HSBC Finance Corporation 2012 Form 10-K - Part 2

RNS Number : 1107Z

HSBC Holdings PLC

04 March 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note		Page	Note		Page
1	Organization		13	Income Taxes
2	Summary of Significant Accounting Policies and New Accounting Pronouncements		14	Redeemable Preferred Stock
3	Discontinued Operations		15	Accumulated Other Comprehensive Income
4	Securities		16	Share-based Plans
5	Receivables		17	Pension and Other Postretirement Benefits
6	Credit Loss Reserves		18	Related Party Transactions
7	Receivables Held for Sale		19	Business Segments
8	Properties and Equipment, Net		20	Variable Interest Entities
9	Commercial Paper		21	Fair Value Measurements
10	Long-Term Debt		22	Commitments and Contingent Liabilities
11	Fair Value Option		23	Litigation and Regulatory Matters
12	Derivative Financial Instruments		24	Concentration of Credit Risk

1. Organization

HSBC Finance Corporation is an indirect wholly owned subsidiary of HSBC North America Holdings Inc. ("HSBC North America"), which is an indirect wholly-owned subsidiary of HSBC Holdings plc ("HSBC"). HSBC Finance Corporation and its subsidiaries may also be referred to in these notes to the consolidated financial statements as "we," "us" or "our." Historically, HSBC Finance Corporation provided middle-market consumers with several types of loan products in the United States. Our lending products have historically included real estate secured, auto finance, personal non-credit card, MasterCard, Visa, American Express and Discover credit card receivables as well as private label receivables in the United States, the United Kingdom and Canada. We have also historically offered tax refund anticipation loans and related products in the United States. Additionally, we also previously offered credit and specialty insurance in the United Kingdom. We currently offer specialty insurance products in the United States and Canada, however, we are in the process of selling our Insurance business to a third-party. We have one reportable segment: Consumer, which consists of our run-off Consumer Lending and Mortgage Services businesses.

2. Summary of Significant Accounting Policies and New Accounting Pronouncements

Summary Significant Accounting Policies

Basis of Presentation The consolidated financial statements have been prepared on the basis that we will continue as a going concern. Such assertion contemplates the significant losses recognized in recent years and the challenges we anticipate with respect to a near-term return to profitability under prevailing and forecasted economic conditions. HSBC continues to be fully committed and has the capacity to continue to provide the necessary capital and liquidity to fund continuing operations.

The consolidated financial statements include the accounts of HSBC Finance Corporation and all subsidiaries including all variable interest entities ("VIEs") in which we are the primary beneficiary. HSBC Finance Corporation and its subsidiaries may also be referred to in these notes to the consolidated financial statements as "we," "us," or "our." All significant intercompany accounts and transactions have been eliminated.

We assess whether an entity is a VIE and, if so, whether we are its primary beneficiary at the time of initial involvement with the entity and on an ongoing basis. A VIE is an entity in which the equity investment at risk is not sufficient to finance the entity's activities, the equity investors lack certain characteristics of a controlling financial interest, or voting rights are not proportionate to the economic interests of equity investors and the entity's activities are conducted primarily on behalf of investors having few voting rights. A VIE must be consolidated by its primary beneficiary, which is the entity with the power to direct the activities of a VIE that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. We are involved with VIEs primarily in connection with our collateralized funding transactions. See Note 10, "Long-Term Debt," for additional discussion of those activities and the use of VIEs.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain reclassifications may be made to prior year amounts to conform to the current year presentation. Areas which we consider to be critical accounting estimates and require a high degree of judgment and complexity include credit loss reserves, valuation of financial instruments including receivables held for sale, deferred tax asset valuation allowance and contingent liabilities.

Unless otherwise indicated, information included in these notes to consolidated financial statements relates to continuing operations for all periods presented. In 2012, we completed the sale of our credit card operations to Capital One Financial Corporation and announced our decision to exit the manufacturing of all insurance products through the sale of our interest in substantially all of the subsidiaries of our Insurance business. Also in 2012, starting in the second quarter, we reported our Commercial business in discontinued operations because it no longer had any outstanding receivable balances and does not generate any remaining significant cash flows. In 2010, we completed the sale of our auto finance receivable servicing operations and auto finance receivables portfolio to Santander Consumer USA and we exited the Taxpayer Financial Services business. As a result, each of these businesses are reported as discontinued operations. See Note 3, "Discontinued Operations," for further details.

Securities Purchased under Agreements to Resell Securities purchased under agreements to resell are treated as collateralized financing transactions and are carried at the amounts at which the securities were acquired plus accrued interest. Interest income earned on these securities is included in net interest income.

Securities We maintain investment portfolios of debt securities (comprising primarily corporate debt securities) in both our non-insurance and insurance operations. Our entire non-insurance investment securities portfolio is classified as available-for-sale. Our entire insurance investment securities portfolio is reported in discontinued operations and included in the Insurance disposal group held for sale. See Note 3, "Discontinued Operations," for additional discussion.

Available-for-sale investment securities are intended to be invested for an indefinite period but may be sold in response to events we expect to occur in the foreseeable future. These investments are carried at fair value with changes in fair value recorded as adjustments to common shareholder's equity in other comprehensive income (loss), net of income taxes.

When the fair value of a security has declined below its amortized cost basis, we evaluate the decline to assess whether it is other-than-temporary. For debt securities that we intend to sell or for which it is more likely than not that we will be required to sell before recovering its amortized cost basis, the decline in fair value below the security's amortized cost is deemed to be other than temporary and we recognize an other-than-temporary impairment loss in earnings equal to the difference between the security's amortized cost and its fair value. We measure the impairment loss for equity securities that are deemed other-than-temporarily impaired in the same manner. For a debt security that we do not intend to sell and for which it is not more likely than not that we will be required to sell prior to recovery of its amortized cost basis, but for which we nonetheless do not expect to recover the entire amortized cost basis of the security, we recognize the portion of the decline in the security's fair value below its amortized cost that represents a credit loss as an other-than-temporary impairment in earnings and the remaining portion of the decline as an other-than-temporary impairment in other comprehensive income. For these debt securities, a new cost basis is established, which reflects the amount of the other-than-temporary impairment loss recognized in earnings.

Cost of investment securities sold is determined using the specific identification method. Realized gains and losses from the investment portfolio are recorded in investment income. Interest income earned on the non-insurance investment portfolio is classified in the consolidated statement of income (loss) in net interest income, while investment income from the insurance portfolio is reflected in discontinued operations. Accrued investment income is classified with investment securities.

For cash flow presentation purposes, we consider available-for-sale securities with original maturities less than 90 days as short term, and thus purchases, sales and maturities are presented on a net basis.

Receivables Held for Sale Receivables are classified as held for sale when management does not have the intent or the ability to hold the receivables for the foreseeable future or until maturity or payoff. Such receivables are carried at the lower of cost or fair value with any subsequent write downs or recoveries charged to other income. While receivables are held for sale, the carrying amounts of any unearned income, unamortized deferred fees or costs (on originated receivables), or discounts and premiums (on purchased receivables) are not amortized into earnings.

Receivables Finance receivables are carried at amortized cost, which represents the principal amount outstanding, net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, purchase accounting fair value adjustments and premiums or discounts on purchased loans. Finance receivables are further reduced by credit loss reserves and unearned credit insurance premiums and claims reserves applicable to credit risk on our consumer receivables. Finance income, which includes interest income, unamortized deferred fees and costs on originated receivables and premiums or discounts on purchased receivables, is recognized using the effective yield method. Premiums and discounts, including purchase accounting adjustments on receivables, are recognized as adjustments to the yield of the related receivables. Origination fees, which include points on real estate secured loans, are deferred and generally amortized to finance income over the estimated life of the related receivables, except to the extent they offset directly related lending costs.

Provision and Credit Loss Reserves Provision for credit losses on receivables is made in an amount sufficient to maintain credit loss reserves at a level considered adequate, but not excessive, to cover probable incurred losses of principal, accrued interest and fees, and, as it relates to loans which have been identified as troubled debt restructurings, credit loss reserves are based on the present value of expected future cash flows discounted at the loans' original effective interest rates. We estimate probable incurred losses for consumer receivables other than troubled debt restructuring using a roll rate migration analysis that estimates the likelihood that a loan will progress through the various stages of delinquency and ultimately charge-off. This analysis considers delinquency status, loss experience and severity and takes into account whether loans are in bankruptcy or have been subject to customer account management actions, such as the re-age of accounts or modification arrangements. Our credit loss reserves also take into consideration the loss severity expected based on the underlying collateral, if any, for the loan in the event of default based on historical and recent trends, which are updated monthly based on a rolling average of several months' data using the most recently available information. When customer account management policies and practices, or changes thereto, shift loans from a "higher" delinquency bucket to a "lower" delinquency bucket, this will be reflected in our roll rate statistics. To the extent that restructured accounts have a greater propensity to roll to higher delinquency buckets, this will be captured in the roll rates. Since the loss reserve is computed based on the composite of all these calculations, this increase in roll rate will be applied to receivables in all respective buckets, which will increase the overall reserve level. In addition, loss reserves on consumer receivables are maintained to reflect our judgment of portfolio risk factors which may not be fully reflected in the statistical roll rate calculation. Risk factors considered in establishing loss reserves on consumer receivables include product mix, bankruptcy trends, the credit performance of modified loans, geographic concentrations, loan product features such as adjustable rate loans, economic conditions such as national and local trends in unemployment, housing markets and interest rates, portfolio seasoning, account management policies and practices, current levels of charge-offs and delinquencies, changes in laws and regulations and other factors which can affect consumer payment patterns on outstanding receivables such as natural disasters and global pandemics.

While our credit loss reserves are available to absorb losses in the entire portfolio, we specifically consider the credit quality and other risk factors for each of our products. We recognize the inherent loss characteristics in each of our products, and for certain products their vintages, as well as customer account management policies and practices and risk management/collection practices. Charge-off policies are also considered when establishing loss reserve requirements. We also consider key ratios such as reserves to nonperforming loans, reserves as a percentage of net charge-offs and reserves as a percentage of two-months-and-over contractual delinquency in developing our loss reserve estimate. Loss reserve estimates are reviewed periodically and adjustments are reported in earnings when they become known. As these estimates are influenced by factors outside our control, such as consumer payment patterns and economic conditions, there is uncertainty inherent in these estimates, making it reasonably possible that they could change.

Provisions for credit losses on consumer loans for which we have modified the terms as part of a troubled debt restructuring ("TDR Loans") are determined using a discounted cash flow impairment methodology. During the third quarter of 2011, we adopted FASB's Accounting Standards Update No. 2011-02, "Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring," which provided additional guidance for determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring for purposes of the identification and reporting of TDR Loans as well as for recording impairment. Under this new guidance, we have determined that substantially all receivables modified as a result of a financial difficulty, regardless of whether the modification was permanent or temporary, including all modifications with trial periods, should be reported as TDR Loans. Additionally, we have determined that all re-ages, except first time early stage delinquency re-ages where the customer has not been granted a prior re-age or modification, should be considered TDR Loans. Prior to 2011, loans which have been granted a permanent modification, a twelve-month or longer modification, or two or more consecutive six-month modifications were considered TDR Loans, and loans which were granted re-ages were not considered TDR Loans as these were not considered permanent modification events. Modifications may include changes to one or more terms of the loan, including but not limited to, a change in interest rate, an extension of the amortization period, a reduction in payment amount and partial forgiveness or deferment of principal or accrued interest. As a result of recently issued regulatory guidance, beginning in the fourth quarter of 2012 TDR Loans also include receivables discharged under Chapter 7 bankruptcy and not re-affirmed.

TDR Loans are considered to be impaired loans. Interest income on TDR Loans is recognized in the same manner as loans which are not TDRs. Once a loan is classified as a TDR, it continues to be reported as such until it is paid off or charged-off.

Charge-Off and Nonaccrual Policies and Practices Our consumer charge-off and nonaccrual policies vary by product and are summarized below:

Product	Charge-off Policies and Practices	Nonaccrual Policies and Practices
Continuing Operations:
Real estate secured	Carrying amounts in excess of fair value less cost to sell are generally charged-off at or before the time foreclosure is completed or settlement is reached with the borrower but, in any event, generally no later than the end of the month in which the account becomes six months contractually delinquent. If foreclosure is not pursued (which frequently occurs on second lien loans) and there is no reasonable expectation for recovery (insurance claim, title claim, pre-discharge bankrupt account), the account is generally charged-off no later than the end of the month in which the account becomes six months contractually delinquent.(1)	Interest income accruals are suspended when principal or interest payments are more than three months contractually past due. Interest accruals are resumed and suspended interest recognized when the customer makes the equivalent of six qualifying payments⁽³⁾ under the terms of the loan, while maintaining a current payment status when we receive the sixth payment. If the re-aged receivable again becomes more than three months contractually delinquent, any interest accrued beyond three months delinquency is reversed.
Personal non-credit card	Accounts are generally charged-off by the end of the month in which the account becomes six months contractually delinquent.	Interest income accruals are suspended when principal or interest payments are more than three months contractually past due. Interest subsequently received is generally recorded as collected and accruals are not resumed upon a re-age when the receivable becomes less than three months contractually delinquent.
Discontinued Operations:
Auto finance⁽²⁾	Carrying amounts in excess of fair value less costs to sell are charged off at the earlier of the following: • the collateral has been repossessed and sold, • the collateral has been in our possession for more than 30 days, or • the loan becomes 120 days contractually delinquent.	Interest income accruals are suspended and the portion of previously accrued interest expected to be uncollectible is written off when principal payments are more than two months contractually past due and resumed when the receivable becomes less than two months contractually past due.
Credit card⁽²⁾	Generally charged-off by the end of the month in which the account becomes six months contractually delinquent.	Interest generally accrues until charge-off.

⁽¹⁾Values are determined based upon broker price opinions or appraisals, which are updated at least every 180 days. During the quarterly period between updates, real estate price trends are reviewed on a geographic basis and additional reductions in value are recorded as necessary.

Fair values of foreclosed properties at the time of acquisition are initially determined based upon broker price opinions. Subsequent to acquisition, a more detailed property valuation is performed, reflecting information obtained from a walk-through of the property in the form of a listing agent broker price opinion as well as an independent broker price opinion or appraisal. A valuation is determined from this information within 90 days and any additional write-downs required are recorded through charge-off at that time.

In determining the appropriate amounts to charge-off when a property is acquired in exchange for a loan, we do not consider losses on sales of foreclosed properties resulting from deterioration in value during the period the collateral is held because these losses result from future loss events which cannot be considered in determining the fair value of the collateral at the acquisition date.

⁽²⁾Our Credit Card business, which was sold in 2012, and our Auto Finance business, which was sold in 2010, are reported as discontinued operations. See Note 3, "Discontinued Operations," for additional information.

⁽³⁾Our real estate secured receivables are currently maintained on two mortgage loan servicing platforms. One platform (representing approximately two-thirds of our outstanding real estate secured receivables) establishes a qualifying payment as a payment that is within $10 of the required payment. The other platform (representing approximately one-third of our outstanding real estate secured receivables) establishes a qualifying payment as a payment that, on a life-to-date basis, leaves the total less than 50 percent of one required payment unpaid.

Historically, charge-offs involving a bankruptcy for our credit card receivables occurred by the end of the month at the earlier of 60 days after notification or 180 days delinquent. For auto finance receivables, bankrupt accounts were charged off at the earlier of (i) 60 days past due and 60 days after notification, or (ii) the end of the month in which the account became 120 days contractually delinquent.

Delinquency status for loans is determined using the contractual method which is based on the status of payments under the loan. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status may be affected by customer account management policies and practices such as the re-age or modification of accounts.

Payments received on nonaccrual loans are generally applied first to reduce the current interest on the earliest payment due with any remainder applied to reduce the principal balance associated with that payment due.

Transfers of Financial Assets and Securitizations Transfers of financial assets in which we have surrendered control over the transferred assets are accounted for as sales. In assessing whether control has been surrendered, we consider whether the transferee would be a consolidated affiliate, the existence and extent of any continuing involvement in the transferred financial assets and the impact of all arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were not entered into at the time of transfer. Control is generally considered to have been surrendered when (i) the transferred assets have been legally isolated from us and our consolidated affiliates, even in bankruptcy or other receivership, (ii) the transferee (or, if the transferee is an entity whose sole purpose is to engage in securitization or asset-backed financing that is constrained from pledging or exchanging the assets it receives, each third-party holder of its beneficial interests) has the right to pledge or exchange the assets (or beneficial interests) it received without any constraints that provide more than a trivial benefit to us, and (iii) neither we nor our consolidated affiliates and agents have (a) both the right and obligation under any agreement to repurchase or redeem the transferred assets before their maturity, (b) the unilateral ability to cause the holder to return specific financial assets that also provides us with a more-than-trivial benefit (other than through a cleanup call) and (c) an agreement that permits the transferee to require us to repurchase the transferred assets at a price so favorable that it is probable that it will require us to repurchase them.

If the sale criteria are met, the transferred financial assets are removed from our balance sheet and a gain or loss on sale is recognized. If the sale criteria are not met, the transfer is recorded as a secured borrowing in which the assets remain on our balance sheet and the proceeds from the transaction are recognized as a liability (a "secured financing"). For the majority of financial asset transfers, it is clear whether or not we have surrendered control. For other transfers, such as in connection with complex transactions or where we have continuing involvement such as servicing responsibilities, we generally obtain a legal opinion as to whether the transfer results in a true sale by law.

We have used collateral funding transactions for certain real estate secured and personal non-credit card receivables where it provides an attractive source of funding. All collateralized funding transactions remaining on our balance sheet have been structured as secured financings.

Properties and Equipment, Net Properties and equipment are recorded at cost, net of accumulated depreciation and amortization. For financial reporting purposes, depreciation is provided on a straight-line basis over the estimated useful lives of the assets which generally range from 3 to 40 years. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the lease. The costs of maintenance and repairs are expensed as incurred. Impairment testing is performed whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Repossessed Collateral Collateral acquired in satisfaction of a loan is reported as real estate owned, initially at the lower of the amortized cost of the loan or the collateral's fair value less estimated costs to sell. Once a property is classified as real estate owned, we do not consider the losses on past sales of foreclosed properties when determining the fair value of any collateral during the period it is held as real estate owned. Any subsequent declines in fair value less estimated costs to sell are recorded through a valuation allowance. Recoveries in fair value less estimated costs to sell are recognized as a reduction of the valuation allowance but not in excess of cumulative losses previously recognized subsequent to the date of repossession. Adjustments to the valuation allowance, costs of holding repossessed collateral, and any gain or loss on disposition are credited or charged to operating expense.

Derivative Financial Instruments All derivatives are recognized on the balance sheet at their fair values. At the inception of a hedging relationship, we designate the derivative as a fair value hedge or a cash flow hedge. A fair value hedge offsets changes in the fair value of a recognized asset or liability, including certain foreign currency positions. A cash flow hedge offsets the variability of cash flows to be received or paid related to a recognized asset or liability, including those related to certain foreign currency positions. A derivative that does not qualify for or is not designated in a hedging relationship is accounted for as a non-hedging derivative.

Changes in the fair value of a derivative designated as a fair value hedge, along with the changes in fair value of the hedged asset or liability that is attributable to the hedged risk (including changes in fair value on firm commitments), are recorded as derivative related income (expense) in the current period. Changes in the fair value of a derivative designated as a cash flow hedge, to the extent effective as a hedge, are recorded in accumulated other comprehensive income (loss), net of income taxes, and reclassified into net interest margin in the period during which the hedged item affects earnings. Changes in the fair value of derivative instruments not designated as hedging instruments and ineffective portions of changes in the fair value of hedging instruments are recognized in other revenue as derivative related income (expense) in current period earnings. Realized gains and losses as well as changes in the fair value of derivative instruments associated with fixed rate debt we have designated at fair value are recognized in other revenues as gain (loss) on debt designated at fair value and related derivatives in the current period.

For derivative instruments designated as hedges, we formally document all relationships between hedging instruments and hedged items at the inception of the hedging relationship. This documentation includes our risk management objective and strategy for undertaking various hedge transactions, as well as how hedge effectiveness and ineffectiveness will be measured. This process includes linking derivatives to specific assets and liabilities on the balance sheet. We also formally assess, both at the hedge's inception and on a quarterly basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. This assessment is conducted using statistical regression analysis. When as a result of the quarterly assessment, it is determined that a derivative is not expected to continue to be highly effective as a hedge or has ceased to be a highly effective hedge, we discontinue hedge accounting as of the beginning of the quarter in which such determination was made.

When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective hedge, the derivative will continue to be carried on the balance sheet at its fair value, with changes in its fair value recognized in current period earnings. For fair value hedges, the formerly hedged asset or liability will no longer be adjusted for changes in fair value and any previously recorded adjustments to the carrying amount of the hedged asset or liability will be amortized in the same manner that the hedged item affects income. For cash flow hedges, amounts previously recorded in accumulated other comprehensive income (loss) will be reclassified into income in the same manner that the hedged item affects income.

If the hedging instrument is terminated early, the derivative is removed from the balance sheet. Accounting for the adjustments to the hedged asset or liability or adjustments to accumulated other comprehensive income (loss) are the same as described above when a derivative no longer qualifies as an effective hedge.

If the hedged asset or liability is sold or extinguished, the derivative will continue to be carried on the balance sheet until termination at its fair value, with changes in its fair value recognized in current period earnings. The hedged item, including previously recorded mark-to-market adjustments, is derecognized immediately as a component of the gain or loss upon disposition.

Foreign Currency Translation Effects of foreign currency translation in the statements of cash flows, primarily a result of the specialty insurance products we offer in Canada, are offset against the cumulative foreign currency adjustment within accumulated other comprehensive income. Foreign currency transaction gains and losses are included in income as they occur.

Share-Based Compensation We use the fair value based method of accounting for awards of HSBC stock granted to employees under various stock options, restricted share and employee stock purchase plans. Stock compensation costs are recognized prospectively for all new awards granted under these plans. Compensation expense relating to restricted stock rights ("RSRs") is based upon the RSR's fair value on the date of grant and is charged to earnings over their requisite service period (e.g., vesting period). Compensation expense relating to share options is calculated using a methodology that is based on the underlying assumptions of the Black-Scholes option pricing model and is charged to expense over the requisite service period (e.g., vesting period), generally one to five years. When modeling awards with vesting that is dependent on performance targets, these performance targets are incorporated into the model using Monte Carlo simulation. The expected life of these awards depends on the behavior of the award holders, which is incorporated into the model consistent with historical observable data.

Pension and Other Postretirement Benefits We recognize the funded status of our postretirement benefit plans on the consolidated balance sheet. Net postretirement benefit cost charged to current earnings related to these plans is based on various actuarial assumptions regarding expected future experience.

Certain of our employees are participants in various defined contribution and other non-qualified supplemental retirement plans. Our contributions to these plans are charged to current earnings.

We maintain various 401(k) plans covering substantially all employees. Employer contributions to the plan, which are charged to current earnings, are based on employee contributions.

Income Taxes HSBC Finance Corporation is included in HSBC North America's consolidated federal income tax return and in various combined state income tax returns. As such, we have entered into a tax allocation agreement with HSBC North America and its subsidiary entities ("the HNAH Group") included in the consolidated returns which governs the current amount of taxes to be paid or received by the various entities included in the consolidated return filings. Generally, such agreements allocate taxes to members of the HNAH Group based on the calculation of tax on a separate return basis, adjusted for the utilization or limitation of tax credits of the consolidated group. To the extent all the tax attributes available cannot be currently utilized by the consolidated group, the proportionate share of the utilized attribute is allocated based on each affiliate's percentage of the available attribute computed in a manner that is consistent with the taxing jurisdiction's laws and regulations regarding the ordering of utilization. In addition, we file some unconsolidated state tax returns.

We recognize deferred tax assets and liabilities for the future tax consequences related to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax credits and net operating and other losses. Deferred tax assets and liabilities are measured using the enacted tax rates including enacted rates for periods in which the deferred tax items are expected to be realized. If applicable, valuation allowances are recorded to reduce deferred tax assets to the amounts we conclude are more likely than not to be realized. Since we are included in HSBC North America's consolidated federal tax return and various combined state tax returns, the related evaluation of the recoverability of the deferred tax assets is performed at the HSBC North America legal entity level. We consider the HNAH Group's consolidated deferred tax assets and various sources of taxable income, including the impact of HSBC and HNAH Group tax planning strategies, in reaching conclusions on recoverability of deferred tax assets. The HNAH Group evaluates deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, tax planning strategies and any available carryback capacity. In evaluating the need for a valuation allowance, the HNAH Group estimates future taxable income based on management approved business plans, future capital requirements and ongoing tax planning strategies, including capital support from HSBC necessary as part of such plans and strategies. This process involves significant management judgment about assumptions that are subject to change from period to period. Only those tax planning strategies that are both prudent and feasible, and for which management has the ability and intent to implement, are incorporated into our analysis and assessment.

Where a valuation allowance is determined to be necessary at the HNAH consolidated level, such allowance is allocated to principal subsidiaries within the HNAH Group in a manner that is systematic, rational and consistent with the broad principles of accounting for income taxes. The methodology allocates the valuation allowance to the principal subsidiaries based primarily on the entity's relative contribution to the growth of the HNAH consolidated deferred tax asset against which the valuation allowance is being recorded.

Further evaluation is performed at the HSBC Finance Corporation legal entity level to evaluate the need for a valuation allowance where we file separate company state income tax returns. Investment tax credits generated by leveraged leases are accounted for using the deferral method. Changes in estimates of the basis in our assets and liabilities or other estimates recorded at the date of our acquisition by HSBC are recorded through earnings.

Transactions with Related Parties In the normal course of business, we enter into transactions with HSBC and its subsidiaries. These transactions occur at prevailing market rates and terms and include funding arrangements, derivative execution, purchases and sales of receivables, sales of businesses, servicing arrangements, information technology services, item processing and statement processing services, banking and other miscellaneous services, human resources, corporate affairs and other shared services in North America and beginning in 2010 also included tax, finance, compliance and legal.

New Accounting Pronouncements Adopted

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts In October 2010, the FASB issued a new Accounting Standards Update that amended the accounting rules that define which costs associated with acquiring or renewing insurance contracts qualify as deferrable acquisition costs by insurance entities. We adopted the new guidance effective January 1, 2012. The adoption of this guidance did not have a material impact on our financial position or results of operations.

Repurchase Agreements In April 2011, the FASB issued a new Accounting Standards Update related to repurchase agreements. The new guidance removed the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and the related collateral maintenance guidance from the assessment of effective control. As a result, an entity is no longer required to consider the sufficiency of the collateral exchanged but will evaluate the transferor's contractual rights and obligations to determine whether it maintains effective control over the transferred assets. The new guidance was required to be applied prospectively for all transactions that occurred on or after January 1, 2012. The adoption of this guidance did not have a material effect on our financial position or results of operations.

Fair Value Measurements and Disclosures In May 2011, the FASB issued an Accounting Standards Update to converge with newly issued IFRS 13, Fair Value Measurement. The new guidance clarifies that the application of the highest and best use and valuation premise concepts are not relevant when measuring the fair value of financial assets or liabilities. This Accounting Standards Update also requires new and enhanced disclosures on the quantification and valuation processes for significant unobservable inputs, transfers between Levels 1 and 2, and the categorization of all fair value measurements into the fair value hierarchy, even where those measurements are only for disclosure purposes. We adopted the new disclosure requirements effective January 1, 2012. See Note 21, "Fair Value Measurement," in these consolidated financial statements.

Presentation of Comprehensive Income In June 2011, the FASB issued a new Accounting Standards Update on the presentation of other comprehensive income. This Update requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity is eliminated. We adopted the new guidance effective January 1, 2012. See the Consolidated Statement of Comprehensive Income (Loss) and Note 15, "Accumulated Other Comprehensive Income," in these consolidated financial statements.

3. Discontinued Operations

2012 Discontinued Operations:

Insurance During the second quarter of 2012, we decided to exit the manufacturing of all insurance products through the sale of our interest in substantially all of our insurance subsidiaries as this business did not fit with HSBC's core strategy in the United States and Canada. Insurance products will continue to be offered to HSBC customers through non-affiliate providers. As a result, our Insurance operations are part of a disposal group held for sale and we began reporting this business as discontinued operations in the second quarter of 2012. In September 2012, we announced we have entered into an agreement to sell our Insurance operations to Enstar Group Ltd ("Enstar") for $181 million in cash, to be adjusted to reflect the actuarial value and capital of these operations at the date of closing, which is anticipated to be by the end of the first quarter of 2013, subject to regulatory approval. Since the carrying value of the disposal group was greater than its estimated fair value less costs to sell, during 2012 we recorded a pre-tax lower of amortized cost or fair value less cost to sell adjustment of $119 million ($90 million after-tax) which takes into consideration foreign currency translation adjustments and unrealized gains on available-for-sale securities associated with the disposal group that are reflected in accumulated other comprehensive income. At December 31, 2012, disposal group assets consisted primarily of available-for-sale securities totaling $1.4 billion and disposal group liabilities consisted primarily of insurance policy and claim reserves totaling $988 million.

The following summarizes the operating results of our discontinued Insurance business for the periods presented:

Year Ended December 31,	2012			2011		2010
	(in millions)
Net interest income and other revenues(1)(2)	$	167		$	362	$	373
(Loss) income from discontinued operations before income tax⁽²⁾	(162		)	17		15

⁽¹⁾Interest expense, which is included as a component of net interest income, was allocated to discontinued operations in accordance with our existing internal transfer pricing policy. This policy uses match funding based on the expected lives of the assets and liabilities of the business at the time of origination, subject to periodic review, as demonstrated by the expected cash flows and re-pricing characteristics of the underlying assets.

