (“State Action”) deferred a decision on preliminary approval of the settlement and federal plaintiffs’ motion to intervene in the State Action. Another hearing date has been scheduled for August 25, 2015.

In the federal court multidistrict litigation (In re HSBC Bank, USA, N.A. Debit Card Overdraft Fee Litigation (E.D.N.Y. 2:13-MD-02451)), expert discovery is proceeding, but plaintiffs’ motion for class certification remains stayed pending the court’s ruling on the settlement in the State Action.

Lender-Placed Insurance Matters In May and June 2015, the parties settled Blackburn v. HSBC Finance Corp., et al. (N.D. Ga. 13-CV-03714-ODE) and Montanez, et al. v. HSBC Mortgage Corporation (USA), et al. (E.D. Pa. No. 11-CV-4074), respectively. The settlements were within our reserves for these matters.

People of the State of New York v. HSBC Bank USA, National Association and HSBC Mortgage Corporation (USA) The New York Attorney General ("AG") elected to not appeal the court’s decision granting HSBC Mortgage Corporation’s motion for summary judgment and dismissing the AG’s Petition. This matter is now concluded.

Precious Metals Fix Matters

In re London Silver Fixing, Ltd. Antitrust Litigation (Silver Fix Litigation) Defendants’ consolidated response to the second amended complaint was filed in May 2015.

Platinum and Palladium Fix Litigation Defendants’ consolidated response to the consolidated amended complaint was filed in June 2015.

Madoff Litigation

In December 2008, Bernard L. Madoff ("Madoff") was arrested and ultimately pleaded guilty to running a Ponzi scheme and a trustee was appointed for the liquidation of his firm, Bernard L. Madoff Investment Securities LLC ("Madoff Securities"), an SEC-registered broker-dealer and investment adviser. Various non-U.S. HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the United States whose assets were invested with Madoff Securities. Plaintiffs (including funds, funds investors and the Madoff Securities trustee, as described below) have commenced Madoff-related proceedings against numerous defendants in a multitude of jurisdictions. Various HSBC companies have been named as defendants in suits in the United States, Ireland, Luxembourg and other jurisdictions. Certain suits (which include U.S. putative class actions) allege that the HSBC defendants knew or should have known of Madoff's fraud and breached various duties to the funds and fund investors.

In July 2015, the court stayed Stephen and Leyla Hill, et al. v. HSBC Bank plc, et al. (Case No. 14-CV-9745(LTS), which was filed in the U.S. District Court for the Southern District of New York against various HSBC defendants, including HSBC Bank USA, by direct investors in Madoff Securities, pending a decision in a related matter.

In May 2015, a new action was filed in U.S. District Court for the Southern District of New York against HSBC entities, including HSBC Bank USA, by two investors in the Hermes International Fund Limited who claim to have lost their entire investments due to Madoff's fraud. Plaintiffs assert claims against several HSBC entities for (i) breach of fiduciary duty; (ii) aiding and abetting breach of fiduciary duty; (iii) aiding and abetting embezzlement; (iv) aiding and abetting fraud; (v) negligent misrepresentations; and (vi) unjust enrichment. Plaintiffs seek damages of not less than $8 million. (Hau Yin To v. HSBC Bank plc, et al. (15-cv-3590)

There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings including, but not limited to, the circumstances of the fraud, the multiple jurisdictions in which proceedings have been brought and the number of different plaintiffs and defendants in such proceedings. For these reasons, among others, we are unable to reasonably estimate the aggregate liability or ranges of liability that might arise as a result of these claims but they could be significant. In any event, we consider that we have good defenses to these claims and will continue to defend them vigorously.

Mortgage Securitization Matters In June 2015 HSBC’s motion to dismiss the Commerzbank AG complaint was granted in its entirety.

Mortgage Securitization Pool Trust Litigation HSBC’s motion to dismiss the BlackRock, RPI and Phoenix Light matters have been denied. Those matters are proceeding.

Foreclosure Practices On June 16, 2015, HSBC Bank USA entered into an amended consent order (the "Amended Consent Order") with the OCC. As set forth in the Amended Consent Order, we are not yet in compliance with all of the requirements of the April 2011 consent cease and desist order that we entered into with the OCC (the "OCC Servicing Consent Order"). The failure of HSBC Bank USA to satisfy all requirements of the OCC Servicing Consent Order could subject HSBC Bank USA to a variety of regulatory consequences, including the imposition of civil money penalties, which may have a material adverse effect on our consolidated results of operations and financial condition. The Amended Consent Order includes business restrictions relative to residential mortgage servicing that will remain in place until the order is terminated. The restrictions include a prohibition against the bulk acquisition of residential mortgage servicing or residential mortgage servicing rights and the requirement to seek OCC supervisory non-objection to outsource any residential mortgage servicing activities not already outsourced as of June 16, 2015. The business restrictions contained in the Amended Consent Order do not materially impact our business operations.

Anti-Money Laundering, Bank Secrecy Act and Office of Foreign Assets Controls Matters

Shareholder Derivative Action Oral argument on the nominal corporate defendants (HSBC, HSBC Bank USA, HSBC North America and HSBC USA) motion to dismiss is scheduled for August 2015.

Charlotte Freeman, et al. v. HSBC Holdings plc, et al. Defendants filed a motion to dismiss the amended complaint in May 2015. The motion will be fully briefed in August 2015.

Alfredo Villoldo, et al. v. HSBC Bank USA, N.A., et al. In July 2015, the court granted the HSBC defendants’ motion to dismiss. Plaintiffs have filed a notice of appeal.