Retained Earnings and Regulatory Capital Requirements

9 Months Ended

Sep. 30, 2016

Banking and Thrift [Abstract]

Retained Earnings and Regulatory Capital Requirements

Retained Earnings and Regulatory Capital Requirements

Bank dividends are one of the sources of funds used for payment of shareholder dividends and other HSBC USA cash needs. Any 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 at September 30, 2016 and December 31, 2015:

	September 30, 2016							December 31, 2015
	Capital Amount		Well-Capitalized  Ratio(1)			Actual Ratio		Capital Amount		Well-Capitalized Ratio(1)			Actual Ratio
	(dollars are in millions)
Common equity Tier 1 ratio:
HSBC USA	$	17,939	4.5	%	(2)	13.5	%	$	17,766	4.5	%	(2)	12.0	%
HSBC Bank USA	19,980		6.5			15.6		19,796		6.5			13.8
Tier 1 capital ratio:
HSBC USA	19,003		6.0			14.3		18,764		6.0			12.6
HSBC Bank USA	22,334		8.0			17.4		22,109		8.0			15.4
Total capital ratio:
HSBC USA	23,951		10.0			18.0		24,425		10.0			16.5
HSBC Bank USA	26,715		10.0			20.8		26,670		10.0			18.6
Tier 1 leverage ratio:
HSBC USA	19,003		4.0		(2)	9.1		18,764		4.0		(2)	9.5
HSBC Bank USA	22,334		5.0			11.0		22,109		5.0			11.6
Risk weighted assets:
HSBC USA	132,885							148,421
HSBC Bank USA	128,290							143,393

⁽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.

⁽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 are the regulatory minimum ratios.

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 in 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, risk weighted assets in the table above are calculated using the Basel III Standardized Approach.

As previously reported, as a result of the adoption of the final rules by the U.S. banking regulators implementing the Basel III regulatory capital and liquidity reforms from the Basel Committee, together with the impact of similar implementation by United Kingdom banking regulators, we continue to review the composition of our capital structure. During the second quarter of 2016, HSBC USA redeemed all of its remaining externally issued preferred stock, including its Floating Rate Non-Cumulative Series F Preferred Stock, Floating Rate Non-Cumulative Series G Preferred Stock and 6.50 percent Non-Cumulative Series H Preferred Stock, at their stated values of $25 per share, $1,000 per share and $1,000 per share, respectively, resulting in a total cash payment of $1,265 million. In connection with these redemptions, HSBC USA issued 1,265 shares of 6.0 percent Non-Cumulative Series I Preferred Stock to HSBC North America in exchange for cash consideration of $1,265 million. Dividends on the 6.0 percent Non-Cumulative Series I Preferred Stock are non-cumulative and will be payable when and if declared by our Board of Directors semi-annually on the first business day of June and December of each year at the stated rate of 6.0 percent. The Series I Preferred Stock may be redeemed at our option, in whole or in part, on or after May 31, 2021 or at any time after we receive notice from the Federal Reserve Board ("FRB") that the Series I Preferred Stock may no longer be included in the calculation of regulatory capital as a result of any subsequent changes in applicable laws, rules or regulations, at a redemption price equal to $1,000,000 per share, plus an amount equal to any declared and unpaid dividends, but only after receipt of written approval from the FRB.