⁽²⁾For the year ended December 31, 2012 amounts include the lower of amortized cost or fair value adjustment of $119 million as discussed above which was reported as a component of other revenues as well as the impact of ceasing the issuance of new term life insurance in the United States effective January 2012.

The following summarizes the assets and liabilities which are part of the disposal group held for sale related to our Insurance operations at December 31, 2012 and 2011 which are reported as a component of Assets of discontinued operations and Liabilities of discontinued operations in our consolidated balance sheet.

At December 31,	2012		2011
	(in millions)
Cash	$	2	$	5
Interest bearing deposits with banks	29		3
Available-for-sale securities	1,411		1,851
Other assets	226		143
Assets of discontinued operations	$	1,668	$	2,002
Insurance policy and claim reserves	$	988	$	1,049
Other liabilities	224		43
Liabilities of discontinued operations	$	1,212	$	1,092

Commercial Our Commercial business has been in run-off since 1994. Prior to the second quarter of 2012, this business continued to be reported within continuing operations as we continued to generate cash flow from the ongoing collection of the receivables, including interest and fees. Beginning in the second quarter of 2012, we now report our Commercial business in discontinued operations as there are no longer any outstanding receivable balances or any remaining significant cash flows generated from this business. Our Commercial business was previously included in the "All Other" caption in our segment reporting. The following summarizes the operating results of our discontinued Commercial business for the periods presented:

Year Ended December 31,	2012		2011		2010
	(in millions)
Net interest income and other revenues(1)	$	23	$	10	$	85
Income from discontinued operations before income tax	20		6		84

2011 Discontinued Operations:

Card and Retail Services On May 1, 2012, HSBC, through its wholly-owned subsidiaries HSBC Finance Corporation, HSBC USA Inc and other wholly-owned affiliates, sold its Card and Retail Services business to Capital One Financial Corporation ("Capital One") for a premium of 8.75 percent of receivables. In addition to receivables, the sale included real estate and certain other assets and liabilities which were sold at book value or, in the case of real estate, appraised value. Under the terms of the agreement, interests in facilities in Chesapeake, Virginia; Las Vegas, Nevada; Mettawa, Illinois; Volo, Illinois; Hanover, Maryland; Salinas, California; Sioux Falls, South Dakota and Tigard, Oregon were sold or transferred to Capital One, although we have entered into site-sharing arrangements for certain of these locations for a period of time. The total cash consideration was $11.8 billion which resulted in a pre-tax gain of $2.2 billion ($1.4 billion after-tax) being recorded during the second quarter of 2012. The majority of the employees in our Card and Retail Services business transferred to Capital One. As such, no significant one-time closure or severance costs were incurred as a result of this transaction. Our Card and Retail Services business is reported in discontinued operations.

The following summarizes the operating results of our discontinued Card and Retail Services business for the periods presented:

Year Ended December 31,	2012		2011		2010
	(in millions)
Net interest income and other revenues(1)(2)	$	3,342	$	3,729	$	3,852
Income from discontinued operations before income tax⁽²⁾	2,649		1,364		997

⁽¹⁾ Interest expense, which is included as a component of net interest income, was allocated to discontinued operations in accordance with our existing internal transfer pricing policy. This policy uses match funding based on the expected lives of the assets and liabilities of the business at the time of origination, subject to periodic review, as demonstrated by the expected cash flows and re-pricing characteristics of the underlying assets.

⁽²⁾ For the year ended December 31, 2012, amounts include the gain on sale to Capital One of $2.2 billion.

The following summarizes the assets and liabilities of our discontinued Card and Retail Services business at December 31, 2012 and 2011 which are reported as a component of Assets of discontinued operations and Liabilities of discontinued operations in our consolidated balance sheet.

At December 31,	2012		2011
	(in millions)
Cash	$	197	$	96
Receivables	-		9,001
Intangible assets	-		514
Properties and equipment, net	-		95
Other assets	84		1,102
Assets of discontinued operations	$	281	$	10,808
Long-term debt	$	-	$	211
Other liabilities⁽¹⁾	283		1,257
Liabilities of discontinued operations	$	283	$	1,468

⁽¹⁾At December 31, 2012, other liabilities primarily consists of amounts due to Capital One for cash collections we have received on customer accounts while we continue to service these accounts on an interim basis and legal accruals. Other liabilities at December 31, 2012 also includes $59 million with respect to actions taken and to be taken in connection with an industry review of enhancement services products.

Intangible assets at December 31, 2011 included $29 million, net, that related to account relationships we purchased from HSBC Bank USA, N.A. ("HSBC Bank USA") in July 2004. All new receivable originations on these account relationships were sold on a daily basis to HSBC Bank USA and we serviced the receivables for a fee. In March 2012, we sold these account relationships to HSBC Bank USA resulting in a gain of $79 million being recorded during the first quarter of 2012 which is included as a component of income from discontinued operations. All remaining intangible assets related to cardholder relationships were sold to Capital One on May 1, 2012.

We had secured conduit credit facilities with commercial banks which provided for secured financings of credit card receivables on a revolving basis totaling $650 million at December 31, 2011. At December 31, 2011, secured financings with a balance of $195 million were secured by $355 million of credit card receivables. These secured financings were paid in full on April 30, 2012.

We previously entered into commitments to meet the financing needs of our credit card customers. At December 31, 2011, we had $105.0 billion of open consumer lines of credit. As a result of the sale of the Card and Retail Services business, the open line of credit commitments for our credit card customers were transferred to Capital One on May 1, 2012.

2010 Discontinued Operations:

Taxpayer Financial Services ("TFS") In December 2010, it was determined that we would not offer any tax refund anticipation loans or related products for the 2011 tax season and we exited the TFS business. As a result of this decision, our TFS business was reported in discontinued operations. The assets and liabilities of our TFS business as of December 31, 2012 and 2011 were not significant. The following summarizes the operating results of our TFS business for the periods presented:

Year Ended December 31,	2012		2011			2010
	(in millions)
Net interest income and other revenues(1)	$	-	$	2		$	68
Income (loss) from discontinued operations before income tax	-		(4		)	20

⁽¹⁾Interest expense, which is included as a component of net interest income, has been allocated to discontinued operations in accordance with our existing internal transfer pricing policy. This policy uses match funding based on the expected lives of the assets and liabilities of the business at the time of origination, subject to periodic review, as demonstrated by the expected cash flows and re-pricing characteristics of the underlying assets.

Auto Finance In March 2010, we sold our auto finance receivable servicing operations as well as a portion of our auto finance receivable portfolio to Santander Consumer USA Inc. ("SC USA") for $930 million in cash which resulted in a gain of $5 million ($3 million after-tax) during the first quarter of 2010. In August 2010, we sold the remainder of our auto finance receivable portfolio with an outstanding principal balance of $2.6 billion at the time of sale and other related assets to SC USA. The aggregate sales price for the auto finance receivables and other related assets was $2.5 billion which included the transfer of $431 million of indebtedness secured by auto finance receivables, resulting in net cash proceeds of $2.1 billion. We recorded a net loss as a result of this transaction of $43 million ($28 million after-tax) during the third quarter of 2010. This net loss is included as a component of loss from discontinued operations. Severance costs recorded as a result of this transaction were less than $1 million and are included as a component of loss from discontinued operations for the year ended December 31, 2010. As a result of this transaction, our Auto Finance business, previously included in our Consumer Segment, is reported as discontinued operations. The assets and liabilities of our Auto Finance business as of December 31, 2012 and 2011 were not significant. The following summarizes the operating results of our Auto Finance business for the periods presented:

Year Ended December 31,	2012		2011			2010
	(in millions)
Net interest income and other revenues(1)(2)	$	14	$	-		$	219
Income (loss) from discontinued operations before income tax⁽²⁾	14		(3		)	(46		)

⁽²⁾For the year ended December 31, 2012, amounts reflect the receipt of a state sales tax refund from the state of California related to accounts that were charged-off prior to the sale of the Auto Finance business.

4. Securities

Securities consisted of the following available-for-sale investments:

December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Continuing operations:
Money market funds	$	80	$	-	$	-	$	80
Securities available-for-sale - continuing operations	$	80	$	-	$	-	$	80
Securities available-for-sale - discontinued operations⁽¹⁾	$	1,231	$	180	$	-	$	1,411

December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in millions)
Continuing operations:
U.S. Treasury	$	80	$	-	$	-		$	80
U.S. government sponsored enterprises(2)	1		-		-			1
U.S. corporate debt securities(3)	57		1		(1		)	57
Foreign debt securities(4)	26		-		-			26
Equity securities	10		-		-			10
Money market funds	13		-		-			13
Subtotal	187		1		(1		)	187
Accrued investment income	1		-		-			1
Securities available-for-sale - continuing operations	$	188	$	1	$	(1	)	$	188
Securities available-for-sale - discontinued operations⁽¹⁾	$	1,694	$	165	$	(8	)	$	1,851

⁽¹⁾Securities available-for-sale in our discontinued operations relates to our discontinued Insurance business and primarily consists of U.S. corporate debt securities, money market funds and foreign debt securities at December 31, 2012 and 2011.

⁽²⁾Represents mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation as of December 31, 2011.

⁽³⁾The majority of our U.S. corporate debt securities represented investments in the financial services, consumer products and insurance sectors at December 31, 2011.

⁽⁴⁾We did not hold any foreign debt securities issued by the governments of Portugal, Ireland, Italy, Greece or Spain at December 31, 2011. We did not hold any foreign debt securities at December 31, 2012.

At December 31, 2012, we did not hold any available-for-sale securities from continuing operations with gross unrealized losses. The table below provides a summary of gross unrealized losses and related fair values as of December 31, 2011 for available-for-sale securities for continuing operations classified as to the length of time the losses have existed.

	Less Than One Year						Greater Than One Year
December 31, 2011	Number of Securities	Gross Unrealized Losses			Aggregate Fair Value of Investments		Number of Securities	Gross Unrealized Losses		Aggregate Fair Value of Investments
	(dollars are in millions)
U.S. corporate debt securities	17	$	(1	)	$	26	-	$	-	$	-
Foreign debt securities	10	-			15		-	-		-
Equity Securities	1	-			5		-	-		-
	28	$	(1	)	$	46	-	$	-	$	-

We review our securities whenever there is an unrealized loss in accordance with our accounting policies for other-than-temporary impairment ("OTTI"). As a result of this review, no OTTI was recorded during 2012. During 2011 and 2010, an OTTI of less than $1 million was recognized in earnings on certain debt securities. In addition, during 2010 we recognized a recovery in accumulated other comprehensive income relating to the non-credit component of OTTI previously recognized in accumulated other comprehensive income totaling $4 million.

As it relates to the securities of our discontinued operations, these securities are part of a disposal group that were classified as held for sale during the second quarter of 2012 and moved to assets of discontinued operations. See Note 2, "Discontinued Operations," for additional information.

On-Going Assessment for Other-Than-Temporary Impairment On a quarterly basis, we perform an assessment to determine whether there have been any events or economic circumstances to indicate that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. If impaired, we then assess whether the unrealized loss is other-than-temporary.

An unrealized loss is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss is recognized net of tax in other comprehensive income (loss) provided we do not intend to sell the underlying debt security and it is more-likely-than-not that we would not have to sell the debt security prior to recovery.

We consider the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

• The length of time and the extent to which the fair value has been less than the amortized cost basis;

• The level of credit enhancement provided by the structure which includes, but is not limited to, credit subordination positions, overcollateralization, protective triggers and financial guarantees provided by monoline wraps;

• Changes in the near term prospects of the issuer or underlying collateral of a security, such as changes in default rates, loss severities given default and significant changes in prepayment assumptions;

• The level of excess cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

• Any adverse change to the credit conditions of the issuer or the security such as credit downgrades by the rating agencies.

At December 31, 2011, approximately 90 percent of our corporate debt securities from our continuing operations were rated A- or better. During the third quarter of 2012, we sold all of our remaining corporate debt securities that were held as part of continuing operations.

If the fair value of a particular security is below its amortized cost for more than 12 months, it does not necessarily result in a credit loss and hence other-than-temporary impairment. The decline in fair value may be caused by, among other things, the illiquidity of the market. To the extent we do not intend to sell the debt security and it is more-likely-than-not we will not be required to sell the security before the recovery of the amortized cost basis, no other-than-temporary impairment is deemed to have occurred.

For available-for-sale securities in our discontinued operations, at December 31, 2012, approximately 86 percent of our corporate debt securities are rated A- or better and approximately 80 percent of our asset-backed securities, which totaled $14 million are rated AAA. At December 31, 2011, approximately 88 percent of our corporate debt securities for discontinued operations are rated A- or better and approximately 91 percent of our asset-backed securities for discontinued operations, which totaled $27 million are rated AAA. Other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

The following table summarizes gross realized gains and losses for continuing operations during 2012, 2011 or 2010:

Year Ended December 31,	2012		2011		2010
	(in millions)
Gross realized gains on available-for-sale securities	$	3	$	26	$	-
Gross realized losses on available-for-sale securities	-		11		-

5. Receivables

Receivables consisted of the following:

At December 31,	2012			2011
	(in millions)
Real estate secured:
First lien	$	29,301		$	38,235
Second lien	3,638			4,478
Total real estate secured	32,939			42,713
Personal non-credit card	-			5,196
Other	-			3
Total receivables	32,939			47,912
HSBC acquisition purchase accounting fair value adjustments	43			57
Accrued finance income	909			1,184
Credit loss reserve for owned receivables	(4,607		)	(5,952		)
Total receivables, net	$	29,284		$	43,201

The decrease in receivables since December 31, 2011 reflects, in part, the transfer of our entire portfolio of personal non-credit card receivables and a portion of our real estate secured receivables to receivables held for sale. See Note 7, "Receivables Held for Sale," for additional information.

HSBC acquisition purchase accounting fair value adjustments represent adjustments which have been "pushed down" to record our receivables at fair value at the date of acquisition by HSBC.

Net deferred origination fees totaled $221 million and $254 million at December 31, 2012 and 2011, respectively, and are included in the receivable balance.

Net unamortized premium on our receivables totaled $127 million and $169 million at December 31, 2012 and 2011, respectively. Unearned income on personal non-credit card receivables totaled $8 million at December 31, 2011 and is included in the receivable balance in the table above. As discussed more fully in Note 7, "Receivables Held for Sale," during the second quarter of 2012, we moved our entire portfolio of personal non-credit card receivables as well as certain real estate secured receivables to receivables held for sale.

Collateralized funding transactions Secured financings previously issued under public trusts with a balance of $2.9 billion at December 31, 2012 are secured by $4.9 billion of closed-end real estate secured receivables. Secured financings previously issued under public trusts with a balance of $3.3 billion at December 31, 2011 were secured by $5.3 billion of closed-end real estate secured receivables.

Age Analysis of Past Due Receivables The following tables summarize the past due status of our receivables at December 31, 2012 and 2011. The aging of past due amounts is determined based on the contractual delinquency status of payments made under the receivable. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status may be affected by customer account management policies and practices such as re-age or modification. Additionally, delinquency status is also impacted by payment percentage requirements which vary between servicing platforms.

Current

	Days Past Due						Total Past Due				Total Receivables⁽¹⁾
December 31, 2012	1 - 29 days		30 - 89 days		90+ days		Total Past Due		Current		Total Receivables⁽¹⁾
	(in millions)
Real estate secured:
First lien	$	4,644	$	2,759	$	2,748	$	10,151	$	19,150	$	29,301
Second lien	652		316		239		1,207		2,431		3,638
Total real estate secured receivables(2)	$	5,296	$	3,075	$	2,987	$	11,358	$	21,581	$	32,939

Current

	Days Past Due						Total Past Due				Total Receivables⁽¹⁾
December 31, 2011	1 - 29 days		30 - 89 days		90+ days		Total Past Due		Current		Total Receivables⁽¹⁾
	(in millions)
Real estate secured:
First lien	$	5,828	$	4,028	$	6,248	$	16,104	$	22,131	$	38,235
Second lien	754		416		329		1,499		2,979		4,478
Total real estate secured(2)	6,582		4,444		6,577		17,603		25,110		42,713
Personal non-credit card	686		388		315		1,389		3,807		5,196
Other	-		-		-		-		3		3
Total receivables	$	7,268	$	4,832	$	6,892	$	18,992	$	28,920	$	47,912

⁽¹⁾The receivable balances included in this table reflects the principal amount outstanding on the loan and certain basis adjustments to the loan such as deferred fees and costs on originated loans, purchase accounting fair value adjustments and premiums or discounts on purchased loans. However, these basis adjustments on the loans are excluded in other presentations regarding delinquent account balances.

⁽²⁾Our real estate secured receivables are currently maintained on two mortgage loan servicing platforms. One platform (representing approximately two-thirds of our outstanding real estate secured receivables) establishes a qualifying payment as a payment that is within $10 of the required payment. The other platform (representing approximately one-third of our outstanding real estate secured receivables) establishes a qualifying payment as a payment that, on a life-to-date basis, leaves the total less than 50 percentof one required payment unpaid.

Contractual maturities Contractual maturities of our receivables were as follows:

	2013		2014		2015		2016		2017		Thereafter		Total
	(in millions)
Real estate secured:
First lien	$	101	$	45	$	58	$	91	$	125	$	28,881	$	29,301
Second lien	98		20		20		38		43		3,419		3,638
Total real estate secured receivables	$	199	$	65	$	78	$	129	$	168	$	32,300	$	32,939

As a substantial portion of consumer receivables, based on our experience, will be repaid prior to contractual maturity, the above maturity schedule should not be regarded as a forecast of future cash collections.

The following table summarizes contractual maturities of receivables due after one year by repricing characteristic:

At December 31, 2012	Over 1 But Within 5 Years		Over 5 Years
	(in millions)
Receivables at predetermined interest rates	$	394	$	30,854
Receivables at floating or adjustable rates	46		1,446
Total	$	440	$	32,300

Nonaccrual receivables Nonaccrual consumer receivables and nonaccrual receivables held for sale are all receivables which are 90 or more days contractually delinquent as well as second lien loans (regardless of delinquency status) where the first lien loan that we own or service is 90 or more days contractually delinquent. Nonaccrual receivables do not include receivables which have made qualifying payments and have been re-aged such that the contractual delinquency status has been reset to current. If a re-aged loan subsequently experiences payment default and becomes 90 or more days contractually delinquent, it will be reported as nonaccrual. Nonaccrual receivables and nonaccrual receivables held for sale are summarized in the following table.

At December 31,	2012		2011
	(dollars are in millions)
Nonaccrual receivable portfolios:
Real estate secured(1)	$	3,032	$	6,544
Personal non-credit card	-		330
Nonaccrual receivables held for sale	2,161		-
Total nonaccrual receivables	$	5,193	$	6,874

⁽¹⁾At December 31, 2012 and 2011, nonaccrual real estate secured receivables held for investment include $1.7 billion and $4.7 billion, respectively, of receivables that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.

The significant decrease in total nonaccrual receivables as compared to December 31, 2011 reflects the impact of the transfer of our entire portfolio of personal non-credit card receivables and a portion of our real estate secured receivables to receivables held for sale as these receivables are now carried at the lower of amortized cost or fair value. See Note 7, "Receivables Held for Sale," for additional information.

The following table provides additional information on our total nonaccrual receivables:

Year Ended December 31,	2012		2011		2010
	(in millions)
Interest income that would have been recorded if the nonaccrual receivable had been current in accordance with contractual terms during the period	$	1,100	$	1,161	$	1,295
Interest income that was recorded on nonaccrual receivables included in interest income on nonaccrual loans during the period	331		462		625

Troubled Debt Restructurings Troubled debt restructurings ("TDR Loans") represent receivables for which the original contractual terms have been modified to provide for terms that are less than what we would be willing to accept for new receivables with comparable risk because of deterioration in the borrower's financial status.

Modifications for real estate secured and personal non-credit card receivables may include changes to one or more terms of the loan, including, but not limited to, a change in interest rate, an extension of the amortization period, a reduction in payment amount and partial forgiveness or deferment of principal. A substantial amount of our modifications involve interest rate reductions which lower the amount of finance income we are contractually entitled to receive in future periods. By lowering the interest rate and making other changes to the loan terms, we believe we are able to increase the amount of cash flow that will ultimately be collected from the loan, given the borrower's financial condition. Re-aging is an account management action that results in the resetting of the contractual delinquency status of an account to current which generally requires the receipt of two qualifying payments. TDR Loans are reserved for based on the present value of expected future cash flows discounted at the loans' original effective interest rate which generally results in a higher reserve requirement for these loans.

As disclosed previously, during the third quarter of 2012 we began evaluating recently issued regulatory guidance requiring receivables discharged under Chapter 7 bankruptcy and not re-affirmed to be classified as TDR Loan balances. During the fourth quarter of 2012, we completed our analysis and now classify these receivables as TDR Loans which resulted in an increase in TDR Loans of $1.0 billion at December 31, 2012, of which 37 percent had been carried at the lower of amortized cost or fair value of the collateral less cost to sell. Excluding the receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell, these receivables are now reserved for using a discounted cash flow analysis which resulted in an increase in credit loss reserves during the fourth quarter of 2012 of approximately $40 million. For the receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell, there was no change in the reserves.

During the third quarter of 2011 we adopted a new Accounting Standards Update which provided additional guidance to determine whether a restructuring of a receivable meets the criteria to be considered a TDR Loan. Under this new guidance, we determined that substantially all receivables modified as a result of a financial difficulty, regardless of whether the modification was permanent or temporary, including all modifications with trial periods, should be reported as TDR Loans. Additionally, we determined that all re-ages, except first time early stage delinquency re-ages where the customer has not been granted a prior re-age or modification since the first quarter of 2007, should be considered TDR Loans, as we believe that multiple or later stage delinquency re-ages or a need for a modification to any of the loan terms other than to provide a market rate of interest provides evidence the borrower is experiencing financial difficulty and a concession has been granted that is more than insignificant. As required, the new guidance was applied retrospectively to restructurings occurring on or after January 1, 2011 and resulted in the reporting of an additional $4.1 billion of real estate secured receivables and an additional $717 million of personal non-credit card receivables as TDR Loans during the third quarter of 2011 with credit loss reserves of $1.3 billion associated with these receivables at September 30, 2011.

The following summarizes the drivers of the additional TDR Loans reported as a result of the new Accounting Standards Update:

New TDR Loan Volume Upon Adoption of New Accounting Standards Update	2011
	(in billions)
Interest rate loan modifications less than 12 months in duration during January 1, 2011 through September 30, 2011	$	1.4
Trial modifications during January 1, 2011 through September 30, 2011	.2
Re-ages during January 1, 2011 through September 30, 2011, excluding first-time early stage delinquency re-ages	3.2
Total	$	4.8

An incremental loan loss provision for these receivables using a discounted cash flow analysis of approximately $925 million was recorded during the third quarter of 2011. This discounted cash flow analysis, in addition to considering all expected future cash flows, also takes into consideration the time value of money and the difference between the current interest rate and the original effective interest rate on the loan. This methodology generally results in a higher reserve requirement for TDR Loans than loans for which credit loss reserves are established using a roll rate migration analysis that only considers incurred credit losses. The TDR Loan balances and related credit loss reserves for consumer receivables reported as of December 31, 2010 use our previous definition of TDR Loans and as such, are not directly comparable to the current period balances.

Prior to the adoption of the Accounting Standards Update, we did not view re-ages or temporary rate reductions (generally less than 12 months) as TDR Loans. We considered paragraph 5(c) of FASB Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings" ("FAS 15"), codified in paragraph 15-9(c) of Accounting Standards Codification ("ASC") Subtopic 310-40, "Troubled Debt Restructurings by Creditors," which provides guidance on when the modification of the terms of a loan contract represents a concession that may result in a modification qualifying as a TDR Loan (the other criterion being the borrower experiencing financial difficulty). In applying paragraph 5(c) of FAS 15 or paragraph 15-9(c) of ASC Subtopic 310-40, we focused on whether re-ages or modifications resulted in reducing the interest rate on the loan for its remaining life. Accordingly, under our previous policy, although such concessions were an indication that the borrower was experiencing financial difficulty, we considered re-ages and temporary rate reductions (generally less than 12 months) granted to help borrowers overcome an unexpected financial difficulty not to be concessions. However, we viewed loans for which we granted a 12-month or longer or two or more consecutive six-month interest modifications as permanent modifications and, accordingly, concessions. Applying the clarifications in the Accounting Standards Update, including the examples in the implementation guidance, caused us to conclude that interest rate modifications of less than 12-months and re-ages (other than first-time early stage delinquency re-ages) were concessions to borrowers experiencing financial difficulty that were not insignificant and should be reported as TDR Loans.

The following table presents information about receivables and receivables held for sale which as a result of any account management action taken during 2012 and 2011 became classified as TDR Loans. During the year ended December 31, 2012 and 2011, substantially all of the actions reflect re-aging of past due accounts or loan modifications involving interest rate reductions.

Year Ended December 31,	2012		2011
	(in millions)
Real estate secured:
First lien	$	3,235	$	6,145
Second lien	329		625
Total real estate secured	3,564		6,770
Personal non-credit card	294		1,058
Total⁽¹⁾	$	3,858	$	7,828

⁽¹⁾The following summarizes the actions taken during 2012 and 2011 which resulted in the above receivables being classified as a TDR Loan.

Year Ended December 31,	2012		2011
	(in millions)
Interest rate modification	$	1,814	$	3,630
Re-age of past due account	2,044		4,198
	$	3,858	$	7,828

The following table presents information about receivables and receivables held for sale reported as TDR Loans. As discussed more fully in Note 7, "Receivables Held for Sale," we transferred our entire personal non-credit card portfolio and a substantial majority of our real estate secured receivables which have been written down to the lower of amortized cost or fair value of the collateral less cost to sell as of June 30, 2012 to held for sale during the second quarter of 2012. As a result, these receivables are now carried at the lower of amortized cost or fair value which creates a lack of comparability between TDR Loan balances as of December 31, 2012 and 2011.

At December 31,	2012		2011
	(in millions)
TDR Loans:(1)(2)(3)
Real estate secured:
First lien⁽⁷⁾	$	14,607	$	13,186
Second lien	1,205		1,057
Total real estate secured(4)(7)	15,812		14,243
Personal non-credit card	592		1,341
Total TDR Loans⁽⁵⁾	$	16,404	$	15,584

Credit loss reserves for TDR Loans:
Real estate secured:
First lien	$	3,104	$	3,169
Second lien	523		534
Total real estate secured(7)	3,627		3,703
Personal non-credit card	-		706
Total credit loss reserves for TDR Loans(3)(6)	$	3,627	$	4,409

⁽¹⁾TDR Loans are considered to be impaired loans regardless of accrual status.

⁽²⁾The TDR Loan balances included in the table above reflect the current carrying amount of TDR Loans and includes all basis adjustments on the loan, such as unearned income, unamortized deferred fees and costs on originated loans and premiums or discounts on purchased loans as well as any charge-off recorded in accordance with our existing charge-off policies. Additionally, the carrying amount of TDR Loans classified as held for sale has been reduced by both the lower of amortized cost or fair value adjustment as well as the credit loss reserves associated with these receivables prior to the transfer. The following table reflects the unpaid principal balance of TDR Loans:

At December 31,	2012		2011
	(in millions)
Real estate secured:
First lien	$	18,451	$	14,813
Second lien	1,345		1,125
Total real estate secured	19,796		15,938
Personal non-credit card	1,139		1,341
Total TDR Loans	$	20,935	$	17,279

⁽³⁾At December 31, 2012, $2.5 billion of TDR Loans were reported as receivables held for sale for which there are no credit loss reserves as they are carried at the lower of amortized cost or fair value. At December 31, 2011, there were no TDR Loans reported as receivables held for sale

⁽⁴⁾At December 31, 2012 and 2011, TDR Loans held for investment totaling $1.5 billion and $2.5 billion, respectively, are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.

⁽⁵⁾TDR Loan balances at December 31, 2012 have been impacted by the transfer of our entire personal non-credit card receivable portfolio and certain real estate secured receivables to held for sale during the second quarter of 2012 and are now carried at the lower of amortized cost or fair value. See Note 7, "Receivables Held for Sale," for additional information.

⁽⁶⁾Included in credit loss reserves.

⁽⁷⁾As discussed above, during the fourth quarter of 2012, we began classifying receivables discharged under Chapter 7 bankruptcy and not re-affirmed as TDR Loans. This resulted in an increase in real estate secured TDR Loans of $1.0 billion as of December 31, 2012 with an increase in credit loss reserves of approximately $40 million related to these loans.

The following table discloses receivables and receivables held for sale which were classified as TDR Loans during the previous 12 months which became sixty days or greater contractually delinquent during 2012 and 2011:

Year Ended December 31,	2012		2011
Real estate secured:
First lien	$	2,202	$	1,941
Second lien	259		189
Total real estate secured	2,461		2,130
Personal non-credit card	262		418
Total	$	2,723	$	2,548

Additional information relating to TDR Loans, including TDR Loans held for sale, is presented in the table below:

Year Ended December 31,	2012		2011		2010
	(in millions)
Average balance of TDR Loans:(1)
Real estate secured:
First lien	$	14,657	$	11,450	$	8,832
Second lien	1,219		901		702
Total real estate secured	15,876		12,351		9,534
Personal non-credit card	925		1,161		736
Total average balance of TDR Loans	$	16,801	$	13,512	$	10,270
Interest income recognized on TDR Loans:
Real estate secured:
First lien	$	871	$	590	$	407
Second lien	104		62		39
Total real estate secured	975		652		446
Personal non-credit card	174		133		47
Total interest income recognized on TDR Loans	$	1,149	$	785	$	493

⁽¹⁾The increase in the average balance of TDR Loans during 2011 reflects, in part, the higher levels of receivables considered to be TDR Loans as a result of the adoption of the new accounting guidance as discussed above. These averages assume the new guidelines were adopted January 1, 2011.

