HSBC Finance Corp 06 10-K P6

HSBC Holdings PLC 05 March 2007 Mr. Kenneth H. Robin's Compensation In January 2006, Mr. Robin's base salary remained the same as 2005, at $600,000. In making the decision to not increase Mr. Robin's base salary, the Compensation Committee reviewed competitive compensation levels and found Mr. Robin's base salary was above the 50th percentile among similarly-placed executives in our Comparator Group. In keeping with the goal of maintaining executive base salaries in the 50th percentile, it did not recommend an increase to his salary. On January 23, 2006, REMCO approved the Compensation Committee's advisory recommendation that Mr. Robin receive Performance Shares with a grant date value of $1,250,522. The award is subject to three-year performance vesting conditions. The vesting criteria of the Performance Shares is set out in Footnote 2 to the Grants and Plan-based Awards Table on page 200. The grant reflects REMCO's view of the value of his long-term contribution to and leadership of HSBC North America and HSBC's desire to retain Mr. Robin and to incent his performance. As discussed above, Mr. Robin's maximum cash incentive under the 2006 Executive Bonus Pool was 6% of the Available Bonus Pool, or $2,172,000. Based upon preliminary results of HSBC Finance Corporation, the Compensation Committee made an advisory recommendation that Mr. Robin receive a bonus of $1 million. The Compensation Committee made the award recommendation in recognition of the value of Mr. Robin's strategic insight and his effective management of legal risk within the corporation. In considering Mr. Robin's award, the Compensation Committee considered Mr. Robin's individual performance, demonstrated leadership, future potential, adherence to HSBC's ethical standards and the ability to leverage capabilities across businesses. REMCO agreed with the Compensation Committee's assessment and approved the award. However, in early February 2007 it was determined that the return on average stockholder's equity threshold was not met and the Executive Bonus Pool was not funded. As a result, Mr. Robin was not entitled to an award under the plan. Subsequently, the Compensation Committee recommended and the HSBC CEO 196 agreed that Mr. Robin should receive a discretionary bonus award in the amount of $1 million. REMCO ratified these payments at a meeting held on March 1, 2007. This award was made in recognition of the need to ensure the continuity of management following the resignation of Mr. Mehta and recognition that Mr. Robin had no responsibility for the events that led to the failure to meet the return on average stockholder's equity threshold and the fact that Mr. Robin's equity award was reduced as a result of the disappointing consolidated performance of HSBC Finance Corporation. Other compensation paid to Mr. Robin, including perquisites such as life insurance premiums, is consistent with perquisites paid to similarly-placed executive officers within and outside of HSBC. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The primary purpose of the Compensation Committee is to assist the Board of Directors in discharging its responsibilities related to the compensation of the Chief Executive Officer of HSBC Finance Corporation and the officers that are direct reports to the Chief Executive Officer and such other officers as may be designated by the Board of Directors. The Compensation Committee is currently comprised of the following directors: George A. Lorch (Chair), William R. P. Dalton, Gary G. Dillon and Cyrus F. Freidheim, Jr. (ex-officio member). No member of the Compensation Committee served as an officer or employee of HSBC Finance Corporation in 2006. Due to Mr. Dalton's prior service as Director and executive officer of HSBC, which terminated on May 28, 2004, Mr. Dalton is not considered an independent Director of HSBC Finance Corporation. Additional information with regard to the Compensation Committee is contained in the section of this Form 10-K entitled Item 10. Directors, Executive Officers and Corporate Governance - Corporate Governance. COMPENSATION COMMITTEE REPORT We, the Compensation Committee of the Board of Directors of HSBC Finance Corporation, have reviewed and discussed the Compensation Discussion and Analysis ("2006 CD&A") set forth above with management, and based on such review and discussion, have recommended to the Board of Directors that the 2006 CD&A be included in this Annual Report on Form 10-K. Compensation Committee George A. Lorch (Chair) William R. P. Dalton Gary G. Dillon Cyrus F. Freidheim, Jr. (ex-officio member) 197 EXECUTIVE COMPENSATION The following tables and narrative text discuss the compensation awarded to, earned by or paid to (i) Mr. Mehta, who served as our Chief Executive Officer during 2006, (ii) Ms. Sibblies, who served as our Chief Financial Officer during 2006 and (iii) our three other most highly compensated executive officers who served as executive officers, all as of December 31, 2006. SUMMARY COMPENSATION TABLE CHANGE IN PENSION VALUE AND NON-EQUITY NONQUALIFIED INCENTIVE DEFERRED STOCK OPTION PLAN COMPENSATION NAME AND SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS PRINCIPAL POSITION YEAR ($) $(1) ($)(2) ($)(3) ($)(4) ($)(5) --------------------------------------------------------------------------------------------------------------------- SIDDHARTH N. MEHTA....... 2006 $984,615 $ - $3,684,906 $1,575,292 $ - $ 351,288 Chairman & Chief Executive Officer BEVERLEY A. SIBBLIES..... 2006 $375,000 $ - $ 216,824 $ - $ 543,750 $ 17,269 Senior Vice President - Chief Financial Officer THOMAS M. DETELICH....... 2006 $650,000 $2,000,000 $2,069,519 $ 787,646 $ - $1,158,293 Group Executive, Consumer and Direct Lending WALTER G. MENEZES........ 2006 $642,308 $2,000,000 $1,476,173 $ 394,302 $ - $1,311,749 Group Executive, Card Services KENNETH H. ROBIN......... 2006 $600,000 $1,000,000 $1,889,505 $ 787,646 $ - $1,070,148 Senior Executive Officer, General Counsel and Corporate Secretary ALL OTHER NAME AND COMPENSATION TOTAL PRINCIPAL POSITION ($)(6) ($) ------------------------- ------------------------- SIDDHARTH N. MEHTA....... $290,962 $6,887,063 Chairman & Chief Executive Officer BEVERLEY A. SIBBLIES..... $ 54,303 $1,207,146 Senior Vice President - Chief Financial Officer THOMAS M. DETELICH....... $162,774 $6,828,232 Group Executive, Consumer and Direct Lending WALTER G. MENEZES........ $151,568 $5,976,100 Group Executive, Card Services KENNETH H. ROBIN......... $134,791 $5,482,090 Senior Executive Officer, General Counsel and Corporate Secretary --------------- (1) The amounts disclosed for Messrs., Detelich, Menezes and Robin represent the discretionary incentive bonus relating to 2006 performance but paid in February 2007. (2) The values reflected in the table above are the amounts of compensation expense amortized in 2006 for accounting purposes under FAS 123R for outstanding restricted stock grants made in the years 2003, 2004, 2005 and 2006. A portion of the expense reflected for Messrs. Mehta, Detelich, Menezes and Robin relates to Performance Shares granted in 2005 and 2006 that will vest in whole or in part three years from the date of grant if all or some of the performance conditions are met as follows: 50% of the award is subject to a total shareholder return measure ("TSR") against a comparator group. HSBC Finance Corporation's comparator group is comprised of U.S.-based organizations that compete with us for business, customers, and executive talent. The Performance Share comparator group includes: ABN AMRO Holding N.V., Banco Bilbao Vizcaya Argentaria, S.A., Banco Santander Central Hispano S.A., Bank of America Corporation, The Bank of New York Company, Inc., Barclays PLC, BNP Paribas S.A., Citigroup, Inc., Credit Agricole SA, Credit Suisse Group, Deutsche Bank AG, HBOS plc, JP Morgan Chase, Lloyds TSB Group plc, Mitsubishi Tokyo Financial Group Inc., Mizuho Financial Group Inc., Morgan Stanley, National Australia Bank Limited, Royal Bank of Canada, The Royal Bank of Scotland Group plc, Societe Generale, Standard Chartered PLC, UBS AG, Unicredito Italiano, US Bancorp, Wachovia Corporation, Wells Fargo & Company and Westpac Banking Corporation. Depending on HSBC's ranking against the comparator group at the end of the performance period, the TSR portion of the grant may vest on a sliding scale from 100% to 0%. The remaining 50% of the award is subject to satisfaction of an earnings per share measure ("EPS") and may vest based on an incremental EPS percentage in accordance with a defined formula. If the aggregate incremental EPS is less than 24%, the EPS portion will be forfeited and if it is 52% or more, the EPS component will vest in full. We have reduced the amount of expense related to the Performance Shares that would have been recorded by 50% due to the probability of a 0% vest on the TSR portion and a 100% vest on the EPS portion for both years 2005 and 2006. HSBC Finance Corporation records expense over the three year period based on the fair value which is 100% of the face value on the date of the award. The remaining grants are non-performance-based awards and are subject to various time vesting conditions as disclosed in the footnotes to the Outstanding Equity Awards at Fiscal Year End Table and will be released as long as the named executive officer is still in the employ of HSBC Finance Corporation at the time of vesting. HSBC Finance Corporation records expense based on the fair value over the vesting period which is 100% of the face value on the date of the award. Dividend equivalents, in the form of cash or additional shares, are paid on all underlying shares of restricted stock at the same rate as paid to ordinary share shareholders. 198 (3) HSBC and HSBC Finance Corporation's current philosophy is to reward executive officers with restricted shares, called "Achievement Shares" or "Performance Shares". HSBC last issued stock options to HSBC Finance Corporation's named executive officers in 2004. The amounts reflected above are the amounts of compensation expense amortized in 2006 for accounting purposes under FAS 123R for outstanding stock option grants made in 2002 and 2003. The methodology of the valuation of these options was based on a Black-Scholes model for each of the respective years. The stock option grant made to certain named executive officers in 2004 is performance-based with 100% of the condition tested on Total Shareholder Return in 2007. The amount of compensation expense amortized in 2006 for accounting purposes under FAS 123R has been excluded from the amounts shown above due to the probability of the performance condition not being satisfied. The performance condition will be subject to a re-test in 2008, and again in 2009, and must be satisfied in order for the shares to vest. (4) The amount disclosed for Ms. Sibblies represents the incentive bonus earned in 2006 but paid in February 2007 under the Management Incentive Program. (5) The HSBC-North America (U.S.) Retirement Income Plan ("RIP") and the Household Supplemental Retirement Income Plan ("SRIP") are described under Savings and Pension Plans on page 206. Increase in values by plan for each participant are: Mr. Mehta - $26,541 (RIP), $324,747 (SRIP); Ms. Sibblies - $4,725 (RIP), $12,544 (SRIP); Mr. Detelich - $43,845 (RIP), $1,114,448 (SRIP); Mr. Menezes - $72,502 (RIP), $1,239,247 (SRIP); Mr. Robin - $75,017 (RIP) $995,131 (SRIP). (6) Components of All Other Compensation are disclosed in the aggregate. All Other Compensation includes such items as financial planning services, physical exams, club initiation fees, expatriate benefits, and car allowances. The following itemizes benefits that individually or in the aggregate for each executive officer exceeds $10,000: Car allowances for Messrs. Mehta and Robin were $11,000 each in 2006. Messrs. Detelich and Menezes and Ms. Sibblies are not eligible for a car allowance. Personal use of aircraft for Mr. Mehta was $2,598, for Mr. Detelich was $1,922 and for Mr. Menezes was $4,844. Club Dues and Membership Fees for Mr. Mehta in 2006 was $11,000. Personal use of Corporate Apartment was $720 for Mr. Detelich and $1,800 for Mr. Menezes in 2006. Personal use of Corporate Limo for Mr. Mehta was $8,000. Financial Counseling for Messrs. Mehta, Detelich and Menezes was $10,000, $3,500 and $8,000, respectively. Executive Tax Services for Mr. Robin in 2006 was $4,000. Executive Physical expenses for Mr. Mehta was $1,527, for Mr. Menezes was $691 and for Ms. Sibblies was $1,428. Messrs. Mehta, Detelich, Menezes and Robin each received Executive Umbrella Liability Coverage in the amount of $10 million at a cost of $1,850 for 2006. The total in the All Other Compensation column also includes life insurance premiums paid by HSBC Finance Corporation in 2006 for the benefit of executives as follows: Mr. Mehta, $5,910; Mr. Detelich, $7,782; Mr. Menezes, $17,844; Mr. Robin, $12,941 and Ms. Sibblies, $3,375. All Other Compensation also includes HSBC Finance Corporation's contribution for the named executive officer's participation in the HSBC-North America (U.S.) Tax Reduction Investment Plan ("TRIP") and the Supplemental Household International Tax Reduction Investment Plan ("STRIP") in 2006 as follows: Mr. Mehta, $239,077; Mr. Detelich, $147,000; Mr. Menezes, $116,538; Mr. Robin, $105,000 and Ms. Sibblies, $49,500. TRIP and STRIP are described under Savings and Pension Plans - Deferred Compensation Plans on page 207. 199 GRANTS OF PLAN-BASED AWARDS TABLE ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS(1) INCENTIVE PLAN AWARDS(2) ----------------------------------------- ---------------------------------- ------ THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM NAME GRANT DATE ($) ($) ($) (#)(4) (#) (#) ------------------------------------------------------------------------------------------------------------------------ ------ SIDDHARTH N. MEHTA......... 3/6/06 0 N/A $7,240,000 66,657 N/A 222,189 Chairman & Chief Executive Officer BEVERLEY A. SIBBLIES....... 3/31/06 0 $ 281,250 $ 562,500 N/A N/A N/A Senior Vice President - Chief Financial Officer THOMAS M. DETELICH......... 3/31/06 0 N/A $4,344,000 30,254 N/A 100,848 Group Executive, Consumer and Direct Lending WALTER G. MENEZES.......... 3/31/06 0 N/A $4,344,000 30,254 N/A 100,848 Group Executive, Card Services and Retail Services KENNETH H. ROBIN........... 3/31/06 0 N/A $2,172,000 21,356 N/A 71,187 Senior Executive Officer, General Counsel and Corporate Secretary ALL OTHER ALL OTHER STOCK OPTION AWARDS: GRANT DATE AWARDS: NUMBER OF FAIR VALUE NUMBER OF SECURITIES OF STOCK SHARES OF STOCK UNDERLYING AND OPTION OR UNITS OPTIONS AWARDS NAME (#) (#) ($)(3) --------------------------- ---------------------------------------------- SIDDHARTH N. MEHTA......... N/A N/A $4,000,010 Chairman & Chief Executive Officer BEVERLEY A. SIBBLIES....... 29,513(5) N/A $ 500,000(5) Senior Vice President - Chief Financial Officer THOMAS M. DETELICH......... N/A N/A $1,775,687 Group Executive, Consumer and Direct Lending WALTER G. MENEZES.......... N/A N/A $1,775,687 Group Executive, Card Services and Retail Services KENNETH H. ROBIN........... N/A N/A $1,250,522 Senior Executive Officer, General Counsel and Corporate Secretary --------------- (1) Messrs. Mehta, Detelich, Menezes and Robin participate in the Executive Bonus Pool. As discussed in the 2006 CD&A, this plan is an annual cash incentive plan that is comprised mainly of corporate and business quantitative goals and qualitative goals. For 2006, the quantitative goals were not met and therefore no awards were made under this plan. Ms. Sibblies participates in the Management Incentive Program. As discussed in the 2006 CD&A, the Management Incentive Program is an annual cash incentive plan that is comprised of both quantitative and qualitative individual, business unit or company objectives which are determined at the beginning of the year with each objective being assigned a target and maximum payout based upon a percentage of base salary. The percentage of target and maximum payout is determined by the market data for the position the executive officer holds and will not change unless the executive officer changes into a position which has a different target and maximum payout. Typically the maximum payout is a 1x, 2x or 3x multiplier of target. Ms. Sibblies' actual award for 2006 was $543,750. (2) Reflects the award of Performance Shares granted to Messrs. Mehta, Detelich, Menezes and Robin. As discussed in the 2006 CD&A and in Footnote 2 to the Summary Compensation Table, Performance Shares are subject to two performance conditions, each of which trigger potential payout of 50% of the aggregate award: the first objective is based upon Total Shareholder Return ("TSR") and the second objective is based upon earnings per share ("EPS"), both measured over a three year performance period. TSR means the growth in share value and declared dividend income on the shares, measured in Sterling, during the three year performance period and is based on HSBC's ranking against a comparator group of 28 major banks as listed on page 192. The calculation of the share price component within HSBC's TSR will be the average market price over the 20 dealing days commencing on the day when HSBC's annual results are announced with the end point being the average market price over the 20 dealing days commencing on the day on which the annual results of HSBC are announced three years later. The TSR portion of the award will vest on a sliding scale based on HSBC's relative ranking against the comparator group at the end of the three year period. If HSBC is ranked 1st through 7th the vesting percentage will be 100%. If HSBC is ranked 8th through 14th, the vesting percentage will fall by 10% per rank. If HSBC is ranked 15th through 28th, the vesting percentage will be zero. The percentage of the TSR which will vest is defined in the following formula: ((X-Z) x (A-B)) + B (Y-Z) where: X = the TSR performance of HSBC Z = the TSR performance of the bank immediately below X Y = the TSR performance of the bank immediately above X A = the vesting percentage linked to the