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Discontinued Operations

6 Months Ended

Jun. 30, 2012

Discontinued Operations, Branch Assets and Liabilities Held for Sale and Exit from Taxpayer Financial Services Loan Program [Abstract]

Discontinued Operations

2. Discontinued Operations

Sale of Certain Credit Card Operations to Capital One On August 10, 2011, HSBC, through its wholly-owned subsidiaries HSBC Finance Corporation (“HSBC Finance”), HSBC USA Inc. and other wholly-owned affiliates entered into an agreement to sell its Card and Retail Services business to Capital One Financial Corporation (“Capital One”). This transaction was completed on May 1, 2012. The sale included our General Motors (“GM”) and Union Plus (“UP”) credit card receivables as well as our private label credit card and closed-end receivables, all of which were purchased from HSBC Finance. We recorded lower of amortized cost or fair value adjustments totaling $1.0 billion on these receivables since being classified as held for sale as a component of Assets of discontinued operations on our balance sheet during the third quarter of 2011, of which $107 million and $440 million was recorded in the three and six months ended June 30, 2012, respectively, and is reflected in net interest income and other revenues in the table below. This fair value adjustment was largely offset by held for sale accounting adjustments in which loan impairment charges and premium amortization are no longer recorded. The total final cash consideration allocated to us based upon April 30, 2012 balances was approximately $19.2 billion, which did not result in the recognition of a gain or loss upon completion of the sale as the receivables were recorded at fair value.

The sale to Capital One did not include credit card receivables associated with HSBC Bank USA’s legacy credit card program and, therefore, are excluded from the table below. However a portion of these receivables are included as part of the sale to First Niagara Bank, N.A. and HSBC Bank USA will continue to offer credit cards to HSBC Bank USA’s customers. No significant one-time closure costs have been incurred as a result of exiting these portfolios. In connection with the sale of our credit card portfolio to Capital One, we have entered into an outsourcing arrangement with Capital One with respect to the servicing of our remaining credit card portfolio.

Because the credit card and private label receivables sold were classified as held for sale prior to disposition and the operations and cash flows from these receivables will be eliminated from our ongoing operations post-disposition without any significant continuing involvement, we have determined we have met the requirements to report the results of these credit card and private label card receivables being sold as discontinued operations and have included these receivables in Assets of discontinued operations on our balance sheet for all periods presented.

The following summarizes the results of operations of our discontinued credit card operations for the periods presented.


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(in millions)
Net interest income and other revenues⁽¹⁾⁽²⁾	$	129	$	558	$	541	$	1,106
Income from discontinued operations before income tax		74		195		315		465

⁽¹⁾

Interest expense was allocated to discontinued operations in accordance with our existing internal transfer pricing policy. This policy uses match funding based on the expected lives of the assets and liabilities of the business at the time of origination, subject to periodic review, as demonstrated by the expected cash flows and re-pricing characteristics of the underlying assets.

⁽²⁾	Included in other revenues for the three and six months ended June 30, 2012 was a $107 million and $440 million, respectively, lower of amortized cost or fair value adjustment.

The following summarizes the assets and liabilities of our discontinued credit card operations at June 30, 2012 and December 31, 2011 which are reported as a component of Assets of discontinued operations and Liabilities of discontinued operations in our consolidated balance sheet.


	June 30, 2012		December 31, 2011
	(in millions)
Loans, net⁽¹⁾	$	-	$	21,185
Other assets		-		269

Assets of discontinued operations	$	-	$	21,454

Deposits in domestic offices – noninterest bearing	$	-	$	35
Other liabilities		226		876

Liabilities of discontinued operations	$	226	$	911

⁽¹⁾	At December 31, 2011, the receivables are carried at the lower of amortized cost or fair value.

Banknotes Business In June 2010, we decided that the wholesale banknotes business (“Banknotes Business”) within our Global Banking and Markets segment did not fit with our core strategy in the U.S. and, therefore, made the decision to exit this business. This business, which was managed out of the United States with operations in key locations worldwide, arranged for the physical distribution of banknotes globally to central banks, large commercial banks and currency exchanges. As a result of this decision, we recorded closure costs of $14 million during 2010, primarily relating to termination and other employee benefits.

As part of the decision to exit the Banknotes Business, in October 2010 we sold the assets of our Asian banknotes operations (“Asian Banknotes Operations”) to an unaffiliated third party for total consideration of approximately $11 million in cash. As a result, during the third quarter of 2010 we classified the assets of the Asian Banknotes Operations of $23 million, including an allocation of goodwill of $21 million, as held for sale. Because the carrying amount of the assets being sold exceeded the agreed-upon sales price, we recorded a lower of amortized cost or fair value adjustment of $12 million in the third quarter of 2010. As the exit of our Banknotes Business, including the sale of our Asian Banknotes Operations, was substantially completed in the fourth quarter of 2010, we began to report the results of our Banknotes Business as discontinued operations at that time.

The exit of our Banknotes Business was completed in the second quarter of 2011 with the sale of our European Banknotes Business to HSBC Bank plc. The table below summarizes the operating results of our Banknotes Business for the periods presented.


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(in millions)
Net interest income and other revenues	$	-	$	3	$	-	$	19
Income (loss) from discontinued operations before income tax (benefit) expense		-		1		-		(1	)

At June 30, 2012 and December 31, 2011 there were no remaining assets and liabilities of our Banknotes Business reported as assets of discontinued operations and liabilities of discontinued operations in our consolidated balance sheet.