Retained Earnings and Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2011

Deposits and Retained Earnings and Regulatory Capital Requirements [Abstract]

Retained Earnings and Regulatory Capital Requirements

26. Retained Earnings and Regulatory Capital Requirements

Bank dividends are a major source of funds for payment by us of shareholder dividends, and along with interest earned on investments, cover our operating expenses which consist primarily of interest on outstanding debt. Approval of the Office of the Comptroller of the Currency (the “OCC”) is 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.

Capital amounts and ratios of HSBC USA Inc. and HSBC Bank USA, calculated in accordance with current banking regulations, are summarized in the following table.

	December 31, 2011								December 31, 2010
	Capital Amount		Well-Capitalized Minimum Ratio(1)			Actual Ratio			Capital Amount		Well-Capitalized Minimum Ratio(1)			Actual Ratio
	(dollars are in millions)
Total capital ratio:
HSBC USA Inc.	$	21,908		10.00	%		18.39	%	$	22,070		10.00	%		18.14	%
HSBC Bank USA		22,390		10.00			18.86			22,177		10.00			18.41
Tier 1 capital ratio:
HSBC USA Inc.		15,179		6.00			12.74			14,355		6.00			11.80
HSBC Bank USA		15,996		6.00			13.48			14,970		6.00			12.43
Tier 1 common ratio:
HSBC USA Inc.		12,773		4.00			10.72			11,949		4.00			9.82
HSBC Bank USA		15,996		4.00			13.48			14,970		4.00			12.43
Tier 1 leverage ratio:
HSBC USA Inc.		15,179		3.00	(2)		7.43			14,355		3.00	(2)		7.87
HSBC Bank USA		15,996		5.00			7.98			14,970		5.00			8.28
Risk weighted assets:
HSBC USA Inc.		119,099								121,645
HSBC Bank USA		118,688								120,473

⁽¹⁾  HSBC USA Inc 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 minimum 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 is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company. The ratio shown is the minimum required ratio.

We did not receive any cash capital contributions from our immediate parent, HNAI during 2011 or 2010. During 2011 and 2010, we contributed $208 million and $60 million, respectively, primarily to our subsidiary, HSBC Bank USA, in part to provide capital support for receivables purchased from our affiliate, HSBC Finance Corporation. See Note 24, “Related Party Transactions,” for additional information.

As part of the regulatory approvals with respect to the aforementioned receivable purchases completed in January 2009, HSBC Bank USA and HSBC made certain additional capital commitments to ensure that HSBC Bank USA holds sufficient capital with respect to the purchased receivables that are or may become “low-quality assets,” as defined by the Federal Reserve Act. These capital requirements, which require a risk-based capital charge of 100 percent for each “low-quality asset” transferred or arising in the purchased portfolios rather than the eight percent capital charge applied to similar assets that are not part of the transferred portfolios, are applied both for purposes of satisfying the terms of the commitments and for purposes of measuring and reporting HSBC Bank USA’s risk-based capital and related ratios. This treatment applies as long as the low-quality assets are owned by an insured bank. During 2010, HSBC Bank USA sold low-quality auto finance loans with a net book value of approximately $178 million to a non-bank subsidiary of HSBC USA Inc. to reduce the capital requirement associated with these assets. These loans were subsequently sold to SC USA in August 2010. During 2011, HSBC Bank USA sold low-quality credit card receivables with a net book value of approximately $266 million to a non-bank subsidiary of HSBC USA Inc. to reduce the capital requirement associated with these assets. Capital ratios and amounts at December 31, 2011 and 2010 in the table above reflect this reporting. At December 31, 2011, the remaining purchased receivables subject to this requirement totaled $1.5 billion of which $2 million are considered to be low-quality assets. These receivables will be sold to Capital One as part of the previously discussed sale which is expected to close in the first half of 2012.

Regulatory guidelines impose certain restrictions that may limit the inclusion of deferred tax assets in the computation of regulatory capital. We closely monitor the deferred tax assets for potential limitations or exclusions. At December 31, 2011 and 2010, deferred tax assets of $363 million and $360 million, respectively, were excluded in the computation of regulatory capital.