Consumer Receivable Credit Quality Indicators Credit quality indicators used for consumer receivables include a loan's delinquency status, whether the loan is performing and whether the loan is considered a TDR Loan.

Delinquency The following table summarizes dollars of two-months-and-over contractual delinquency and as a percent of total receivables and receivables held for sale ("delinquency ratio") for our loan portfolio:

	December 31, 2012				December 31, 2011
	Dollars of Delinquency		Delinquency Ratio		Dollars of Delinquency		Delinquency Ratio
	(dollars are in millions)
Real estate secured:
First lien	$	5,821	18.01	%	$	7,605	19.89	%
Second lien	349		9.59		500		11.16
Total real estate secured	6,170		17.16		8,105		18.98
Personal non-credit card	103		3.24		486		9.35
Total	$	6,273	16.03	%	$	8,591	17.93	%

Nonperforming The status of receivables and receivables held for sale is summarized in the following table:

	Performing Loans		Nonaccrual Loans		Total
At December 31, 2012
Real estate secured(1)(2)	$	29,907	$	3,032	$	32,939
Receivables held for sale	4,042		2,161		6,203
Total⁽³⁾	$	33,949	$	5,193	$	39,142
At December 31, 2011
Real estate secured(1)(2)	$	36,169	$	6,544	$	42,713
Personal non-credit card	4,866		330		5,196
Total	$	41,035	$	6,874	$	47,909

⁽¹⁾At December 31, 2012 and 2011, nonperforming real estate secured receivables held for investment include $1.7 billion and $4.7 billion, respectively, of receivables that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.

⁽²⁾At December 31, 2012 and 2011, nonperforming real estate secured receivables held for investment include $2.1 billion and $3.0 billion, respectively, of TDR Loans, some of which may also be carried at fair value of the collateral less cost to sell.

⁽³⁾The decrease since December 31, 2011 reflects, in part, the transfer of our entire portfolio of personal non-credit card receivables and a portion of our real estate secured receivables held for sale as these receivables are now carried at the lower of amortized cost or fair value. See Note 7, "Receivables Held for Sale," for additional information.

The decrease since December 31, 2011 reflects, in part, the transfer of our entire portfolio of personal non-credit card receivables and a portion of our real estate secured receivables to receivables held for sale which are carried at the lower of amortized cost or fair value. See Note 7, "Receivables Held for Sale" for additional information.

Troubled debt restructurings See discussion of TDR Loans above for further details on this credit quality indicator.

6. Credit Loss Reserves

An analysis of credit loss reserves for receivables in continuing operations was as follows:

	2012			2011			2010
	(in millions)
Credit loss reserves at beginning of period	$	5,952		$	5,512		$	7,275
Provision for credit losses⁽¹⁾⁽²⁾	2,224			4,418			5,346
Net charge-offs:
Charge-offs	(3,021		)	(4,481		)	(7,596		)
Recoveries	417			503			487
Total net charge-offs	(2,604		)	(3,978		)	(7,109		)
Reserves on receivables transferred to held for sale	(965		)	-			-
Credit loss reserves at end of period	$	4,607		$	5,952		$	5,512

⁽¹⁾Provision for credit losses during 2011 included approximately $925 million related to the adoption of new accounting guidance for TDR Loans in the third quarter of 2011 as discussed above.

⁽²⁾Provision for credit losses during 2012 includes $112 million related to the portion of the lower of amortized cost or fair value adjustment that was attributable to credit for personal non-credit card receivables transferred to held for sale during the second quarter of 2012. See Note 7, "Receivables Held for Sale," for additional information. This amount was recorded as a provision for credit losses and included in the total of reserves on receivables transferred to held for sale. There was no lower of cost or fair value adjustment allocated to credit for the real estate secured receivables as these receivables were previously carried at the lower of amortized cost or fair value of the collateral less cost to sell prior to the transfer of the loans to held for sale.

As discussed above, credit loss reserves at December 31, 2012 have been impacted by the transfer of our entire portfolio of personal non-credit card receivables and certain real estate secured receivables to held for sale. See Note 7, "Receivables Held for Sale," for additional information.

We historically have estimated probable losses for real estate secured receivables collectively evaluated for impairment which do not qualify as a troubled debt restructure using a roll rate migration analysis that estimates the likelihood that a loan will progress through the various stages of delinquency and ultimately charge-off. This has historically resulted in the identification of a loss emergence period for these real estate secured receivables collectively evaluated for impairment using a roll rate migration analysis which results in approximately 7 months of losses in our credit loss reserves. A loss coverage of 12 months using a roll rate migration analysis would be more aligned with U.S. bank industry practice. As previously disclosed in the third quarter of 2012, our regulators indicated they would like us to more closely align our loss coverage period implicit within the roll rate methodology with U.S. bank industry practice. During the fourth quarter of 2012, we extended our loss emergence period to 12 months for U.S. GAAP. As a result, during the fourth quarter of 2012, we increased credit loss reserves by approximately $350 million for these loans. We will perform an annual review of our portfolio going forward to assess the period of time utilized in our roll rate migration period.

The following table summarizes the changes in credit loss reserves by product/class and the related receivable balance by product during the years ended December 31, 2012, 2011 and 2010:

	Real Estate Secured						Personal Non- Credit Card			Other		Total
	First Lien			Second Lien			Personal Non- Credit Card			Other		Total

(in millions)
Year ended December 31, 2012:
Credit loss reserve balances at beginning of period	$	4,089		$	823		$	1,040		$	-	$	5,952
Provision for credit losses⁽²⁾	1,812			397			15			-		2,224
Net charge-offs:
Charge-offs	(2,094		)	(538		)	(389		)	-		(3,021		)
Recoveries	60			58			299			-		417
Total net charge-offs	(2,034		)	(480		)	(90		)	-		(2,604		)
Reserves on receivables transferred to held for sale	-			-			(965		)	-		(965		)
Credit loss reserve balance at end of period	$	3,867		$	740		$	-		$	-	$	4,607
Reserve components:
Collectively evaluated for impairment	$	722		$	215		$	-		$	-	$	937
Individually evaluated for impairment⁽¹⁾	3,010			523			-			-		3,533
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	131			1			-			-		132
Receivables acquired with deteriorated credit quality	4			1			-			-		5
Total credit loss reserves	$	3,867		$	740		$	-		$	-	$	4,607
Receivables:
Collectively evaluated for impairment	$	16,012		$	2,414		$	-		$	-	$	18,426
Individually evaluated for impairment⁽¹⁾	11,233			1,155			-			-		12,388
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	2,043			66			-			-		2,109
Receivables acquired with deteriorated credit quality	13			3			-			-		16
Total receivables	$	29,301		$	3,638		$	-		$	-	$	32,939
Year ended December 31, 2011:
Credit loss reserve balances at beginning of period	$	3,355		$	832		$	1,325		$	-	$	5,512
Provision for credit losses⁽³⁾	3,227			758			433			-		4,418
Net charge-offs:
Charge-offs	(2,527		)	(827		)	(1,127		)	-		(4,481		)
Recoveries	34			60			409			-		503
Net charge-offs	(2,493		)	(767		)	(718		)	-		(3,978		)
Credit loss reserve balance at end of period	$	4,089		$	823		$	1,040		$	-	$	5,952
Reserve components:
Collectively evaluated for impairment	$	632		$	286		$	334		$	-	$	1,252
Individually evaluated for impairment⁽¹⁾	3,026			534			706			-		4,266
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	423			2			-			-		425
Receivables acquired with deteriorated credit quality	8			1			-			-		9
Total credit loss reserves	$	4,089		$	823		$	1,040		$	-	$	5,952
Receivables:
Collectively evaluated for impairment	$	21,660		$	3,358		$	3,855		$	3	$	28,876
Individually evaluated for impairment⁽¹⁾	10,693			1,024			1,341			-		13,058
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	5,847			90			-			-		5,937
Receivables acquired with deteriorated credit quality	35			6			-			-		41
Total receivables	$	38,235		$	4,478		$	5,196		$	3	$	47,912
Year ended December 31, 2010:
Balance at beginning of period	$	3,997		$	1,430		$	1,848		$	-	$	7,275
Provision for credit losses	3,126			789			1,431			-		5,346
Net charge-offs:
Charge-offs	(3,811		)	(1,456		)	(2,329		)	-		(7,596		)
Recoveries	43			69			375			-		487
Net charge-offs	(3,768		)	(1,387		)	(1,954		)	-		(7,109		)
Balance at end of period	$	3,355		$	832		$	1,325		$	-	$	5,512
Reserve components:
Collectively evaluated for impairment	$	1,544		$	570		$	930		$	-	$	3,044
Individually evaluated for impairment⁽¹⁾	1,701			258			395			-		2,354
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	94			1			-			-		95
Receivables acquired with deteriorated credit quality	16			3			-			-		19
Total credit loss reserves	$	3,355		$	832		$	1,325		$	-	$	5,512
Receivables:
Collectively evaluated for impairment	$	31,556		$	4,762		$	6,413		$	3	$	42,734
Individually evaluated for impairment⁽¹⁾	7,240			635			704			-		8,579
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	5,022			73			-			-		5,095
Receivables acquired with deteriorated credit quality	41			7			-			-		48
Total receivables	$	43,859		$	5,477		$	7,117		$	3	$	56,456

⁽¹⁾These amounts represent TDR Loans for which we evaluate reserves using a discounted cash flow methodology. Each loan is individually identified as a TDR Loan and then grouped together with other TDR Loans with similar characteristics. The discounted cash flow impairment analysis is then applied to these groups of TDR Loans. The receivable balance above excludes TDR Loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell which totaled $1.5 billion, $2.5 billion and $1.5 billion at December 31, 2012, 2011 and 2010, respectively. The reserve component above excludes credit loss reserves for TDR Loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell which totaled $94 million, $143 million and $27 million at December 31, 2012, 2011 and 2010, respectively. These credit loss reserves are reflected within receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell in the table above.

⁽²⁾Provision for credit losses during 2012 includes $112 million related to the portion of the lower of amortized cost or fair value that was attributable to credit for personal non-credit card receivables transferred to held for sale during the second quarter of 2012. See Note 7, "Receivables Held for Sale," for additional information. This amount was recorded as a provision for credit losses and included in the total of reserves on receivables transferred to held for sale. There was no lower of cost or fair value adjustment allocated to credit for the real estate secured receivables as these receivables were previously carried at the lower of amortized cost or fair value of the collateral less cost to sell prior to the transfer of the loans to held for sale.

⁽³⁾Provision for credit losses during 2011 included approximately $925 million related to the adoption of new accounting guidance for TDR Loans in the third quarter of 2011 as discussed above.

During the third quarter of 2011, we reviewed our existing models for determining credit loss reserves. As part of this process, we considered recent environmental activity including the impact of foreclosure delays, unique characteristics of our run-off portfolio and changes in how loans are ultimately running off. As a result, we made certain enhancements to our credit loss reserve estimation process during the third quarter of 2011. These changes in estimation were necessary because previous estimation techniques no longer represented the composition of the run-off portfolio or the current environment. These changes involved enhancements to the process for determining loss severity associated with real estate loans; revisions to our estimate of projected cash flows for TDR Loans; and increased segmentation of the loan portfolio based on the risk characteristics of the underlying loans.

7. Receivables Held for Sale

As discussed in prior filings, we have been engaged in an on-going evaluation of the optimal size of our balance sheet taking into consideration our liquidity, capital and funding requirements as well as capital requirements of HSBC. As part of this on-going evaluation, we identified a pool of real estate secured receivables for which we no longer had the intent to hold for the foreseeable future and, as a result, transferred this pool of real estate secured receivables to receivables held for sale during the second quarter of 2012. The receivable pool identified comprised first lien partially charged-off accounts as of June 30, 2012, with an unpaid principal balance of approximately $8.1 billion at the time of transfer. The net realizable value of these receivables after considering the fair value of the property less cost to sell was approximately $4.6 billion prior to transfer. Reducing these types of assets is expected to be capital accretive and will reduce funding requirements, accelerate portfolio wind-down and also alleviate some operational burden given that these receivables are servicing intense and subject to foreclosure delays. Receivables greater than 180 days past due require substantial amounts of regulatory capital under the U.K. Financial Services Authority's requirements and the extension of the foreclosure timeline in the U.S. has increased the capital requirements for this run-off book of business. This factor combined with the increase in the market's appetite for this asset class, led us to the decision that the sale of certain of these assets would be the best financial decision based on certain facts and circumstances.

We anticipate the receivables will be sold in multiple transactions generally over the next two years or, if the foreclosure process is completed prior to sale, the underlying properties acquired in satisfaction of the receivables will be classified as real estate owned ("REO") and sold. As we continue to work with borrowers, we may also agree to a short sale whereby the property is sold by the borrower at a price which has been pre-negotiated with us and the borrower is released from further obligation. This pool of receivables includes a substantial majority of our real estate receivables which had been written down to the lower of amortized cost or fair value of the collateral less cost to sell as of June 30, 2012 in accordance with our existing charge-off policies as we considered the collateral as the sole source for repayment. However, as we now plan to sell these receivables to a third party investor, fair value represents the price we believe a third party investor would pay to acquire the receivable portfolios. A third party investor would incorporate a number of assumptions in predicting future cash flows, such as differences in overall cost of capital assumptions which results in a lower estimate of fair value for the cash flows associated with the receivables. Real estate secured receivables written down to the lower of amortized cost or fair value of the collateral less cost to sell in accordance with our existing charge-off policies subsequent to June 30, 2012 will continue to be held for investment.

Based on the projected timing of loan sales and the anticipated flow of foreclosure volume into REO over the next two years, a portion of the real estate secured receivables classified as held for sale during the second quarter of 2012 will ultimately become REO. Upon classification of the underlying properties acquired in satisfaction of these loans as REO, the properties will be recorded at the fair value of the collateral less cost to sell which we expect will represent a higher value than the price a third party investor would have paid to acquire the receivables as explained above. As a result, a portion of the fair value adjustment on receivables held for sale will be recorded in earnings over time. This estimate is highly dependent upon the timing and size of future receivable sales as well as the volume and timelines associated with foreclosure activity. During the second half of 2012, we transferred a portion of our real estate secured receivable portfolio held for sale with a carrying value of $168 million to REO after obtaining title to the underlying collateral and reversed a portion of the lower of amortized cost or fair value adjustment previously recorded totaling $50 million during the second half of 2012. Additionally, during the second half of 2012, we completed short sales on real estate secured receivables with a carrying value of $96 million. As a result of these short sales, we reversed a portion of the lower of amortized cost or fair value adjustment previously recorded totaling $20 million during the second half of 2012 as the settlement price was higher than the carrying value.

In addition to the real estate secured receivables discussed above, we also determined that, given current market conditions for the personal non-credit card receivable portfolio, a sale of our remaining personal non-credit card receivables is expected to reduce a significant amount of risk-weighted assets which would provide net capital relief, reduce funding requirements and allow us to exit an entire product line, reducing both the related cost infrastructure and operational risk. As such, during the second quarter of 2012, we made the decision to pursue a sale of the personal non-credit card receivable portfolio. The personal non-credit card receivable portfolio was previously held for investment purposes and was transferred to held for sale during the second quarter of 2012 as we no longer had the intention to hold our portfolio of personal non-credit card receivables for the foreseeable future and anticipate these receivables will be sold in the near term. As a result, our personal non-credit card receivable portfolio, which was previously held for investment purposes, was transferred to held for sale during the second quarter of 2012. The personal non-credit card receivable portfolio will not be reported as discontinued operations as it does not qualify as a component of our business as the cash flows and operations related to our personal non-credit card receivable portfolio are not clearly distinguishable from the cash flows and operations of our real estate secured receivable portfolio.

The following table summarizes receivables held for sale which are carried at the lower of amortized cost or fair value:

At December 31,	2012		2011
	(in millions)
First lien real estate secured	$	3,022	$	-
Personal non-credit card	3,181		-
Total receivables held for sale	$	6,203	$	-

The table below summarizes the activity in receivables held for sale during 2012, 2011 and 2010.

Year ended December 31,	2012			2011			2010
	(in millions)
Receivables held for sale at beginning of period	$	-		$	4		$	3
Transfers into receivables held for sale at the lower of amortized cost or fair value:
First lien real estate secured	3,287			-			-
Personal non-credit card	3,469			-			-
Additional lower of amortized cost or fair value adjustment subsequent to transfer to receivables held for sale	18			1			2
Carrying value of real estate secured receivables held for sale settled through short sale or transfer to REO	(264		)	-			-
Transfer into receivables held for investment at the lower of amortized cost or fair value	-			(5		)	-
Change in receivable balance	(307		)	-			(1		)
Receivables held for sale at end of period⁽¹⁾	$	6,203		$	-		$	4

⁽¹⁾Net of a valuation allowance of $1.5 billion at December 31, 2012

The following table summarizes the components of the cumulative lower of amortized cost or fair value adjustment recorded during 2012:

	Lower of Amortized Cost or Fair Value Adjustments Associated With
	Fair Value		REO			Short Sales			Total
	(in millions)
Lower of amortized cost or fair value adjustments recorded as a component of:
Provision for credit losses(1)	$	112	$	-		$	-		$	112
Other revenues:
Initial lower of amortized cost or fair value adjustment(2)	1,547		-			-			1,547
Subsequent to initial transfer to held for sale(3)	52		(50		)	(20		)	(18		)
Total recorded through other revenues	1,599		(50		)	(20		)	1,529
Lower of amortized cost or fair value adjustment	$	1,711	$	(50	)	$	(20	)	$	1,641

⁽¹⁾The portion of the initial lower of amortized cost or fair value adjustment attributable to credit for personal non-credit card receivables which was recorded as a provision for credit losses in the consolidated statement of income (loss). This was determined by giving consideration to the impact of over-the-life credit loss estimates as compared to the existing credit loss reserves prior to our decision to transfer to receivables held for sale. There was no lower of cost or fair value adjustment allocated to credit for the real estate secured receivables as these receivables were previously carried at the lower of amortized cost or fair value of the collateral less cost to sell prior to the transfer of the loans to held for sale.

⁽²⁾The portion of the lower of amortized cost or fair value adjustment which reflects the impact on value caused by current marketplace conditions including changes in interest rates and illiquidity and is recorded as a component of total other revenues in the consolidated statement of income (loss).

⁽³⁾The additional lower of amortized cost or fair value adjustments subsequent to the transfer to receivable held for sale associated with fair value reflects the change in the fair value of the receivables held for sale, net of reversals associated with liquidations other than REO and short sales.

8. Properties and Equipment, Net

Property and Equipment consisted of the following:

At December 31,	2012			2011			Depreciable Life
	(dollars are in millions)
Land	$	3		$	3		-
Buildings and improvements	99			101			10-40 years
Furniture and equipment	26			26			3-10
Total	128			130
Accumulated depreciation and amortization	(57		)	(53		)
Properties and equipment, net	$	71		$	77

Depreciation and amortization expense for continuing operations totaled $6 million, $11 million and $15 million in 2012, 2011 and 2010, respectively.

9. Commercial Paper

During the first quarter of 2012, we made the decision to wind-down our commercial paper program. As a result, during the second quarter of 2012, we ceased new commercial paper issuance and completed the wind-down of the program by December 31, 2012.

The following table shows the outstanding commercial paper balances.

	Commercial Paper
	(in millions)
December 31, 2012:
Balance	$	-
Highest aggregate month-end balance	4,660
Average borrowings	1,647
Weighted-average interest rate:
At year-end	-
Paid during year	.3
December 31, 2011:
Balance	$	4,026
Highest aggregate month-end balance	4,304
Average borrowings	3,815
Weighted-average interest rate:
At year-end	.3		%
Paid during year	.2
December 31, 2010:
Balance	$	3,157
Highest aggregate month-end balance	4,864
Average borrowings	3,732
Weighted-average interest rate:
At year-end	.3		%
Paid during year	.3

Interest expense for commercial paper totaled $5 million, $9 million and $11 million in 2012, 2011 and 2010, respectively.

We maintain various bank credit agreements which primarily serve to support commercial paper borrowings. We have commercial paper back-up lines of credit totaling $2.1 billion at December 31, 2012 compared to $6.0 billion at December 31, 2011, which includes $100 million and $2.0 billion in commercial paper back-up lines with HSBC affiliates at December 31, 2012 and 2011, respectively. See Note 18, "Related Party Transactions," for further discussion of the lines with HSBC affiliates.

Our third party back-up line agreements contain a financial covenant which requires us to maintain a minimum tangible common equity to tangible assets ratio of 6.75 percent. Additionally, we are required to maintain a minimum of $5.0 billion of debt extended to us from affiliates. At December 31, 2012, we were in compliance with all applicable financial covenants.

Annual commitment fee expenses to support availability of these lines during 2012, 2011 and 2010 totaled $27 million, $19 million and $33 million, respectively, and included $20 million, $10 million and $16 million, respectively, for the HSBC lines.

10. Long-Term Debt

Long-term debt consisted of the following:

At December 31,	2012			2011
	(in millions)
Senior debt:
Fixed rate:
Secured financings:
5.00% to 5.99%; due 2014 to 2017	$	189		$	270
Other fixed rate senior debt:
1.00% to 1.99%; due 2013 to 2014	16			16
2.00% to 2.99%; due 2013 to 2032	347			892
3.00% to 3.99%; due 2012 to 2016	422			534
4.00% to 4.99%; due 2012 to 2018	3,675			3,774
5.00% to 5.49%; due 2012 to 2021	6,156			8,042
5.50% to 5.99%; due 2012 to 2018	2,638			3,643
6.00% to 6.49%; due 2012 to 2017	1,818			3,334
6.50% to 6.99%; due 2012 to 2013	2			8
7.00% to 7.49%; due 2012 to 2032	42			1,724
7.50% to 7.99%; due 2012 to 2032	284			1,071
Variable interest rate:
Secured financings - .36% to 2.78%; due 2012 to 2019	2,689			3,045
Other variable interest rate senior debt - .59% to 5.94%; due 2012 to 2016	6,932			10,229
Subordinated debt	2,208			2,208
Junior subordinated notes issued to capital trusts	1,031			1,031
Unamortized discount	(54		)	(67		)
HSBC acquisition purchase accounting fair value adjustments	31			36
Total long-term debt	$	28,426		$	39,790

HSBC acquisition purchase accounting fair value adjustments represent adjustments which have been "pushed down" to record our long-term debt at fair value at the date of our acquisition by HSBC.

At December 31, 2012, long-term debt included carrying value adjustments relating to derivative financial instruments which increased the debt balance by $17 million and a foreign currency translation adjustment relating to our foreign denominated debt which increased the debt balance by $828 million. At December 31, 2011, long-term debt included carrying value adjustments relating to derivative financial instruments which increased the debt balance by $46 million and a foreign currency translation adjustment relating to our foreign currency denominated debt which increased the debt balance by $1.3 billion.

At December 31, 2012 and 2011, we have elected fair value option accounting for certain of our fixed rate debt issuances. See Note 11, "Fair Value Option," for further details. At December 31, 2012 and 2011, long-term debt totaling $9.7 billion and $13.7 billion, respectively, was carried at fair value.

Interest expense for long-term debt for continuing operations was $1.6 billion, $2.2 billion and $2.9 billion in 2012, 2011 and 2010, respectively. The weighted-average interest rates on long-term debt were 4.48 percent and 4.50 percent at December 31, 2012 and 2011, respectively, excluding HSBC acquisition purchase accounting adjustments. There are no restrictive financial covenants in any of our long-term debt agreements. Debt denominated in a foreign currency is included in the applicable rate category based on the effective U.S. dollar equivalent rate as summarized in Note 12, "Derivative Financial Instruments."

During the third quarter of 2012, we decided to call $512 million of senior long-term debt. This transaction was completed during September 2012. This transaction was funded through a $512 million loan agreement with HSBC USA Inc which matures in September 2017. At December 31, 2012, $512 million was outstanding under this loan agreement.

During the second quarter of 2011, we decided to call $600 million of senior long-term debt. This transaction was completed during July 2011. This transaction was funded through a $600 million loan agreement with HSBC North America which provided for three $200 million borrowings with maturities between 2034 and 2035. As of both December 31, 2012 and 2011, $600 million was outstanding under this loan agreement.

Receivables we have sold in collateralized funding transactions structured as secured financings remain on our balance sheet. The entities used in these transactions are VIEs and we are deemed to be their primary beneficiary because we hold beneficial interests that expose us to the majority of their expected losses. Accordingly, we consolidate these entities and report the debt securities issued by them as secured financings in long-term debt. Secured financings previously issued under public trusts of $2.9 billion at December 31, 2012 are secured by $4.9 billion of closed-end real estate secured receivables, which are reported as receivables in the consolidated balance sheet. Secured financings previously issued under public trusts of $3.3 billion at December 31, 2011 are secured by $5.3 billion of closed-end real estate secured receivables. The holders of debt instruments issued by consolidated VIEs have recourse only to the receivables securing those instruments and have no recourse to our general credit.

The following table summarizes our junior subordinated notes issued to capital trusts ("Junior Subordinated Notes") and the related company obligated mandatorily redeemable preferred securities ("Preferred Securities"):

	HSBC Finance Capital Trust IX ("HFCT IX")
	(dollars are in millions)
Junior Subordinated Notes:
Principal balance	$1,031
Interest rate:
Through November 30, 2015	5.91%
December 1, 2015 through maturity	3-month LIBOR plus 1.926%
Redeemable by issuer	November 2015
Stated maturity	November 2035
Preferred Securities:
Rate:
Through November 30, 2015	5.91%
December 1, 2015 through maturity	3-month LIBOR plus 1.926%
Face value	$1,000
Issue date	November 2005

The Preferred Securities must be redeemed when the Junior Subordinated Notes are paid. The Junior Subordinated Notes have a stated maturity date, but are redeemable by us, in whole or in part, beginning on the dates indicated above at which time the Preferred Securities are callable at par ($25 per Preferred Security) plus accrued and unpaid dividends. Dividends on the Preferred Securities are cumulative, payable quarterly in arrears, and are deferrable at our option for up to five years. We cannot pay dividends on our preferred and common stocks during such deferments. The Preferred Securities have a liquidation value of $25 per preferred security. Our obligations with respect to the Junior Subordinated Notes, when considered together with certain undertakings of HSBC Finance Corporation with respect to HFCT IX, constitute full and unconditional guarantees by us of HFCT IX's obligations under the Preferred Securities.

Maturities of long-term debt at December 31, 2012, including secured financings, conduit facility renewals and capital lease obligations were as follows:

	(in millions)
2013(1)	$	7,868
2014	3,846
2015	5,810
2016	5,178
2017	1,659
Thereafter	4,065
Total	$	28,426

⁽¹⁾Weighted average interest rate on long-term debt maturing in 2013 is 4.82 percent.

Certain components of our long-term debt may be redeemed prior to its stated maturity.

11. Fair Value Option

We have elected to apply fair value option ("FVO") reporting to certain of our fixed rate debt issuances which also qualify for FVO reporting under International Financial Reporting Standards. At December 31, 2012, fixed rate debt accounted for under FVO totaled $10.2 billion, of which $9.7 billion is included as a component of long-term debt and $514 million is included as a component of due to affiliates. At December 31, 2012, we had not elected FVO for $8.1 billion of fixed rate long-term debt carried on our balance sheet. Fixed rate debt accounted for under FVO at December 31, 2012 has an aggregate unpaid principal balance of $9.4 billion which included a foreign currency translation adjustment relating to our foreign denominated FVO debt which increased the debt balance by $247 million.

At December 31, 2011, fixed rate debt accounted for under FVO totaled $14.1 billion, of which $13.7 billion is included as a component of long-term debt and $447 million is included as a component of due to affiliates. At December 31, 2011, we had not elected FVO for $11.8 billion of fixed rate long-term debt carried on our balance sheet. Fixed rate debt accounted for under FVO at December 31, 2011 has an aggregate unpaid principal balance of $13.9 billion which included a foreign currency translation adjustment relating to our foreign denominated FVO debt which increased the debt balance by $341 million.

We determine the fair value of the fixed rate debt accounted for under FVO through the use of a third party pricing service. Such fair value represents the full market price (including credit and interest rate impacts) based on observable market data for the same or similar debt instruments. See Note 21, "Fair Value Measurements," for a description of the methods and significant assumptions used to estimate the fair value of our fixed rate debt accounted for under FVO.

The components of gain (loss) on debt designated at fair value and related derivatives are as follows:

Year Ended December 31,	2012			2011			2010
	(in millions)
Mark-to-market on debt designated at fair value⁽¹⁾:
Interest rate component	$	166		$	25		$	(269	)
Credit risk component	(758		)	616			109
Total mark-to-market on debt designated at fair value	(592		)	641			(160		)
Mark-to-market on the related derivatives(1)	(260		)	(81		)	112
Net realized gains on the related derivatives	403			604			789
Gain (loss) on debt designated at fair value and related derivatives	$	(449	)	$	1,164		$	741

⁽¹⁾Mark-to-market on debt designated at fair value and related derivatives excludes market value changes due to fluctuations in foreign currency exchange rates. Foreign currency translation gains (losses) recorded in derivative related income (expense) associated with debt designated at fair value was a loss of $35 million, a gain of $63 million and a gain of $84 million during 2012, 2011 and 2010, respectively. Offsetting gains (losses) recorded in derivative related income (expense) associated with the related derivatives was a gain of $35 million, a loss of $63 million and a loss of $84 million during 2012, 2011 and 2010, respectively.

