Related Party Transactions

In the normal course of business, we conduct transactions with HSBC and its subsidiaries. HSBC policy requires that these transactions occur at prevailing market rates and terms and, where applicable, these transactions are compliant with United States banking regulations. All extensions of credit by (and certain credit exposures of) HSBC Bank USA, National Association (together with its subsidiaries, "HSBC Bank USA") to other HSBC affiliates (other than Federal Deposit Insurance Corporation insured banks) are legally required to be secured by eligible collateral. The following tables present related party balances and the income (expense) generated by related party transactions:



	June 30, 2020		December 31, 2019
	(in millions)
Assets:
Cash and due from banks	$	466	$	850
Interest bearing deposits with banks	135		40
Securities purchased under agreements to resell⁽¹⁾	2,153		4,600
Trading assets	86		79
Loans	1,565		2,343
Other⁽²⁾	863		456
Total assets	$	5,268	$	8,368
Liabilities:
Deposits	$	15,790	$	9,000
Trading liabilities	53		293
Short-term borrowings	295		1,166
Long-term debt	4,865		7,848
Other⁽²⁾	210		931
Total liabilities	$	21,213	$	19,238


⁽¹⁾	Reflects purchases of securities under which other HSBC affiliates have agreed to repurchase.


⁽²⁾	Other assets and other liabilities primarily consist of derivative balances associated with hedging activities and other miscellaneous account receivables and payables.



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(in millions)
Income (Expense):
Interest income	$	12		$	47		$	38		$	90
Interest expense	(79		)	(152		)	(199		)	(276		)
Net interest expense	(67		)	(105		)	(161		)	(186		)
Trading revenue (expense)	(356		)	(9		)	(617		)	(1,523		)
Servicing and other fees from HSBC affiliates:
HSBC Bank plc	41			46			88			81
HSBC Markets (USA) Inc. ("HMUS")	26			27			50			57
Other HSBC affiliates	14			15			31			31
Total servicing and other fees from HSBC affiliates	81			88			169			169
Gain (loss) on instruments designated at fair value and related derivatives	1,096			412			(510		)	1,420
Support services from HSBC affiliates:
HTSU	(272		)	(298		)	(535		)	(575		)
HMUS	(19		)	(23		)	(46		)	(50		)
Other HSBC affiliates	(98		)	(90		)	(190		)	(166		)
Total support services from HSBC affiliates	(389		)	(411		)	(771		)	(791		)
Rental income from HSBC affiliates, net⁽¹⁾	6			12			18			24
Stock based compensation expense⁽²⁾	(7		)	(8		)	(13		)	(14		)


⁽¹⁾	We receive rental income from our affiliates, and in some cases pay rental expense to our affiliates, for rent on certain office space. Net rental income from our affiliates is recorded as a component of occupancy expense, net in our consolidated statement of income (loss).

⁽²⁾

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). Certain employees are also eligible to participate in a defined benefit pension plan and other postretirement plans sponsored by HSBC North America which are discussed in Note 12, "Pension and Other Postretirement Benefits."

Funding Arrangements with HSBC Affiliates:

We use HSBC affiliates to fund a portion of our borrowing and liquidity needs. At June 30, 2020 and December 31, 2019, long-term debt with affiliates reflected $4.9 billion and $7.8 billion, respectively, of borrowings from HSBC North America. During the first quarter of 2020, $3.0 billion of these borrowings were recharacterized as time deposits, including $1.5 billion of fixed-rate senior debt which matures in March 2021 and $1.5 billion of fixed-rate senior debt which matures in March 2026. The remaining outstanding balances include:


•	$2.0 billion of fixed-rate senior debt which matures in May 2021;


•	$0.9 billion of floating-rate subordinated debt which matures in May 2025; and


•	$2.0 billion of fixed-rate senior debt which matures in September 2025.

We have a $150 million uncommitted line of credit with HSBC North America. There was no outstanding balance under this credit facility at either June 30, 2020 or December 31, 2019.

We have also incurred short-term borrowings with certain affiliates, largely securities sold under repurchase agreements with HSBC Securities (USA) Inc. ("HSI"). In addition, certain affiliates have also placed deposits with us.

Lending and Derivative Related Arrangements Extended to HSBC Affiliates:

At June 30, 2020 and December 31, 2019, we had the following loan balances outstanding with HSBC affiliates:



	June 30, 2020		December 31, 2019
	(in millions)
HMUS and subsidiaries	$	1,438	$	2,296
Other short-term affiliate lending	127		47
Total loans	$	1,565	$	2,343

HMUS and subsidiaries We have extended loans and lines, some of them uncommitted, to HMUS and its subsidiaries in the amount of $12.0 billion at both June 30, 2020 and December 31, 2019 of which $1.4 billion and $2.3 billion, respectively, was outstanding. The maturities of the outstanding balances range from overnight to three months. Each borrowing is re-evaluated prior to its maturity date and either extended or allowed to mature.

We have extended lines of credit to various other HSBC affiliates totaling $4.7 billion which did not have any outstanding balances at either June 30, 2020 or December 31, 2019.

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 June 30, 2020 and December 31, 2019, there were $127 million and $47 million, respectively, of these loans outstanding.

Derivative contracts 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 Bank plc and other HSBC affiliates. The notional value of derivative contracts related to these transactions was approximately $912.2 billion and $1,111.5 billion at June 30, 2020 and December 31, 2019, respectively. The net credit exposure (defined as the net fair value of derivative assets and liabilities, including any collateral received) related to the contracts was approximately $167 million and $90 million at June 30, 2020 and December 31, 2019, 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. These activities are summarized in Note 23, "Related Party Transactions," in our 2019 Form 10-K. There have been no significant changes in these activities since December 31, 2019.

Other Transactions with HSBC Affiliates:

At both June 30, 2020 and December 31, 2019, we had $1,265 million of non-cumulative preferred stock issued and outstanding to HSBC North America. See Note 18, "Preferred Stock," in our 2019 Form 10-K for additional details.