ranking of Y as detailed above B = the vesting percentage linked to the ranking of Z as detailed above The second performance condition is based upon EPS, which for purposes of awarding Performance Shares is the profit, excluding goodwill amortization attributable to shareholder's return, divided by the weighted average number of shares in issue and held outside HSBC during the performance year. The base measure will be the EPS for the financial year preceding that in which the award is made. EPS will then be compared over the three consecutive financial years commencing with the year in which the award is made. Incremental EPS will be calculated by expressing, as a percentage of the EPS of the base year, the difference in each year of the measurement period between the EPS of that year and the EPS of the base year. These percentages will be aggregated to arrive at the 200 total incremental EPS for the measurement period. The percentage of the EPS objective that will vest will be in accordance with the following formula: 30+2.5(X-24) where: 30% is the minimum proportion of the EPS objective which may vest and X is the aggregate incremental EPS from the base year to the end of the measurement period between and including 24% and 52%. If the aggregate incremental EPS in accordance with the formula is less than 24% then the EPS objective will be forfeited and if it is more than 52% then the EPS objective will vest in full. (3) The total grant date fair value reflected for Mr. Mehta is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 6, 2006 (the date of grant) of GBP9.909706 and converted into U.S. dollars using the GBP exchange rate as of the time of funding the grant (1.816677). The total grant date fair value reflected for Messrs. Detelich, Menezes and Robin and Ms. Sibblies is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 31, 2006 (the date of grant) of GBP9.6697 and converted into U.S. dollars using the GBP exchange rate as of the time of funding the grant (1.816677). (4) As described in Footnote 2 above, the executives could receive no awards under the equity incentive plan. However, the numbers presented under "Threshold" represent the minimum awards the executives could receive if the minimum (i.e., 30%) of either of the performance conditions is met. (5) Reflects the award of Achievement Shares granted to Ms. Sibblies, which award consists of shares of restricted stock that vest in full at the end of a three year period from the date of grant. The award amount of Achievement Shares is based on the executive officer's position within the organization, base salary, performance rating and scope for growth. At the executive level, officers eligible to receive Achievement Shares are eligible for awards ranging from 50% up to 300% of base salary. For both plans, additional shares are awarded in amounts equivalent to the same dividend rate on ordinary shares. 201 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE STOCK AWARDS -------------------- -------- OPTION AWARDS ------------------------------------------------------------------------------------------------- EQUITY INCENTIVE PLAN AWARDS: NUMBER OF NUMBER OF NUMBER OF NUMBER OF MARKET VALUE SECURITIES SECURITIES SECURITIES SHARES OR OF SHARES OR UNDERLYING UNDERLYING UNDERLYING UNITS OF UNITS OF STOCK UNEXERCISED UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT THAT HAVE OPTIONS (#) OPTIONS (#) UNEARNED EXERCISE EXPIRATION HAVE NOT NOT NAME EXERCISABLE UNEXERCISABLE OPTIONS (#) PRICE ($) DATE VESTED (#) VESTED ($)(1) ------------------------------------------------------------------------------------------------------------------------ -------- SIDDHARTH N. MEHTA 802,500(2) 0 - $17.08 06/15/08 - - Chairman & Chief Executive Officer 358,450(2) 0 - $13.71 11/09/08 - - 331,700(2) 0 - $16.96 11/08/09 - - 401,250(2) 0 - $18.40 11/13/10 - - 535,000(2) 0 - $21.37 11/12/11 - - 535,000(2) 0 - $10.66 11/20/12 - - 306,000(3) 102,000 - GBP9.1350 11/03/13 - - - - 204,000(4) GBP8.2830 04/30/14 - - - - - - - 188,562(5) $3,437,485 - - - - - 403,308(6) $7,352,305 - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------ -------- BEVERLEY A. SIBBLIES - - - - - 29,513(9) $ 538,022 Senior Vice President - Chief Financial Officer - - - - - 29,936(10) $ 545,733 ------------------------------------------------------------------------------------------------------------------------ -------- THOMAS M. DETELICH 53,500(2) 0 - $13.71 11/09/08 - - Group Executive, Consumer and Direct Lending 60,188(2) 0 - $16.96 11/08/09 - - 66,875(2) 0 - $18.40 11/13/10 - - 93,625(2) 0 - $21.37 11/12/11 - - 267,500(2) 0 - $10.66 11/20/12 - - 153,000(3) 51,000 - GBP9.1350 11/03/13 - - - - 102,000(4) GBP8.2830 04/30/14 - - - - - - - 141,421(5) $2,578,105 - - - - - 201,654(6) $3,676,152 - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------ -------- WALTER G. MENEZES 48,150(2) 0 - $13.71 11/09/08 - - Group Executive, Card Services 66,875(2) 0 - $16.96 11/08/09 - - 74,900(2) 0 - $18.40 11/13/10 - - 107,000(2) 0 - $21.37 11/12/11 - - 107,000(2) 0 - $10.66 11/20/12 - - 112,500(3) 37,500 - GBP9.1350 11/03/13 - - 150,000(4) GBP8.2830 04/30/14 - - - - - - - 44,584(11) $ 812,766 - - - - - 201,654(6) $3,676,152 - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------ -------- KENNETH H. ROBIN 160,500(2) - - $16.96 11/08/09 - - Senior Executive Officer, General Counsel and Corporate Secretary 200,625(2) - - $18.40 11/13/10 - - 240,750(2) - - $21.37 11/12/11 - - 66,875(2) - - $10.66 11/20/12 - - 153,000(3) 51,000 GBP9.1350 11/03/13 - - - - 102,000(4) GBP8.2830 04/30/14 - - - - - - - 63,017(12) $1,148,800 - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------ -------- STOCK AWARDS ------------------------------- EQUITY --------------------------- EQUITY INCENTIVE PLAN INCENTIVE PLAN AWARDS: AWARDS: MARKET OR NUMBER OF PAYOUT VALUE UNEARNED OF UNEARNED SHARES, UNITS SHARES, UNITS OR OTHER OR OTHER RIGHTS THAT RIGHTS THAT HAVE NOT HAVE NOT NAME VESTED (#) VESTED ($)(1) --------------------------- ------------------------------- SIDDHARTH N. MEHTA - - Chairman & Chief Executive Officer - - - - - - - - - - - - - - - - - - 190,079(7) $3,465,140 222,189(8) $4,050,505 --------------------------- BEVERLEY A. SIBBLIES - - Senior Vice President - Chief Financial Officer - - --------------------------- THOMAS M. DETELICH - - Group Executive, Consumer and Direct Lending - - - - - - - - - - - - 95,040(7) $1,732,579 100,848(8) $1,838,459 --------------------------- WALTER G. MENEZES - - Group Executive, Card Services - - - - - - - - - - - - - - - - 95,040(7) $1,732,579 100,848(8) $1,838,459 --------------------------- KENNETH H. ROBIN - - Senior Executive Officer, General Counsel and Corporate Secretary - - - - - - - - - - - - 76,032(7) $1,386,063 71,187(8) $1,297,739 --------------------------- (1) The market value of the shares on December 29, 2006 was GBP9.31 and the exchange rate from GBP to U.S. dollars was 1.958, which equates to a U.S. dollars share price of $18.23 per share. (2) Reflects fully vested options. (3) Seventy-five percent of this award vested on November 3, 2006. The remaining 25% of the award will vest on November 3, 2007. (4) This award will vest in full, subject to satisfaction of performance conditions, on the third anniversary of the date of grant, which was April 30, 2004. If the performance conditions are not satisfied on the third anniversary, the performance conditions will be re-tested on the fourth and fifth anniversaries of the date of grant. If the performance conditions are not met on the fifth anniversary of the date of grant, the options will be forfeited. (5) Twenty percent of this award vested on each of March 31, 2004, March 31, 2005 and March 31, 2006. Twenty percent of this award will vest on each of March 30, 2007 and May 31, 2008. 202 (6) Twenty percent of this award vested on May 26, 2006. Twenty percent of this award will vest on each of May 25, 2007, May 26, 2008, May 26, 2009 and May 26, 2010. (7) These awards will vest in part or in full on March 31, 2008 if performance conditions are met. (8) These awards will vest in part or in full on March 31, 2009 if performance conditions are met. (9) This award vests in full on March 31, 2008. (10) This award vests in full on March 31, 2009. (11) Thirty-three percent of this award vested on February 14, 2006 and 33% vested on February 14, 2007. The remaining 34% will vest on February 14, 2008. (12) Fifty percent of this award vested on May 26, 2006. The remaining 50% will vest on May 25, 2007. 203 OPTION EXERCISES AND STOCK VESTED TABLE OPTION AWARDS STOCK AWARDS ------------------------------------- ------------------------------------ NUMBER OF SHARES VALUE REALIZED NUMBER OF SHARES VALUE REALIZED ACQUIRED ON EXERCISE ON EXERCISE ACQUIRED ON VESTING ON VESTING NAME (#) ($)(1) (#)(2) ($)(1)(2) ------------------------------------------------------------------------------------------------------------- SIDDHARTH N. MEHTA............. 0 0 214,935(3) $3,692,196 Chairman & Chief Executive Officer BEVERLEY A. SIBBLIES........... 0 0 0 0 Senior Vice President - Chief Financial Officer THOMAS M. DETELICH............. 0 0 134,861(4) $2,311,557 Group Executive, Consumer and Direct Lending WALTER G. MENEZES.............. 48,150(5) $ 175,489 74,968(6) $1,292,504 Group Executive, Card Services KENNETH H. ROBIN............... 660,725(7) $3,885,272 120,092(8) $2,065,621 Senior Executive Officer, General Counsel and Corporate Secretary --------------- (1) Value realized on exercise or vesting uses the GBP fair market value on the date of exercise/release and the exchange rate from GBP to U.S. dollars on the date of settlement. (2) Includes the release of additional awards accumulated over vesting period. (3) Includes the release of 94,280 shares granted on April 15, 2003 and 100,827 shares granted on May 26, 2005. Remaining shares are release of additional awards accumulated over the vesting period. (4) Includes the release of 71,710 shares granted on April 15, 2003 and 50,413 shares granted on May 26, 2005. Remaining shares are release of additional awards accumulated over the vesting period. (5) Includes exercise of stock options granted on November 10, 1997. (6) Includes the release of 22,291 shares granted on February 14, 2003 and 50,413 shares granted on May 26, 2005. Remaining shares are release of additional awards accumulated over the vesting period. (7) Includes the exercise of 120,375 stock options granted on November 11, 1996, 200,625 stock options granted on November 20, 2002, 160,500 stock options granted on November 10, 1997 and 179,225 stock options granted on November 9, 1998. (8) Includes the release of 47,141 shares granted on April 15, 2003 and 63,016 shares granted on May 26, 2005. Remaining shares are release of additional awards accumulated over the vesting period. 204 PENSION BENEFITS PAYMENTS NUMBER OF PRESENT VALUE OF DURING LAST YEARS CREDITED ACCUMULATED BENEFIT FISCAL YEAR NAME PLAN NAME(4) SERVICE ($) ($) --------------------------------------------------------------------------------------------------------- SIDDHARTH N. MEHTA....... RIP-Household New 8.5 $ 133,162 $ 0 Chairman & Chief SRIP-Household New 8.5 $1,729,179 Executive Officer BEVERLEY A. RIP-Account Based 2.2 $ 12,453 SIBBLIES(1)............ $ 0 Senior Vice President - SRIP-Account Based 2.2 $ 16,252 Chief Financial Officer THOMAS M. DETELICH....... RIP-Household New 30.4 $ 401,208 $ 0 Group Executive, Consumer SRIP-Household New 30.4 $3,713,123 and Direct Lending WALTER G. MENEZES(2)..... RIP-Household New 10.2 $ 363,478 $ 0 Group Executive, Card SRIP-Household New 10.2 $2,720,078 Services KENNETH H. ROBIN(3)...... RIP-Household Old 17.1 $ 965,551 $ 0 Senior Executive Officer, SRIP-Household Old 17.1 $6,270,582 General Counsel and Corporate Secretary --------------- (1) Not yet vested; will be vested upon completion of three years of eligible service which is expected to occur in the second half of 2007. (2) Value of age 65 benefit. Participant is also eligible for an immediate early retirement benefit with value of $418,305 (RIP) and $3,138,082 (SRIP). (3) Value of age 65 benefit. Participant is also eligible for an immediate early retirement benefit with value of $1,186,386 (RIP) and $7,734,619 (SRIP). (4) Plans described under Savings and Pension Plans on page 206. 205 SAVINGS AND PENSION PLANS Retirement Income Plan (RIP) The HSBC-North America (U.S.) Retirement Income Plan ("RIP") is a non-contributory, defined benefit pension plan for employees of HSBC North America and its U.S. subsidiaries who are at least 21 years of age with one year of service and not part of a collective bargaining unit. Benefits are determined under a number of different formulas that vary based on year of hire and employer. Supplemental Retirement Income Plan (SRIP) The Household Supplemental Retirement Income Plan ("SRIP") is a non-qualified retirement plan that is designed to provide benefits that are precluded from being paid to legacy Household employees by the RIP due to legal constraints applicable to all qualified plans. For example, the maximum amount of compensation during 2006 that can be used to determine a qualified plan benefit is $220,000, and the maximum annual benefit commencing at age 65 in 2006 is $175,000. SRIP benefits are calculated without regard to these limits. The resulting benefit is then reduced by the value of qualified benefits payable by RIP so that there is no duplication of payments. Benefits are paid in a lump sum for retired executives covered by a Household Old, Household New, or Account Based Formula. Formulas for Calculating Benefits HOUSEHOLD OLD FORMULA: Applies to executives who were hired prior to January 1, 1990 by Household International, Inc. The benefit at age 65 is determined under whichever formula, A or B below, provides the higher amount. A. The normal retirement benefit at age 65 is the sum of (i) 51% of average salary that does not exceed the integration amount and (ii) 57% of average salary in excess of the integration amount. For this purpose, the integration amount is an average of the Social Security taxable wage bases for the 35 year period ending with the year of retirement. The benefit is reduced pro rata for executives who retire with less than 15 years of service. If an executive has more than 30 years of service, the benefit percentages in the formula, (the 51% and 57%) are increased 1/24 of 1 percentage point for each month of service in excess of 30 years, but not more than 5 percentage points. The benefit percentages are reduced for retirement prior to age 65. B. The normal retirement benefit at age 65 is determined under (a) below, limited to a maximum amount determined in (b): a. 55% of average salary, reduced pro rata for less than 15 years of service, and increased 1/24 of 1 percentage point for each month in excess of 30 years, but not more than 5 percentage points; the benefit percentage of 55% is reduced for retirement prior to age 65. b. The amount determined in (a) is reduced as needed so that when added to 50% of the primary Social Security benefit, the total does not exceed 65% of the average salary. This maximum is applied for payments following the age at which full Social Security benefits are available. Both formulas use an average of salaries for the 48 highest consecutive months selected from the 120 consecutive months preceding date of retirement; for this purpose, salary includes total base wages and bonuses. For executives who were participants on January 1, 1978, had attained age 35 and had at least 10 years of employment, the minimum normal retirement benefit is 55% of final average salary. For this purpose, salary does not include bonuses and the average is based on 60 consecutive months, rather than 48. Executives who are at least age 50 with 15 years of service or at least age 55 with 10 years of service may retire before age 65, in which case the benefits are reduced. 206 HOUSEHOLD NEW FORMULA: Applies to executives who were hired after December 31, 1989, but prior to January 1, 2000, by Household International, Inc. The normal retirement benefit at age 65 is the sum of (i) 51% of average salary that does not exceed the integration amount and (ii) 57% of average salary in excess of the integration amount. For this purpose, salaries include total base wages and bonuses and are averaged over the 48 highest consecutive months selected from the 120 consecutive months preceding date of retirement. The integration amount is an average of the Social Security taxable wage bases for the 35 year period ending with the year of retirement. The benefit is reduced pro rata for executives who retire with less than 30 years of service. If an executive has more than 30 years of service, the percentages in the formula, (the 51% and 57%) are increased 1/24 of 1 percentage point for each month of service in excess of 30 years, but not more than 5 percentage points. Executives who are at least age 55 with 10 or more years of service may retire before age 65 in which case the benefit percentages (51% and 57%) are reduced. ACCOUNT BASED FORMULA: Applies to executives who were hired by Household International Inc. after December 31, 1999. It also applies to executives who were hired by HSBC Bank USA, National Association after December 31, 1996 and became participants in the Retirement Income Plan on January 1, 2005, or were hired by HSBC after March 28, 2003. The formula provides for a notional account that accumulates 2% of annual salary for each calendar year of employment. For this purpose, salary includes total base wages and bonuses. At the end of each calendar year, interest is credited on the notional account using the value of the account at the beginning of the year. The interest rate is based on the lesser of average yields for 10-year and 30-year Treasury bonds during September of the preceding calendar year. The notional account is payable at termination of employment for any reason after three years of service although payment may be deferred to age 65. PROVISIONS APPLICABLE TO ALL FORMULAS: The amount of salary used to determine benefits is subject to an annual maximum that varies by calendar year. The limit for 2006 is $220,000. The limit for years after 2006 will increase from time-to-time as specified by IRS regulations. Benefits are payable as a life annuity, or for married participants, a reduced life annuity with 50% continued to a surviving spouse. Participants (with spousal consent, if married) may choose from a variety of other optional forms of payment, which are all designed to be equivalent in value if paid over an average lifetime. Retired executives covered by a Household Old, Household New or Account Based Formula may elect a lump sum form of payment (spousal consent is needed for married executives). Present Value of Accumulated Benefits For the Account Based formula: The value of the notional account balances currently available on December 31, 2006. For other formulas: The present value of benefit payable at assumed retirement using interest and mortality assumptions consistent with those used for financial reporting purposes under SFAS 87 with respect to HSBC Finance Corporation's audited financial statements for the period ending December 31, 2006. However, no discount has been assumed for separation prior to retirement due to death, disability or termination of employment. Further, the amount of the benefit so valued is the portion of the benefit at assumed retirement that has accrued in proportion to service earned on December 31, 2006. Deferred Compensation Plans TAX REDUCTION INVESTMENT PLAN HSBC North America maintains the HSBC-North America (U.S.) Tax Reduction Investment Plan ("TRIP"), which is a deferred profit-sharing and savings plan for its eligible employees. With certain exceptions, a U.S. employee who has been employed for 30 days and who is not part of a collective bargaining unit may contribute into TRIP, on a pre-tax and after-tax basis, up to 40% (15% if highly compensated) of the participant's cash compensation (subject to a maximum annual pre-tax contribution by a participant of $15,000, as adjusted for cost of living increases, and certain other limitations imposed by the Internal Revenue Code) and invest such contributions in separate equity or income funds. 