The movement in the fair value reflected in gain (loss) on debt designated at fair value and related derivatives includes the effect of our own credit spread changes and interest rate changes, including any economic ineffectiveness in the relationship between the related swaps and our debt and any realized gains or losses on those swaps. With respect to the credit component, as our credit spreads narrow accounting losses are booked and the reverse is true if credit spreads widen. Differences arise between the movement in the fair value of our debt and the fair value of the related swap due to the different credit characteristics and differences in the calculation of fair value for debt and derivatives. The size and direction of the accounting consequences of such changes can be volatile from period to period but do not alter the cash flows intended as part of the documented interest rate management strategy. On a cumulative basis, we have recorded fair value option adjustments which increased the value of our debt by $824 million and $232 million at December 31, 2012 and 2011, respectively.

The change in the fair value of the debt and the change in value of the related derivatives reflect the following:

• Interest rate curve - During 2012 and 2011, changes in market movements on certain debt and related derivatives that mature in the near term resulted in a gain in the interest rate component on the mark-to-market of the debt and a loss on the mark-to-market of the related derivative. As these items near maturity, their values are less sensitive to interest rate movements. Changes in the value of the interest rate component of the debt as compared to the related derivative are also affected by differences in cash flows and valuation methodologies for the debt and the derivatives. Cash flows on debt are discounted using a single discount rate from the bond yield curve for each bond's applicable maturity while derivative cash flows are discounted using rates at multiple points along an interest rate yield curve. The impacts of these differences vary as short-term and long-term interest rates shift and time passes. Furthermore, certain derivatives have been called by the counterparty resulting in certain FVO debt having no related derivatives.

• Credit - During 2012, our credit spreads tightened. Our secondary market credit spreads widened in 2011 due to the continuing concerns with the European sovereign debt crisis which caused spreads to widen throughout the financial services industry as well as the uncertain economic recovery in the United States.

Net income volatility, whether based on changes in the interest rate or credit risk components of the mark-to-market on debt designated at fair value and the related derivatives, impacts the comparability of our reported results between periods. Accordingly, gain (loss) on debt designated at fair value and related derivatives for 2012 should not be considered indicative of the results for any future periods.

12. Derivative Financial Instruments

Our business activities involve analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Accordingly, we have comprehensive risk management policies to address potential financial risks, which include credit risk, liquidity risk, market risk, and operational risks. Our risk management policy is designed to identify and analyze these risks, to set appropriate limits and controls, and to monitor the risks and limits continually by means of reliable and up-to-date administrative and information systems. Our risk management policies are primarily carried out in accordance with practice and limits set by the HSBC Group Management Board. The HSBC Finance Corporation Asset Liability Committee ("ALCO") meets regularly to review risks and approve appropriate risk management strategies within the limits established by the HSBC Group Management Board. Additionally, our Risk Management Committee receives regular reports on our interest rate and liquidity risk positions in relation to the established limits. In accordance with the policies and strategies established by ALCO, in the normal course of business, we enter into various transactions involving derivative financial instruments. These derivative financial instruments primarily are used as economic hedges to manage risk.

Objectives for Holding Derivative Financial Instruments Market risk (which includes interest rate and foreign currency exchange risks) is the possibility that a change in interest rates or foreign exchange rates will cause a financial instrument to decrease in value or become more costly to settle. Prior to our ceasing originations in our Consumer Lending business and ceasing purchase activities in our Mortgage Services business, customer demand for our loan products shifted between fixed rate and floating rate products, based on market conditions and preferences. These shifts in loan products resulted in different funding strategies and produced different interest rate risk exposures. Additionally, the mix of receivables on our balance sheet and the corresponding market risk is changing as we manage the liquidation of all of our receivable portfolios. We maintain an overall risk management strategy that utilizes interest rate and currency derivative financial instruments to mitigate our exposure to fluctuations caused by changes in interest rates and currency exchange rates related to our debt liabilities. We manage our exposure to interest rate risk primarily through the use of interest rate swaps with the main objective of managing the interest rate volatility due to a mismatch in the duration of our assets and liabilities. We manage our exposure to foreign currency exchange risk primarily through the use of cross currency interest rate swaps. We do not use leveraged derivative financial instruments.

Interest rate swaps are contractual agreements between two counterparties for the exchange of periodic interest payments generally based on a notional principal amount and agreed-upon fixed or floating rates. The majority of our interest rate swaps are used to manage our exposure to changes in interest rates by converting floating rate debt to fixed rate or by converting fixed rate debt to floating rate. We have also entered into currency swaps to convert both principal and interest payments on debt issued from one currency to the appropriate functional currency.

We do not manage credit risk or the changes in fair value due to the changes in credit risk by entering into derivative financial instruments such as credit derivatives or credit default swaps.

Control Over Valuation Process and Procedures A control framework has been established which is designed to ensure that fair values are either determined or validated by a function independent of the risk-taker. To that end, the ultimate responsibility for the determination of fair values rests with the HSBC Finance Valuation Committee. The HSBC Finance Valuation Committee establishes policies and procedures to ensure appropriate valuations. Fair values for derivatives are determined by management using valuation techniques, valuation models and inputs that are developed, reviewed, validated and approved by the Quantitative Risk and Valuation Group of an HSBC affiliate. These valuation models utilize discounted cash flows or an option pricing model adjusted for counterparty credit risk and market liquidity. The models used apply appropriate control processes and procedures to ensure that the derived inputs are used to value only those instruments that share similar risk to the relevant benchmark indices and therefore demonstrate a similar response to market factors. In addition, a validation process is followed which includes participation in peer group consensus pricing surveys, to ensure that valuation inputs incorporate market participants' risk expectations and risk premium.

Credit Risk By utilizing derivative financial instruments, we are exposed to counterparty credit risk. Counterparty credit risk is the risk that the counterparty to a transaction fails to perform according to the terms of the contract. We manage the counterparty credit (or repayment) risk in derivative instruments through established credit approvals, risk control limits, collateral, and ongoing monitoring procedures. We utilize an affiliate, HSBC Bank USA, as the primary provider of derivative products. We have never suffered a loss due to counterparty failure.

At December 31, 2012 and 2011, approximately 99.7 percent and 99.0 percent, respectively, of our existing derivative contracts are with HSBC subsidiaries, making them our primary counterparty in derivative transactions. Most swap agreements require that payments be made to, or received from, the counterparty when the fair value of the agreement reaches a certain level. Generally, we provide non-affiliate swap counterparties collateral in the form of cash which is recorded in our balance sheet as derivative financial assets or derivative related liabilities. At December 31, 2012 the fair value of our agreements with non-affiliate counterparties did not require us or the non-affiliates to provide collateral. At December 31, 2011, we provided third party swap counterparties with $10 million of collateral, in the form of cash. When the fair value of our agreements with affiliate counterparties requires the posting of collateral, it is provided in either the form of cash and recorded on the balance sheet, consistent with third party arrangements, or in the form of securities which are not recorded on our balance sheet. The fair value of our agreements with affiliate counterparties required the affiliates to provide collateral to us of $75 million and $584 million at December 31, 2012 and 2011, respectively, all of which was received in cash. These amounts are offset against the fair value amount recognized for derivative instruments that have been offset under the same master netting arrangement and recorded in our balance sheet as a component of derivative financial assets or derivative related liabilities. At December 31, 2012, we had derivative contracts with a notional value of approximately $26.1 billion, including $26.0 billion outstanding with HSBC Bank USA. At December 31, 2011, we had derivative contracts with a notional value of approximately $40.9 billion, including $40.4 billion outstanding with HSBC Bank USA. Derivative financial instruments are generally expressed in terms of notional principal or contract amounts which are much larger than the amounts potentially at risk for nonpayment by counterparties.

To manage our exposure to changes in interest rates, we entered into interest rate swap agreements and currency swaps which have been designated as fair value or cash flow hedges under derivative accounting principles, or are treated as non-qualifying hedges. We currently utilize the long-haul method to assess effectiveness of all derivatives designated as hedges. In the tables that follow below, the fair value disclosed does not include swap collateral that we either receive or deposit with our interest rate swap counterparties. Such swap collateral is recorded on our balance sheet and is netted on the balance sheet against the fair value amount recognized for derivative instruments.

Fair Value Hedges Fair value hedges include interest rate swaps to convert our fixed rate debt to variable rate debt and currency swaps to convert debt issued from one currency into U.S. dollar variable rate debt. All of our fair value hedges are associated with debt. We recorded fair value adjustments to the carrying value of our debt for fair value hedges which increased the carrying amount of our debt by $7 million and $36 million at December 31, 2012 and 2011, respectively. The following table provides information related to the location of derivative fair values in the consolidated balance sheet for our fair value hedges.

	Asset Derivatives Fair Value as of December 31,					Liability Derivatives Fair Value as of December 31,
	Balance Sheet Location	2012		2011		Balance Sheet Location	2012		2011
		(in millions)					(in millions)
Interest rate swaps	Derivative financial assets⁽¹⁾	$	7	$	11	Derivative related liabilities	$	-	$	7
Currency swaps	Derivative financial assets⁽¹⁾	-		53		Derivative related liabilities	-		-
Total fair value hedges		$	7	$	64		$	-	$	7

⁽¹⁾ At December 31, 2012 and December 31, 2011, derivative financial assets are reported on our consolidated balance sheet within other assets.

The following table presents fair value hedging information, including the gain (loss) recorded on the derivative and where that gain (loss) is recorded in the consolidated statement of income (loss) as well as the offsetting gain (loss) on the hedged item that is recognized in current earnings, the net of which represents hedge ineffectiveness.

		Location of Gain (Loss) Recognized	Amount of Gain (Loss) Recognized in Income on the Derivative									Amount of Gain (Loss) Recognized in Income on Hedged Item
	Hedged Item	in Income on Hedged Item and Derivative	2012			2011			2010			2012			2011			2010
			(in millions)
Interest rate swaps	Fixed rate borrowings	Derivative related income	$	(3	)	$	34		$	17		$	(2	)	$	(40	)	$	7
Currency swaps	Fixed rate borrowings	Derivative related income	(17		)	(29		)	(13		)	19			44			12
Total			$	(20	)	$	5		$	4		$	17		$	4		$	19

Cash Flow Hedges Cash flow hedges include interest rate swaps to convert our variable rate debt to fixed rate debt by fixing future interest rate resets of floating rate debt as well as currency swaps to convert debt issued from one currency into U.S. dollar fixed rate debt. Gains and losses on derivative instruments designated as cash flow hedges are reported in other comprehensive income (loss) ("OCI") net of tax and totaled a loss of $329 million and $448 million at December 31, 2012 and 2011, respectively. We expect $189 million ($122 million after-tax) of currently unrealized net losses will be reclassified to earnings within one year. However, these reclassified unrealized losses will be offset by decreased interest expense associated with the variable cash flows of the hedged items and will result in no significant net economic impact to our earnings. The following table provides information related to the location of derivative fair values in the consolidated balance sheet for our cash flow hedges.

	Asset Derivatives Fair Value as of December 31,							Liability Derivatives Fair Value as of December 31,
	Balance Sheet Location	2012			2011			Balance Sheet Location	2012		2011
		(in millions)							(in millions)
Interest rate swaps	Derivative financial assets⁽¹⁾	$	(450	)	$	(554	)	Derivative related liabilities	$	-	$	-
Currency swaps	Derivative financial assets⁽¹⁾	444			441			Derivative related liabilities	-		-
Total cash flow hedges		$	(6	)	$	(113	)		$	-	$	-

⁽¹⁾ At December 31, 2012 and December 31, 2011, derivative financial assets are reported on our consolidated balance sheet within other assets.

The following table provides the gain or loss recorded on our cash flow hedging relationships.

	Gain (Loss) Recognized in OCI on Derivative (Effective Portion)								Location of Gain (Loss) Reclassified from AOCI into	Gain (Loss) Reclassed From AOCI into Income (Effective Portion)									Location of Gain (Loss) Recognized in Income	Gain (Loss) Recognized In Income on Derivative (Ineffective Portion)
	2012		2011			2010			Income (Effective Portion)	2012			2011			2010			on the Derivative(Ineffective Portion)	2012		2011		2010
	(in millions)
Interest rate swaps	$	95	$	(116	)	$	(65	)	Interest expense	$	(7	)	$	(34	)	$	(62	)	Derivative related income	$	1	$	4	$	(1	)
Currency swaps	89		189			70			Interest expense	(20		)	(25		)	(34		)	Derivative related income	22		22		(7		)
Total	$	184	$	73		$	5			$	(27	)	$	(59	)	$	(96	)		$	23	$	26	$	(8	)

Non-Qualifying Hedging Activities We may enter into interest rate and currency swaps which are not designated as hedges under derivative accounting principles. These financial instruments are economic hedges but do not qualify for hedge accounting and are primarily used to minimize our exposure to changes in interest rates and currency exchange rates through more closely matching both the structure and projected duration of our liabilities to the structure and duration of our assets. The following table provides information related to the location and derivative fair values in the consolidated balance sheet for our non-qualifying hedges:

	Asset Derivatives Fair Value as of December 31,							Liability Derivatives Fair Value as of December 31,
	Balance Sheet Location	2012			2011			Balance Sheet Location	2012		2011
		(in millions)							(in millions)
Interest rate swaps	Derivative financial assets⁽¹⁾	$	(1,084	)	$	(926	)	Derivative related liabilities	$	4	$	5
Currency swaps and foreign exchange forward contracts	Derivative financial assets⁽¹⁾	(7		)	38			Derivative related liabilities	-		4
Total		$	(1,091	)	$	(888	)		$	4	$	9

⁽¹⁾ At December 31, 2012 and December 31, 2011, derivative financial assets are reported on our consolidated balance sheet within other assets.

The following table provides detail of the realized and unrealized gain or loss recorded on our non-qualifying hedges:

	Location of Gain (Loss)	Amount of Gain (Loss) Recognized in Derivative Related Income (Expense)
	Recognized in Income on Derivative	2012			2011			2010
		(in millions)
Interest rate contracts	Derivative related income	$	(221	)	$	(1,185	)	$	(394	)
Currency contracts	Derivative related income	(6		)	4			-
Total		$	(227	)	$	(1,181	)	$	(394	)

We have elected the fair value option for certain issuances of our fixed rate debt and have entered into interest rate and currency swaps related to debt carried at fair value. The interest rate and currency swaps associated with this debt are non-qualifying hedges but are considered economic hedges and realized gains and losses are reported as "Gain (loss) on debt designated at fair value and related derivatives" within other revenues. The derivatives related to fair value option debt are included in the tables below. See Note 11, "Fair Value Option," for further discussion.

	Asset Derivatives Fair Value as of December 31,					Liability Derivatives Fair Value as of December 31,
	Balance Sheet Location	2012		2011		Balance Sheet Location	2012		2011
		(in millions)					(in millions)
Interest rate swaps	Derivative financial assets⁽¹⁾	$	469	$	693	Derivative related liabilities	$	-	$	-
Currency swaps	Derivative financial assets⁽¹⁾	678		808		Derivative related liabilities	-		-
Total		$	1,147	$	1,501		$	-	$	-

⁽¹⁾ At December 31, 2012 and December 31, 2011, derivative financial assets are reported on our consolidated balance sheet within other assets.

The following table provides the gain or loss recorded on the derivatives related to fair value option debt primarily due to changes in interest rates:

	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Derivative Related Income (Expense)
	Location of Gain (Loss) Recognized in Income on Derivative	2012		2011		2010
		(in millions)
Interest rate contracts	Gain (loss) on debt designated at fair value and related derivatives	$	70	$	263	$	719
Currency contracts	Gain (loss) on debt designated at fair value and related derivatives	73		260		182
Total		$	143	$	523	$	901

Notional Value of Derivative Contracts The following table summarizes the notional values of derivative contracts:

At December 31,	2012		2011
	(in millions)
Derivatives designated as hedging instruments:
Interest rate swaps	$	4,949	$	8,140
Currency swaps	6,063		8,195
	11,012		16,335
Non-qualifying hedges:
Derivatives not designated as hedging instruments:
Interest rate swaps	6,219		10,523
Foreign exchange:
Swaps	122		715
Forwards	-		205
	6,341		11,443
Derivatives associated with debt carried at fair value:
Interest rate swaps	5,573		9,700
Currency swaps	3,134		3,376
	8,707		13,076
Total	$	26,060	$	40,854

The decrease in the notional value of our derivative contracts at December 31, 2012 as compared to December 31, 2011 primarily reflects the maturity of derivative contracts as well as the termination of $4.2 billion of non-qualifying hedges.

13. Income Taxes

Total income taxes were as follows:

Year Ended December 31,	2012			2011			2010
	(in millions)
Benefit for income taxes related to continuing operations	$	(1,406	)	$	(1,431	)	$	(1,453	)
Income taxes related to adjustments included in common shareholder's equity:
Unrealized gains on securities available-for-sale, not other-than-temporarily impaired, net	7			13			26
Unrealized gains (losses) on other-than-temporarily impaired debt securities available-for-sale	1			3			(3		)
Unrealized gains on cash flow hedging instruments	75			52			43
Changes in funded status of postretirement benefit plans	(8		)	(6		)	(5		)
Foreign currency translation adjustments	1			(1		)	2
Total	$	(1,330	)	$	(1,370	)	$	(1,390	)

Provisions for income taxes related to our continuing operations all of which were in the United States were:

Year Ended December 31,	2012			2011			2010
	(in millions)
Current provision (benefit)	$	(958	)	$	(772	)	$	(1,684	)
Deferred provision (benefit)	(448		)	(659		)	231
Total income benefit	$	(1,406	)	$	(1,431	)	$	(1,453	)

The significant components of deferred provisions attributable to income from continuing operations were:

Year Ended December 31,	2012			2011			2010
	(in millions)
Deferred income tax (benefit) provision (excluding the effects of other components)	$	(597	)	$	(602	)	$	148
(Decrease) increase in valuation allowance	323			(65		)	49
(Increase) decrease in State operating loss carryforwards and credits	(296		)	(65		)	(8		)
Foreign and general business tax credits	122			73			42
Deferred income tax (benefit) provision	$	(448	)	$	(659	)	$	231

The increase in state operating loss carryforwards and corresponding increase in valuation allowance in the table above pertain mainly to states with net operating loss carryforward periods of 15 years or less since we believe it is not more likely than not that these deferred tax assets will be realized. For states with a net operating loss carryforward period of 15 to 20 years, we believe the carryforward periods of 15 to 20 years provide enough time to partially utilize the deferred tax assets pertaining to these existing net operating loss carryforwards based on available tax planning strategies.

A reconciliation of income tax expense (benefit) compared with the amounts at the U.S. federal statutory rates was as follows:

Year Ended December 31,	2012					2011					2010
	(dollars are in millions)
Tax benefit at the U.S. federal statutory income tax rate	$	(1,334	)	(35.0	)%	$	(1,315	)	(35.0	)%	$	(1,401	)	(35.0	)%
Increase (decrease) in rate resulting from:
State and local taxes, net of Federal benefit	(21		)	(.6	)	2			.1		3			.1
Validation of tax accounts ⁽¹⁾	(16		)	(.4	)	16			.4		(20		)	(.5	)
Change in tax rate used to value deferred taxes	(7		)	(.2	)	-			-		-			-
Change in valuation allowance reserves ⁽²⁾	27			.7		(133		)	(3.5	)	(8		)	(.2	)
Change in uncertain tax position reserves⁽³⁾	(15		)	(.4	)	(14		)	(.4	)	(22		)	(.6	)
Other ⁽⁴⁾	(40		)	(1.0	)	13			.3		(5		)	(.1	)
Total income tax benefit	$	(1,406	)	(36.9	)%	$	(1,431	)	(38.1	)%	$	(1,453	)	(36.3	)%

⁽¹⁾For 2012, the amount relates to corrections to the current tax liability account and to deferred tax prior period adjustments. For 2011 and 2010, the amounts relate to deferred tax prior period adjustments.

⁽²⁾For 2012, the amount relates to increase in valuation allowance on states with net operating loss carryforward periods of 15 to 20 years. For 2011, the amount relates mainly to the release of a valuation allowance previously established on foreign tax credits.

⁽³⁾For 2012, 2011 and 2010, the amounts primarily relate to the conclusion of state audits and expiration of state statutes of limitations.

⁽⁴⁾For 2012, the amount primarily relates to a reclassification of deferred tax accounts between continuing operations and discontinued operations with no consolidated impact. For 2011, the amounts primarily relate to the non-deductible portion of an accrual related to mortgage servicing matters. For 2010, the amounts relates to the amortization of purchase accounting adjustments on leveraged leases.

Temporary differences which gave rise to a significant portion of deferred tax assets and liabilities were as follows:

At December 31,	2012			2011
	(in millions)
Deferred Tax Assets:
Credit loss reserves	$	1,678		$	2,204
Receivables held for sale	921			-
Unused tax benefit carryforwards	930			762
Market value adjustment related to derivatives and long-term debt carried at fair value	624			446
Real Estate Mortgage Investment Conduit ("REMIC")	505			226
Other	463			577
Total deferred tax assets	5,121			4,215
Valuation allowance	(982		)	(662		)
Total deferred tax assets net of valuation allowance	4,139			3,553
Deferred Tax Liabilities:
Fee income	105			128
Other	145			111
Total deferred tax liabilities	250			239
Net deferred tax asset	$	3,889		$	3,314

The deferred tax valuation allowance is attributed to the following deferred tax assets that based on the available evidence it is more-likely-than-not that the deferred tax asset will not be realized:

At December 31,	2012		2011
	(in millions)
State tax benefit loss limitations	$	926	$	606
Deferred capital loss on sale to affiliates	49		49
Other	7		7
Total	$	982	$	662

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2012			2011
	(in millions)
Balance at beginning of year	$	153		$	164
Additions based on tax positions related to the current year	8			4
Additions for tax positions of prior years	49			60
Reductions for tax positions of prior years	(27		)	(19		)
Settlements	(18		)	(42		)
Reductions for lapse of statute of limitations	-			(14		)
Balance at end of year	$	165		$	153

The state tax portion of these amounts is reflected gross and not reduced by the federal tax effect. It is reasonably possible that there could be a change in the amount of our unrecognized tax benefits within the next 12 months due to settlements or statutory expirations in various state and local tax jurisdictions. The total amount of unrecognized tax benefits (hereinafter referred to as uncertain tax reserves) that, if recognized, would affect the effective tax rate was $113 million and $96 million at December 31, 2012 and 2011.

It is our policy to recognize accrued interest related to unrecognized tax benefits in interest income in the consolidated statement of income (loss) and to recognize penalties related to unrecognized tax benefits as a component of other servicing and administrative expenses in the consolidated statement of income (loss). We had accruals for the payment of interest and penalties associated with uncertain tax positions of $42 million and $88 million at December 31, 2012 and 2011, respectively. We decreased our accrual for the payment of interest and penalties associated with uncertain tax positions by $46 million during 2012 and $13 million during 2011.

HSBC North America Consolidated Income Taxes We are included in HSBC North America's consolidated Federal income tax return and in various combined state income tax returns. As such, we have entered into a tax allocation agreement with HSBC North America and its subsidiary entities (the "HNAH Group") included in the consolidated returns which govern the current amount of taxes to be paid or received by the various entities included in the consolidated return filings. As a result, we have looked at the HNAH Group's consolidated deferred tax assets and various sources of taxable income, including the impact of HSBC and HNAH Group tax planning strategies, in reaching conclusions on recoverability of deferred tax assets. Where a valuation allowance is determined to be necessary at the HSBC North America consolidated level, such allowance is allocated to the principal subsidiaries within the HNAH Group as described below in a manner that is systematic, rational and consistent with the broad principles of accounting for income taxes.

The HNAH Group evaluates deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, tax planning strategies and any available carryback capacity.

In evaluating the need for a valuation allowance, the HNAH Group estimates future taxable income based on management approved business plans, future capital requirements and ongoing tax planning strategies, including capital support from HSBC necessary as part of such plans and strategies. The HNAH Group has continued to consider the impact of the economic environment on the North American businesses and the expected growth of the deferred tax assets. This evaluation process involves significant management judgment about assumptions that are subject to change from period to period.

In conjunction with the HNAH Group deferred tax evaluation process, based on our forecasts of future taxable income, which include assumptions about the depth and severity of home price depreciation and the U.S. economic environment, including unemployment levels and their related impact on credit losses, we currently anticipate that our results of future operations will generate sufficient taxable income to allow us to realize our deferred tax assets. However, since these market conditions have created losses in the HNAH Group in recent periods and volatility in our pre-tax book income, our analysis of the reliability of the deferred tax assets significantly discounts any future taxable income expected from continuing operations and relies to a greater extent on continued capital support from our parent, HSBC, including tax planning strategies implemented in relation to such support. HSBC has indicated they remain fully committed and have the capacity and willingness to provide capital as needed to run operations, maintain sufficient regulatory capital, and fund certain tax planning strategies.

Only those tax planning strategies that are both prudent and feasible, and which management has the ability and intent to implement, are incorporated into our analysis and assessment. The primary and most significant strategy is HSBC's commitment to reinvest excess HNAH Group capital to reduce debt funding or otherwise invest in assets to ensure that it is more likely than not that the deferred tax assets will be utilized.

Currently, it has been determined that the HNAH Group's primary tax planning strategy, in combination with other tax planning strategies, provides support for the realization of the net deferred tax assets recorded for the HNAH Group. Such determination is based on HSBC's business forecasts and assessment as to the most efficient and effective deployment of HSBC capital, most importantly including the length of time such capital will need to be maintained in the U.S. for purposes of the tax planning strategy.

During the first quarter of 2011, the HNAH Group identified an additional tax planning strategy that provided support for the realization of the deferred tax assets recorded for its foreign tax credits and certain state related deferred tax assets. The use of foreign tax credits is limited by the HNAH Group's U.S. tax liability and the availability of foreign source income. The tax planning strategy included the purchase of foreign bonds and REMIC residual interests. These purchases are expected to generate sufficient foreign source taxable income to allow for the utilization of the foreign tax credits before the credits expire unused and recognition of certain state deferred tax assets.

Notwithstanding the above, the HNAH Group has valuation allowances against certain state deferred tax assets and certain Federal tax loss carryforwards for which the aforementioned tax planning strategies do not provide appropriate support.

HNAH Group valuation allowances are allocated to the principal subsidiaries, including us. The methodology allocates the valuation allowance to the principal subsidiaries based primarily on the entity's relative contribution to the growth of the HSBC North America consolidated deferred tax asset against which the valuation allowance is being recorded.

If future results differ from the HNAH Group's current forecasts or the tax planning strategies were to change, a valuation allowance against some or all of the remaining net deferred tax assets may need to be established which could have a material adverse effect on our results of operations, financial condition and capital position. The HNAH Group will continue to update its assumptions and forecasts of future taxable income, including relevant tax planning strategies, and assess the need for such incremental valuation allowances.

Absent the capital support from HSBC and implementation of the related tax planning strategies, the HNAH Group, including us, would be required to record a valuation allowance against the remaining deferred tax assets.

HSBC Finance Corporation Income Taxes We recognize deferred tax assets and liabilities for the future tax consequences related to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax credits and net operating and other losses. Our net deferred tax assets, including deferred tax liabilities and valuation allowances, totaled $3.9 billion and $3.3 billion as of December 31, 2012 and 2011, respectively.

During the third quarter of 2012, the Internal Revenue Service ("IRS") Appeals Office closed its review covering the tax periods 1998 through 2005 after the settlement was approved by the Joint Committee on Taxation. There is no resulting impact to our uncertain tax reserves.

The IRS began its audit of our 2006 and 2007 income tax returns in 2009, with an anticipated completion in 2013. The IRS began their examination of our 2008 and 2009 income tax returns during the third quarter of 2011, with an anticipated completion in 2013.

We remain subject to state and local income tax examinations for years 1998 and forward. We are currently under audit by various state and local tax jurisdictions. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law and the closing of statute of limitations. Such adjustments are reflected in the tax provision.

At December 31, 2012, we had net operating loss carryforwards of $12.0 billion for state tax purposes which expire as follows: $292 million in 2013-2017; $336 million in 2018-2022; $2.5 billion in 2023-2027; and $8.9 billion in 2028 and forward.

At December 31, 2012, we had general business tax credit carryforwards of $12 million for state income tax purposes of which $2 million expire in 2013-2017 and $10 million have no expiration period.

14. Redeemable Preferred Stock

In November 2010, we issued 1,000 shares of 8.625 percent Non-Cumulative Preferred Stock, Series C ("Series C Preferred Stock") to our parent, HINO, for a cash purchase price of $1.0 billion. Dividends on the Series C Preferred Stock are non-cumulative and payable quarterly at a rate of 8.625 percent. The Series C Preferred Stock may be redeemed at our option after November 30, 2025 at $1,000,000 per share, plus accrued dividends. The redemption and liquidation value is $1.0 million per share plus accrued and unpaid dividends. The holders of Series C Preferred Stock are entitled to payment before any capital distribution is made to the common shareholder and have no voting rights except for the right to elect two additional members to the board of directors in the event that dividends have not been declared and paid for six quarters, or as otherwise provided by law. Additionally, as long as any shares of the Series C Preferred Stock are outstanding, the authorization, creation or issuance of any class or series of stock that would rank prior to the Series C Preferred Stock with respect to dividends or amounts payable upon liquidation or dissolution of HSBC Finance Corporation must be approved by the holders of at least two-thirds of the shares of Series C Preferred Stock outstanding at that time. We began paying dividends during the first quarter of 2011. During 2012 and 2011, we declared dividends on the Series C Preferred Stock totaling $86 million and $89 million, respectively, which were paid prior to December 31, 2012 and 2011.

In June 2005, we issued 575,000 shares of 6.36 percent Non-Cumulative Preferred Stock, Series B ("Series B Preferred Stock") to third parties. Dividends on the Series B Preferred Stock are non-cumulative and payable quarterly at a rate of 6.36 percent. The Series B Preferred Stock may be redeemed at our option after June 23, 2010 at $1,000 per share, plus accrued dividends. The redemption and liquidation value is $1,000 per share plus accrued and unpaid dividends. The holders of Series B Preferred Stock are entitled to payment before any capital distribution is made to the common shareholder and have no voting rights except for the right to elect two additional members to the board of directors in the event that dividends have not been declared and paid for six quarters, or as otherwise provided by law. Additionally, as long as any shares of the Series B Preferred Stock are outstanding, the authorization, creation or issuance of any class or series of stock which would rank prior to the Series B Preferred Stock with respect to dividends or amounts payable upon liquidation or dissolution of HSBC Finance Corporation must be approved by the holders of at least two-thirds of the shares of Series B Preferred Stock outstanding at that time. In each of 2012, 2011 and 2010, we declared dividends totaling $37 million on the Series B Preferred Stock which were paid prior to December 31, 2012 and 2011.

15. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) ("AOCI") includes certain items that are reported directly within a separate component of shareholders' equity. The following table presents changes in accumulated other comprehensive income (loss)balances.

Year Ended December 31,	2012			2011			2010
	(in millions)
Unrealized gains (losses) on cash flow hedging instruments:
Balance at beginning of period	$	(494	)	$	(575	)	$	(632	)
Other comprehensive income for period:
Net gains arising during period, net of tax of $65 million, $29 million and $2 million, respectively	118			45			3
Reclassification adjustment for losses realized in net income, net of tax of $10 million, $23 million and $41 million, respectively	18			36			54
Total other comprehensive income for period	136			81			57
Balance at end of period	(358		)	(494		)	(575		)
Unrealized gains (losses) on securities available-for-sale, not other-than temporarily impaired:
Balance at beginning of period	$	102		$	78		$	38
Reclassification of unrealized gains on other-than-temporary impaired debt securities, net of tax of $- million, $- million, and $- million, respectively	1			-			-
Other comprehensive income for period:
Net unrealized holding gains arising during period, net of tax of $16 million, $33 million and $25 million, respectively	28			60			44
Reclassification adjustment for (gains) losses realized in net income, net of tax of $(9) million, $(20) million and $(3) million, respectively	(16		)	(36		)	(4		)
Total other comprehensive income for period	12			24			40
Balance at end of period	115			102			78
Unrealized gains (losses) on other-than-temporarily impaired debt securities available-for-sale:
Balance at beginning of period	$	-		$	(4	)	$	(7	)
Reclassification of unrealized gains on other-than-temporary impaired debt securities, net of tax of $- million, $- million and $- million, respectively	(1		)	-			-
Other comprehensive income for period:
Other-than-temporary impairment on debt securities available-for-sale recognized in other comprehensive income, net of tax of $1 million, $(1) million and $1 million, respectively	2			(1		)	3
Reclassification adjustment for (gains) losses realized in net income, net of tax of $- million, $4 million and $- million, respectively	-			5			-
Total other comprehensive loss for period	2			4			3
Balance at end of period	1			-			(4		)
Pension and postretirement benefit plan liability:
Balance at beginning of period	(11		)	-			8
Other comprehensive income for period:
Change in unfunded pension and postretirement liability, net of tax of $(9) million, $(7) million, and $(5) million, respectively	(17		)	(12		)	(8		)
Reclassification adjustment for (gains) losses realized in net income, net of tax of $1 million, $1 million, and $- million, respectively	2			1			-
Total other comprehensive income for period	(15		)	(11		)	(8		)
Balance at end of period	(26		)	(11		)	-
Foreign currency translation adjustments:
Balance at beginning of period	7			10			10
Other comprehensive loss for period:
Translation gains (losses), net of tax of $1 million, $(1) million and $2 million, respectively	4			(3		)	-
Total other comprehensive income for period	4			(3		)	-
Balance at end of period	11			7			10
Total accumulated other comprehensive loss at end of period	$	(257	)	$	(396	)	$	(491	)

16. Share-Based Plan

Employee Stock Purchase Plans The HSBC Holdings Savings-Related Share Option Plan (the "HSBC Sharesave Plan") allows eligible employees to enter into savings contracts of one, three or five year lengths, with the ability to decide at the end of the contract term to either use their accumulated savings to purchase HSBC ordinary shares at a discounted option price or have the savings plus interest repaid in cash. Employees can currently save up to $400 per month over all their HSBC Sharesave Plan savings contracts. Compensation expense related to grants under the HSBC Sharesave Plan totaled $1 million in 2010. Compensation expense in 2012 and 2011 was insignificant.

Restricted Share Plans Subsequent to our acquisition by HSBC, key employees have been provided awards in the form of restricted share rights ("RSRs"), restricted shares ("RSs") and restricted share units ("RSUs") under the HSBC Group Share Plan. These shares have been granted subject to either time-based vesting or performance-based vesting, typically over three to five years. Currently, share-based awards granted to U.S. employees are granted in the form of RSUs. Annual awards to employees in 2012, 2011 and 2010 are subject to three-year time-based graded vesting. Also during 2011 we made a one-time grant of performance-based awards, which represented a significant portion of the shares awarded in 2011, that are subject to performance-based vesting periods ranging from 12 to 30 months. We also issue a small number of off-cycle grants each year, primarily for reasons related to recruitment of new employees. Compensation expense for these restricted share plans totaled $9 million, $10 million and $8 million in 2012, 2011 and 2010, respectively. As of December 31, 2012, future compensation cost related to grants which have not yet fully vested is approximately $11 million. This amount is expected to be recognized over a weighted-average period of 1.41 years.

Stock Option Plans The HSBC Holdings Group Share Option Plan (the "Group Share Option Plan"), which replaced the former Household stock option plans, was a long-term incentive compensation plan available to certain employees prior to 2005. Grants were usually made annually. At the 2005 HSBC Annual Meeting of Stockholders, the shareholders approved and HSBC adopted the HSBC Share Plan ("Group Share Plan") to replace this plan. Since 2004, no further options have been granted to employees although stock option grants from previous years remain in effect subject to the same conditions as before. Such options were granted at market value. There was no compensation expense related to the Group Share Option Plan during 2012, 2011 and 2010.

Prior to our acquisition by HSBC, certain employees were eligible to participate in the former Household stock option plan. Employee stock options generally vested equally over 4 years and expired 10 years from the date of grant. Upon completion of our acquisition by HSBC, all options granted prior to November 2002 vested and became outstanding options to purchase HSBC ordinary shares. Options granted under the former Household plan subsequent to October 2002 were converted into options to purchase ordinary shares of HSBC, but did not vest under the change in control. No compensation expense related to the former Household plan was recorded in 2012, 2011 or 2010 as all shares under the former Household plan are fully vested.

17. Pension and Other Postretirement Benefits

Defined Benefit Pension Plan Effective January 1, 2005, our previously separate qualified defined benefit pension plan was combined with that of HSBC Bank USA's into a single HSBC North America qualified defined benefit pension plan (either the "HSBC North America Pension Plan" or the "Plan") which facilitates the development of a unified employee benefit policy and unified employee benefit plan administration for HSBC companies operating in the U.S.

The table below reflects the portion of pension expense and its related components of the HSBC North America Pension Plan which has been allocated to us and is recorded in our consolidated statement of income (loss).

Year Ended December 31,	2012			2011			2010
	(in millions)
Service cost - benefits earned during the period	$	4		$	5		$	12
Interest cost on projected benefit obligation	47			33			39
Expected return on assets	(65		)	(39		)	(39		)
Recognized losses	33			18			23
Curtailment gain	(4		)	(1		)	-
Amortization of prior service costs	(1		)	-			-
Pension expense	$	14		$	16		$	35

Pension expense was flat during 2012 as higher expected returns on plan assets due to higher asset levels, including additional contributions to the Plan during 2012 of $181 million and the recognition of a curtailment gain as discussed more fully below, were offset by higher interest costs and higher recognized losses.

During the third quarter of 2012, a decision was made to cease all future contributions under the Cash Balance formula and freeze the Plan effective January 1, 2013. While participants with existing balances will continue to receive interest credits until the account is distributed, they will no longer accrue benefits beginning in 2013. This resulted in the recognition of a $4 million curtailment gain during 2012.

During December 2011, an amendment was made to the Plan effective January 1, 2011 to amend the benefit formula, thus increasing the benefits associated with services provided by certain employees in past periods. The financial impact is being amortized to pension expense over the remaining life expectancy of the participants.

During the first quarter of 2010, we announced that the Board of Directors of HSBC North America had approved a plan to cease all future benefit accruals for legacy participants under the final average pay formula components of the HSBC North America Pension Plan effective January 1, 2011. Future accruals to legacy participants under the Plan are now provided under the cash balance based formula which has been used to calculate benefits for employees hired after December 31, 1999. Furthermore, all future benefit accruals under the Supplemental Retirement Income Plan ceased effective January 1, 2011.

The aforementioned changes to the Plan have been accounted for as a negative plan amendment and, therefore, the reduction in our share of HSBC North America's projected benefit obligation as a result of this decision is being amortized to net periodic pension cost over the future service periods of the affected employees. The changes to the Supplemental Retirement Income Plan have been accounted for as a plan curtailment, which resulted in no significant immediate recognition of income or expense.

The assumptions used in determining pension expense of the HSBC North America Pension Plan are as follows:

	2012		2011		2010
Discount rate	4.60	%	5.30	%	5.60	%
Salary increase assumption	2.75		2.75		2.90
Expected long-term rate of return on Plan assets	7.00		7.25		7.70

The accumulated benefit obligation for the HSBC North America Pension Plan was $4.4 billion and $3.9 billion at December 31, 2012 and December 31, 2011, respectively. As the projected benefit obligation and the accumulated benefit obligation relate to the HSBC North America Pension Plan, only a portion of this deficit could be considered our responsibility.

Estimated future benefit payments for the HSBC North America Pension Plan are as follows:

	HSBC North America
	(in millions)
2013	$	183
2014	186
2015	189
2016	193
2017	196
2018-2022	1,031

Supplemental Retirement Plan We also offer a non-qualified supplemental retirement plan. This plan, which is currently unfunded, provides eligible employees defined pension benefits outside the qualified retirement plan. Benefits are based on average earnings, years of service and age at retirement. The projected benefit obligation was $66 million and $85 million at December 31, 2012 and 2011, respectively. Pension expense related to the supplemental retirement plan was $17 million, $4 million and $7 million in 2012, 2011 and 2010, respectively.

Defined Contribution Plans We participate in the HSBC North America 401(k) savings plan and profit sharing plan which exist for employees meeting certain eligibility requirements. Under these plans, each participant's contribution is matched up to a maximum of 6 percent of the participant's compensation. Contributions are in the form of cash. Total expense for these plans for HSBC Finance Corporation was $4 million, $4 million and $6 million in 2012, 2011 and 2010, respectively.

Postretirement Plans Other Than Pensions Our employees also participate in plans which provide medical, dental and life insurance benefits to retirees and eligible dependents. These plans cover substantially all employees who meet certain age and vested service requirements. We have instituted dollar limits on our payments under the plans to control the cost of future medical benefits.

The net postretirement benefit cost for continuing operations included the following:

Year Ended December 31,	2012		2011		2010
	(in millions)
Service cost - benefits earned during the period	$	-	$	-	$	1
Interest cost	6		5		6
Net periodic postretirement benefit cost	$	6	$	5	$	7

The assumptions used in determining the net periodic postretirement benefit cost for our postretirement benefit plans are as follows:

	2012		2011		2010
Discount rate	4.25	%	4.95	%	5.20	%
Salary increase assumption	2.75		2.75		2.90

A reconciliation of the beginning and ending balances of the accumulated postretirement benefit obligation for both continuing and discontinued operations is as follows:

	2012			2011
	(in millions)
Accumulated benefit obligation at beginning of year	$	195		$	184
Service cost	1			1
Interest cost	7			9
Actuarial losses	26			13
Benefits paid, net	(21		)	(12		)
Plan curtailment	$	(11	)	$	-
Accumulated benefit obligation at end of year	$	197		$	195

Our postretirement benefit plans are funded on a pay-as-you-go basis. We currently estimate that we will pay benefits of approximately $18 million relating to our postretirement benefit plans in 2013. The funded status of our postretirement benefit plans was a liability of $197 million and $195 million at December 31, 2012 and 2011, respectively.

Estimated future benefit payments for our postretirement benefit plans for both continuing and discontinued operations are as follows:

	(in millions)
2013	$	18
2014	18
2015	18
2016	17
2017	17
2018-2022	77

The assumptions used in determining the benefit obligation of our postretirement benefit plans are as follows:

At December 31,	2012		2011		2010
Discount rate	3.35	%	4.25	%	4.95	%
Salary increase assumption	2.75		2.75		2.75

A 7.4 percent annual rate of increase in the gross cost of covered health care benefits for participants under the age of 65 and a 7.0 percent annual rate for participants over the age of 65 was assumed for 2012. This rate of increase is assumed to decline gradually to 4.5 percent in 2027.

Assumed health care cost trend rates have an effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would increase (decrease) service and interest costs and the postretirement benefit obligation as follows:

	One Percent Increase		One Percent Decrease
	(in millions)
Effect on total of service and interest cost components	$	.1	$	(.1	)
Effect on postretirement benefit obligation	3.9		(3.5		)

18. Related Party Transactions

In the normal course of business, we conduct transactions with HSBC and its subsidiaries. These transactions occur at prevailing market rates and terms and include funding arrangements, derivative execution, servicing arrangements, information technology and some centralized support services, item and statement processing services, banking and other miscellaneous services. The following tables present related party balances and the income (expense) generated by related party transactions for continuing operations:

At December 31,	2012		2011
	(in millions)
Assets:
Cash	$	193	$	209
Securities purchased under agreements to resell	2,160		920
Other assets	105		124
Total assets	$	2,458	$	1,253
Liabilities:
Due to affiliates (includes $514 million and $447 million at December 31, 2012 and 2011 carried at fair value, respectively)	$	9,089	$	8,262
Derivative related liability	18		25
Other liabilities⁽¹⁾	83		47
Total liabilities	$	9,190	$	8,334

⁽¹⁾Other liabilities includes $55 million at December 31, 2011 related to accrued interest receivable on derivative positions with affiliates. There were no similar balances at December 31, 2012.

Year Ended December 31,	2012			2011			2010
	(in millions)
Income/(Expense):
Interest income from HSBC affiliates	$	4		$	6		$	7
Interest expense paid to HSBC affiliates(1)	(552		)	(578		)	(764		)
Net interest income (loss)	$	(548	)	$	(572	)	$	(757	)
Gain (loss) on FVO debt with affiliate	$	(68	)	$	(10	)	$	(4	)
HSBC affiliate income:
Servicing and other fees from HSBC affiliates:
Real estate secured servicing and related fees from HSBC Bank USA	$	10		$	11		$	12
Other servicing, processing and support revenues	7			10			16
HSBC Technology and Services (USA) Inc. ("HTSU") administrative fees and rental revenue(2)	18			(1		)	8
Total servicing and other fees from HSBC affiliates	$	35		$	20		$	36
Support services from HSBC affiliates	$	(310	)	$	(270	)	$	(241	)
Stock based compensation expense with HSBC	$	(10	)	$	(8	)	$	(10	)

⁽¹⁾Includes interest expense paid to HSBC affiliates for debt held by HSBC affiliates as well as net interest paid to or received from HSBC affiliates on risk management positions related to non-affiliated debt.

⁽²⁾Rental revenue/(expense) from HTSU totaled $15 million, $(9) million and $3 million during 2012, 2011 and 2010, respectively.

Transactions with HSBC USA Inc., including HSBC Bank USA:

• In 2003 and 2004, we sold approximately $3.7 billion of real estate secured receivables to HSBC Bank USA. We continue to service these receivables for a fee. At December 31, 2012 and 2011, we were servicing receivables totaling $1.2 billion and $1.3 billion, respectively. Servicing fees for these receivables totaled $4 million, $4 million and $5 million during 2012, 2011 and 2010, respectively.

• Under multiple service level agreements, we also provide various services to HSBC Bank USA, including real estate secured receivable servicing and processing activities and other operational and administrative support. Fees received for these services are reported as Servicing and other fees from HSBC affiliates.

• In the fourth quarter of 2009, an initiative was begun to streamline the servicing of real estate secured receivables across North America. As a result, certain functions that we had previously performed for our mortgage customers are now being performed by HSBC Bank USA for all North America mortgage customers, including our mortgage customers. Additionally, we began performing certain functions for all North America mortgage customers where these functions had been previously provided separately by each entity. During 2011, we began a process to separate these functions so that each entity will be servicing its own mortgage customers when the process is completed. The following table summarizes fees received and paid during 2012, 2011 and 2010, respectively:

Year Ended December 31,	2012		2011		2010
	(in millions)
Fees received from HSBC Bank USA	$	6	$	7	$	7
Fees paid to HSBC Bank USA	3		10		8

• In July 2010, we transferred certain employees in our real estate secured receivable servicing department to a subsidiary of HSBC Bank USA. These employees continue to service our real estate secured receivable portfolio and we pay a fee to HSBC Bank USA for these services. During 2012, 2011 and 2010, we paid $58 million, $62 million and $34 million, respectively, for services we received from HSBC Bank USA.

• The notional value of derivative contracts outstanding with HSBC subsidiaries totaled $26.0 billion and $40.4 billion at December 31, 2012 and 2011, respectively. When the fair value of our agreements with affiliate counterparties requires the posting of collateral, it is provided in either the form of cash and recorded on the balance sheet, consistent with third party arrangements, or in the form of securities which are not recorded on our balance sheet. The fair value of our agreements with affiliate counterparties required the affiliate to provide collateral to us of $75 million and $584 million at December 31, 2012 and 2011, respectively, all of which was received in cash. These amounts are offset against the fair value amount recognized for derivative instruments that have been offset under the same master netting arrangement.

• During the fourth quarter of 2011, HSBC USA Inc. extended a $3.0 billion 364-day uncommitted revolving credit agreement to us which allows for borrowings with maturities of up to 15 years. During the second quarter of 2012, an amendment was executed to increase the credit agreement to $4.0 billion. As of December 31, 2012, $2.0 billion was outstanding under this credit agreement with $512 million maturing in September 2017 and $1.5 billion maturing in January 2018. As of December 31, 2011, there were no amounts outstanding under this loan agreement.

• HSBC Bank USA extended a secured $1.5 billion uncommitted secured credit facility to certain of our subsidiaries in December 2008. This credit facility currently matures in November 2013. Any draws on this credit facility require regulatory approval. There were no balances outstanding at December 31, 2012 and 2011.

• In May 2012, HSBC USA Inc. extended a $2.0 billion 364-day committed revolving credit facility to us. As of December 31, 2012, there were no amounts outstanding under this credit facility.

Transactions with HSBC USA Inc. and HSBC Bank USA involving our Discontinued Operations:

• As it relates to our discontinued credit card operations, in January 2009 we sold our General Motors ("GM") and Union Plus ("UP") portfolios to HSBC Bank USA with an outstanding principal balance of $12.4 billion at the time of sale but retained the customer account relationships. In December 2004, we sold our private label receivable portfolio (excluding retail sales contracts at our Consumer Lending business) to HSBC Bank USA and also retained the customer account relationships. In July 2004, we purchased the account relationships associated with $970 million of credit card receivables from HSBC Bank USA. In each of these transactions, we agreed to sell on a daily basis all new receivable originations on these account relationships to HSBC Bank USA and serviced these receivables for a fee. As discussed in Note 3, "Discontinued Operations," on May 1, 2012, we sold our Card and Retail Services business to Capital One, which included these account relationships and receivables.

Intangible assets of our discontinued credit card operations at December 31, 2011 included $29 million, net, that related to the account relationships we purchased from HSBC Bank USA in July 2004 as discussed above. In March 2012, we sold these account relationships to HSBC Bank USA resulting in a gain of $79 million during the first quarter of 2012 which is included as a component of income from discontinued operations.

The following table summarizes the receivable portfolios we serviced for HSBC Bank USA at December 31, 2011 as well as the cumulative amount of receivables sold on a daily basis during 2012, 2011 and 2010:

			Credit Cards
	Private Label		General Motors		Union Plus		Other		Total
	(in billions)
Receivables serviced for HSBC Bank USA:
December 31, 2012	$	-	$	-	$	-	$	-	$	-
December 31, 2011	12.8		4.1		3.5		2.0		22.4
Total of receivables sold on a daily basis to HSBC Bank USA during:
2012	4.4		3.9		1.0		1.1		10.4
2011	15.4		13.0		3.2		4.1		35.7
2010	14.6		13.5		3.2		4.1		35.4

Gains on the daily sales of the receivables discussed above during 2012 through the date of sale, which are included as a component of income from discontinued operations in the consolidated statement of income (loss), totaled $89 million compared to $567 million and $540 million during 2012, 2011 and 2010, respectively. No gains were recorded following the sale of our Card and Retail Services business to Capital One on May 1, 2012. Fees received for servicing these receivable portfolios during 2012 through the date of sale, which are included as a component of income from discontinued operations in the consolidated statement of income (loss), totaled $207 million compared to $594 million and $625 million during 2012, 2011 and 2010, respectively. No fees were received following the sale of our Card and Retail Services business to Capital One on May 1, 2012.

The GM and UP credit card receivables as well as the private label receivables were sold to HSBC Bank USA on a daily basis at a sales price for each type of portfolio determined using a fair value calculated semi-annually in April and October by an independent third party based on the projected future cash flows of the receivables. The projected future cash flows were developed using various assumptions reflecting the historical performance of the receivables and adjusted for key factors such as the anticipated economic and regulatory environment. The independent third party used these projected future cash flows and a discount rate to determine a range of fair values. We used the mid-point of this range as the sales price.

• HSBC Bank USA had extended a $1.0 billion committed unsecured credit facility to HSBC Bank Nevada ("HOBN") which was part of our credit card operations. This credit facility was terminated in May 2012. There were no balances outstanding at December 31, 2011.

• We had extended revolving lines of credit to subsidiaries of HSBC Bank USA for an aggregate total of $1.0 billion. These lines of credit were terminated in April 2012. No balances were outstanding under any of these lines of credit at December 31, 2011.

• As it relates to our TFS operations, which terminated in the fourth quarter of 2010, HSBC Bank USA and HSBC Trust Company (Delaware) ("HTCD") originated the loans on behalf of our TFS business for clients of a single third party tax preparer. We historically purchased the loans originated by HSBC Bank USA and HTCD daily for a fee. During the first quarter of 2010, we began purchasing a smaller portion of these loans. The loans which we previously purchased were retained on HSBC Bank USA's balance sheet. In the event any of the loans which HSBC Bank USA continued to hold on its balance sheet reached a defined delinquency status, we purchased the delinquent loans at par value as we assumed all credit risk associated with this program. We received a fee from HSBC Bank USA for both servicing the loans and assuming the credit risk associated with these loans which totaled $58 million during 2010 and is included as a component of loss from discontinued operations. For the loans which we continued to purchase from HTCD, we received taxpayer financial services revenue and paid an origination fee to HTCD. Fees paid for originations totaled $4 million in 2010 and are included as a component of loss from discontinued operations.

• As it relates to our discontinued auto finance operations, in January 2009, we sold certain auto finance receivables with an outstanding principal balance of $3.0 billion at the time of sale to HSBC Bank USA and recorded a gain on the bulk sale of these receivables of $7 million which is included as a component of loss from discontinued auto operations for 2009. In March 2010, we repurchased $379 million of these auto finance receivables from HSBC Bank USA and immediately sold them to SC USA. Prior to the sale of our receivable servicing operations to SC USA in March 2010, we serviced these auto finance receivables for HSBC Bank USA for a fee, which is included as a component of loss from discontinued auto operations. In August 2010, we sold the remainder of our auto finance receivable portfolio to SC USA.

Transactions with HSBC Holdings plc:

• We had a commercial paper back-stop credit facility of $1.1 billion at December 31, 2011 supporting our domestic issuances of commercial paper of which $600 million matured in September 2012 and was not renewed and $500 million was terminated in September 2012. There were no balances outstanding as of December 31, 2011. The annual commitment fee to support availability of this line was included as a component of Interest expense - HSBC affiliates in the consolidated statement of income (loss).

• Employees of HSBC Finance Corporation participate in one or more stock compensation plans sponsored by HSBC. These expenses are recorded in Salary and employee benefits and are reflected in the above table as Stock based compensation expense with HSBC.

Transactions with other HSBC affiliates:

• HSBC North America's technology and certain centralized support services including human resources, corporate affairs, risk management, legal, compliance, tax, finance and other shared services are centralized within HTSU. Technology related assets are generally capitalized and recorded on our consolidated balance sheet. HTSU also provides certain item processing and statement processing activities to us. The fees we pay HTSU for the centralized support services and processing activities are included in support services from HSBC affiliates. We also receive fees from HTSU for providing them certain administrative services, such as internal audit, as well as receiving rental revenue from HTSU for certain office space. The fees and rental revenue we receive from HTSU are recorded as a component of servicing and other fees from HSBC affiliates.

• We use HSBC Global Resourcing (UK) Ltd., an HSBC affiliate located outside of the United States, to provide various support services to our operations including among other areas, customer service, systems, collection and accounting functions. The expenses related to these services of $11 million, $13 million and $21 million in 2012, 2011 and 2010, respectively, are included as a component of Support services from HSBC affiliates in the table above. Through February 2011, the expenses for these services for all HSBC North America operations were billed directly to HTSU who then billed these services to the appropriate HSBC affiliate who benefited from the services. Beginning in March 2011, HSBC Global Resourcing (UK) Ltd began billing us directly for the services we receive from them.

• Due to affiliates includes amounts owed to subsidiaries of HSBC as a result of direct debt issuances. At December 31, 2012 and 2011, due to affiliates includes $514 million and $447 million carried at fair value under FVO reporting, respectively. During 2012, 2011 and 2010, loss on debt designated at fair value and related derivatives includes losses of $68 million, $10 million and $4 million, respectively, related to these debt issuances.

• During the first quarter of 2012, we executed two new $250 million loan agreements with HSBC Investments (Bahamas) Limited. During the third quarter of 2012, these loans matured and were not renewed.

• During the second quarter of 2011, we executed a $600 million loan agreement with HSBC North America which provides for three $200 million borrowings with maturities between 2034 and 2035. As of December 31, 2012 and 2011, $600 million was outstanding under this loan agreement.

• During the fourth quarter of 2011, we executed a commercial paper back-stop credit facility of $400 million with HSBC Trinkaus & Burkhardt AG ("Trinkaus"). As of December 31, 2012 and 2011, there were no amounts outstanding under this credit facility. This credit facility was terminated in October 2012.

• During the fourth quarter of 2011, we executed a commercial paper back-stop credit facility of $500 million with HSBC Investments (Bahamas) Limited maturing in April 2014. In October 2012, the amount available under the credit facility was reduced to $100 million. As of December 31, 2012 and 2011, there were no amounts outstanding under this loan agreement.

• During the fourth quarter of 2010, we issued 1,000 shares of Series C preferred stock to HINO for $1.0 billion. We began paying dividends on the Series C preferred stock during the first quarter of 2011. Dividends paid on the Series C Preferred Stock totaled $86 million and $89 million in 2012 and 2011, respectively. See Note 14, "Redeemable Preferred Stock," for further discussion of the Series C preferred stock.

• In December 2010, we made a deposit totaling $1.0 billion with HSBC Bank plc ("HBEU") at current market rates. This deposit was withdrawn during the third quarter of 2011. Interest income earned on this deposit is included in interest income from HSBC affiliates in the table above and was insignificant during 2011 and 2010.

• We purchase from HSBC Securities (USA) Inc. ("HSI") securities under an agreement to resell. Interest income recognized on these securities is reflected as interest income from HSBC affiliates in the table above.

• Support services from HSBC affiliates also includes banking services and other miscellaneous services provided by other subsidiaries of HSBC, including HSBC Bank USA.

• Domestic employees of HSBC Finance Corporation participate in a defined benefit pension plan and other post-retirement benefit plans sponsored by HSBC North America. See Note 17, "Pension and Other Post-retirement Benefits," for additional information on this pension plan.

• We have utilized HSI to lead manage the underwriting of a majority of our ongoing debt issuances as well as manage the debt exchange which occurred during 2010. During 2010, fees paid to HSI for such services totaled $13 million. There were no fees paid to HSI for such services during 2012 or 2011. For debt not accounted for under the fair value option, these fees are amortized over the life of the related debt and included as a component of interest expense.