207 If the employee has been employed for at least one year, HSBC Finance Corporation contributes 3% of compensation on behalf of each participant who contributes 1% and matches any additional participant contributions up to 4% of compensation. However, matching contributions will not exceed 6% of a participant's compensation if the participant contributes 4% or more of compensation. The plan provides for immediate vesting of all contributions. With certain exceptions, a participant's after-tax contributions which have not been matched by us can be withdrawn at any time. Both our matching contributions made prior to 1999 and the participant's after-tax contributions which have been matched may be withdrawn after five years of participation in the plan. A participant's pre-tax contributions and our matching contributions after 1998 may not be withdrawn except for an immediate financial hardship, upon termination of employment, or after attaining age 59 1/2. Participants may borrow from their TRIP accounts under certain circumstances. SUPPLEMENTAL TAX REDUCTION INVESTMENT PLAN HSBC North America also maintains the Supplemental Household International Tax Reduction Investment Plan ("STRIP") which is an unfunded plan for eligible employees of HSBC Finance Corporation and its participating subsidiaries whose participation in TRIP is limited by the Internal Revenue Code. Only matching contributions required to be made by us pursuant to the basic TRIP formula are invested in STRIP through a credit to a bookkeeping account maintained by us which deems such contributions to be invested in equity or income funds selected by the participant. NON-QUALIFIED DEFERRED COMPENSATION PLAN HSBC North America Holdings Inc. maintains a Non-Qualified Deferred Compensation Plan for the highly compensated employees in the organization, including executives of HSBC Finance Corporation. The named executive officers are eligible to contribute up to 80% of their salary and/or cash bonus compensation in any plan year. Participants are required to make an irrevocable election with regard to an amount or percentage of compensation to be deferred and the timing and manner of future payout. Two types of distributions are permitted under the plan, either a scheduled in-service withdrawal which must be scheduled at least 2 years after the end of the plan year in which the deferral is made, or payment upon termination of employment. For either the scheduled in-service withdrawal or payment upon termination, the participant may elect either a lump sum payment or if the participant has made at least $25,000 of contributions and has over 10 years of service, he may request installment payments over 10 years. Due to the unfunded nature of the plan, participant elections are deemed investments whose gains or losses are calculated by reference to actual earnings of the investment choices. The deemed investment choices are reviewed on a periodic basis by the Investment Committee for the Plan which consists of members chosen by the Board or Directors or Chief Executive Officer of HSBC North America Holdings Inc. and are chosen based on a conservative mix of funds and currently include Van Kampen Real Estate Securities - A Shares, Oppenheimer Global - A Shares, AIM Small Cap Growth - Class A, HSBC Investor Small Cap Equity - Class Y, Fidelity Advisor Mid Cap Stock - Class A, Dreyfus S&P 500 Index, HSBC Investor Growth & Income - Class Y, HSBC Investor Fixed Income - Class Y and HSBC Investor Money Market - Class Y. In order to provide the participants with the maximum amount of protection under an unfunded plan, a Rabbi Trust has been established where the participant contributions are segregated from the general assets of HSBC Finance Corporation. The Investment Committee for the plan endeavors to invest the contributions in a manner consistent with the participant's deemed elections reducing the likelihood of an underfunded plan. 208 NONQUALIFIED DEFINED CONTRIBUTION AND OTHER NONQUALIFIED DEFERRED COMPENSATION PLANS SUPPLEMENTAL NONQUALIFIED TAX DEFERRED REDUCTION COMPENSATION INVESTMENT PLAN(1) PLAN(2) EXECUTIVE REGISTRANT AGGREGATE AGGREGATE AGGREGATE CONTRIBUTIONS CONTRIBUTIONS EARNINGS WITHDRAWALS/ BALANCE NAME IN 2006 ($) IN 2006 ($) IN 2006 ($) DISTRIBUTIONS ($) AT 2006 ($) ------------------------------------------------------------------------------------------------------------- SIDDHARTH N. MEHTA............ 0 $228,077 $203,181 0 $2,063,650 Chairman & Chief Executive Officer BEVERLEY A. SIBBLIES.......... 0 $ 38,500 $ 2,375 0 $ 41,507 Senior Vice President - Chief Financial Officer THOMAS M. DETELICH............ 0 $136,000 $257,694 $193,424(3) $3,050,292 Group Executive, Consumer and Direct Lending WALTER G. MENEZES............. 0 $105,538 $150,742 0 $1,723,722 Group Executive, Card Services KENNETH H. ROBIN.............. 0 $ 94,000 $ 55,238 0 $ 986,539 Senior Executive Officer, General Counsel and Corporate Secretary --------------- (1) The NonQualified Deferred Compensation Plan is described under Savings and Pension Plans on page 206. The executive officers have made contributions to the plan, but elected not to make contributions in 2006. (2) The Supplemental Tax Reduction Investment Plan (STRIP) is described under Savings and Pension Plans on page 206. Company contributions are invested in STRIP through a credit to a bookkeeping account, which deems such contributions to be invested in equity or income mutual funds selected by the participant. For this purpose, compensation includes amounts that would be compensation but for the fact they were deferred under the terms of the HSBC North America Non-Qualified Deferred Compensation Plan. Distributions are made in a lump sum upon termination of employment. (3) Amount represents a scheduled in-service withdrawal from the HSBC Non-Qualified Deferred Compensation Plan. 209 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL SIDDHARTH N. MEHTA INVOLUNTARY VOLUNTARY NOT FOR FOR GOOD EXECUTIVE BENEFITS AND VOLUNTARY NORMAL CAUSE FOR CAUSE REASON PAYMENTS UPON TERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION DEATH ------------------------------------------------------------------------------------------------------------------------ ----- CASH COMPENSATION Base Salary................ - - - $ 1,250,000(1) - $ 1,250,000(1) - Short Term Incentive....... - - - $ 2,343,750(1) - $ 2,343,750(1) - LONG TERM INCENTIVE Performance Shares(6)...... - $3,033,958(2) -- $ 3,033,958(2) - $ 3,033,958(2) $ 7,515,646(3) Stock Options: Unvested and Accelerated... - - - $ 446,145(4) - $ 446,145(4) $ 446,145(4) Restricted Stock(6): Unvested and Accelerated... - - - $10,789,790(5) - $10,789,790(5) $10,789,790(5) BENEFITS AND PERKS Healthcare................. - - - $ 28,336 - $ 28,336 - Life Insurance............. - - - $ 1,800 - $ 1,800 - Company Car and Driver..... - - - $ 13,750 - $ 13,750 - Financial Planning......... - - - $ 20,000 - $ 20,000 - Aircraft Usage............. - - - - - - - Umbrella Liability......... - - - $ 3,700 - $ 3,700 - CHANGE IN EXECUTIVE BENEFITS AND CONTROL PAYMENTS UPON TERMINATION TERMINATION --------------------------- CASH COMPENSATION Base Salary................ - Short Term Incentive....... - LONG TERM INCENTIVE Performance Shares(6)...... $3,033,958(2) Stock Options: Unvested and Accelerated... - Restricted Stock(6): Unvested and Accelerated... - BENEFITS AND PERKS Healthcare................. - Life Insurance............. - Company Car and Driver..... - Financial Planning......... - Aircraft Usage............. - Umbrella Liability......... - --------------- (1) Mr. Mehta has an employment agreement which stipulates that he will receive his current salary and 75% of the average of his bonus in the years 2003, 2004 and 2005 from the date of termination through March 28, 2008. The figures above assume a termination date of December 31, 2006. (2) The figures above represent the pro-rata portion of the Performance Shares, assuming "good leaver" status is granted by REMCO, that would vest three years from the date of grant assuming a termination date of December 31, 2006 and the performance conditions being met on a 100% basis, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. For an explanation of the performance conditions please refer to Footnote 2 of the Grants of Plan-Based Awards Table. (3) The figure above represents a full vest of the Performance Shares that would vest three years from the date of grant assuming a termination date of December 31, 2006 and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (4) In the event of death, the figure represents accelerated vesting of 100% of the outstanding, unvested stock options assuming the difference between the strike price and the fair market value of HSBC ordinary shares on December 29, 2006. The amounts represent outstanding unvested stock options that would continue to vest according to schedule, if REMCO approves such continued vesting, if a termination was involuntary not for cause or voluntary for good reason, and assumes the satisfaction of all applicable performance conditions. (5) The figures above represent a full vest of the outstanding restricted shares assuming a termination date of December 31, 2006 and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (6) Does not include additional awards accumulated through December 31, 2006, the assumed date of termination. 210 BEVERLEY SIBBLIES INVOLUNTARY VOLUNTARY FOR EXECUTIVE BENEFITS AND VOLUNTARY NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASON PAYMENTS UPON TERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION ------------------------------------------------------------------------------------------------------------------------ - CASH COMPENSATION Base Salary........................ - - - $187,500(1) - - Short Term Incentive............... - - - $562,500(1) - - LONG TERM INCENTIVE Restricted Stock:(4) Unvested and Accelerated........... - $450,279(2) - $450,279(2) - $450,279(2) CHANGE IN EXECUTIVE BENEFITS AND CONTROL PAYMENTS UPON TERMINATION DEATH TERMINATION ----------------------------------- CASH COMPENSATION Base Salary........................ - - Short Term Incentive............... - - LONG TERM INCENTIVE Restricted Stock:(4) Unvested and Accelerated........... $1,083,755(3) $450,279(2) --------------- (1) Under the terms of the HSBC Severance Policy, Ms. Sibblies will receive 26 weeks of her current salary upon separation from the company and a pro-rata amount of her earned bonus. The figures above represent the bonus payment at maximum assuming a termination date of December 31, 2006. (2) The figures above represent accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming a termination date of December 31, 2006 and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (3) The figure above represents a full vest of the outstanding restricted shares assuming a termination date of December 31, 2006 and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (4) Does not include additional awards accumulated through December 31, 2006, the assumed date of termination. THOMAS DETELICH EARLY INVOLUNTARY VOLUNTARY FOR EXECUTIVE BENEFITS AND VOLUNTARY RETIREMENT/ NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASON PAYMENTS UPON TERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION ----------------------------------------------------------------------------------------------------------------------- CASH COMPENSATION Base Salary..................... - - - $ 650,000(1) - - Short Term Incentive............ - - - $2,000,000(1) - - LONG TERM INCENTIVE Performance Shares(6)........... - $1,470,286(2) - $1,470,286(2) - $1,470,286(2) Stock Options: Unvested and Accelerated........ - - - $ 222,583(4) - $ 222,583(4) Restricted Stock:(6) Unvested and Accelerated........ - - - $6,254,257(5) - $6,254,257(5) CHANGE IN EXECUTIVE BENEFITS AND CONTROL PAYMENTS UPON TERMINATION DEATH TERMINATION -------------------------------- CASH COMPENSATION Base Salary..................... - - Short Term Incentive............ - - LONG TERM INCENTIVE Performance Shares(6)........... $3,571,038(3) $1,470,286(2) Stock Options: Unvested and Accelerated........ $ 222,583(4) Restricted Stock:(6) Unvested and Accelerated........ $6,254,257(5) - --------------- (1) Under the terms of the HSBC Severance Policy, Mr. Detelich will receive 52 weeks of his current salary upon separation from the company and a pro-rata amount of his earned bonus. The figures above represent the bonus payment earned in 2006 assuming a termination date of December 31, 2006. (2) The figures above represent the pro-rata portion of the Performance Shares, assuming "good leaver" status is granted by REMCO, that would vest three years from the date of grant assuming a termination date of December 31, 2006 and the performance conditions being met on a 100% basis, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. For an explanation of the performance conditions please refer to Footnote 2 of the Grants of Plan-Based Awards Table. (3) The figure above represents a full vest of the Performance Shares that would vest three years from the date of grant assuming a termination date of December 31, 2006 and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (4) In the event of death, the figure represents accelerated vesting of 100% of the outstanding, unvested stock options assuming the difference between the strike price and the fair market value of HSBC ordinary shares on December 29, 2006. The amounts represent outstanding unvested stock options that would continue to vest according to schedule, if REMCO approves such continued vesting, if a termination was involuntary not for cause or voluntary for good reason, and assumes the satisfaction of all applicable performance conditions. (5) The figures above represent a full vest of the outstanding restricted shares assuming a termination date of December 31, 2006 and assuming "good leaver" status is granted by REMCO. The figures are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (6) Does not include additional awards accumulated through December 31, 2006, the assumed date of termination. 211 WALTER G. MENEZES EARLY INVOLUNTARY VOLUNTARY GOOD EXECUTIVE BENEFITS AND PAYMENTS VOLUNTARY RETIREMENT/ NORMAL NOT FOR CAUSE FOR CAUSE REASON UPON TERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION ----------------------------------------------------------------------------------------------------------------------- CASH COMPENSATION Base Salary................... - - - $ 450,000(1) - - Short Term Incentive.......... - - - $2,000,000(1) - - LONG TERM INCENTIVE Performance Shares(9)......... - $1,470,286(2) - $1,470,286(2) - $1,470,286(2)() Stock Options: Unvested and Accelerated...... - - - $ 314,479(4) - $ 314,479(4) Restricted Stock:(9) Unvested and Accelerated...... - - - $4,488,918(5) - $4,488,918(5) BENEFITS AND PERKS Incremental Retirement Benefit...................... - - - - - - Post Retirement Health Care... - - - - - - Healthcare.................... - - - - - - Life Insurance................ - - - - - - CHANGE IN EXECUTIVE BENEFITS AND PAYMENTS CONTROL UPON TERMINATION DEATH TERMINATION ------------------------------- CASH COMPENSATION Base Salary................... - $ 975,000(1) Short Term Incentive.......... - $3,250,000(1) LONG TERM INCENTIVE Performance Shares(9)......... $3,571,038(3)() $1,470,286(2) Stock Options: Unvested and Accelerated...... $ 314,479(4) - Restricted Stock:(9) Unvested and Accelerated...... $4,488,918(5) - BENEFITS AND PERKS Incremental Retirement Benefit...................... - $1,572,547(6) Post Retirement Health Care... - - Healthcare.................... - $ 17,046(7) Life Insurance................ - $ 157,680(8) --------------- (1) See description of Mr. Menezes' Employment Protection Agreement on page 196. Under the terms of the HSBC Severance Policy, Mr. Menezes will receive 36 weeks of his current salary upon separation from the company and a pro-rata amount of his earned bonus. The figures above represent the bonus payment earned in 2006 assuming a termination date of December 31, 2006. (2) The figures above represent the pro-rata portion of the Performance Shares, assuming "good leaver" status is granted by REMCO, that would vest three years from the date of grant assuming a termination date of December 31, 2006 and the performance conditions being met on a 100% basis, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. For an explanation of the performance conditions please refer to Footnote 2 of the Grants of Plan-Based Awards Table. (3) The figure above represents a full vest of the Performance Shares that would vest three years from the date of grant assuming a termination date of December 31, 2006 and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (4) In the event of death, the figure above represents accelerated vesting of 100% of the outstanding, unvested stock options assuming the difference between the strike price and the fair market value of HSBC ordinary shares on December 29, 2006. The amounts represent outstanding unvested stock options that would continue to vest according to schedule, if REMCO approves such continued vesting, if a termination was involuntary not for cause or voluntary for good reason, and assumes the satisfaction of all applicable performance conditions. (5) The figures above represent a full vest of the outstanding restricted shares assuming a termination date of December 31, 2006 and assuming "good leaver" status is granted by REMCO. The figures are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (6) Mr. Menezes has an employment agreement providing an additional 18 months of service and pay toward his retirement benefit. He would be entitled to an additional $10,733 per month if a termination due to a change in control occurred on December 31, 2006. The present value of this benefit was determined by HSBC Finance Corporation's actuaries to be $1,572,547. (7) Mr. Menezes has an employment agreement providing an additional 18 months of healthcare coverage for himself and his family with a total value of $13,256 if a termination due to a change in control occurred on December 31, 2006. The value of this healthcare is calculated based on the medical plan's COBRA rates. In addition, Mr. Menezes' agreement provides for annual physicals at the company's expense throughout the 18 month period. The value of two physicals is $3,790. This value is based on a rate negotiated through HSBC Finance Corporation's executive physical program. (8) Mr. Menezes' employment agreement provides for $2 million of life insurance coverage for himself for 18 months, if a termination due to a change in control occurred on December 31, 2006, with a total value of $157,680. This value is based on the cost to convert the company-provided group life insurance to an individual policy for 18 months. (9) Does not include additional awards accumulated through December 31, 2006, the assumed date of termination. 212 KENNETH H. ROBIN EARLY INVOLUNTARY VOLUNTARY FOR EXECUTIVE BENEFITS AND VOLUNTARY RETIREMENT/ NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASON PAYMENT UPON TERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION ----------------------------------------------------------------------------------------------------------------------- CASH COMPENSATION Base Salary..................... - - - $ 392,308(1) - - Short Term Incentive............ - - - $1,000,000(1) - - LONG TERM INCENTIVE Performance Shares(6)........... - $1,132,472(2) - $1,132,472(2) - $1,132,472(2) Stock Options: Unvested and Accelerated........ - - - $ 222,583(4) - $ 222,583(4) Restricted Stock(6): Unvested and Accelerated........ - - - $1,148,800(5) - $1,148,800(5) CHANGE IN EXECUTIVE BENEFITS AND CONTROL PAYMENT UPON TERMINATION DEATH TERMINATION -------------------------------- CASH COMPENSATION Base Salary..................... - - Short Term Incentive............ - - LONG TERM INCENTIVE Performance Shares(6)........... $2,683,802(3) $1,132,472(2) Stock Options: Unvested and Accelerated........ $ 222,583(4) - Restricted Stock(6): Unvested and Accelerated........ $1,148,800(5) - --------------- (1) Under the terms of the HSBC Severance Policy, Mr. Robin will receive 34 weeks of his current salary upon separation from the company and a pro-rata amount of his earned bonus. The figures above represent the bonus payment earned in 2006 assuming a termination date of December 31, 2006 (2) The figures above represent the pro-rata portion of the Performance Shares, assuming "good leaver" status is granted by REMCO, that would vest three years from the date of grant assuming a termination date of December 31, 2006 and the performance conditions being met on a 100% basis and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. For an explanation of the performance conditions please refer to Footnote 2 of the Grants of Plan-Based Awards Table. (3)The figure above represents a full vest of the Performance Shares that would vest three years from the date of grant assuming a termination date of December 31, 2006 and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (4)In the event of death, the figure represents accelerated vesting of 100% of the outstanding, unvested stock options assuming the difference between the strike price and the fair market value of HSBC ordinary shares on December 29, 2006. The amounts represent outstanding unvested stock options that would continue to vest according to schedule, if REMCO approves such continued vesting, if a termination was involuntary not for cause or voluntary for good reason, and assumes the satisfaction of all applicable performance conditions. (5)The figures above represent a full vest of the outstanding restricted shares assuming a termination date of December 31, 2006 and assuming "good leaver" status is granted by REMCO. The figures are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (6)Does not include additional awards accumulated through December 31, 2006, the assumed date of termination. 213 DIRECTOR COMPENSATION The following table and narrative text discusses the compensation awarded to, earned by or paid to our Directors in 2006. DIRECTOR COMPENSATION CHANGE IN PENSION VALUE AND NONQUALIFIED FEES EARNED STOCK OPTION DEFERRED ALL OTHER OR PAID IN AWARDS AWARDS COMPENSATION COMPENSATION TOTAL NAME CASH(1) ($)(2) ($)(3) EARNINGS ($)(4) ($) ------------------------------------------------------------------------------------------------------- William R. P. Dalton....... $170,000 -- -- -- 0 $170,000 Gary G. Dillon............. $185,000 -- -- -- $ 1,850 $186,850 J. Dudley Fishburn......... $170,000 -- -- -- 0 $170,000 Cyrus F. Freidheim, Jr. ... $232,000 -- -- -- $45,819 $277,819 Robert K. Herdman.......... $195,000 -- -- -- 0 $195,000 Alan W. Jebson(5).......... -- -- -- -- -- -- George A. Lorch............ $185,000 -- -- -- $ 2,570 $187,570 Siddharth N. Mehta(5)...... -- -- -- -- -- -- Larree M. Renda............ $200,000 -- -- -- $ 1,850 $201,850 --------------- (1) In 2006, the non-management Directors of HSBC Finance Corporation received an annual cash retainer of $170,000 (with the exception of Mr. Freidheim, who as Chair of the Executive Committee receives a retainer of $182,000). In addition to the Board retainer, Mr. Dillon received an additional $15,000 for his membership in the Audit Committee, Mr. Lorch received an additional $15,000 as Chair of the Compensation Committee, Ms. Renda received an additional $15,000 as Chair of the Nominating & Governance Committee, and an additional $15,000 for her membership on the Audit Committee, Mr. Herdman received an additional $25,000 as Chair of the Audit Committee, and Mr. Freidheim received an additional $50,000 as the Lead Director and Chair of the Executive Committee. HSBC Finance Corporation does not pay additional compensation for committee membership or meeting attendance fees to its Directors. Directors who are employees of HSBC Finance Corporation or any of its affiliates do not receive additional compensation related to their Board service. In February 2006, the Board reviewed its directors' compensation scheme relative to other same sized financial and professional service organizations and determined to make no changes to the current compensation structure. Directors have the ability to defer up to 100% of their annual retainers and/or fees into the HSBC-North America Directors Non-Qualified Deferred Compensation Plan. Under this plan, pre-tax dollars may be deferred with the choice of receiving payouts while still serving HSBC Finance Corporation according to a schedule established by the Director at the time of deferral or a distribution after leaving the Board in either lump sum, quarterly or annual installments. For 2006, Mr. Dillon deferred 100% of his retainer and Audit Committee fees. (2) HSBC Finance Corporation does not grant stock awards to its non-management directors nor do any portion of employee directors stock awards reflect services related to the Board. Prior to the merger with HSBC, non-management Directors could elect to receive all or a portion of their cash compensation in shares of common stock of Household International, Inc., defer it under the Deferred Fee Plan for Directors or purchase options to acquire common stock (as reflected in Footnote 3 below). Under the Deferred Fee Plan, Directors were permitted to invest their deferred compensation in either units of phantom shares of the common stock of HSBC Finance Corporation (then called Household International, Inc.), with dividends credited toward additional stock units, or cash, with interest credited at a market rate set under the plan. Prior to 1995, HSBC Finance Corporation offered a Directors' Retirement Income Plan where the present value of each Director's accrued benefit was deposited into the Deferred Phantom Stock Plan for Directors. Under the Deferred Phantom Stock Plan, Directors with less than ten years of service received 750 phantom shares of common stock of Household International, Inc. annually during the first ten years of service as a Director. In January 1997, the Board eliminated this and all future Director retirement benefits. All payouts to Directors earned under the Deferred Phantom Stock Plan will be made only when a Director leaves the Board due to death, retirement or resignation and will be paid in HSBC ordinary shares either in a lump sum or in installments as selected by the Director. Following the acquisition, all rights to receive common stock of Household International, Inc. under both plans described above were converted into rights to receive HSBC ordinary shares. In May 2004, when the plans were rolled into a non-qualified deferred compensation plan for Directors, those rights were revised into rights to receive American Depository Shares in HSBC ordinary shares, each of which represents five ordinary shares. No new shares may be issued under the plans. As of December 31, 2006, 14,452 American Depository Shares were held in the deferred compensation plan account for Directors. Specifically, Messrs. Dillon, Fishburn, and Lorch held 7,578, 810, and 6,038 American Depository Shares, respectively, and Ms. Renda held 26 American Depository Shares. 214 (3) HSBC Finance Corporation does not grant stock option awards to its non-management directors. As referenced in Footnote 2 above, as of December 31, 2006, 326,351 Stock Options were outstanding which were granted pursuant to the historical Directors Deferred Fee Plan. Specifically, Messrs. Dillon, Fishburn, and Lorch held options to purchase 69,550, 90,950 and 125,726 HSBC ordinary shares respectively, and Ms. Renda held options to purchase 40,125 HSBC ordinary shares. (4) Components of All Other Compensation are disclosed in the aggregate. All Other Compensation includes such items as personal use of aircraft and a corporate apartment. The following itemizes benefits to our Directors in 2006: Personal use of Corporate Apartment by Mr. Lorch was $720 in 2006. None of our directors had personal use of the corporate aircraft or limousine for 2006. All Other Compensation for Mr. Freidheim includes $43,969 in quarterly scheduled deferred compensation disbursements. We provide each Director with $250,000 of accidental death and dismemberment insurance and a $10,000,000 personal excess liability insurance policy for which the company paid premium is $1,850 per annum for each participating director. Under HSBC Finance Corporation's Matching Gift Program, for all directors elected prior to 2005, we match charitable gifts to qualified organizations (subject to a maximum of $10,000 per year), with a double match for the first $500 donated to higher education institutions (both public and private) and eligible non-profit organizations which promote neighborhood revitalization or economic development for low and moderate income populations. Each current independent Director may ask us to contribute up to $10,000 annually to charities of the Director's choice which qualify under our philanthropic program. (5) Employee Directors do not derive any compensation from their Board service. 215 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. -------------------------------------------------------------------------------- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS HSBC Finance Corporation's common stock is 100% owned by HSBC Investments (North America) Inc. ("HINO"). HINO is an indirect wholly owned subsidiary of HSBC. SECURITY OWNERSHIP BY MANAGEMENT -------------------------------------------------------------------------------- The following table lists the beneficial ownership, as of January 31, 2007, of HSBC ordinary shares or interests in ordinary shares and Series B Preferred Stock of HSBC Finance Corporation by each director and the executive officers named in the Summary Compensation Table on page 198, individually, and the directors and executive officers as a group. Each of the individuals listed below and all directors and executive officers as a group own less than 1% of the ordinary shares of HSBC and the Series B Preferred Stock of HSBC Finance Corporation. HSBC SHARES HSBC NUMBER OF THAT MAY BE RESTRICTED SERIES B SHARES ACQUIRED WITHIN SHARES PREFERRED OF BENEFICIALLY 60 DAYS BY RELEASED NUMBER OF TOTAL HSBC HSBC OWNED OF HSBC EXERCISE OF WITHIN ORDINARY SHARE ORDINARY FINANCE HOLDINGS PLC(1)(2) OPTIONS(4) 60 DAYS(5) EQUIVALENTS(6) SHARES CORPORATION ------------------------------------------------------------------------------------------------------------------------ DIRECTORS William R. P. Dalton.... 106,679 - - - 106,679 - Gary G. Dillon.......... 218,050 69,550 - 37,890 325,490 - J. Dudley Fishburn...... 15,678 90,950 - 4,050 110,678 - Douglas J. Flint........ 72,622 - - - 72,622 - Cyrus F. Freidheim, Jr.................... - - - - - - Robert K. Herdman....... - - - - - - George A. Lorch......... 13,605 125,726 - 30,190 169,521 - Siddharth N. Mehta...... 268,976 3,269,900 107,912 61,120 3,707,908 - Larree M. Renda......... 8,250 40,125 - 130 48,505 50(3) Michael R. P. Smith..... 145,029 - 37,873(1) - 182,902 - NAMED EXECUTIVE OFFICERS Beverley A. Sibblies.... - - - - - - Thomas M. Detelich...... - 694,688 80,934 4,109 779,731 - Walter G. Menezes....... 128,108 516,425 22,291 - 666,824 - Kenneth H. Robin........ 194,015 821,750 - 68,129 1,083,894 - ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP............... 1,449,458(7) 7,112,464 315,469 285,582 9,162,973 50 --------------- (1) Directors and executive officers have sole voting and investment power over the shares listed above, except that the number of ordinary shares held by spouses, children and charitable or family foundations in which voting and investment power is shared (or presumed to be shared) is as follows: Mr. Dalton, 56,019; Mr. Lorch, 13,605; Ms. Renda, 8,250; Mr. Smith, 182,902; Mr. Robin, 1,070; other executive officers, 11,507; and Directors and executive officers as a group, 273,353. (2) Some of the shares included in the table above were held in American Depository Shares, each of which represents five HSBC ordinary shares. (3) Represents 2000 Depositary Shares, each representing one-fortieth of a share of 6.36% Non-Cumulative Preferred Stock, Series B. (4) Represents the number of ordinary shares that may be acquired by HSBC Finance Corporation's Directors and executive officers through April 1, 2007 pursuant to the exercise of stock options. (5) Represents the number of ordinary shares that may be acquired by HSBC Finance Corporation's Directors and executive officers through April 1, 2007 pursuant to the satisfaction of certain conditions. (6) Represents the number of ordinary share equivalents owned by executive officers under HSBC-North America (U.S.) Tax Reduction Investment Plan (TRIP) and HSBC North America Employee Non-Qualified Deferred Compensation Plan and by Directors under HSBC North America Directors Non-Qualified Deferred Compensation Plan. Some of the shares included in the table above were held in American Depository Shares, each of which represents five HSBC ordinary shares. (7) Of the amount of shares reported, 15,608 shares are pledged as security. 