• We guaranteed the long-term and medium-term notes issued by our Canadian business prior to its sale to HSBC Bank Canada through May 2012 when the notes were paid in full. During 2012, 2011 and 2010 the fees recorded for providing this guarantee were not significant and are included in interest income from HSBC affiliates in the table above. As part of the sale of our Canadian business to HSBC Bank Canada, the sale agreement allows us to continue to distribute various insurance products through the branch network for a fee which is included as a component of income from discontinued operations. As previously discussed, we have decided to sell our Insurance business. We will continue to distribute insurance products for HSBC Bank Canada until such time as our Insurance business is sold.

19. Business Segments

We have one reportable segment: Consumer. Our Consumer segment consists of our run-off Consumer Lending and Mortgage Services businesses. The Consumer segment provided real estate secured and personal non-credit card loans with both revolving and closed-end terms and with fixed or variable interest rates. Loans were originated through branch locations and direct mail. Products were also offered and customers serviced through the Internet. Prior to the first quarter of 2007, we acquired loans from correspondent lenders and prior to September 2007 we also originated loans sourced through mortgage brokers. While these businesses are operating in run-off, they have not been reported as discontinued operations because we continue to generate cash flow from the ongoing collections of the receivables, including interest and fees.

As previously discussed in Note 3, "Discontinued Operations," during the second quarter we began reporting our Insurance and Commercial businesses, which had previously been included in the "All Other" caption, as discontinued operations. As our segment results are reported on a continuing operations basis, beginning in the second quarter 2012, the results of our Insurance and Commercial businesses are not included in our segment reporting.

The All Other caption includes our corporate and treasury activities, which includes the impact of FVO debt. Each of these falls below the threshold tests under segment reporting accounting principles for determining reportable segments. Certain fair value adjustments related to purchase accounting resulting from our acquisition by HSBC and related amortization have been allocated to Corporate, which is included in the "All Other" caption within our segment disclosure. With the sale of our Card and Retail Services business completed on May 1, 2012 and upon the completion of the sale of our Insurance business as more fully discussed in Note 3, "Discontinued Operations," our corporate and treasury activities will solely be supporting our Consumer segment. As a result, beginning in 2013 we will report these activities within the Consumer Segment and no longer report an "All Other" caption within segment reporting.

We report financial information to our parent, HSBC, in accordance with International Financial Reporting Standards ("IFRSs"). Our segment results are presented in accordance with IFRSs (a non-U.S. GAAP financial measure) on a legal entity basis ("IFRSs Basis") as operating results are monitored and reviewed and trends are evaluated on an IFRSs Basis. However, we continue to monitor liquidity and capital adequacy, establish dividend policy and report to regulatory agencies on a U.S. GAAP basis. There have been no significant changes in measurement or composition of our segment reporting other than the items discussed above as compared with the presentation in our 2011 Form 10-K.

For segment reporting purposes, intersegment transactions have not been eliminated. We generally account for transactions between segments as if they were with third parties.

A summary of the significant differences between U.S. GAAP and IFRSs as they impact our results are presented below:

Net Interest Income

Effective interest rate - The calculation of effective interest rates under IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"), requires an estimate of changes in estimated contractual cash flows, including fees and points paid or received between parties to the contract that are an integral part of the effective interest rate be included. U.S. GAAP generally prohibits recognition of interest income to the extent the net investment in the loan would increase to an amount greater than the amount at which the borrower could settle the obligation. Under U.S. GAAP, prepayment penalties are generally recognized as received. U.S. GAAP also includes interest income on loans originated as held for sale which is included in other operating revenues for IFRSs. During 2011, for IFRSs there was approximately $185 million of cumulative effective interest rate adjustments recognized to correct prior period errors.

Deferred loan origination costs and fees - Loan origination cost deferrals under IFRSs are more stringent and generally result in lower costs being deferred than permitted under U.S. GAAP. In addition, all deferred loan origination fees, costs and loan premiums must be recognized based on the expected life of the receivables under IFRSs as part of the effective interest calculation while under U.S. GAAP they may be recognized on either a contractual or expected life basis.

Net interest income - Under IFRSs, net interest income includes the interest element for derivatives which corresponds to debt designated at fair value. For U.S. GAAP, this is included in gain (loss) on debt designated at fair value and related derivatives which is a component of other revenues.

Other Operating Income (Total Other Revenues)

Loans held for sale - IFRSs requires loans originated with the intent to sell in the near term to be classified as trading assets and recorded at their fair value. Under U.S. GAAP, loans designated as held for sale are reflected as loans and recorded at the lower of amortized cost or fair value. Under IFRSs, the income and expenses related to receivables held for sale are reported in other operating income. Under U.S. GAAP, the income and expenses related to receivables held for sale are reported similarly to loans held for investment.

For receivables transferred to held for sale subsequent to origination, IFRSs requires these receivables to be reported separately on the balance sheet when certain criteria are met which are generally more stringent than those under U.S. GAAP, but does not change the recognition and measurement criteria. Accordingly, for IFRSs purposes such loans continue to be accounted for and impairment continues to be measured in accordance with IAS 39 with any gain or loss recorded at the time of sale. U.S. GAAP requires loans that meet the held for sale classification requirements be transferred to a held for sale category at the lower of amortized cost or fair value. Under U.S. GAAP, the component of the lower of amortized cost or fair value adjustment related to credit risk at the time of transfer is recorded in the statement of income (loss) as provision for credit losses while the component related to interest rates and liquidity factors is reported in the statement of income (loss) in other revenues.

Extinguishment of debt - During the fourth quarter of 2010, we exchanged $1.8 billion in senior debt for $1.9 billion in new fixed rate subordinated debt. Under IFRSs, the population of debt exchanged which qualified for extinguishment treatment was larger than under U.S. GAAP which resulted in a gain on extinguishment of debt under IFRSs compared to a small loss under U.S. GAAP.

Securities - Under IFRSs, securities include HSBC shares held for stock plans at fair value. These shares held for stock plans are measured at fair value through other comprehensive income. If it is determined that these shares have become impaired, the unrealized loss in accumulated other comprehensive income is reclassified to profit or loss. There is no similar requirement under U.S. GAAP.

During the second quarter of 2009, under IFRSs we recorded income for the value of additional shares attributed to HSBC shares held for stock plans as a result of HSBC's rights offering earlier in 2009. During 2011, under IFRSs we recorded additional gains as these shares vest. The additional shares are not recorded under U.S. GAAP.

Other-than-temporary impairments - Under U.S. GAAP, a decline in fair value of an available-for-sale debt security below its amortized cost may indicate that the security is other-than-temporarily impaired under certain conditions. IFRSs do not have an "other than temporary" impairment concept. Under IFRSs, a decline in fair value of an available-for-sale debt security below its amortized cost is considered evidence of impairment if the decline can, at least partially, be attributed to an incurred loss event that impacts the estimated future cash flows of the security (i.e., a credit loss event). Thus a security may not be considered impaired if the decline in value is the result of events that do not negatively impact the estimated future cash flows of the security (e.g., an increase in the risk-free interest rate). However, until the entity sells the security, it will have to assess the security for credit losses at each reporting date.

Another difference between U.S. GAAP and IFRSs is the amount of the loss that an entity recognizes in earnings on an impaired (other-than-temporarily impaired for U.S. GAAP) available-for-sale debt security. Under U.S. GAAP, if an entity has decided to sell a debt security whose fair value has declined below its amortized cost, or will be more likely than not required to sell the debt security before it recovers its amortized cost basis, it will recognize an impairment loss in earnings equal to the difference between the debt security's carrying amount and its fair value. If the entity has not decided to sell the debt security and will not be more likely than not required to sell the debt security before it recovers its amortized cost basis, but nonetheless expects that it will not recover the security's amortized cost basis, it will bifurcate the impairment loss into a credit loss component and a non-credit loss component, and recognize the credit loss component in earnings and the non-credit loss component in other comprehensive income. Under IFRSs, the entity recognizes the entire decline in fair value below amortized cost in earnings.

REO expense - Other revenues under IFRSs include losses on sale and the lower of amortized cost or fair value of the collateral less cost to sell adjustments on REO properties which are classified as other expense under U.S. GAAP.

Loan Impairment Charges (Provision for Credit Losses)

IFRSs requires a discounted cash flow methodology for estimating impairment on pools of homogeneous customer loans which requires the discounting of cash flows including recovery estimates at the original effective interest rate of the pool of customer loans. The amount of impairment relating to the discounting of future cash flows unwinds with the passage of time, and is recognized in interest income. Also under IFRSs, if the recognition of a write-down to fair value on secured loans decreases because collateral values have improved and the improvement can be related objectively to an event occurring after recognition of the write-down, such write-down is reversed, which is not permitted under U.S. GAAP. Additionally under IFRSs, future recoveries on charged-off loans or loans written down to fair value less cost to obtain title and sell the collateral are accrued for on a discounted basis and a recovery asset is recorded. Subsequent recoveries are recorded to earnings under U.S. GAAP, but are adjusted against the recovery asset under IFRSs. Under IFRSs, interest on impaired loans is recorded at the effective interest rate on the customer loan balance net of impairment allowances, and therefore reflects the collectability of the loans.

As discussed above, under U.S. GAAP the credit risk component of the initial lower of amortized cost or fair value adjustment related to the transfer of receivables to held for sale is recorded in the statement of income (loss) as provision for credit losses. There is no similar requirement under IFRSs.

As previously discussed, in the third quarter of 2011 we adopted new guidance under U.S. GAAP for determining whether a restructuring of a receivable meets the criteria to be considered a TDR Loan. Credit loss reserves on TDR Loans are established based on the present value of expected future cash flows discounted at the loans' original effective interest rate.

Under IFRSs, impairment on the residential mortgage loans where we have granted the borrower a concession as a result of financial difficulty is measured based on the cash flows attributable to the credit loss events which occurred before the reporting date. HSBC's accounting policy under IFRSs is to remove such loans from the category of impaired loans after a defined period of re-performance, although such loans remain segregated from loans that were not impaired in the past for the purposes of collective impairment assessment to reflect their credit risk. Under U.S. GAAP, when a loan is impaired the impairment is measured based on all expected cash flows over the remaining expected life of the loan. Such loans remain impaired for the remainder of their lives under U.S. GAAP.

For loans collectively evaluated for impairment under U.S. GAAP, bank industry practice which we adopted in the fourth quarter of 2012 generally results in a loss emergence period for these loans using a roll rate migration analysis which results in 12 months of losses in our credit loss reserves. Under IFRSs, we completed a review in the fourth quarter of 2012 which concluded that the estimated average period of time from current status to write-off for real estate secured loans collectively evaluated for impairment using a roll rate migration analysis was 10 months (previously a period of 7 months was used) which was also adopted in the fourth quarter of 2012.

Operating Expenses

Pension and other postretirement benefit costs - Pension expense under U.S. GAAP is generally higher than under IFRSs as a result of the amortization of the amount by which actuarial losses exceeded the higher of 10 percent of the projected benefit obligation or fair value of plan assets (the "corridor."). In 2012, amounts include a higher pension curtailment benefit under U.S. GAAP as a result of the decision in the third quarter to cease all future contributions under the Cash Balance formula of the HSBC North America Pension Plan and freeze the plan effective January 1, 2013. During the fourth quarter of 2011, an amendment was made to the benefit formula associated with services provided by certain employees in past periods. Under IFRSs, the financial impact of this amendment of $31 million was immediately recognized in earnings. Under U.S. GAAP, the financial impact was recorded in accumulated other comprehensive income and will be amortized to net periodic pension costs over the remaining life expectancy of the participants. Additionally, during the fourth quarter of 2011, under IFRSs we recorded a curtailment gain of $52 million related to our decision to sell our Card and Retail Services business, as previously discussed. Under U.S. GAAP, the curtailment gain was recorded upon completion of the transaction in the second quarter of 2012.

Furthermore, in 2010 changes to future accruals for legacy participants under the HSBC North America Pension Plan were accounted for as a plan curtailment under IFRSs, which resulted in immediate income recognition. Under U.S. GAAP, these changes were considered to be a negative plan amendment which resulted in no immediate income recognition.

Litigation accrual - A litigation accrual was recorded at December 31, 2011 related to a potential settlement of a legal matter where the loss criteria have been met and an accrual can be estimated for U.S. GAAP. Under IFRSs, apart from the likelihood of a potential settlement, it was determined that a present obligation does not exist at December 31, 2011 and, therefore, a liability was not recognized.

Share-based bonus arrangements - Under IFRSs, the recognition of compensation expense related to share-based bonuses begins on January 1 of the current year for awards expected to be granted in the first quarter of the following year. Under U.S. GAAP, the recognition of compensation expense related to share-based bonuses does not begin until the date the awards are granted.

Assets

Customer loans (Receivables) - As discussed more fully above under "Other Operating Income (Total Other Revenues) - Loans held for sale," on an IFRSs basis, loans designated as held for sale at the time of origination and accrued interest are classified as trading assets. However, the accounting requirements governing when receivables previously held for investment are transferred to a held for sale category are more stringent under IFRSs than under U.S. GAAP. Unearned insurance premiums are reported as a reduction to receivables on a U.S. GAAP basis but are reported as insurance reserves for IFRSs. IFRSs also allows for reversals of write-downs to fair value on secured loans when collateral values have improved which is not permitted under U.S. GAAP.

Derivatives - Under U.S. GAAP, derivative receivables and payables with the same counterparty may be reported on a net basis in the balance sheet when there is an executed International Swaps and Derivatives Association, Inc. ("ISDA") Master Netting Arrangement. In addition, under U.S. GAAP, fair value amounts recognized for the obligation to return cash collateral received or the right to reclaim cash collateral paid are offset against the fair value of derivative instruments. Under IFRSs, these agreements do not necessarily meet the requirements for offset, and therefore such derivative receivables and payables are presented gross on the balance sheet.

Reconciliation of our IFRS Basis segment results to the U.S. GAAP consolidated totals are as follows:

	Consumer			All Other			Adjustments/ Reconciling Items⁽¹⁾			IFRS Basis Consolidated Totals			IFRS Adjustments⁽²⁾			IFRS Reclassifications⁽³⁾			U.S. GAAP Consolidated Totals
	(in millions)
Year Ended December 31, 2012:
Net interest income	$	2,350		$	190		$	-		$	2,540		$	(500	)	$	(394	)	$	1,646
Other operating income (Total other revenues)	(11		)	(942		)	(7		)	(960		)	(1,609		)	450			(2,119		)
Total operating income (loss)	2,339			(752		)	(7		)	1,580			(2,109		)	56			(473		)
Loan impairment charges (Provision for credit losses)	2,556			-			-			2,556			(332		)	-			2,224
	(217		)	(752		)	(7		)	(976		)	(1,777		)	56			(2,697		)
Operating expenses	984			37			(7		)	1,014			44			56			1,114
Profit (loss) before tax	$	(1,201	)	$	(789	)	$	-		$	(1,990	)	$	(1,821	)	$	-		$	(3,811	)
Intersegment revenues	6			1			(7		)	-			-			-			-
Depreciation and amortization	1			12			-			13			-			(6		)	7
Expenditures for long-lived assets	-			3			-			3			-			-			3
Balances at end of period:																			-
Customer loans (Receivables)	$	37,496		$	60		$	-		$	37,556		$	(4,557	)	$	(60	)	$	32,939
Assets	40,215			7,605			-			47,820			(3,074		)	-			44,746
Year Ended December 31, 2011:
Net interest income	$	2,456		$	425		$	-		$	2,881		$	(522	)	$	(583	)	$	1,776
Other operating income (Total other revenues)	(48		)	(504		)	(25		)	(577		)	3			714			140
Total operating income (loss)	2,408			(79		)	(25		)	2,304			(519		)	131			1,916
Loan impairment charges (Provision for credit losses)	4,911			2			-			4,913			(495		)	-			4,418
	(2,503		)	(81		)	(25		)	(2,609		)	(24		)	131			(2,502		)
Operating expenses	1,021			168			(25		)	1,164			(40		)	131			1,255
Profit (loss) before tax	$	(3,524	)	$	(249	)	$	-		$	(3,773	)	$	16		$	-		$	(3,757	)
Intersegment revenues	70			(45		)	(25		)	-			-			-			-
Depreciation and amortization	1			14			-			15			8			(4		)	19
Expenditures for long-lived assets	-			4			-			4			-			-			4
Balances at end of period:
Customer loans (Receivables)	$	48,075		$	60		$	-		$	48,135		$	(162	)	$	(61	)	$	47,912
Assets	46,859			6,671			-			53,530			(2,974		)	110			50,666
Year Ended December 31, 2010:
Net interest income	$	2,326		$	743		$	-		$	3,069		$	(261	)	$	(772	)	$	2,036
Other operating income (Total other revenues)	(30		)	(328		)	(22		)	(380		)	(69		)	933			484
Total operating income (loss)	2,296			415			(22		)	2,689			(330		)	161			2,520
Loan impairment charges (Provision for credit losses)	5,692			(5		)	-			5,687			(341		)	-			5,346
	(3,396		)	420			(22		)	(2,998		)	11			161			(2,826		)
Operating expenses	883			110			(22		)	971			44			161			1,176
Profit (loss) before tax	$	(4,279	)	$	310		$	-		$	(3,969	)	$	(33	)	$	-		$	(4,002	)
Intersegment revenues	73			(51		)	(22		)	-			-			-			-
Depreciation and amortization	2			17			-			19			3			-			22
Expenditures for long-lived assets	-			10			-			10			-			-			10
Balances at end of period:
Customer loans (Receivables)	$	56,725		$	2,250		$	-		$	58,975		$	(270	)	$	(2,249	)	$	56,456
Assets	57,531			10,282			-			67,813			(3,408		)	(60		)	64,345

⁽¹⁾Eliminates intersegment revenues.

⁽²⁾IFRS Adjustments, which have been described more fully above, consist of the following:

	Net Interest Income			Other Revenues			Provision For Credit Losses			Total Costs and Expenses			Profit (Loss) Before Tax			Receivables			Total Assets
	(in millions)
Year Ended December 31, 2012:
Derivatives and hedge accounting	$	15		$	-		$	-		$	-		$	15		$	-		$	(4	)
Purchase accounting	(5		)	3			14			-			(16		)	19			46
Deferred loan origination costs and premiums	(15		)	(5		)	-			-			(20		)	125			70
Credit loss impairment provisioning	(535		)	(14		)	15			-			(564		)	(222		)	(533		)
Loans held for resale	4			(1,523		)	(361		)	5			(1,162		)	(4,487		)	(768		)
Interest recognition	34			-			-			-			34			8			16
Other	2			(70		)	-			39			(108		)	-			(1,901		)
Total	$	(500	)	$	(1,609	)	$	(332	)	$	44		$	(1,821	)	$	(4,557	)	$	(3,074	)
Year Ended December 31, 2011:
Derivatives and hedge accounting	$	5		$	-		$	-		$	-		$	5		$	-		$	-
Goodwill and intangible assets	-			-			-			-			-			-			(111		)
Purchase accounting	(4		)	32			14			-			14			21			57
Deferred loan origination costs and premiums	(30		)	-			-			-			(30		)	143			83
Credit loss impairment provisioning	(499		)	-			(506		)	-			7			(300		)	(170		)
Loans held for resale	6			-			-			-			6			(36		)	(23		)
Interest recognition	(2		)	-			-			-			(2		)	10			(6		)
Other	2			(29		)	(3		)	(40		)	16			-			(2,804		)
Total	$	(522	)	$	3		$	(495	)	$	(40	)	$	16		$	(162	)	$	(2,974	)
Year Ended December 31, 2010:
Derivatives and hedge accounting	$	12		$	-		$	-		$	-		12			$	-		$	-
Goodwill and intangible assets	-			-			-			5			(5		)	-			-
Purchase accounting	2			(10		)	23			-			(31		)	(7		)	48
Deferred loan origination costs and premiums	(68		)	-			-			-			(68		)	175			102
Credit loss impairment provisioning	(213		)	-			(369		)	-			156			(413		)	(175		)
Loans held for resale	8			3			3			-			8			(42		)	(27		)
Interest recognition	(2		)	-			-			5			(7		)	17			(5		)
Other	-			(62		)	2			34			(98		)	-			(3,351		)
Total	$	(261	)	$	(69	)	$	(341	)	$	44		$	(33	)	$	(270	)	$	(3,408	)

(3) Represents differences in balance sheet and income statement presentation between IFRS and U.S. GAAP.

20. Variable Interest Entities

We consolidate variable interest entities ("VIEs") in which we are deemed to be the primary beneficiary through our holding of a variable interest which is determined as a controlling financial interest. The controlling financial interest is evidenced by the power to direct the activities of a VIE that most significantly impact its economic performance and obligations to absorb losses of, or the right to receive benefits from, the VIE that could be potentially significant to the VIE. We take into account all of our involvements in a VIE in identifying (explicit or implicit) variable interests that individually or in the aggregate could be significant enough to warrant our designation as the primary beneficiary and hence require us to consolidate the VIE or otherwise require us to make appropriate disclosures. We consider our involvement to be significant where we, among other things, (i) provide liquidity facilities to support the VIE's debt issuances, (ii) enter into derivative contracts to absorb the risks and benefits from the VIE or from the assets held by the VIE, (iii) provide a financial guarantee that covers assets held or liabilities issued, (iv) design, organize and structure the transaction and (v) retain a financial or servicing interest in the VIE.

We are required to evaluate whether to consolidate a VIE when we first become involved and on an ongoing basis. In almost all cases, a qualitative analysis of our involvement in the entity provides sufficient evidence to determine whether we are the primary beneficiary. In rare cases, a more detailed analysis to quantify the extent of variability to be absorbed by each variable interest holder is required to determine the primary beneficiary.

Consolidated VIEs In the ordinary course of business, we have organized special purpose entities ("SPEs") primarily to meet our own funding needs through collateralized funding transactions. We transfer certain receivables to these trusts which in turn issue debt instruments collateralized by the transferred receivables. The entities used in these transactions are VIEs. As we are the servicer of the assets of these trusts and have retained the benefits and risks, we determined that we are the primary beneficiary of these trusts. Accordingly, we consolidate these entities and report the debt securities issued by them as secured financings in long-term debt. As a result, all receivables transferred in these secured financings have remained and continue to remain on our balance sheet and the debt securities issued by them have remained and continue to be included in long-term debt.

The following table summarizes the assets and liabilities of these consolidated secured financing VIEs as of December 31, 2012 and 2011:

	December 31, 2012					December 31, 2011
	Consolidated Assets		Consolidated Liabilities			Consolidated Assets		Consolidated Liabilities
	(in millions)
Real estate collateralized funding vehicles:
Cash	$	6	$	-		$	-	$	-
Receivables, net	4,197		-			4,486		-
Available-for-sale investments	-		-			4		-
Other liabilities	-		(39		)	-		-
Long-term debt	-		2,878			-		3,315
Total	$	4,203	$	2,839		$	4,490	$	3,315

The assets of the consolidated VIEs serve as collateral for the obligations of the VIEs. The holders of the debt securities issued by these vehicles have no recourse to our general assets.

Unconsolidated VIEs As of December 31, 2012, all of our unconsolidated VIEs, which relate to low income housing partnerships, leveraged lease and investments in community partnerships, are reported within our discontinued operations. We do not have any unconsolidated VIEs within continuing operations.

As it relates to our discontinued Card and Retail Services business, prior to the sale of our Card and Retail Services business to Capital One on May 1, 2012 we were also involved with other VIEs which provided funding to HSBC Bank USA through collateralized funding transactions. In April 2011, the collateralized funding facilities were terminated by HSBC Bank USA.

21. Fair Value Measurements

Accounting principles related to fair value measurements provide a framework for measuring fair value and focus on an exit price that would be received to sell an asset or paid to transfer a liability in the principal market (or in the absence of the principal market, the most advantageous market) accessible in an orderly transaction between willing market participants (the "Fair Value Framework"). Where required by the applicable accounting standards, assets and liabilities are measured at fair value using the "highest and best use" valuation premise. Fair value measurement guidance effective in 2012 clarifies that financial instruments do not have alternative use and, as such, the fair value of financial instruments should be determined using an "in-exchange" valuation premise. However, the fair value measurement literature provides a valuation exception and permits an entity to measure the fair value of a group of financial assets and financial liabilities with offsetting credit risk and/or market risks based on the exit price it would receive or pay to transfer the net risk exposure of a group of assets or liabilities if certain conditions are met. We have not elected to make fair value adjustments to a group of derivative instruments with offsetting credit and market risks.

Fair Value Adjustments The best evidence of fair value is quoted market price in an actively traded market, where available. In the event listed price or market quotes are not available, valuation techniques that incorporate relevant transaction data and market parameters reflecting the attributes of the asset or liability under consideration are applied. Where applicable, fair value adjustments are made to ensure the financial instruments are appropriately recorded at fair value. The fair value adjustments reflect the risks associated with the products, contractual terms of the transactions, and the liquidity of the markets in which the transactions occur. The fair value adjustments are broadly categorized by the following types:

Credit risk adjustment - The credit risk adjustment is an adjustment to a group of financial assets and financial liabilities, predominantly derivative assets and derivative liabilities, to reflect the credit quality of the parties to the transaction in arriving at fair value. A credit valuation adjustment to a financial asset is required to reflect the default risk of the counterparty. A debit valuation adjustment to a financial liability is recorded to reflect our default risk. Where applicable, we take into consideration the credit risk mitigating arrangements including collateral agreements and master netting arrangements in estimating the credit risk adjustments.

Liquidity risk adjustment - The liquidity risk adjustment reflects, among other things, (a) the cost that would be incurred to close out the market risks by hedging, disposing or unwinding the actual position (i.e., a bid-offer adjustment), and (b) the illiquid nature, other than the size of the risk position, of a financial instrument.

Input valuation adjustment - Where fair value measurements are determined using internal valuation model based on unobservable inputs, certain valuation inputs may be less readily determinable. There may be a range of possible valuation input that market participants may assume in determining the fair value measurement. The resultant fair value measurement has inherent measurement risk if one or more significant parameters are unobservable and must be estimated. An input valuation adjustment is necessary to reflect the likelihood that market participants may use different input parameters, and to mitigate the possibility of measurement error.

Valuation Control Framework A control framework has been established which is designed to ensure that fair values are either determined or validated by a function independent of the risk-taker. To that end, the ultimate responsibility for the determination of fair values rests with the HSBC Finance Valuation Committee. The HSBC Finance Valuation Committee establishes policies and procedures to ensure appropriate valuations. Fair values for debt securities and long-term debt for which we have elected fair value option are determined by a third-party valuation source (pricing service) by reference to external quotations on the identical or similar instruments. Once fair values have been obtained from the third-party valuation source, an independent price validation process is performed and reviewed by the HSBC Finance Valuation Committee. For price validation purposes, we obtain quotations from at least one other independent pricing source for each financial instrument, where possible. We consider the following factors in determining fair values:

Ÿ similarities between the asset or the liability under consideration and the asset or liability for which quotation is received;

Ÿ whether the security is traded in an active or inactive market;

Ÿ consistency among different pricing sources;

Ÿ the valuation approach and the methodologies used by the independent pricing sources in determining fair value;

Ÿ the elapsed time between the date to which the market data relates and the measurement date; and

Ÿ the manner in which the fair value information is sourced.

Greater weight is given to quotations of instruments with recent market transactions, pricing quotes from dealers who stand ready to transact, quotations provided by market-makers who originally underwrote such instruments, and market consensus pricing based on inputs from a large number of participants. Any significant discrepancies among the external quotations are reviewed by management and adjustments to fair values are recorded where appropriate.

Fair values for derivatives are determined by management using valuation techniques, valuation models and inputs that are developed, reviewed, validated and approved by the Quantitative Risk and Valuation Group of an HSBC affiliate. These valuation models utilize discounted cash flows or an option pricing model adjusted for counterparty credit risk and market liquidity. The models used apply appropriate control processes and procedures to ensure that the derived inputs are used to value only those instruments that share similar risk to the relevant benchmark indexes and therefore demonstrate a similar response to market factors. In addition, a validation process is followed which includes participation in peer group consensus pricing surveys, to ensure that valuation inputs incorporate market participants' risk expectations and risk premium.

We have various controls over our valuation process and procedures for receivables held for sale. As these fair values are generally determined using modeling techniques, the controls may include independent development or validation of the logic within the valuation models, the inputs to those models, and adjustments required to outside valuation models. The inputs and adjustments to valuation models are reviewed with management and reconciled to inputs and assumptions used in other internal valuation processes. In addition, from time to time, certain portfolios are valued by independent third parties, primarily for related party transactions, which are used to validate our internal models.

Fair Value of Financial Instruments The fair value estimates, methods and assumptions set forth below for our financial instruments, including those financial instruments carried at cost, are made solely to comply with disclosures required by generally accepted accounting principles in the United States and should be read in conjunction with the financial statements and notes included in this Form 10-K. The following table summarizes the carrying values and estimated fair value of our financial instruments at December 31, 2012 and 2011.