216 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. -------------------------------------------------------------------------------- TRANSACTIONS WITH RELATED PERSONS During our fiscal year ended December 31, 2006, HSBC Finance Corporation was not a participant in any transaction, and there is currently no proposed transaction, in which the amount involved exceeded or will exceed $120,000, and in which a director or an executive officer, or a member of the immediate family of a director or an executive officer, had or will have a direct or indirect material interest, other than the agreements with Messrs. Mehta and Menezes described in Item 11. Executive Compensation - Compensation Discussion and Analysis - Compensation of Officers Reported in the Summary Compensation Table. HSBC Finance Corporation maintains a written Policy for the Review, Approval or Ratification of Transactions with Related Persons which provides that any "Transaction with a Related Person" must be reviewed and approved or ratified in accordance with specified procedures. The term "Transaction with a Related Person" includes any transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships, in which (1) the aggregate dollar amount involved will or may be expected to exceed $120,000 in any calendar year, (2) HSBC Finance Corporation or any of its subsidiaries is, or is proposed to be, a participant, and (3) a director or an executive officer, or a member of the immediate family of a director or an executive officer, has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). The following are specifically excluded from the definition of Transaction with a Related Person: - compensation paid to directors and executive officers reportable under rules and regulations promulgated by the Securities and Exchange Commission; - transactions with other companies if the only relationship of the director, executive officer or family member to the other company is as an employee (other than an executive officer), director or beneficial owner of less than 10 percent of such other company's equity securities; - charitable contributions, grants or endowments by HSBC Finance Corporation or any of its subsidiaries to charitable organizations, foundations or universities if the only relationship of the director, executive officer or family member to the organization, foundation or university is as an employee (other than an executive officer) or a director; - transactions where the interest of the director, executive officer or family member arises solely from the ownership of HSBC Finance Corporation's equity securities and all holders of such securities received or will receive the same benefit on a pro rata basis; - transactions where the rates or charges involved are determined by competitive bids; and - transactions involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services. The policy requires each director and executive officer to notify the Office of the General Counsel in writing of any Transaction with a Related Person in which the director, executive officer or an immediate family member has or will have an interest and to provide specified details of the transaction. The Office of the General Counsel, through the Corporate Secretary, will deliver a copy of the notice to the Chair of the Nominating and Governance Committee of the Board of Directors. The Nominating and Governance Committee will review the facts of each proposed Transaction with a Related Person at each regularly scheduled committee meeting and approve, ratify or disapprove the transaction. The vote of a majority of disinterested members of the Nominating and Governance Committee is required for the approval or ratification of any Transaction with a Related Person. The Nominating and Governance Committee may approve or ratify a transaction if the committee determines, in its business judgment, based on the review of all available information, that the transaction is fair and reasonable to, and consistent with the best interests of, HSBC Finance Corporation and its subsidiaries. In making this determination, the Nominating and Governance Committee will consider, among other things, (i) the business purpose of the transaction, (ii) whether the transaction is entered into on an arms-length basis and on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances, (iii) whether the interest of the director, executive officer or family member in the transaction is material and (iv) whether the transaction would violate any provision of the HSBC North America Holdings Inc. 217 Statement of Business Principles and Code of Ethics, the HSBC Finance Corporation Code of Ethics for Senior Financial Officers or the HSBC Finance Corporation Corporate Governance Standards, as applicable. In any case where the Nominating and Governance Committee determines not to approve or ratify a transaction, the matter will be referred to the Office of the General Counsel for review and consultation regarding the appropriate disposition of such transaction including, but not limited to, termination of the transaction, rescission of the transaction or modification of the transaction in a manner that would permit it to be ratified and approved. DIRECTOR INDEPENDENCE The HSBC Finance Corporation Corporate Governance Standards, together with the charters of committees of the Board of Directors, provide the framework for our corporate governance. Director independence is defined in the HSBC Finance Corporation Corporate Governance Standards which are based upon the rules of the New York Stock Exchange. The HSBC Finance Corporation Corporate Governance Standards are available on our website at www.hsbcusa.com or upon written request made to HSBC Finance Corporation, 2700 Sanders Road, Prospect Heights, Illinois 60070, Attention: Corporate Secretary. According to the HSBC Finance Corporation Corporate Governance Standards, a majority of the members of the Board of Directors must be independent. The composition requirement for each committee of the Board of Directors is as follows: COMMITTEE INDEPENDENCE/MEMBER REQUIREMENTS ------------------------------------------------------------------------------------------------------ Audit Committee.................................... Chair and all voting members Compensation Committee............................. Chair and a majority of members Nominating and Governance Committee................ Chair and a majority of members Executive Committee................................ 100% independent directors and the Chairman and Chief Executive Officer Messrs. Dillon, Freidheim, Herdman, Lorch and Ms. Renda are considered to be independent directors. Mr. Dalton served as Executive Director of HSBC until May 2004, Mr. Fishburn serves as chairman of the board of HFC Bank Ltd. and is a member of the board of HSBC Bank plc, Mr. Flint serves as Group Finance Director at HSBC and Mr. Smith is the President and Chief Executive Officer of the Hongkong and Shanghai Banking Corporation. Because of the positions held by Messrs. Dalton, Fishburn, Flint and Smith, they are not considered to be independent directors. See Item 10. Directors, Executive Officers and Corporate Governance - Corporate Governance - Board of Directors - Committees and Charters for more information about our Board of Directors and its committees. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. -------------------------------------------------------------------------------- AUDIT FEES. The aggregate amount billed by our principal accountant, KPMG LLP, for audit services performed during the fiscal years ended December 31, 2006 and 2005 was $7,278,000 and $6,785,000, respectively. Audit services include the auditing of financial statements, quarterly reviews, statutory audits, and the preparation of comfort letters, consents and review of registration statements. AUDIT RELATED FEES. The aggregate amount billed by KPMG LLP in connection with audit related services performed during the fiscal years ended December 31, 2006 and 2005 was $1,453,000 and $1,272,000, respectively. Audit related services include employee benefit plan audits, and audit or attestation services not required by statute or regulation. TAX FEES. Total fees billed by KPMG LLP for tax related services for the fiscal years ended December 31, 2006 and 2005 were $127,000 and $658,000, respectively. These services include tax related research, general tax services in connection with transactions and legislation and tax services for review of Federal and state tax accounts for possible overassessment of interest and/or penalties. 218 ALL OTHER. Other than those fees described above, there were no other fees billed for services performed by KPMG LLP during the fiscal years ended December 31, 2006 and December 31, 2005. All of the fees described above were approved by HSBC Finance Corporation's audit committee. AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES. HSBC Finance Corporation's audit committee pre-approves the audit and non-audit services performed by KPMG LLP, our principal accountants, in order to assure that the provision of such services does not impair KPMG LLP's independence. Unless a type of service to be provided by KPMG LLP has received general pre-approval, it will require specific pre-approval by the audit committee. In addition, any proposed services exceeding pre-approval cost levels will require specific pre-approval by the audit committee. The term of any pre-approval is 12 months from the date of pre-approval, unless the audit committee specifically provides for a different period. The audit committee will periodically revise the list of pre-approved services, based on subsequent determinations, and has delegated pre-approval authority to the Chair of the audit committee. In the event the Chair of the audit committee exercises such delegated authority, he will report such pre-approval decisions to the audit committee at its next scheduled meeting. The audit committee does not delegate its responsibilities to pre-approve services performed by the independent auditor to management. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. -------------------------------------------------------------------------------- (a)(1) Financial Statements. The consolidated financial statements listed below, together with an opinion of KPMG LLP dated March 6, 2006 with respect thereto, are included in this Form 10-K pursuant to Item 8. Financial Statements and Supplementary Data of this Form 10-K. HSBC FINANCE CORPORATION AND SUBSIDIARIES: Report of Independent Registered Public Accounting Firm Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Changes in Shareholder's(s') Equity Notes to Consolidated Financial Statements Selected Quarterly Financial Data (Unaudited) (a)(2) Not applicable (a)(3) Exhibits. 3(i) Amended and Restated Certificate of Incorporation of HSBC Finance Corporation effective as of December 15, 2004, as amended (incorporated by reference to Exhibit 3.1 of HSBC Finance Corporation's Current Report on Form 8-K filed June 22, 2005 and Exhibit 3.1(b) of HSBC Finance Corporation's Current Report on Form 8-K filed December 19, 2005). 3(ii) Bylaws of HSBC Finance Corporation, as amended December 14, 2006. 4.1 Amended and Restated Standard Multiple-Series Indenture Provisions for Senior Debt Securities of HSBC Finance Corporation dated as of December 15, 2004 (incorporated by reference to Exhibit 4.1 of Amendment No. 1 to HSBC Finance Corporation's Registration Statements on Form S-3 Nos. 333-120494, 333-120495 and 333-120496 filed December 16, 2004). 219 4.2* Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance Corporation and JPMorgan Chase Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.2 of Amendment No. 1 to HSBC Finance Corporation's Registration Statements on Form S-3 Nos. 333-120495 and 333-120496 filed December 16, 2004). 4.3 The principal amount of debt outstanding under each other instrument defining the rights of Holders of our long-term senior and senior subordinated debt does not exceed 10 percent of our total assets. HSBC Finance Corporation agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument defining the rights of holders of our long-term senior and senior subordinated debt. 12 Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends. 14 Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14 of HSBC Finance Corporation's Annual Report on Form 10-K for the year ended December 31, 2004 filed February 28, 2005). 21 Subsidiaries of HSBC Finance Corporation. 23 Consent of KPMG LLP, Independent Registered Public Accounting Firm. 24 Power of Attorney (included on page 220 of this Form 10-K). 31 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Ratings of HSBC Finance Corporation and its significant subsidiaries. 99.2 Explanation of Differences between U.K. GAAP and IFRSs, an excerpt from Footnote 46, "Transitions to IFRSs," contained in HSBC Holdings Annual Report on Form 20-F for the year ended December 31, 2005. Upon receiving a written request, we will furnish copies of the exhibits referred to above free of charge. Requests should be made to HSBC Finance Corporation, 2700 Sanders Road, Prospect Heights, Illinois 60070, Attention: Corporate Secretary. --------------- * Substantially identical indentures exist with U.S. Bank National Association, BNY Midwest Trust Company and JPMorgan Trust Company, National Association. 220 SIGNATURES -------------------------------------------------------------------------------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, HSBC Finance Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this, the 5th day of March, 2007. HSBC FINANCE CORPORATION By: /s/ Brendan P. McDonagh ------------------------------------ Brendan P. McDonagh Chief Executive Officer Each person whose signature appears below constitutes and appoints P.D. Schwartz as his/her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him/her in his/her name, place and stead, in any and all capacities, to sign and file, with the Securities and Exchange Commission, this Form 10-K and any and all amendments and exhibits thereto, and all documents in connection therewith, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that such attorney-in-fact and agent or their substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of HSBC Finance Corporation and in the capacities indicated on the 5th day of March, 2007. SIGNATURE TITLE -------------------------------------------------------------------------------------------------------- /s/ B.P. MCDONAGH Chief Executive Officer ------------------------------------------------------ (as Principal Executive Officer) (B.P. McDonagh) /s/ D.J. FLINT Chairman and Director ------------------------------------------------------ (D.J. Flint) /s/ W. R. P. DALTON Director ------------------------------------------------------ (W. R. P. Dalton) /s/ G. G. DILLON Director ------------------------------------------------------ (G. G. Dillon) /s/ J. D. FISHBURN Director ------------------------------------------------------ (J. D. Fishburn) /s/ C. F. FREIDHEIM, JR. Director ------------------------------------------------------ (C. F. Freidheim, Jr.) /s/ R. K. HERDMAN Director ------------------------------------------------------ (R. K. Herdman) /s/ G. A. LORCH Director ------------------------------------------------------ (G. A. Lorch) 221 SIGNATURE TITLE -------------------------------------------------------------------------------------------------------- /s/ L. M. RENDA Director ------------------------------------------------------ (L. M. Renda) /s/ M.R.P. SMITH Director ------------------------------------------------------ (M.R.P. Smith) /s/ B. A. SIBBLIES Senior Vice President and Chief Financial ------------------------------------------------------ Officer (B. A. Sibblies) /s/ J. E. BINYON Vice President and Chief Accounting Officer ------------------------------------------------------ (J. E. Binyon) 222 EXHIBIT INDEX -------------------------------------------------------------------------------- 3(i) Amended and Restated Certificate of Incorporation of HSBC Finance Corporation effective as of December 15, 2004, as amended (incorporated by reference to Exhibit 3.1 of HSBC Finance Corporation's Current Report on Form 8-K filed June 22, 2005 and Exhibit 3.1(b) of HSBC Finance Corporation's Current Report on Form 8-K filed December 19, 2005). 3(ii) Bylaws of HSBC Finance Corporation, as amended December 14, 2006. 4.1 Amended and Restated Standard Multiple-Series Indenture Provisions for Senior Debt Securities of HSBC Finance Corporation dated as of December 15, 2004 (incorporated by reference to Exhibit 4.1 of Amendment No. 1 to HSBC Finance Corporation's Registration Statements on Form S-3 Nos. 333-120494, 333-120495 and 333-120496 filed December 16, 2004). 4.2* Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance Corporation and JPMorgan Chase Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.2 of Amendment No. 1 to HSBC Finance Corporation's Registration Statements on Form S-3 Nos. 333-120495 and 333-120496 filed December 16, 2004). 4.3 The principal amount of debt outstanding under each other instrument defining the rights of Holders of our long-term senior and senior subordinated debt does not exceed 10 percent of our total assets. HSBC Finance Corporation agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument defining the rights of holders of our long-term senior and senior subordinated debt. 12 Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends. 14 Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14 of HSBC Finance Corporation's Annual Report on Form 10-K for the year ended December 31, 2004 filed February 28, 2005). 21 Subsidiaries of HSBC Finance Corporation. 23 Consent of KPMG LLP, Independent Registered Public Accounting Firm. 24 Power of Attorney (included on page 220 of this Form 10-K). 31 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Ratings of HSBC Finance Corporation and its significant subsidiaries. 99.2 Explanation of Differences between U.K. GAAP and IFRSs, an excerpt from Footnote 46, "Transition to IFRSs," contained in HSBC Holdings Annual Report on Form 20-F for the year ended December 31, 2005. --------------- * Substantially identical indentures exist with U.S. Bank National Association, BNY Midwest Trust Company and JPMorgan Trust Company, National Association. EXHIBIT 3(II) HSBC FINANCE CORPORATION BYLAWS --------------------- (AS IN EFFECT DECEMBER 14, 2006) 1 --------------------- BYLAWS OF HSBC FINANCE CORPORATION --------------------- ARTICLE I. DEFINITIONS, PLACES OF MEETINGS. SECTION 1. Definitions. When used herein, "Board" shall mean the Board of Directors of this Corporation, and "Chairman" shall mean Chairman of the Board of Directors. SECTION 2. Places of Meetings of Stockholders and Directors. Unless the Board shall fix another place for the holding of the meeting, meetings of stockholders and of the Board shall be held at the Corporation's headquarters, Prospect Heights, Cook County, Illinois, or at such other place specified by the person or persons calling the meeting. ARTICLE II. STOCKHOLDERS MEETINGS. SECTION 1. Annual Meeting of Stockholders. The annual meeting of stockholders shall be held on such date and at such time as is fixed by the Board. Any previously scheduled annual meeting of stockholders may be postponed by resolution of the Board of Directors upon public announcement given prior to the date previously scheduled for such annual meeting of stockholders. SECTION 2. Special Meetings. CALL. Special meetings of the stockholders may be called at any time by the Chief Executive Officer or a majority of the Board of Directors. Any previously scheduled special meeting of stockholders may be postponed by resolution of the Board of Directors upon notice to the stockholders given prior to the date previously scheduled for such special meeting of stockholders. REQUISITES OF CALL. A call for a special meeting of stockholders shall be in writing, filed with the Secretary, and shall specify the time and place of holding such meeting and the purpose or purposes for which it is called. SECTION 3. Notice of Meetings. Written notice of a meeting of stockholders setting forth the place, date, and hour of the meeting and the purpose or purposes for which the meeting is called shall be mailed not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at the meeting. SECTION 4. Quorum and Adjournments. At any meeting of stockholders, the holders of a majority of all the outstanding shares entitled to vote, present in person or by proxy, shall constitute a quorum for the transaction of business, and a majority of such quorum shall prevail except as otherwise required by law, the Certificate of Incorporation, or the bylaws. If the stockholders necessary for a quorum shall fail to be present at the time and place fixed for any meeting, the holders of a majority of the shares entitled to vote who are present in person or by proxy may adjourn the meeting from time to time, until a quorum is present, provided, however, that any stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the Chairman of the meeting. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. 2 SECTION 5. Polls. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a stockholder shall determine otherwise. ARTICLE III. BOARD OF DIRECTORS. SECTION 1. General Powers. The business and affairs of this Corporation shall be managed under the direction of the Board. NUMBER. The number of directors shall be fixed from time to time by resolution of the Board. TENURE. The directors shall be elected at the annual meeting of stockholders, except as provided in Section 5 of this Article III, and each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. SECTION 2. Regular Meetings of the Board. Regular meetings of the Board shall be held at such times and places as the Board may fix. No notice shall be required. SECTION 3. Special Meetings of the Board. Special meetings of the Board shall be held whenever called by the Chairman of the Board or Chief Executive Officer or any four or more directors. At least twenty-four hours written notice or oral notice of each special meeting shall be given to each director. If mailed, notice must be deposited in the United States mail at least seventy-two hours before the meeting. SECTION 4. Quorum. A majority of the members of the Board if the total number is odd or one-half thereof if the total number is even shall constitute a quorum for the transaction of business, but if at any meeting of the Board there is less than a quorum the majority of those present may adjourn the meeting from time to time until a quorum is present. At any such adjourned meeting, a quorum being present, any business may be transacted which might have been transacted at the original meeting. Except as otherwise provided by law, the Certificate of Incorporation, or the bylaws, all actions of the Board shall be decided by vote of a majority of those present. SECTION 5. Vacancies. When any vacancy occurs among the Board, the remaining members of the Board may elect a director to fill each such vacancy at any regular meeting of the Board, or at a special meeting called for that purpose. A director elected to fill a vacancy shall serve for the unexpired portion of the term of his predecessor in office. SECTION 6. Removal of Directors. Any director may be removed either with or without cause, at any time, by a vote of the holders of a majority of the shares of the Corporation at any meeting of stockholders called for that purpose. SECTION 7. Committees. The Board may, by resolution passed by a majority of the entire Board, designate one or more committees of directors which to the extent provided in the resolution shall have and may exercise powers and authority of the Board in the management of the business and affairs of the Corporation. SECTION 8. Action of the Board. Except as otherwise provided by law, corporate action to be taken by the Board shall mean such action at a meeting of the Board. Any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board consent in writing to a resolution authorizing the action. The resolution and the written consents thereto shall be filed with the minutes of the proceedings of the Board. Any one or more members of the Board may participate in a meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. 3 ARTICLE IV. OFFICERS. SECTION 1. Officers. The Policy Making Officers of the Corporation shall be appointed by the Board of Directors. The Board of Directors shall also appoint General Officers to manage the day-to-day business functions of the Corporation. Policy Making Officers shall have the authority to appoint other Assistant Officers to assist in the ministerial aspects of their area of responsibilities. The Policy Making Officers of the Corporation shall include the Chief Executive Officer, the Chief Operating Officer (if any), the Chief Financial Officer, the President (if any), any Vice Chairman, any Senior Executive Vice President, any Executive Vice President, any Group Executive, any Managing Director, the General Counsel, the Chief Accounting Officer (if any), and the Treasurer. The General Officers of the Corporation shall be any Senior Vice President, any Vice President, the Controller, the Chief Governance Officer (if any) and the Secretary. Any person holding the title of Chairman or Chief Executive Officer shall be a director of the Corporation. The Board may from time to time designate, employ, or appoint such other officers and assistant officers, agents, employees, counsel, and attorneys at law or in fact as it shall deem desirable for such periods and on such terms as it may deem advisable, and such persons shall have such titles, only such power and authority, and perform such duties as the Board may determine. SECTION 2. Duties of Chairman of the Board. The Chairman shall sign and issue, jointly with the President (if any), all reports to the stockholders and shall preside at all meetings of stockholders and of the Board. He shall, in general, perform duties incident to the office of Chairman as may be prescribed by the Board. SECTION 3. Duties of Chief Executive Officer. At the next meeting of the Board following the Annual Meeting of Stockholders, or other meeting at which Policy Making Officers are or may be elected, the Board shall designate the Chairman or the President (if any) as the Chief Executive Officer of the Corporation. The Chief Executive Officer shall have general authority over all matters relating to the business and affairs of the Corporation subject to the control and direction of the Board. In the absence or inability of the Chief Executive Officer to act, the Chair of the Executive Committee of the Board shall perform the duties of the Chief Executive Officer. SECTION 4. Duties of President. The President, if one is appointed by the Board, shall, in general, perform all duties incident to the office of President and shall perform such other duties as may be prescribed by the Board. In the absence or inability of the Chairman, or the Chair of the Executive Committee in accordance with Section 3 above, to act, the President shall perform the duties of the Chairman and Chief Executive Officer for such time period as required. SECTION 5. Duties of a Vice Chairman. A Vice Chairman, if one is appointed by the Board, shall, in general, perform all duties incident to the office of a Vice Chairman and shall perform such other duties as may be prescribed by the Board. In the absence or inability of the President or the Chair of the Executive Committee to act as the Chief Executive Officer in accordance with Sections 3 and 4 above, the most senior Vice Chairman, as designated by the Chairman, shall perform the duties of the Chief Executive Officer and Chairman for such time period as required. SECTION 6. Duties of Senior Executive Vice Presidents, Executive Vice Presidents, Group Executives and Senior Vice Presidents. Each Senior Executive Vice President, Executive Vice President, Group Executive and Senior Vice President shall have such powers and perform such duties as may be prescribed by the Chief Executive Officer of the Corporation or the Board. The order of seniority, if any, among the Senior Executive Vice Presidents, Executive Vice Presidents, Group Executives and Senior Vice Presidents shall be as designated from time to time by the Chief Executive Officer of the Corporation. In the absence or inability of any Vice Chairman to act as the Chief Executive Officer as may be required in accordance with Section 5 above, the senior of the Senior Executive Vice Presidents, Executive Vice Presidents, Group Executives and 4 Senior Vice Presidents, if one has been so designated, shall perform the duties of the Chief Executive Officer and Chairman for such time period as required. SECTION 7. Duties of Secretary. The Secretary shall record the proceedings of meetings of the stockholders and directors, give notices of meetings, and shall, in general, perform all duties incident to the office of Secretary and such other duties as may be prescribed by the Board. SECTION 8. Duties of Treasurer. The Treasurer shall have custody of all funds, securities, evidences of indebtedness, and other similar property of the Corporation, and shall, in general, perform all duties incident to the office of Treasurer and such other duties as may be prescribed by the Board. ARTICLE V. STOCK AND STOCK CERTIFICATES. SECTION 1. Transfers. Shares of stock shall be transferable on the books of the Corporation only by the person named in the certificate or by an attorney, lawfully constituted in writing, and upon surrender of the certificate therefor. Every person becoming a stockholder by such transfer shall, in proportion to his shares, succeed to all rights of the prior holder of such shares. SECTION 2. Stock Certificates. The certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the President or Vice President and the Secretary or Treasurer. Every certificate shall have noted thereon any information required to be set forth by the applicable law. If the Corporation has a transfer agent or an assistant transfer agent or a transfer clerk acting on its behalf and a registrar, the signature of any such officer may be a facsimile. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. SECTION 3. Fixing Record Date. (A) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. (B) If no record date is fixed: (1) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (2) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. SECTION 4. Registered Shareholders. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the law. 5 SECTION 5. Lost Certificates. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and advertise the same in such manner as the Board may require, and the Board may, in its discretion, require the owner of the lost or destroyed certificate, or his legal representative, to give the Corporation a bond, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate. A new certificate of the same tenor and for the same number of shares as the one alleged to be lost or destroyed may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do. ARTICLE VI. EMERGENCY BYLAWS. SECTION 1. When Operative. Notwithstanding any different provision in the preceding Articles of the bylaws or in the Certificate of Incorporation, the emergency bylaws provided in this Article VI shall be operative during any emergency resulting from an attack on the United States or on a locality in which the Corporation conducts its business or customarily holds meetings of its Board or its stockholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board or a standing committee thereof cannot readily be convened for action. SECTION 2. Board Meetings. During any such emergency, a meeting of the Board may be called by any director or, if necessary, by any officer who is not a director. The meeting shall be held at such time and place, within or without Cook County, Illinois, specified by the person calling the meeting and in the notice of the meeting which shall be given to such of the directors as it may be feasible to reach at the time and by such means as may be feasible at the time, including publication or radio. Such advance notice shall be given as, in the judgment of the person calling the meeting, circumstances permit. Two directors shall constitute a quorum for the transaction of business. To the extent required to constitute a quorum at the meeting, the officers present shall be deemed, in order of rank and within the same rank in order of seniority, directors for the meeting. SECTION 3. Amendments to Emergency Bylaws. These emergency bylaws may be amended, either before or during any emergency, to make any further or different provision that may be practical and necessary for the circumstances of the emergency. ARTICLE VII. CONSENTS TO CORPORATE ACTION. SECTION 1. Action by Written Consent. Unless otherwise provided in the Certificate of Incorporation, any action which is required to be or may be taken at any annual or special meeting of stockholders of the Corporation, subject to the provisions of Sections (2) and (3) of this Article VII, may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken, shall have been signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided, however, that prompt notice of the taking of the corporate action without a meeting and by less than unanimous written consent shall be given to those stockholders who have not consented in writing. SECTION 2. Determination of Record Date for Action by Written Consent. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be fixed by the Board of Directors of the Corporation. Any stockholder seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice to the Secretary, request the Board of Directors to fix a record date. Upon receipt of such a request, the Secretary shall, as promptly as practicable, call a special meeting of the Board of Directors to be held as promptly as practicable. At such meeting, the Board of Directors shall fix a record date as provided in Section 213(b) (or 6 its successor provision) of the Delaware General Corporation Law; that record date, however, shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board nor more than 15 days from the date of the receipt of the stockholder's request. Should the Board fail to fix a record date as provided for in this Section 2, then the record date shall be the day on which the first written consent is duly delivered pursuant to Section 213(b) (or its successor provision) of the Delaware General Corporation Law, or, if prior action is required by the Board with respect to such matter, the record date shall be at the close of business on the day on which the Board adopts the resolution taking such action. SECTION 3. Procedures for Written Consent. In the event of the delivery to the Corporation of a written consent or consents purporting to represent the requisite voting power to authorize or take corporate action and/or related revocations, the Secretary of the Corporation shall provide for the safekeeping of such consents and revocations. ARTICLE VIII. MISCELLANEOUS PROVISIONS. SECTION 1. Waiver of Notice. Whenever notice is required to be given, a written waiver thereof signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 2. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. SECTION 3. Fiscal Year. The Fiscal Year of the Corporation shall be the calendar year. SECTION 4. Records. The Bylaws and the proceedings of all meetings of the stockholders and the Board shall be recorded in appropriate minute books provided for the purpose. The minutes of each meeting shall be signed by the Secretary or other officer appointed to act as Secretary of the meeting. SECTION 5. Amendments. The Bylaws may be added to, amended, altered or repealed at any regular meeting of the Board, by a vote of a majority of the total number of the directors, or at any meeting of stockholders, duly called and held, by a majority of the stock represented at such meeting. 7 EXHIBIT 12 HSBC FINANCE CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS MARCH 29 JANUARY 1 YEAR ENDED YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 28, 2006 2005 2004 2003 2003 2002 ------------------------------------------------------------------------------------------------------------------------ --- (SUCCESSOR) (SUCCESSOR) (SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (IN MILLIONS) Net income..................... $1,443 $1,772 $1,940 $1,357 $ 246 $1,558 Income taxes................... 844 891 1,000 690 182 695 ------ ------ ------ ------ ------ ------ Income before income taxes..... 2,287 2,663 2,940 2,047 428 2,253 ------ ------ ------ ------ ------ ------ Fixed charges: Interest expense............. 7,374 4,832 3,143 2,031 898 3,879 Interest portion of rentals(1)................. 59 61 54 40 18 68 ------ ------ ------ ------ ------ ------ Total fixed charges............ 7,433 4,893 3,197 2,071 916 3,947 ------ ------ ------ ------ ------ ------ Total earnings as defined...... $9,720 $7,556 $6,137 $4,118 $1,344 $6,200 Ratio of earnings to fixed charges...................... 1.31(3) 1.54 1.92(4) 1.99 1.47(5) 1.57(6) ====== ====== ====== ====== ====== ====== Preferred stock dividends(2)... 