	December 31, 2012										December 31, 2011,
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		Carrying Value		Estimated Fair Value
	(in millions)
Financial assets:
Cash	$	197	$	197	$	197	$	-	$	-	$	215	$	215
Interest bearing deposits with banks	1,371		1,371		-		1,371		-		1,140		1,140
Securities purchased under agreements to resell	2,160		2,160		-		2,160		-		920		920
Securities	80		80		80		-		-		188		188
Receivables(1):
Real estate secured:
First lien	26,175		19,586		-		-		19,586		34,960		24,438
Second lien	3,066		1,113		-		-		1,113		3,828		1,110
Total real estate secured	29,241		20,699		-		-		20,699		38,788		25,548
Personal non-credit card receivables	-		-		-		-		-		4,308		3,180
Total receivables	29,241		20,699		-		-		20,699		43,096		28,728
Receivables held for sale	6,203		6,203		-		-		6,203		-		-
Due from affiliates	105		105		-		105		-		124		124
Derivative financial assets	-		-		-		-		-		-		-
Financial liabilities:
Commercial paper	-		-		-		-		-		4,026		4,026
Due to affiliates carried at fair value	514		514		-		514		-		447		447
Due to affiliates not carried at fair value	8,575		8,654		-		8,654		-		7,815		7,514
Long-term debt carried at fair value	9,725		9,725		-		9,725		-		13,664		13,664
Long-term debt not carried at fair value	18,701		19,172		-		16,537		2,635		26,126		25,090
Derivative financial liabilities	22		22		-		22		-		26		26

⁽¹⁾The carrying amount of consumer receivables presented in the table above reflects the amortized cost of the receivable, including any accrued interest, less credit loss reserves.

Receivable values presented in the table above were determined using the Fair Value Framework for measuring fair value, which is based on our best estimate of the amount within a range of values we believe would be received in a sale as of the balance sheet date (i.e. exit price). The secondary market demand and estimated value for our receivables has been heavily influenced by the challenging economic conditions during the past few years, including house price depreciation, elevated unemployment, changes in consumer behavior, changes in discount rates and the lack of financing options available to support the purchase of receivables. Many investors are non-bank financial institutions or hedge funds with high equity levels and a high cost of debt. For certain consumer receivables, investors incorporate numerous assumptions in predicting cash flows, such as higher charge-off levels and/or slower voluntary prepayment speeds than we, as the servicer of these receivables, believe will ultimately be the case. The investor's valuation process reflects this difference in overall cost of capital assumptions as well as the potential volatility in the underlying cash flow assumptions, the combination of which may yield a significant pricing discount from our intrinsic value. The estimated fair values at December 31, 2012 and 2011 reflect these market conditions.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2011, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Netting⁽¹⁾			Total of Assets (Liabilities) Measured at Fair Value
	(in millions)
December 31, 2012:
Derivative financial assets:
Interest rate swaps	$	-	$	524		$	-	$	-		$	524
Currency swaps	-		1,159			-		-			1,159
Derivative netting	-		-			-		(1,683		)	(1,683		)
Total derivative financial assets	-		1,683			-		(1,683		)	-
Available-for-sale securities:
Money market funds	80		-			-					80
Total available-for-sale securities	80		-			-		-			80
Total assets	$	80	$	1,683		$	-	(1,683		)	$	80
Due to affiliates carried at fair value	$	-	$	(514	)	$	-	$	-		$	(514	)
Long-term debt carried at fair value	-		(9,725		)	-		-			(9,725		)
Derivative related liabilities:
Interest rate swaps	-		(1,585		)	-		-			(1,585		)
Currency swaps	-		(45		)	-		-			(45		)
Derivative netting	-		-			-		1,608			1,608
Total derivative related liabilities	-		(1,630		)	-		1,608			(22		)
Total liabilities	$	-	$	(11,869	)	$	-	$	1,608		$	(10,261	)
December 31, 2011:
Derivative financial assets:
Interest rate swaps	$	-	$	973		$	-	$	-		$	973
Currency swaps	-		1,503			-		-			1,503
Derivative netting	-		-			-		(2,476		)	(2,476		)
Total derivative financial assets	-		2,476			-		(2,476		)	-
Available-for-sale securities:
U.S. Treasury	80		-			-		-			80
U.S. government sponsored enterprises	-		1			-		-			1
U.S. corporate debt securities	-		57			-		-			57
Foreign debt securities:
Corporate	-		26			-		-			26
Equity securities	10		-			-		-			10
Money market funds	13		-			-		-			13
Accrued interest income	-		1			-		-			1
Total available-for-sale securities	103		85			-		-			188
Total assets	$	103	$	2,561		$	-	$	(2,476	)	$	188
Due to affiliates carried at fair value	$	-	$	(447	)	$	-	$	-		$	(447	)
Long-term debt carried at fair value	-		(13,664		)	-		-			(13,664		)
Derivative related liabilities:
Interest rate swaps	-		(1,762		)	-		-			(1,762		)
Currency swaps	-		(163		)	-		-			(163		)
Foreign Exchange Forward	-		(3		)	-		-			(3		)
Derivative netting	-		-			-		1,902			1,902
Total derivative related liabilities	-		(1,928		)	-		1,902			(26		)
Total liabilities	$	-	$	(16,039	)	$	-	$	1,902		$	(14,137	)

(1) Represents counterparty and swap collateral netting which allow the offsetting of amounts relating to certain contracts when certain conditions are met.

We did not have any U.S. corporate debt securities at December 31, 2012. The following table provides additional detail regarding the rating of our U.S. corporate debt securities at December 31, 2011:

	Level 2		Level 3		Total
	(in millions)
December 31, 2011:
AAA to AA-(1)	$	26	$	-	$	26
A+ to A-⁽¹⁾	25		-		25
BBB+ to Unrated(1)	6		-		6

(1) We obtain ratings on our U.S. corporate debt securities from Moody's Investor Services, Standard and Poor's Corporation and Fitch Ratings. In the event the ratings we obtain from these agencies differ, we utilize the lower of the three ratings.

Significant Transfers Between Level 1 and Level 2 There were no transfers between Level 1 and Level 2 during 2012 and 2011.

Information on Level 3 Assets and Liabilities The table below reconciles the beginning and ending balances for assets recorded at fair value using significant unobservable inputs (Level 3) during 2011. There were no assets or liabilities recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2012.

		Total Gains and (Losses) Included in							Transfers Out of Level 2 and Into Level 3	Transfers Out of Level 3 and Into Level 2		Current Period Unrealized Gains (Losses)
	Jan. 1, 2011	Income	Other Comp. Income		Purchases	Issuances	Settlement		Transfers Out of Level 2 and Into Level 3	Transfers Out of Level 3 and Into Level 2	Dec. 31, 2011	Current Period Unrealized Gains (Losses)

Assets:
Securities available-for-sale:
Asset-backed securities	18	-	(5	)	-	-	(13	)	-	-	-	-

Total assets

)

(13

)

Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis The following table presents information about our assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2012 and 2011, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

	Non-Recurring Fair Value Measurements as of December 31, 2012								Total Gains (Losses) for the Year Ended December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in millions)
Receivables held for sale:
Real estate secured	$	-	$	-	$	3,022	$	3,022	$	(1,352	)
Personal non-credit card	-		-		3,181		3,181		(289		)
Total receivables held for sale	-		-		6,203		6,203		(1,641		)
Real estate owned(1)	-		248		-		248		(93		)
Total assets at fair value on a non-recurring basis	$	-	$	248	$	6,203	$	6,451	$	(1,734	)

	Non-Recurring Fair Value Measurements as of December 31, 2011								Total Gains (Losses) for the Year Ended December 31, 2011
	Level 1		Level 2		Level 3		Total
	(in millions)
Real estate owned(1)	$	-	$	325	$	-	$	325	$	(188	)
Total assets at fair value on a non-recurring basis	$	-	$	325	$	-	$	325	$	(188	)

(1) Real estate owned is required to be reported on the balance sheet net of transactions costs. The real estate owned amounts in the table above reflect the fair value of the underlying asset unadjusted for transaction costs.

The following table presents quantitative information about non-recurring fair value measurements of assets and liabilities classified as Level 3 in the fair value hierarchy as of December 31, 2012:

Financial Instrument Type	Fair value (in millions)		Valuation Technique	Significant Unobservable Inputs	Range of Inputs
Receivables held for sale carried at fair value:
Real estate secured	$	3,022	Third party appraisal valuation based on	Collateral severity rates⁽¹⁾	0	%	-	92%
			estimated loss severities, including collateral values, cash	Expenses incurred through collateral disposition	5	%	-	10%
			flows and market discount rate	Market discount rate	10	%	-	15%
Personal non-credit card	3,181		Third party valuation based on estimated loss rates,	Loss rate	13	%	-	19%
			cash flows and market discount rate	Market discount rate	10	%	-	15%

⁽¹⁾The majority of the real estate secured receivables held for sale consider collateral value, among other items, in determining fair value. Collateral values are based on the most recently available broker's price opinion and the collateral loss severity rate averaged 37 percent.

Valuation Techniques The following summarizes the valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not recorded at fair value but for which fair value disclosures are required.

Cash: Carrying amount approximates fair value due to cash's liquid nature.

Interest bearing deposits with banks: Carrying amount approximates fair value due to the asset's liquid nature.

Securities purchased under agreements to resell: The fair value of securities purchased under agreements to resell approximates carrying amount due to the short-term maturity of the agreements.

Securities: Fair value of our available-for-sale securities is generally determined by a third party valuation source. The pricing services generally source fair value measurements from quoted market prices and if not available, the security is valued based on quotes from similar securities using broker quotes and other information obtained from dealers and market participants. For securities which do not trade in active markets, such as fixed income securities, the pricing services generally utilize various pricing applications, including models, to measure fair value. The pricing applications are based on market convention and use inputs that are derived principally from or corroborated by observable market data by correlation or other means. The following summarizes the valuation methodology used for our major security types:

Ÿ U.S. government sponsored enterprises - As our government sponsored mortgage-backed securities which do not transact in an active market, fair value is determined using discounted cash flow models and inputs related to interest rates, prepayment speeds, loss curves and market discount rates that would be required by investors in the current market given the specific characteristics and inherent credit risk of the underlying collateral.

Ÿ U.S. Treasuries - As these securities transact in an active market, the pricing services source fair value measurements from quoted prices for the identical security or quoted prices for similar securities with adjustments as necessary made using observable inputs which are market corroborated.

Ÿ U.S. corporate and foreign debt securities - For non-callable corporate securities, a credit spread scale is created for each issuer. These spreads are then added to the equivalent maturity U.S. Treasury yield to determine current pricing. Credit spreads are obtained from the new issue market, secondary trading levels and dealer quotes. For securities with early redemption features, an option adjusted spread ("OAS") model is incorporated to adjust the spreads determined above. Additionally, the pricing services will survey the broker/dealer community to obtain relevant trade data including benchmark quotes and updated spreads.

Ÿ Money market funds - Carrying amount approximates fair value due to the asset's liquid nature.

Significant inputs used in the valuation of our investment securities include selection of an appropriate risk-free rate, forward yield curve and credit spread which establish the ultimate discount rate used to determine the net present value of estimated cash flows. Such validation principally includes sourcing security prices from other independent pricing services or broker quotes. The validation process provides us with information as to whether the volume and level of activity for a security has significantly decreased and assists in identifying transactions that are not orderly. Depending on the results of the validation, additional information may be gathered from other market participants to support the fair value measurements. A determination will be made as to whether adjustments to the observable inputs are necessary as a result of investigations and inquiries about the reasonableness of the inputs used and the methodologies employed by the independent pricing services.

Receivables and receivables held for sale: The estimated fair value of our receivables was determined by developing an approximate range of value from a mix of various sources as appropriate for the respective pool of assets. These sources include, among other items, value estimates from an HSBC affiliate which reflect over-the-counter trading activity; value estimates from a third party valuation specialist's measurement of the fair value of a pool of receivables; forward looking discounted cash flow models using assumptions we believe are consistent with those which would be used by market participants in valuing such receivables; and trading input from other market participants which includes observed primary and secondary trades.

Valuation inputs include estimates of future interest rates, prepayment speeds, default and loss curves, estimated collateral values (including expenses to be incurred to maintain the collateral) and market discount rates reflecting management's estimate of the rate of return that would be required by investors in the current market given the specific characteristics and inherent credit risk of the receivables. Some of these inputs are influenced by collateral value changes and unemployment rates. To the extent available, such inputs are derived principally from or corroborated by observable market data by correlation and other means. We perform analytical reviews of fair value changes on a quarterly basis and periodically validate our valuation methodologies and assumptions based on the results of actual sales of such receivables. In addition, from time to time, we may hold discussions directly with potential investors. Portfolio risk management personnel provide further validation through discussions with third party brokers. Since some receivables pools may have features which are unique, fair value measurement process uses significant unobservable inputs which are specific to the performance characteristics of the various receivable portfolios.

Real estate owned: Fair value is determined based on third party appraisals obtained at the time we take title to the property and, if less than the carrying amount of the loan, the carrying amount of the loan is adjusted to the fair value less estimated cost to sell. The carrying amount of the property is further reduced, if necessary, at least every 45 days to reflect observable local market data, including local area sales data.

Due from affiliates: Carrying amount approximates fair value because the interest rates on these receivables adjust with changing market interest rates.

Commercial paper: The fair value of these instruments approximates existing carrying amount because interest rates on these instruments adjust with changes in market interest rates due to their short-term maturity or repricing characteristics.

Long-term debt and Due to affiliates: Fair value was primarily determined by a third party valuation source. The pricing services source fair value from quoted market prices and, if not available, expected cash flows are discounted using the appropriate interest rate for the applicable duration of the instrument adjusted for our own credit risk (spread). The credit spreads applied to these instruments were derived from the spreads recognized in the secondary market for similar debt as of the measurement date. Where available, relevant trade data is also considered as part of our validation process.

Derivative financial assets and liabilities: Derivative values are defined as the amount we would receive or pay to extinguish the contract using a market participant as of the reporting date. The values are determined by management using a pricing system maintained by HSBC Bank USA. In determining these values, HSBC Bank USA uses quoted market prices, when available, principally for exchange-traded options. For non-exchange traded contracts, such as interest rate swaps, fair value is determined using discounted cash flow modeling techniques. Valuation models calculate the present value of expected future cash flows based on models that utilize independently-sourced market parameters, including interest rate yield curves, option volatilities, and currency rates. Valuations may be adjusted in order to ensure that those values represent appropriate estimates of fair value. These adjustments are generally required to reflect factors such as market liquidity and counterparty credit risk that can affect prices in arms-length transactions with unrelated third parties. Finally, other transaction specific factors such as the variety of valuation models available, the range of unobservable model inputs and other model assumptions can affect estimates of fair value. Imprecision in estimating these factors can impact the amount of revenue or loss recorded for a particular position.

Counterparty credit risk is considered in determining the fair value of a financial asset. The Fair Value Framework specifies that the fair value of a liability should reflect the entity's non-performance risk and accordingly, the effect of our own credit risk (spread) has been factored into the determination of the fair value of our financial liabilities, including derivative instruments. In estimating the credit risk adjustment to the derivative assets and liabilities, we take into account the impact of netting and/or collateral arrangements that are designed to mitigate counterparty credit risk.

22. Commitments and Contingent Liabilities

Lease Obligations We lease certain offices, buildings and equipment for periods which generally do not exceed 25 years. The leases have various renewal options. The office space leases generally require us to pay certain operating expenses. Net rental expense under operating leases was $13 million, $9 million and $18 million in 2012, 2011 and 2010. See Note 18, "Related Party Transactions," for additional information.

We have lease obligations on certain office space which has been subleased through the end of the lease period. Under these agreements, the sublessee has assumed future rental obligations on the lease.

Future net minimum lease commitments under noncancelable operating lease arrangements were:

Year Ending December 31,	Minimum Rental Payments		Minimum Sublease Income			Net
	(in millions)
2013	$	8	$	(4	)	$	4
2014	8		(4		)	4
2015	7		(4		)	3
2016	5		(2		)	3
Net minimum lease commitments	$	28	$	(14	)	$	14

23. Litigation and Regulatory Matters

In addition to the matters described below, in the ordinary course of business, we are routinely named as defendants in, or as parties to, various legal actions and proceedings relating to activities of our current and/or former operations. These legal actions and proceedings may include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief. In the ordinary course of business, we also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In connection with formal and informal inquiries by these regulators, we receive numerous requests, subpoenas and orders seeking documents, testimony and other information in connection with various aspects of our regulated activities.

In view of the inherent unpredictability of litigation and regulatory matters, particularly where the damages sought are substantial or indeterminate or when the proceedings or investigations are in the early stages, we cannot determine with any degree of certainty the timing or ultimate resolution of litigation and regulatory matters or the eventual loss, fines, penalties or business impact, if any, that may result. We establish reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. The actual costs of resolving litigation and regulatory matters, however, may be substantially higher than the amounts reserved for those matters.

Given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could have a material adverse effect on our consolidated financial statements in particular quarterly or annual periods.

Litigation - Continuing Operations

Securities Litigation As a result of an August 2002 restatement of previously reported consolidated financial statements and other corporate events, including the 2002 settlement with 46 states and the District of Columbia relating to real estate lending practices, Household International and certain former officers were named as defendants in a class action lawsuit, Jaffe v. Household International, Inc., et al. (N.D. Ill. No. 02 C5893), filed August 19, 2002. The complaint asserted claims under § 10 and § 20 of the Securities Exchange Act of 1934. Ultimately, a class was certified on behalf of all persons who acquired and disposed of Household International common stock between July 30, 1999 and October 11, 2002. The claims alleged that the defendants knowingly or recklessly made false and misleading statements of material fact relating to Household's Consumer Lending operations, including collections, sales and lending practices, some of which ultimately led to the 2002 state settlement agreement, and facts relating to accounting practices evidenced by the restatement. A jury trial concluded in April 2009, which was decided partly in favor of the plaintiffs. Following post-trial briefing, the District Court ruled that various legal challenges to the verdict, including as to loss causation and other matters, would not be considered until after a second phase of the proceedings addressing issues of reliance and the submission of claims by class members had been completed. The District Court ruled in November 2010 that claim forms should be mailed to class members, and to ascertain which class members may have claims for damages arising from reliance on the misleading statements found by the jury. The District Court also set out a method for calculating damages for class members who filed claims. As previously reported, lead plaintiffs, in court filings in March 2010, estimated that damages could range 'somewhere between $2.4 billion to $3.2 billion to class members', before pre-judgment interest.

In December 2011, the report of the Court-appointed claims administrator to the District Court stated that the total number of claims that generated an allowed loss was 45,921, and that the aggregate amount of these claims was approximately $2.23 billion. Defendants filed legal challenges asserting that the presumption of reliance was defeated as to the class and raising various objections with respect to compliance with the claims form requirements as to certain claims.

In September 2012, the District Court rejected defendants' arguments that the presumption of reliance generally had been defeated either as to the class or as to particular institutional claimants. In addition, the District Court has made various rulings with respect to the validity of specific categories of claims, and held certain categories of claims valid, certain categories of claims invalid, and directed further proceedings before a court-appointed Special Master to address objections regarding certain other claim submission issues. In light of those rulings and through various agreements of the parties, currently there is approximately $1.37 billion in claims as to which there remain no unresolved objections relating to the claims form submissions. In addition, approximately $800 million in claims remain to be addressed before the Special Master with respect to various claims form objections, with a small portion of those potentially subject to further trial proceedings. Therefore, based upon proceedings to date, the current range of a possible final judgment, prior to imposition of prejudgment interest (if any), is between approximately $1.37 billion and $2.17 billion. With the imposition of prejudgment interest calculated through December 31, 2012, the high-end of a possible final judgment is approximately $2.7 billion. The District Court may wait for a resolution of all disputes as to all claims before entering final judgment, or the District Court may enter a partial judgment on fewer than all claims pending resolution of disputes as to the remaining claims. Post-verdict legal challenges remain to be addressed by the District Court.

The timing and outcome of the ultimate resolution of this matter is uncertain. When a final judgment, partial or otherwise, is entered by the District Court, the parties have 30 days in which to appeal the verdict to the Seventh Circuit Court of Appeals. Despite the just verdict and the various rulings of the District Court, we continue to believe that we have meritorious grounds for appeal of one or more of the rulings in the case and intend to appeal the District Court's final judgment, partial or otherwise.

Upon final judgment, partial or otherwise, we will be required to provide security for the judgment in order to suspend execution of the judgment while the appeal is ongoing by either depositing cash in an interest-bearing escrow account or posting an appeal bond in the amount of the judgment (including any pre-judgment interest awarded). Given the complexity and uncertainties associated with the actual determination of damages, including the outcome of any appeals, there is a wide range of possible damages. We believe we have meritorious grounds for appeal on matters of both liability and damages, and will argue on appeal that damages should be zero or a relatively insignificant amount. If the Appeals Court rejects or only partially accepts our arguments, the amount of damages, based upon the claims submitted and the potential application of pre-judgment interest, may lie in a range from a relatively insignificant amount to somewhere in the region of $2.7 billion (or higher should plaintiffs' successfully cross-appeal certain issues related to the validity of specific claims) and, therefore, it is reasonably possible that future expenses related to this matter could be up to or exceed $2.7 billion. We continue to maintain a reserve for this matter in an amount that represents management's current estimate of probable losses.

Lender-Placed Insurance Matters Lender-placed insurance involves a lender obtaining a hazard insurance policy on a mortgaged property when the borrower fails to maintain their own policy. The cost of the lender-placed insurance is then passed on to the borrower. Industry practices with respect to lender-placed insurance are receiving heightened regulatory scrutiny. The Consumer Financial Protection Bureau recently announced that lender-placed insurance is an important issue and is expected to publish related regulations sometime in 2012. In October 2011, a number of mortgage servicers and insurers, including our affiliate, HSBC Insurance (USA) Inc., received subpoenas from the New York Department of Financial Services (the "NYDFS") with respect to lender-placed insurance activities dating back to September 2005. We have and will continue to provide documentation and information to the NYDFS that is responsive to the subpoena.

Between June 2011 and March 2012, several putative class actions related to lender-placed insurance were filed against various HSBC U.S. entities, including actions against one or more of our subsidiaries captioned Montanez et al v. HSBC Mortgage Corporation (USA) et al. (E.D. Pa. No. 11-CV-4074); and Still et al. v. Beneficial Financial I Inc. et al. (Cal. Super. Ct. Case No. KC062390). These actions relate primarily to industry-wide regulatory concerns, and include allegations regarding the relationships and potential conflicts of interest between the various entities that place the insurance, the value and cost of the insurance that is placed, back-dating policies to the date the borrower allowed it to lapse, self-dealing and insufficient disclosure.

A recent routine state examination of our mortgage servicing practices concluded that borrowers were overcharged for lender-placed hazard insurance coverage based on the terms of the underlying mortgages during the period from July 2008 through April 2012, and required us to refund excess premiums charged to impacted borrowers in that state. In the first quarter of 2012, we recorded an accrual reflecting our estimate of premiums that will be refunded to the impacted borrowers as well as borrowers in other states who may have similar contractual claims. In December 2012, we entered into an agreement with the NYDFS to refund premiums to borrowers in the State of New York who may have contractual claims and, in January 2013, we initiated a refund program to borrowers who may have similar contractual claims.

Telephone Consumer Protection Act Litigation Between May 2012 and January 2013, five substantially similar putative class actions were filed against various HSBC U.S. entities, including actions against us or one or more of our subsidiaries: Davis, Jr. v. HSBC Bank Nevada, N.A., Case No. 11-bk-04423-RNO; 5:12-ap-0019 (Bankr. M.D. Pa.); Lehner v. HSBC Bank USA, N.A., Case No. 12-cv-01118-JDW-TBM (M.D. Fl.); Mills & Wilkes v. HSBC Bank Nevada, N.A., HSBC Card Services, Inc., HSBC Mortgage Services, Inc. HSBC Auto Finance, Inc. & HSBC Consumer Lending (USA), Inc., Case No.: 12-cv-04010-MEJ (N.D. Cal.); McDonald v. HSBC Bank USA, N.A., Case No. 37-2012-00058369-CU-MC-NC; and Comstock v. HSBC Bank U.S.A, N.A., Case No. 12-cv-0001-CAB-JMA (S.D. Cal.). A number of individual actions have also been filed. The plaintiffs in these actions allege that the HSBC defendants contacted them, or the members of the class they seek to represent, on their cellular telephones using an automatic telephone dialing system and/or an artificial or prerecorded voice, without their express consent in violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. ("TCPA"). Plaintiffs seek statutory damages for alleged negligent and willful violations of the TCPA, attorneys' fees, costs and injunctive relief. The TCPA provides for statutory damages of $500 for each violation ($1,500 for willful violations). The parties are currently engaged in discovery and we are investigating the allegations.

Litigation - Discontinued Operations

Card Services Litigation Since June 2005, HSBC Finance Corporation, HSBC North America, and HSBC, as well as other banks and Visa Inc. and Master Card Incorporated, have been named as defendants in four class actions filed in Connecticut and the Eastern District of New York; Photos Etc. Corp. et al. v. Visa U.S.A., Inc., et al. (D. Conn. No. 05-CV-01007 (WWE)): National Association of Convenience Stores, et al. v. Visa U.S.A., Inc., et al.(E.D.N.Y. No. 05-CV 4520 (JG)); Jethro Holdings, Inc., et al. v. Visa U.S.A., Inc. et al. (E.D.N.Y. No. 05-CV-4521 (JG)); and American Booksellers Ass'n v. Visa U.S.A., Inc. et al. (E.D.N.Y. No. 05-CV-5391 (JG)). Numerous other complaints containing similar allegations (in which no HSBC entity is named) were filed across the country against Visa Inc., MasterCard Incorporated and other banks. These actions principally allege that the imposition of a no-surcharge rule by the associations and/or the establishment of the interchange fee charged for credit card transactions causes the merchant discount fee paid by retailers to be set at supracompetitive levels in violation of the Federal antitrust laws. These suits have been consolidated and transferred to the Eastern District of New York. The consolidated case is: In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, MDL 1720, E.D.N.Y. ("MDL 1720"). A consolidated, amended complaint was filed by the plaintiffs on April 24, 2006 and a second consolidated amended complaint was filed on January 29, 2009. On February 7, 2011, MasterCard Incorporated, Visa Inc., the other defendants, including HSBC Finance Corporation, and certain affiliates of the defendants entered into settlement and judgment sharing agreements (the "Sharing Agreements") that provide for the apportionment of certain defined costs and liabilities that the defendants, including HSBC Finance Corporation and our affiliates, may incur, jointly and/or severally, in the event of an adverse judgment or global settlement of one or all of these actions. The Sharing Agreements also cover any other potential or future actions that are transferred for coordinated pre-trial proceedings with MDL 1720.

The parties engaged in a mediation process at the direction of the District Court. In July 2012, MasterCard Incorporated, Visa Inc. and the other defendants, including the HSBC defendants, entered into a Memorandum of Understanding ("MOU") to settle the class litigations consolidated into MDL 1720. The putative class plaintiffs filed a class settlement agreement with the District Court on October 19, 2012, and the District Court entered an order preliminarily approving the class settlement on November 27, 2012. The class settlement is subject to final approval by the District Court. Pursuant to the class settlement agreement and the Sharing Agreements, we have deposited our portion of the class settlement amount into an escrow account for payment in the event the class settlement is approved. On October 22, 2012, a settlement agreement with the individual merchant plaintiffs became effective. Pursuant to the Sharing Agreements, we have deposited our portion of the settlement amount into an escrow account which had no impact to net income (loss) as we increased our litigation reserves to an amount equal to our estimated portion of the settlement of this matter in the fourth quarter of 2011.

Debt Cancellation Litigation Between July 2010 and May 2011, eight substantially similar putative class actions were filed against our subsidiaries, HSBC Bank Nevada, N.A. ("HSBC Bank Nevada") and HSBC Card Services Inc.: Rizera et al v. HSBC Bank Nevada et al. (D.N.J. No. 10-CV-03375); Esslinger et al v. HSBC Bank Nevada, N.A. et al. (E.D. Pa. No. 10-CV-03213); McAlister et al. v. HSBC Bank Nevada, N.A. et al. (W.D. Wash. No. 10-CV-05831); Mitchell v. HSBC Bank Nevada, N.A. et al. (D. Md. No. 10-CV-03232); Samuels v. HSBC Bank Nevada, N.A. et al. (N.D. III. No. 11-CV-00548); McKinney v. HSBC Card Services et al. (S.D. III. No. 10-CV-00786); Chastain v. HSBC Bank Nevada, N.A. (South Carolina Court of Common Pleas, 13^th Circuit) (filed as a counterclaim to a pending collections action); Colton et al. v. HSBC Bank Nevada, N.A. et al. (C.D. Ca. No. 11-CV-03742). These actions principally allege that cardholders were enrolled in debt cancellation or suspension products and challenge various marketing or administrative practices relating to those products. The plaintiffs' claims include breach of contract and the implied covenant of good faith and fair dealing, unconscionability, unjust enrichment, and violations of state consumer protection and deceptive acts and practices statutes. The Mitchell action was withdrawn by the plaintiff in March 2011. In July 2011, the parties in Rizera, Esslinger, McAlister, Samuels, McKinney and Colton executed a memorandum of settlement and subsequently submitted the formal settlement on a consolidated basis for approval by the United States District Court for the Eastern District of Pennsylvania in the Esslinger matter. In February 2012, the District Court granted preliminary approval of the settlement. The plaintiff in Chastain appealed the District Court's preliminary approval order. The appellate court has not yet ruled on that appeal.

On October 1, 2012, the District Court held a hearing for final approval of the settlement in the Esslinger matter. Several objectors to the settlement appeared at the hearing, including representatives for the Attorneys General in West Virginia, Hawaii and Mississippi, where they asserted that claims brought in those Attorneys General's lawsuits (discussed below) should not be covered by the release in the Esslinger matter. In November 2012, the District Court entered a final approval order confirming the settlement. In its accompanying memorandum, the District Court noted that claims belonging solely to the states are not impacted by the settlement, but that claims brought by the Attorneys General seeking recovery for class members are precluded by the Esslinger settlement. Chastain and two other class members filed notices of appeal of the final approval order. The appeal is pending.