58 125 108 86 32 91 ====== ====== ====== ====== ====== ====== Ratio of earnings to combined fixed charges and preferred stock dividends.............. 1.30(3) 1.51 1.86(4) 1.91 1.42(5) 1.54(6) ====== ====== ====== ====== ====== ====== --------------- (1) Represents one-third of rentals, which approximates the portion representing interest. (2) Preferred stock dividends are grossed up to their pretax equivalents. (3) The 2006 ratios have been positively impacted by the $78 million (after-tax) gain on sale of our investment in Kanbay. Excluding this item, our ratio of earnings to fixed charges would have been 1.30 percent and our ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.29 percent. These non-U.S. GAAP financial ratios are provided for comparison of our operating trends only. (4) The 2004 ratios have been negatively impacted by $121 million (after-tax) from the adoption of FFIEC charge-off policies for our domestic private label (excluding retail sales contracts at our consumer lending business) and credit card portfolios in December 2004 and positively impacted by the $423 million (after-tax) gain on the bulk sale of our domestic private label receivables (excluding retail sales contracts at our consumer lending business) to HSBC Bank USA in December 2004. Excluding these items, our ratio of earnings to fixed charges would have been 1.83 percent and our ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.77 percent. These non-U.S. GAAP financial ratios are provided for comparison of our operating trends only. (5) The 2003 ratios have been negatively impacted by the $167 million (after-tax) of HSBC acquisition related costs and other merger related items incurred by HSBC Finance Corporation. Excluding these charges, our ratio of earnings to fixed charges would have been 1.69 percent and our ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.63 percent. These non-U.S. GAAP financial ratios are provided for comparison of our operating trends only. (6) The 2002 ratios have been negatively impacted by the $333 million (after-tax) settlement charge and related expenses and the $240 million (after-tax) loss on the disposition of Thrift assets and deposits. Excluding these charges, our ratio of earnings to fixed charges would have been 1.80 percent and our ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.76 percent. These non-U.S. GAAP financial ratios are provided for comparison of our operating trends only. EXHIBIT 21 SUBSIDIARIES OF HSBC FINANCE CORPORATION US -- STATE NAMES OF SUBSIDIARIES ORGANIZED --------------------- -------------- AHLIC Investment Holdings Corporation....................... Delaware B.I.G. Insurance Agency, Inc. .............................. Ohio Beaver Valley, Inc. ........................................ Delaware Bencharge Credit Service Holding Company.................... Delaware Beneficial Alabama Inc. .................................... Alabama Beneficial Arizona Inc. .................................... Delaware Beneficial California Inc. ................................. Delaware Beneficial Colorado Inc. ................................... Delaware Beneficial Commercial Corporation........................... Delaware Beneficial Commercial Holding Corporation................... Delaware Beneficial Company LLC (f/k/a Beneficial Corporation)....... Delaware Beneficial Connecticut Inc. ................................ Delaware Beneficial Consumer Discount Company........................ Pennsylvania dba BMC of PA Beneficial Credit Services Inc. ............................ Delaware Beneficial Credit Services of Connecticut Inc. ............. Delaware Beneficial Credit Services of Mississippi Inc. ............. Delaware Beneficial Credit Services of South Carolina Inc. .......... Delaware Beneficial Delaware Inc. ................................... Delaware Beneficial Direct, Inc. .................................... New Jersey Beneficial Discount Co. of Virginia......................... Delaware Beneficial Facilities Corporation........................... New Jersey Beneficial Finance Co. ..................................... Delaware Beneficial Finance Co. of West Virginia..................... Delaware Beneficial Finance Services, Inc. .......................... Kansas Beneficial Florida Inc. .................................... Delaware Beneficial Franchise Company Inc. .......................... Delaware Beneficial Georgia Inc. .................................... Delaware Beneficial Hawaii Inc. ..................................... Delaware Beneficial Homeowner Service Corporation.................... Delaware Beneficial Idaho Inc. ...................................... Delaware Beneficial Illinois Inc. ................................... Delaware Beneficial Income Tax Service Holding Co., Inc. ............ Delaware Beneficial Indiana Inc. .................................... Delaware dba Beneficial Mortgage Co. of Indiana Beneficial Investment Co. .................................. Delaware Beneficial Iowa Inc. ....................................... Iowa Beneficial Kansas Inc. ..................................... Kansas Beneficial Kentucky Inc. ................................... Delaware Beneficial Leasing Group, Inc. ............................. Delaware Beneficial Loan & Thrift Co. ............................... Minnesota Beneficial Loan Corporation of Kentucky..................... Kentucky US -- STATE NAMES OF SUBSIDIARIES ORGANIZED --------------------- -------------- Beneficial Louisiana Inc. .................................. Delaware Beneficial Maine Inc. ...................................... Delaware dba Beneficial Credit Services of Maine Beneficial Management Corporation........................... Delaware Beneficial Management Corporation of America................ Delaware Beneficial Management Headquarters, Inc. ................... New Jersey Beneficial Management Institute, Inc. ...................... New York Beneficial Mark Holding Inc. ............................... Delaware Beneficial Maryland Inc. ................................... Delaware Beneficial Massachusetts Inc. .............................. Delaware Beneficial Michigan Inc. ................................... Delaware Beneficial Mississippi Inc. ................................ Delaware Beneficial Missouri, Inc. .................................. Delaware Beneficial Montana Inc. .................................... Delaware Beneficial Mortgage Co. of Arizona.......................... Delaware Beneficial Mortgage Co. of Colorado......................... Delaware Beneficial Mortgage Co. of Connecticut...................... Delaware Beneficial Mortgage Co. of Florida.......................... Delaware Beneficial Mortgage Co. of Georgia.......................... Delaware Beneficial Mortgage Co. of Idaho............................ Delaware Beneficial Mortgage Co. of Indiana.......................... Delaware Beneficial Mortgage Co. of Kansas, Inc. .................... Delaware Beneficial Mortgage Co. of Louisiana........................ Delaware Beneficial Mortgage Co. of Maryland......................... Delaware Beneficial Mortgage Co. of Massachusetts.................... Delaware Beneficial Mortgage Co. of Mississippi...................... Delaware Beneficial Mortgage Co. of Missouri, Inc. .................. Delaware Beneficial Mortgage Co. of Nevada........................... Delaware Beneficial Mortgage Co. of New Hampshire.................... Delaware Beneficial Mortgage Co. of North Carolina................... Delaware Beneficial Mortgage Co. of Oklahoma......................... Delaware Beneficial Mortgage Co. of Rhode Island..................... Delaware Beneficial Mortgage Co. of South Carolina................... Delaware Beneficial Mortgage Co. of Texas............................ Delaware Beneficial Mortgage Co. of Utah............................. Delaware Beneficial Mortgage Co. of Virginia......................... Delaware Beneficial Mortgage Corporation............................. Delaware Beneficial Mortgage Holding Company......................... Delaware Beneficial Nebraska Inc. ................................... Nebraska dba BFC Mortgage of Nebraska Beneficial Nevada Inc. ..................................... Delaware Beneficial New Hampshire Inc. .............................. Delaware Beneficial New Jersey Inc. ................................. Delaware dba Beneficial Mortgage Co. Beneficial New Mexico Inc. ................................. Delaware US -- STATE NAMES OF SUBSIDIARIES ORGANIZED --------------------- -------------- Beneficial New York Inc. ................................... New York Beneficial North Carolina Inc. ............................. Delaware Beneficial Ohio Inc. ....................................... Delaware Beneficial Oklahoma Inc. ................................... Delaware Beneficial Oregon Inc. ..................................... Delaware Beneficial Real Estate Joint Venture, Inc. ................. Delaware Beneficial Rhode Island Inc. ............................... Delaware Beneficial South Carolina Inc. ............................. Delaware Beneficial South Dakota Inc. ............................... Delaware Beneficial Systems Development Corporation.................. Delaware Beneficial Technology Corporation........................... Delaware Beneficial Tennessee Inc. .................................. Tennessee Beneficial Texas Inc. ...................................... Texas Beneficial Trademark Co. ................................... Delaware Beneficial Utah Inc. ....................................... Delaware Beneficial Vermont Inc. .................................... Delaware Beneficial Virginia Inc. ................................... Delaware Beneficial Washington Inc. ................................. Delaware Beneficial West Virginia, Inc. ............................. West Virginia Beneficial Wisconsin Inc. .................................. Delaware Beneficial Wyoming Inc. .................................... Wyoming Benevest Escrow Company..................................... Delaware BFC Agency, Inc. ........................................... Delaware BFC Insurance Agency of Nevada.............................. Nevada BMC Holding Company......................................... Delaware Bon Secour Properties Inc. ................................. Alabama Cal-Pacific Services, Inc. ................................. California Capital Financial Services Inc. ............................ Nevada dba Capital Financial Services I Inc. dba Capital Financial Services No. 1 Inc. dba CFSI, Inc. dba HB Financial Services Central Insurance Administrators, Inc. ..................... Delaware Chattanooga Valley Associates............................... Tennessee Com Realty, Inc. ........................................... Delaware Craig-Hallum Corporation.................................... Delaware Decision One Loan Company of Minnesota...................... Minnesota Decision One Mortgage Company............................... North Carolina Decision One Mortgage Company, LLC.......................... North Carolina Eighth HFC Leasing Corporation.............................. Delaware Eleventh Avenue Properties Corporation...................... Delaware Fifth HFC Leasing Corporation............................... Delaware Financial Network Alliance, L.L.P. ......................... Illinois First Central National Life Insurance Company of New York... New York FNA Consumer Discount Company............................... Pennsylvania US -- STATE NAMES OF SUBSIDIARIES ORGANIZED --------------------- -------------- Fourteenth HFC Leasing Corporation.......................... Delaware Fourth HFC Leasing Corporation.............................. Delaware H I Venture Four, Inc. ..................................... Florida H I Venture One, Inc. ...................................... Florida H I Venture Three, Inc. .................................... Florida Hamilton Investments, Inc. ................................. Delaware Harbour Island Inc. ........................................ Florida HFC Agency of Missouri, Inc. ............................... Missouri HFC Commercial Realty, Inc. ................................ Delaware HFC Company LLC (f/k/a Household Group, Inc.)............... Delaware HFC Leasing, Inc. .......................................... Delaware HFS Investments, Inc. ...................................... Nevada HFTA Consumer Discount Co. ................................. Pennsylvania HFTA Corporation............................................ Delaware HFTA Eighth Corporation..................................... Ohio HFTA Fifth Corporation...................................... Nevada HFTA First Financial Corp. ................................. California HFTA Fourth Corporation..................................... Minnesota HFTA Ninth Corporation...................................... West Virginia HFTA Second Corporation..................................... Alabama HFTA Seventh Corporation.................................... New Jersey HFTA Sixth Corporation...................................... Nevada HFTA Tenth Corporation...................................... Washington HFTA Third Corporation...................................... Delaware Household Acquisition Corporation........................... Delaware Household Affinity Funding Corporation III.................. Delaware Household Aviation, LLC..................................... Delaware Household Business Services, Inc. .......................... Delaware Household Capital Markets LLC............................... Delaware Household Commercial Financial Services, Inc. .............. Delaware Household Commercial of California, Inc. ................... California Household Consumer Loan Corporation......................... Nevada Household Consumer Loan Corporation II...................... Delaware Household Credit Services Overseas, Inc. ................... Delaware Household Finance Consumer Discount Company................. Pennsylvania Household Finance Corporation II............................ Delaware dba Household Finance Corporation of Virginia Household Finance Corporation III........................... Delaware dba HFC Mortgage of Nebraska dba Household Mortgage Services dba HSBC Mortgage Household Finance Corporation of Alabama.................... Alabama Household Finance Corporation of California................. Delaware Household Finance Corporation of Nevada..................... Delaware Household Finance Corporation of West Virginia.............. West Virginia US -- STATE NAMES OF SUBSIDIARIES ORGANIZED --------------------- -------------- Household Finance Industrial Loan Company................... Washington Household Finance Industrial Loan Company of Iowa........... Iowa Household Finance Realty Corporation of Nevada.............. Delaware Household Finance Realty Corporation of New York............ Delaware Household Financial Center Inc. ............................ Tennessee Household Global Funding, Inc. ............................. Delaware Household Industrial Finance Company........................ Minnesota Household Industrial Loan Co. of Kentucky................... Kentucky Household Insurance Agency, Inc. ........................... Michigan Household Insurance Agency, Inc. Nevada..................... Nevada Household Insurance Group Holding Company................... Delaware Household Insurance Group, Inc. ............................ Delaware Household Investment Funding, Inc. ......................... Delaware Household Ireland Holdings Inc. ............................ Delaware Household Life Insurance Co. of Arizona..................... Arizona Household Life Insurance Company............................ Michigan Household Life Insurance Company of Delaware................ Delaware Household OPEB I, Inc. ..................................... Illinois Household Pooling Corporation............................... Nevada Household Realty Corporation................................ Delaware dba Household Realty Corporation of Virginia Household Recovery Services Corporation..................... Delaware Household REIT Corporation.................................. Nevada Household Relocation Management, Inc. ...................... Illinois Household Servicing, Inc. .................................. Delaware Household Tax Masters Acquisition Corporation............... Delaware Housekey Financial Corporation.............................. Illinois HSBC -- GR Corp. (f/k/a Household Financial Group, Ltd.).... Delaware HSBC Affinity Corporation I (f/k/a HFC Card Funding Corporation).............................................. Delaware HSBC Auto Accounts Inc. (f/k/a OFL-A Receivables Corp.)..... Delaware HSBC Auto Credit Inc. (f/k/a Household Automotive Credit Corporation).............................................. Delaware HSBC Auto Finance Inc. (f/k/a Household Automotive Finance Corporation).............................................. Delaware HSBC Auto Receivables Corporation (f/k/a Household Auto Receivables Corporation).................................. Nevada HSBC Bank Nevada, N. A. (f/k/a Household Bank (SB), N.A.)... United States HSBC Card Services Inc. (f/k/a Household Credit Services, Inc.)..................................................... Delaware HSBC Card Services (II) Inc. (f/k/a Household Credit Services II, Inc.)........................................ Oregon HSBC Card Services (III) Inc. (f/k/a Household Card Services, Inc.)........................................... Nevada HSBC Consumer Lending (USA) Inc. ........................... Delaware HSBC Credit Center, Inc. ................................... Delaware HSBC Home Equity Loan Correspondent Corporation I (f/k/a HSBC Mortgage Funding Corporation I )..................... Delaware HSBC Home Equity Loan Corporation I (f/k/a HFC Revolving Corporation).............................................. Delaware HSBC Home Equity Loan Corporation II (f/k/a Household Receivables Acquisition Company).......................... Delaware HSBC Insurance Company of Delaware (f/k/a Service General Insurance Company)........................................ Ohio HSBC Mortgage Services Inc. (f/k/a Household Financial Services Inc.)............................................ Delaware US -- STATE NAMES OF SUBSIDIARIES ORGANIZED --------------------- -------------- HSBC Mortgage Services Warehouse Lending Inc. (f/k/a HFC Funding Corporation)...................................... Delaware HSBC Pay Services, Inc. (f/k/a Household Payroll Services, Inc.)..................................................... Delaware HSBC Private Label Corporation (f/k/a Household Corporation).............................................. Delaware HSBC Receivables Acquisition Company I (f/k/a Household Receivables Acquisition Company II........................ Delaware HSBC Receivables Funding Inc. I (f/k/a Household Receivables Funding, Inc. III)........................................ Delaware HSBC Retail Services Inc. (f/k/a Household Retail Services, Inc.)..................................................... Delaware HSBC Single Seller Depositor (USA) LLC...................... Delaware HSBC Taxpayer Financial Services Inc. (f/k/a Household Tax Masters Inc.)............................................. Delaware HSBC TFS I 2005 LLC......................................... Delaware HSBC TFS I LLC.............................................. Delaware HSBC TFS II 2005 LLC........................................ Delaware HSBC TFS II LLC............................................. Delaware Hull 752 Corporation........................................ Delaware Hull 753 Corporation........................................ Delaware JV Mortgage Capital Consumer Discount Company............... Pennsylvania JV Mortgage Capital, Inc. .................................. Delaware JV Mortgage Capital, L.P. .................................. Delaware KMD Center, Inc. ........................................... Delaware Leasing at Sixty-First Corporation.......................... Delaware Macray Corporation.......................................... California magnUS Services, Inc. ...................................... Delaware MES Insurance Agency, LLC................................... Delaware Metris Receivables, Inc. ................................... Delaware Moore's Realty Inc. ........................................ Delaware Mortgage One Corporation.................................... Delaware Mortgage Two Corporation.................................... Delaware MTX LLC..................................................... Delaware Neil Corporation............................................ Delaware Nineteenth HFC Leasing Corporation.......................... Delaware North Indemnity Insurance Company........................... Delaware Old K & B Corporation....................................... Michigan Pacific Agency, Inc. ....................................... Nevada Pacific Finance Loans....................................... California Pargen Corporation.......................................... California Personal Mortgage Corporation............................... Delaware Personal Mortgage Holding Company........................... Delaware PPSG Corporation............................................ Delaware Properties on Twenty-Second Corporation..................... Delaware Real Estate Collateral Management Company................... Delaware Renaissance Bankcard Services of Kentucky................... Kentucky Service Administrators, Inc. (USA).......................... Colorado Service Management Corporation.............................. Ohio Seven Acres Leasing Corporation............................. Delaware Seventh HFC Leasing Corporation............................. Delaware US -- STATE NAMES OF SUBSIDIARIES ORGANIZED --------------------- -------------- Silliman Corporation........................................ Delaware Sixth HFC Leasing Corporation............................... Delaware Solstice Capital Group, Inc. ............................... Delaware South Property Corporation.................................. Delaware Southwest Beneficial Finance, Inc. ......................... Illinois Southwest Texas General Agency, Inc. ....................... Texas SPE 1 2005 Manager Inc. .................................... Delaware SPE 1 Manager Inc. ......................................... Delaware Tampa Island Transit Company, Inc. ......................... Florida Tenth Leasing Corporation................................... Delaware Third HFC Leasing Corporation............................... Delaware Thirteenth HFC Leasing Corporation.......................... Delaware Twenty-Sixth Place Corporation.............................. Delaware Valley Properties Corporation............................... Tennessee Wasco Properties, Inc. ..................................... Delaware NON-US AFFILIATES NAMES OF SUBSIDIARIES COUNTRY ORGANIZED --------------------- ----------------- Amstelveen FSC, Ltd. ....................................... Bermuda B&Q Financial Services Limited.............................. England Beneficial Limited.......................................... England Beneficial Premium Services Limited......................... England BFC Insurance (Life) Limited................................ Ireland BFC Insurance Limited....................................... Ireland BFC Ireland (Holdings) Limited.............................. Ireland BFC Pension Plan (Ireland) Limited.......................... Ireland BFC Reinsurance Limited..................................... Ireland D.L.R.S. Limited............................................ England Endeavour Personal Finance Limited.......................... England Hamilton Financial Planning Services Ltd. .................. England Hamilton Insurance Company Limited.......................... England Hamilton Life Assurance Company Limited..................... England HFC Bank Limited............................................ England HFC Financial Services Holdings (Ireland) Limited........... Ireland HFC Pension Plan (Ireland) Limited.......................... Ireland HFC Pension Plan Limited.................................... England Household (Jersey) Limited.................................. Channel Island Household Commercial Canada, Inc. .......................... Canada Household Computer Services Limited......................... England Household Finance Limited................................... England Household Funding plc....................................... England Household Global Holdings, BV............................... Netherlands Household International Europe Limited...................... England Household Investments Limited............................... England Household Leasing Limited................................... England NAMES OF SUBSIDIARIES COUNTRY ORGANIZED --------------------- ----------------- Household Management Corporation Limited.................... England & Wales Household Overseas Limited.................................. England Household Realty Corporation Limited........................ Canada Household Trust Company..................................... Canada HSBC Finance Corporation Canada (f/k/a Household Finance Corporation of Canada).................................... Canada HSBC Financial Corporation Limited (f/k/a Household Financial Corporation Limited)............................ Canada HSBC Retail Services Limited (f/k/a Household Financial Corporation Inc.)......................................... Canada ICOM Limited................................................ Bermuda Invis Inc. ................................................. Canada Night Watch FSC, Ltd. ...................................... Bermuda Sterling Credit Limited..................................... England Sterling Credit Management Limited.......................... England Sterling Mortgages Limited.................................. England EXHIBIT 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of HSBC Finance Corporation: We consent to the incorporation of our report dated March 2, 2007, included in this Annual Report on Form 10-K of HSBC Finance Corporation (the Company) as of December 31, 2006 and 2005 and for each of the years in the three-year period ended December 31, 2006, into the Company's previously filed Registration Statements No. 2-86383, No. 33-21343, No. 33-45454, No. 33-45455, No. 33-52211, No. 33-58727, No. 333-00397, No. 333-03673, No. 333-36589, No. 333-39639, No. 333-47073, No. 333-58291, No. 333-58289, No. 333-58287, No. 333-30600, No. 333-50000, No. 333-70794, No. 333-71198, No. 333-83474 and No. 333-99107 on Form S-8 and Registration Statements No. 33-55043, No. 33-55561, No. 33-64175, No. 333-02161, No. 333-14459, No. 333-47945, No. 333-59453, No. 333-60543, No. 333-72453, No. 333-82119, No. 333-33240, No. 333-45740, No. 333-56152, No. 333-61964, No. 333-73746, No. 333-75328, No. 333-85886, No. 333-111413, No. 33-44066, No. 33-57249, No. 333-01025, No. 333-27305, No. 333-33052, No. 333-53862, No. 333-60510, No. 333-100737, No. 333-120494, No. 333-120495, No. 333-120496 , No. 333-130580 and No. 333-128369 on Form S-3. /s/ KPMG LLP Chicago, Illinois March 2, 2007 EXHIBIT 31 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Brendan P. McDonagh, Chief Executive Officer of HSBC Finance Corporation, certify that: 1. I have reviewed this annual report on Form 10-K of HSBC Finance Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 5, 2007 /s/ BRENDAN P. MCDONAGH -------------------------------------- Brendan P. McDonagh Chief Executive Officer EXHIBIT 31 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Beverley A. Sibblies, Senior Vice President and Chief Financial Officer of HSBC Finance Corporation, certify that: 1. I have reviewed this annual report on Form 10-K of HSBC Finance Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 5, 2007 /s/ BEVERLEY A. SIBBLIES -------------------------------------- Beverley A. Sibblies Senior Executive Vice President and Chief Financial Officer EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The certification set forth below is being submitted in connection with the HSBC Finance Corporation (the "Company") Annual Report on Form 10-K for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code. I, Brendan P. McDonagh, Chief Executive Officer of the Company, certify that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of HSBC Finance Corporation. March 5, 2007 /s/ BRENDAN P. MCDONAGH -------------------------------------- Brendan P. McDonagh Chief Executive Officer This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by HSBC Finance Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Signed originals of these written statements required by Section 906 of the Sarbanes-Oxley Act of 2002 have been provided to HSBC Finance Corporation and will be retained by HSBC Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The certification set forth below is being submitted in connection with the HSBC Finance Corporation (the "Company") Annual Report on Form 10-K for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code. I, Beverley A. Sibblies, Senior Vice President and Chief Financial Officer of the Company, certify that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of HSBC Finance Corporation. March 5, 2007 /s/ BEVERLEY A. SIBBLIES -------------------------------------- Beverley A. Sibblies Senior Vice President and Chief Financial Officer This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by HSBC Finance Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Signed originals of these written statements required by Section 906 of the Sarbanes-Oxley Act of 2002 have been provided to HSBC Finance Corporation and will be retained by HSBC Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EXHIBIT 99.1 HSBC FINANCE CORPORATION AND SUBSIDIARIES DEBT AND PREFERRED STOCK SECURITIES RATINGS STANDARD & MOODY'S DOMINION POOR'S INVESTORS BOARD RATING CORPORATION SERVICE FITCH, INC. SERVICE ------------------------------------------------------------------------------------------------------ AS OF MARCH 5, 2007 HSBC Finance Corporation Senior debt................................... AA- Aa3 AA- AA (low) Senior subordinated debt...................... A+ A2 A+ * Commercial paper.............................. A-1+ P-1 F-1+ R-1 (middle) Series B preferred stock...................... A-2 A2 A+ * HFC Bank Limited Senior debt................................... AA- Aa3 AA- * Commercial paper.............................. A-1+ P-1 F-1+ * HSBC Financial Corporation Limited Senior notes and term loans................... * * * AA (low) Commercial paper.............................. * * * R-1 (middle) --------------- * Not rated by this agency. EXHIBIT 99.2 EXPLANATION OF DIFFERENCES BETWEEN U.K. GAAP AND IFRSS,-- AN EXCERPT FROM FOOTNOTE 46, "TRANSITION TO IFRSS," CONTAINED IN HSBC HOLDINGS ANNUAL REPORT ON FORM 20-F FOR THE YEAR ENDED DECEMBER 31, 2005. DERIVATIVES AND HEDGE ACCOUNTING Under UK GAAP derivatives were classified as trading or non-trading. Trading derivatives were reported at market value in the balance sheet, with movements in market value recognised immediately in the income statement. Non-trading derivatives, which were transacted for hedging and risk management purposes, were accounted for on an accruals basis, equivalent to the assets, liabilities or net positions being hedged. IAS 39 requires that all derivatives be recognised at fair value in the balance sheet as assets or liabilities. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and its resulting designation, as described in Note 2(k). INVESTMENT SECURITIES Debt securities and equity shares intended to be held on a continuing basis under UK GAAP were disclosed as investment securities and included in the balance sheet at cost less provision for any permanent diminution in value. Other debt securities and equity shares held for trading purposes were included in the balance sheet at market value. Under IAS 39, all investment securities (debt securities and equity shares) are classified and disclosed within one of the following three categories: 'held-to-maturity'; 'available-for-sale'; or 'at fair value through profit or loss'. FAIR VALUE OPTION Under IAS 39, financial assets and financial liabilities may be designated at fair value if they meet the criteria set out in the 'Amendment to IAS 39 Financial Instruments; Recognition and Measurement; The Fair Value Option' ('the Amendment'). HSBC has designated at fair value at 1 January 2005 certain loans and advances to customers, financial investments, and some own debt issued which satisfied the criteria in the Amendment. FEE INCOME Fee income was previously accounted for in the period when receivable, except when charged to cover the costs of a continuing service to, or risk borne for, the customer, or was interest in nature. In these cases, income was recognised on an appropriate basis over the relevant period. Under IFRSs, the main change in accounting relates to loan fee income and incremental directly attributable loan origination costs, which are amortised to the income statement over the expected life of the loan as part of the effective interest calculation. NON-EQUITY MINORITY INTEREST RECLASSIFICATION Preference shares issued by subsidiaries were previously classified in the balance sheet as non-equity minority interests with preference share dividends recorded as non-equity minority interests in the income statement. Under IAS 32, preference shares are generally classified in the balance sheet as liabilities. LOAN IMPAIRMENT Under HSBC's UK GAAP accounting policies, loans in the consumer finance business were written off to the income statement in accordance with a predetermined overdue status. Under IAS 39, impairment losses are recognised when an entity has objective evidence that an advance is impaired. Impairment under IAS 39 is calculated on a discounted future cash flow basis and does not result in an impaired loan being fully written off until it is considered that cash flows will no longer be received. INSURANCE Under UK GAAP, a value was placed on HSBC's interest in long-term assurance business, including a valuation of the discounted future earnings expected to emerge from business currently in force. From 1 January 2005, only long-term contracts meeting the definition of an insurance contract under IFRS 4 continue to be accounted for in this way. Long-term contracts not transferring significant insurance risk, referred to as investment contracts, are accounted for as financial instruments. Accordingly, it is no longer possible to include for such contracts an asset representing the value of the discounted future earnings expected to emerge from business currently in force, lending to a reduction in equity of US$192 million. Income on such contracts will be recognised in later periods, as investment management fees and incremental directly attributable costs are spread over the period in which the services are provided. OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Under UK GAAP the netting of asset and liability balances in the balance sheet is only allowed when there is the ability to insist on net settlement. Under IAS 32 the offsetting of financial assets and financial liabilities is only allowed when there is a legally enforceable right to offset and the intention to settle net. The change from an ability to insist on net settlement to an intention to settle on a net basis is not in line with market practice in a number of areas. Acceptances were accounted for on a net basis under UK GAAP. There was no grossing up of the amount to be paid and the amount receivable from the originator, and thus no balance appeared on the balance sheet for these products. Under IAS 39 it is necessary to recognise a liability for acceptances from the date of acceptance. A corresponding asset due from the originator is also recognised. This information is provided by RNS The company news service from the London Stock Exchange

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