In October 2011, the Attorney General for the State of West Virginia filed a purported class action in the Circuit Court of Mason County, West Virginia, captioned State of West Virginia ex rel. Darrell V. McGraw, Jr. et al v. HSBC Bank Nevada, N.A. et al. (No. 11-C-93-N), alleging similar claims in connection with the marketing, selling and administering of ancillary services, including debt cancellation and suspension products to consumers in West Virginia. In September 2012, the Attorney General filed an amended complaint adding our affiliate, HSBC Bank USA, N.A, as a defendant. In addition to damages, the Attorney General is seeking civil money penalties and injunctive relief. The action was initially removed to Federal court. The Attorney General's motion to remand to State court was granted and we filed a motion to dismiss the complaint in March 2012. The motion to dismiss was denied and discovery in ongoing. In late 2011, we received an information request regarding the same products from another state's Attorney General, although no action has yet been filed in that state.

In April 2012, the Attorney General for the State of Hawaii filed lawsuits against seven major credit card companies, including certain of our subsidiaries, in the Circuit Court of the First Circuit for the State of Hawaii, alleging that credit card customers were improperly and deceptively enrolled in various ancillary services, including payment protection plans and without regard to potential eligibility for benefits. In an action captioned State of Hawaii ex rel David Louie, Attorney General v. HSBC Bank Nevada N.A. and HSBC Card Services, Inc., et al. (No. 12-1-0983-04), the Attorney General alleges claims for unfair and deceptive marketing practices, consumer fraud against elders and unjust enrichment. The relief sought includes an injunction against deceptive and unfair practices, restitution and disgorgement of profits, and civil monetary penalties. The action was removed to Federal court in May 2012. In June 2012, the Attorney General filed a motion to remand, which was subsequently denied. The Attorney General then withdrew it pending motion to consolidate the actions and filed a motion to certify the denial of its remand motion for interlocutory appeal. That motion is still pending.

In June 2012, the Attorney General for the State of Mississippi filed complaints against six credit card companies, including our subsidiaries HSBC Bank Nevada and HSBC Card Services Inc. and our affiliate HSBC Bank USA, N.A. In an action captioned Jim Hood, Attorney General of the State of Mississippi, ex. rel. The State of Mississippi v. HSBC Bank Nevada, N.A., HSBC Card Services, Inc., and HSBC Bank USA, N.A., the Attorney General alleges claims that are substantially the same as those made in the West Virginia and Hawaii Attorney General actions consumer protection and unjust enrichment claims in connection with the defendants' marketing, selling and administering of ancillary services, including payment protection plans. The relief sought includes injunction against deceptive and unfair practices, disgorgement of profits, and civil money penalties. In August 2012, this action was removed to Federal court and the Attorney General filed a motion to remand. Briefing on the Attorney General's motion to remand has been consolidated for purposes and the motion remains pending.

Governmental and Regulatory Matters

Foreclosure Practices In April 2011, HSBC Finance Corporation and our indirect parent, HSBC North America, entered into a consent cease and desist order with the Federal Reserve Board (the "Federal Reserve") (the "Federal Reserve Servicing Consent Order"), and our affiliate, HSBC Bank USA, entered into a similar consent order with the Office of the Comptroller of the Currency ("OCC") (together with the Federal Reserve Servicing Consent Order, the "Servicing Consent Orders") following completion of a broad horizontal review of industry foreclosure practices. The Federal Reserve Servicing Consent Order requires us to take prescribed actions to address the deficiencies noted in the joint examination and described in the consent order. We continue to work with the Federal Reserve and the OCC to align our processes with the requirements of the Servicing Consent Orders and are implementing operational changes as required.

The Servicing Consent Orders required an independent review of foreclosures ("the Independent Foreclosure Review") pending or completed between January 2009 and December 2010 to determine if any borrower was financially injured as a result of an error in the foreclosure process. As required by the Servicing Consent Orders, an independent consultant was retained to conduct that review. On February 28, 2013, HSBC Finance Corporation and our indirect parent, HSBC North America, entered into an agreement with the Federal Reserve, and our affiliate, HSBC Bank USA, entered into an agreement with the OCC, pursuant to which the Independent Foreclosure Review will cease and HSBC North America will make a cash payment of $96 million into a fund that will be used to make payments to borrowers that were in active foreclosure during 2009 and 2010 and, in addition, will provide other assistance (e.g., loan modifications) to help eligible borrowers. As a result, in 2012, we recorded expenses of $85 million which reflects the portion of HSBC North America's total expense of $104 million that we believe is allocable to us. These actions form HSBC North America's portion of larger agreements announced by the Federal Reserve and the OCC in January 2013 involving HSBC and twelve other mortgage servicers subject to foreclosure consent orders, pursuant to which the mortgage servicers would pay, in the aggregate, in excess of $9.3 billion in cash payments and other assistance to help eligible borrowers. Pursuant to these agreements, the Independent Foreclosure Reviews will cease and be replaced by a broader framework under which all eligible borrowers will receive compensation regardless of whether they filed a request for independent review of their foreclosure and regardless of whether the borrower was financially injured as a result of an error in the foreclosure process. Borrowers who receive compensation will not be required to execute a release or waiver of rights and will not be precluded from pursuing litigation concerning foreclosure or other mortgage servicing practices. For participating servicers, including HSBC Finance Corporation and HSBC Bank USA, fulfillment of the terms of these agreements will satisfy the Independent Foreclosure Review requirements of the Consent Orders. While we believe compliance related costs have permanently increased to higher levels due to the remediation requirements of the regulatory consent agreements, this settlement will positively impact compliance expenses in future periods as the significant resources working on the Independent Foreclosure Review will no longer be required.

The Servicing Consent Orders do not preclude additional enforcement actions against HSBC Finance Corporation or our affiliates by bank regulatory, governmental or law enforcement agencies, such as the U.S. Department of Justice or State Attorneys General, which could include the imposition of civil money penalties and other sanctions relating to the activities that are the subject of the Servicing Consent Orders. Pursuant to the agreement with the OCC, however, the OCC has agreed that it will not assess civil money penalties or initiate any further enforcement action with respect to past mortgage servicing and foreclosure-related practices addressed in the consent orders, provided the terms of the agreement are fulfilled. The OCC's agreement not to assess civil money penalties is further conditioned on HSBC North America making payments or providing borrower assistance pursuant to any agreement that may be entered into with the U.S. Department of Justice in connection with the servicing of residential mortgage loans within two years. The Federal Reserve has agreed that any assessment of civil money penalties by the Federal Reserve will reflect a number of adjustments, including amounts expended in consumer relief and payments made pursuant to any agreement that may be entered into with the U.S. Department of Justice in connection with the servicing of residential mortgage loans. In addition, the agreement does not preclude private litigation concerning these practices.

Separate from the Servicing Consent Orders and the settlement related to the Independent Foreclosure Review discussed above, in February 2012, the U.S. Department of Justice, the U.S. Department of Housing and Urban Development and State Attorneys General of 49 states announced a settlement with the five largest U.S. mortgage servicers with respect to foreclosure and other mortgage servicing practices. HSBC North America, HSBC Finance Corporation and HSBC Bank USA have had discussions with U.S. bank regulators and other governmental agencies regarding a potential resolution, although the timing of any settlement is not presently known. We recorded an accrual of $157 million in the fourth quarter of 2011, which reflects the portion of the HSBC North America accrual that we currently believe is allocable to HSBC Finance Corporation. As this matter progresses and more information becomes available, we will continue to evaluate our portion of the HSBC North America liability which may result in a change to our current estimate. Any such settlement, however, may not completely preclude other enforcement actions by state or federal agencies, regulators or law enforcement agencies related to foreclosure and other mortgage servicing practices, including, but not limited to, matters relating to the securitization of mortgages for investors. In addition, such a settlement would not preclude private litigation concerning these practices.

In October 2012, three of the five counties constituting the metropolitan area of Atlanta, Georgia filed a lawsuit pursuant to the Fair Housing Act against HSBC North America and numerous subsidiaries, including HSBC Finance Corporation and HSBC Bank USA, in connection with residential mortgage lending, servicing and financing activities. In the action, captioned DeKalb County, Fulton County, and Cobb County, Georgia v. HSBC North America Holdings Inc., et al. (N.D. Ga. No. 12-CV-03640), the plaintiff counties assert that the defendants' allegedly discriminatory lending and servicing practices led to increased loan delinquencies, foreclosures and vacancies, which in turn caused the plaintiff counties to incur damages in the form of lost property tax revenues and increased municipal services costs, among other damages. Defendants' motion to dismiss the case was filed in January 2013.

Mortgage Securitization Activity In the course of 2012, we have received notice of several claims from investors and from trustees of residential mortgage-backed securities ("RMBS") related to our activities as a sponsor and the activities of our subsidiaries as originators in connection with RMBS transactions closed between 2005 and 2007. We are currently evaluating these claims. On September 26, 2012, an action of this sort, captioned FHFA ex rel. Trustee of MSAC 2006-HE6 v. HSBC Finance Corp. and Decision One Mortgage Company, LLC (New York County Supreme Court, Index No. 653373/2012), was filed by the conservator of an investor in an RMBS trust, the assets of which include mortgage loans originated by our subsidiary, Decision One Mortgage Company, LLC. The action subsequently was withdrawn voluntarily. We expect these types of claims to continue and potentially intensify, so long as the U.S. real estate markets continue to be distressed. As a result, we may be subject to additional claims, litigation and governmental and regulatory scrutiny related to our participation as a sponsor or originator in the U.S. mortgage securitization market.

24. Concentration of Credit Risk

A concentration of credit risk is defined as a significant credit exposure with an individual or group engaged in similar activities or having similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.

We have historically served non-conforming and non-prime consumers. Such customers are individuals who have limited credit histories, modest incomes, high debt-to-income ratios or have experienced credit problems caused by occasional delinquencies, prior charge-offs, bankruptcy or other credit related actions. The majority of our secured receivables have high loan-to-value ratios.

Because we primarily lend to individual consumers, we do not have receivables from any industry group that equal or exceed 10 percent of total receivables at December 31, 2012 and 2011. We lend nationwide and our receivables are distributed as follows at December 31, 2012:

State/Region	Percent of Total Receivables
California	9	%
Midwest (IL, IN, IA, KS, MI, MN, MO, NE, ND, OH, SD, WI)	22
Southeast (AL, FL, GA, KY, MS, NC, SC, TN)	21
West (AK, CO, HI, ID, MT, NV, OR, UT, WA, WY)	8
Middle Atlantic (DE, DC, MD, NJ, PA, VA, WV)	19
Southwest (AZ, AR, LA, NM, OK, TX)	8
Northeast (CT, ME, MA, NH, NY, RI, VT)	13

The following table reflects the percentage of consumer receivables by state which individually account for 5 percent or greater of our portfolio.

	Percentage of Receivables at						Percentage of Receivables at
	December 31, 2012						December 31, 2011
	Real Estate Secured		Personal Non-Credit Card		Total		Real Estate Secured		Personal Non-Credit Card		Total
California	9.4	%	4.5	%	9.0	%	9.5	%	5.1	%	9.1	%
New York	7.4		6.8		7.4		7.2		6.8		7.2
Pennsylvania	6.2		7.0		6.3		6.1		6.7		6.2
Florida	5.8		5.8		5.8		5.9		5.8		5.9
Ohio	5.5		6.5		5.6		5.5		6.3		5.6
Virginia	5.3		3.1		5.1		5.2		3.0		4.9

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

	2012												2011
	Fourth			Third			Second			First			Fourth			Third			Second			First
	(in millions)
Net interest income	$	430		$	417		$	391		$	408		$	369		$	452		$	511		$	444
Provision for credit losses⁽¹⁾	408			287			738			791			945			2,182			583			708
Net interest income (loss) after provision for credit losses	22			130			(347		)	(383		)	(576		)	(1,730		)	(72		)	(264		)
Other revenues	85			(144		)	(1,865		)	(195		)	73			(90		)	118			39
Operating expenses	384			276			239			215			365			204			383			303
Loss from continuing operations before income tax benefit	(277		)	(290		)	(2,451		)	(793		)	(868		)	(2,024		)	(337		)	(528		)
Income tax benefit	81			98			939			288			270			689			166			306
Loss from continuing operations	(196		)	(192		)	(1,512		)	(505		)	(598		)	(1,335		)	(171		)	(222		)
Income (loss) from discontinued operations	(99		)	55			1,254			350			320			274			123			201
Net loss	$	(295	)	$	(137	)	$	(258	)	$	(155	)	$	(278	)	$	(1,061	)	$	(48	)	$	(21	)

⁽¹⁾The provision for credit losses during the fourth quarter of 2012 included $350 million related to changes in the loss emergence period used in our roll rate migration analysis. See Note 6, "Credit Loss Reserves," in the accompanying consolidated financial statements for further discussion of the adoption of this new accounting guidance.

The provision for credit losses for the third quarter of 2011 included approximately $925 million related to the adoption of new accounting guidance for TDR Loans in the third quarter of 2011. See Note 5, "Receivables," in the accompanying consolidated financial statements for further discussion of the adoption of this new accounting guidance.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

There were no disagreements on accounting and financial disclosure matters between HSBC Finance Corporation and its independent accountants during 2012.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures We maintain a system of internal and disclosure controls and procedures designed to ensure that information required to be disclosed by HSBC Finance Corporation in the reports we file or submit under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), is recorded, processed, summarized and reported on a timely basis. Board of Directors, operating through its Audit Committee, which is composed entirely of independent outside directors, provides oversight to our financial reporting process.

We conducted an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report so as to alert them in a timely fashion to material information required to be disclosed in reports we file under the Exchange Act.

Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management's Assessment of Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control structure and procedures over financial reporting as defined in Rule 13a-15(f) of the Securities and Exchange Act of 1934, and has completed an assessment of the effectiveness of HSBC Finance Corporation's internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria related to internal control over financial reporting described in "Internal Control - Integrated Framework" established by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on the assessment performed, management concluded that as of December 31, 2012, HSBC Finance Corporation's internal control over financial reporting was effective.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors Set forth below is certain biographical information relating to the members of HSBC Finance Corporation's Board of Directors, including descriptions of the specific experience, qualifications, attributes and skills that support such person's service as a Director of HSBC Finance Corporation. We have also set forth below the minimum director qualifications reviewed by HSBC and the Board in choosing Board members.

All of our Directors are or have been either chief executive officers or senior executives in specific functional areas at other companies or firms, with significant general and specific corporate experience and knowledge that promotes the successful implementation of the strategic plans of HSBC Finance Corporation and its parent HSBC North America, for which each of our Directors, with the exception of Mr. Burke, also serve as a Director. Our Directors also have high levels of personal and professional integrity and ethical character. Each possesses the ability to be collaborative but also assertive in expressing his or her views and opinions to the Board and management. Based upon his or her management experience, each Director has demonstrated sound judgment and the ability to function in an oversight role.

Each Director is elected annually. There are no family relationships among the Directors.

Phillip D. Ameen, age 64, joined HSBC Finance Corporation's Board in April 2012. Since April 2012, he has served as a member of the Board of Directors of HSBC North America and as a member of its Audit and Risk Committees since May 2012. He has also been a member of the HSBC Finance Corporation Audit and Risk Committees since May 2012 and a Director of HSBC Bank Nevada, N.A. since April 2012. Until March 2008, he served as Vice President, Comptroller, and Principal Accounting Officer of General Electric Capital Co. ("GE"). Prior to joining GE, he was Audit Partner of KPMG Peat Marwick. He joined GE Capital in 1985, where he spent time in lending, leasing, and mergers and acquisitions before joining GE Headquarters staff.

Mr. Ameen served on the International Financial Reporting Interpretations Committee of the International Accounting Standards Board, the Accounting Standards Executive Committee of the American Institute of Certified Public Accounting, was the longest-serving member of the Financial Accounting Standards Board Emerging Issues Task Force and was Chair of the Committee on Corporate Reporting of Financial Executives International. He is a member of the Keenan Flagler Business School Board of Advisers and has served as Trustee of the Financial Accounting Foundation Inc. and of Elon University. Mr. Ameen is an alumnus of the University of North Carolina, Chapel Hill and was a Certified Public Accountant in New York and North Carolina. He now serves on the Boards of Directors of several private equity technology enterprises. His experience in the accounting profession provided him with highly relevant expertise for insight into business operations and financial performance and reporting, which are valuable as a member of the HSBC Finance Corporation Board and Audit Committee.

Patrick J. Burke, age 51, joined HSBC Finance Corporation's Board in May 2011 and was appointed Chairman of the Board in November 2011. Mr. Burke has been the Chief Executive Officer of HSBC Finance Corporation since July 2010. He has been a Director since May 2010, President since September 2010 and Chairman of the Board since November 2011 of HSBC Bank Nevada, N.A. Prior to his current position, he was Senior Executive Vice President and Chief Executive Officer, Card and Retail Services of HSBC Finance Corporation since June 2009. From February 2008 to June 2009, he was Senior Executive Vice President and Chief Operating Officer - Card and Retail Services of HSBC Finance Corporation. From December 2007 to February 2008 he was Managing Director - Card and Retail Services of HSBC Finance Corporation. He was Managing Director - Card Services from July 2006 to December 2007. He was appointed President and Chief Executive Officer of HSBC Financial Limited Canada in January 2003 until July 2006. Mr. Burke was appointed Chief Financial Officer with HFC Bank Limited from 2000 until 2003. From the start of his career with HSBC in 1989, Mr. Burke has served the company in many roles including Deputy Director of Mergers and Acquisitions and Vice President of Strategy and Development.

Robert K. Herdman, age 64, joined HSBC Finance Corporation's Board in January 2004 and is Chair of its Audit and Risk Committees. Since March 2005, he has served as a member of the Board of Directors of HSBC North America and as Chair of its Audit Committee, and since July 2011 he has served as Chair of its Risk Committee. Since May 2010, he has also been a member of the Board of HSBC USA Inc., as well as Chair of its Audit and Risk Committees. Mr. Herdman has also been a Director of HSBC Bank Nevada, N.A. since July 2011, as well as Chair of its Audit and Risk Committees. HSBC Finance Corporation, HSBC USA Inc. and HSBC North America belong to a single controlled group of corporations and their Boards of Directors and Audit and Risk Committees conduct their meetings simultaneously. Mr. Herdman was a member of and the Chair of the HSBC Finance Corporation Compliance Committee from December 2010 and the HSBC USA Inc. Compliance Committee from August 2010 to May 2011. Mr. Herdman has also served on the Board of Directors of Cummins Inc. since February 2008 and is Chair of its Audit Committee, and on the Board of Directors of WPX Energy, Inc. and is Chair of its Audit Committee since December 2011. Since January 2004, Mr. Herdman has been a Managing Director of Kalorama Partners LLC, a Washington, D.C. consulting firm specializing in providing advice regarding corporate governance, risk assessment, crisis management and related matters. Mr. Herdman was the Chief Accountant of the U.S. Securities and Exchange Commission ("SEC") from October 2001 to November 2002. The Chief Accountant serves as the principal advisor to the SEC on accounting and auditing matters, and is responsible for formulating and administering the accounting program and policies of the SEC. Prior to joining the SEC, Mr. Herdman was Ernst & Young's Vice Chairman of Professional Practice for its Assurance and Advisory Business Services ("AABS") practice in the Americas and the Global Director of AABS Professional Practice for Ernst & Young International. Mr. Herdman was the senior Ernst & Young partner responsible for the firms' relationships with the SEC, Financial Accounting Standards Board ("FASB") and American Institute of Certified Public Accountants ("AICPA"). He served on the AICPA's SEC Practice Section Executive Committee from 1995 to 2001 and as a member of the AICPA's Board of Directors from 2000 to 2001.

Mr. Herdman's membership on the Board is supported by his particular financial expertise, which is particularly valued as Chairman of the Audit Committee. His experience with the SEC and in the public accounting profession provided Mr. Herdman with broad insight into the business operations and financial performance of a significant number of public and private companies.

George A. Lorch, age 71, joined HSBC Finance Corporation's Board in September 1994 and served as the Chair of its Compensation Committee until the committee was disbanded in 2008. He also serves as a member of the Board of Directors of HSBC North America and HSBC Bank Nevada, N.A. since July 2011. From May 2000 until August 2000, Mr. Lorch served as Chairman, President and Chief Executive Officer of Armstrong Holdings Inc. (the parent of Armstrong World Industries, Inc.). Mr. Lorch served as Chairman of the Board, Chief Executive Officer and President of Armstrong World Industries, Inc. (a manufacturer of interior finishes) from 1994 and President and Chief Executive Officer from 1993 until May 1994. Mr. Lorch is a Director of WPX Energy, Autoliv, Inc., Pfizer Inc. and Masonite Inc., a privately held company. Mr. Lorch was Chairman of the Board of Pfizer Inc. from December 2010 through December 2011 and now serves as its Lead Director.

Mr. Lorch is a member of the Compliance and Risk Committees. He is also a member of the HSBC North America Nominating & Governance Committee since January 2012.

Mr. Lorch served as an executive officer with Armstrong Holdings Inc. and its subsidiary Armstrong Industries for 17 years. He served as Chief Executive Officer of Armstrong World Industries, Inc. for over 7 years. In addition, he has been Chairman of the Board at these companies. In these roles, Mr. Lorch was responsible for aspects of the operations of a global public company, affording him experience in developing and executing strategic plans and motivating and managing the performance of his management team and the organization as a whole. Additionally, Mr. Lorch has served on the Board of Directors for HSBC Finance Corporation, which was previously Household International, since September 1994, and, as a result, he is able to provide a historical perspective to the Board of HSBC Finance Corporation.

Samuel Minzberg, age 63, joined HSBC Finance Corporation's Board in May 2008. He has been a Director of HSBC North America since March 2005 and has served on its Audit and Risk Committees since 2005. Mr. Minzberg has also been a Director of HSBC Bank Nevada, N.A. since July 2011. Mr. Minzberg is a partner with the law firm of Davies Ward Phillips & Vineberg, in Montreal. Mr. Minzberg is currently also Chairman of HSBC Bank Canada and Chairman of its Audit Committee, a Director of Reitmans (Canada) Limited, Quebecor Media Inc. and Richmont Mines Inc., and a Director and past President of the Sir Mortimer B. Davis - Jewish General Hospital Centre Board.

Mr. Minzberg is a member of the Audit and Risk Committees.

Mr. Minzberg's experience as a tax attorney provides a unique expertise in evaluating and advising HSBC Finance Corporation on tax strategies and particularly with respect to transactional matters. As a partner with a firm with a diverse client base, he has had experience with a number of industries with varied considerations in effecting business and tax strategies. As a Canadian, he brings diverse perspectives and knowledge to the Boardroom, which is also relevant for understanding the prior cross-border operations of HSBC Finance Corporation and the continuing broader context of HSBC's global operations, as well as the potential tax and other considerations of potential cross-border initiatives of HSBC Finance Corporation and its affiliates.

Beatriz R. Perez, age 43, joined HSBC Finance Corporation's Board in May 2008. She has served on the Board of HSBC North America since April 2007. Ms. Perez has also been a Director of HSBC Bank Nevada, N.A. since July 2011. Ms. Perez has been employed by Coca-Cola since 1994. She became Chief Sustainability Officer for the North America Division of Coca-Cola as of July 2011. Prior to her current position, Ms. Perez held the positions of Chief Marketing Officer from April 2010 to July 2011, Senior Vice President, Integrated Marketing for the North America Division of Coca-Cola from May 2007 to April 2010 and Vice President, Media, Sports and Entertainment Marketing from 2005 to 2007. From 1996 to 2005, she held the positions of Associate Brand Manager, Classic Coke, Sports Marketing and NASCAR Manager, Vice President of Sports, and Vice President Sports and Entertainment. Ms. Perez is active in the not-for-profit world. Ms. Perez is a member of the Foundation Board of Children's Healthcare of Atlanta and of the Victory Junction Group board. Ms. Perez is also the Chairman of the Grammy Foundation.

Ms. Perez is a member of the Compliance and Risk Committees.

Ms. Perez's leadership roles in the sustainability and marketing functions at Coca-Cola bring a particular knowledge of mass and targeted marketing and sustainability programs that are of value in HSBC's efforts to promote its brand image and in its general product marketing efforts.

Larree M. Renda, age 54, joined HSBC Finance Corporation's Board in September 2001. Since May 2008, she has served as a member of the Board of Directors of HSBC North America. Ms. Renda has also been a Director of HSBC Bank Nevada, N.A. since July 2011. Ms. Renda has been employed by Safeway Inc. since 1974. In August 2010, Ms. Renda was appointed as Executive Vice President of Safeway Inc. and President of Safeway Health Inc. Prior to her current position, she had been Executive Vice President, Chief Strategist and Administrative Officer of Safeway Inc. since November 2005. From 1999 to November 2005, she served as Executive Vice President for Retail Operations, Human Resources, Public Affairs, Labor and Government Relations. Prior to this position, she was a Senior Vice President from 1994 to 1999, and a Vice President from 1991 to 1994. She is also a director and Chairwoman of the Board of The Safeway Foundation and serves on the Board of Directors for Casa Ley, S.A. de C.V. Ms. Renda serves as a Trustee on the National Joint Labor Management Committee. In addition, she serves on the Board of Directors for the California Chamber of Commerce and serves as a National Vice President of the Muscular Dystrophy Association. Ms. Renda is also on the Board of Regents for the University of Portland.

Ms. Renda is a member of the Audit and Risk Committees. She is also a member of the HSBC North America Nominating & Governance Committee since January 2012.

Ms. Renda has 21 years of experience as an executive officer at Safeway Inc. where she has held several roles critical to its operations. Ms. Renda's responsibilities at Safeway Inc. included public affairs, human resources, government relations, strategy, labor relations, philanthropy, corporate social responsibility, cost reduction, re-engineering, health initiatives and communications. Ms. Renda has served on the Board of Directors for HSBC Finance Corporation, which was previously Household International, since September 2001, and, as a result, she is able to provide a historical perspective to the Board of HSBC Finance Corporation.

Executive Officers Information regarding the executive officers of HSBC Finance Corporation as of March 4, 2013 is presented in the following table.

Name	Age	Year Appointed	Present Position
Patrick J. Burke	51	2010	Chief Executive Officer
Michael A. Reeves	50	2010	Executive Vice President and Chief Financial Officer
Patrick A. Cozza	57	2008	Senior Executive Vice President and Regional Head of Insurance
C. Mark Gunton	56	2009	Senior Executive Vice President, Chief Risk Officer
Gary E. Peterson (3/15/2012)	59	2012	Senior Executive Vice President, Chief Compliance Officer
Gregory Zeeman (3/1/2012)	44	2012	Senior Executive Vice President and Chief Operating Officer, USA
Julie A. Davenport	52	2011	Executive Vice President and General Counsel
Eric K. Ferren	39	2010	Executive Vice President and Chief Accounting Officer
Loren C. Klug	52	2012	Executive Vice President, Head of Strategy and Planning
Kathryn Madison	51	2009	Executive Vice President and Chief Servicing Officer, Consumer and Mortgage Lending
Satyabama S. Ravi	45	2009	Executive Vice President and Chief Auditor
Patrick D. Schwartz	55	2008	Executive Vice President and Corporate Secretary
Lisa M. Sodeika	49	2005	Executive Vice President - Corporate Affairs

Patrick J. Burke, Director and Chief Executive Officer of HSBC Finance Corporation. See Directors for Mr. Burke's biography.

Michael A. Reeves, Executive Vice President and Chief Financial Officer of HSBC Finance Corporation since May 2010. Prior to his current position, he was Executive Vice President, Chief Financial Officer of HSBC Consumer Finance since July 2009. From May 2008 to July 2009, he was Executive Vice President and Chief Financial Officer of HSBC Card and Retail Services, and from May 2005 to May 2008, he was Managing Director and Chief Financial Officer of Credit Card Services. Mr. Reeves joined HSBC in 1993 and has held a succession of management positions in Accounting, Finance and Treasury. Prior to joining HSBC, Mr. Reeves was an Audit Manager with Deloitte & Touche, LLP and practiced in its San Jose and London offices.

Patrick A. Cozza, Senior Executive Vice President and Regional Head of Insurance of HSBC Finance Corporation since February 2008. Since July 2010, Mr. Cozza has also been Senior Executive Vice President and Regional Head of Insurance of HSBC USA Inc. From May 2004 to February 2008 he was Group Executive of HSBC Finance Corporation. Mr. Cozza became President - Refund Lending and Insurance Services in 2002 and Managing Director and Chief Executive Officer - Refund Lending in 2000. Mr. Cozza serves as a board member and Chairman, Chief Executive Officer and President of Household Life Insurance Company of Michigan, Household Life Insurance Company of Delaware, First Central National Life Insurance Company of New York, Household Insurance Group Holding Company, Household of Arizona and HSBC Insurance Company of Delaware, all subsidiaries of HSBC Finance Corporation. He serves on the board of directors of Junior Achievement in New Jersey (Chairman), Cancer Hope Network, Hudson County Chamber of Commerce and The American Bankers Insurance Association.

C. Mark Gunton, Senior Executive Vice President, Chief Risk Officer of HSBC Finance Corporation, HSBC North America and HSBC USA Inc. since January 2009. He is responsible for all Risk functions in North America, including Credit Risk, Operational Risk and Market Risk, as well as the enterprise-wide risk framework. Prior to January 2009, he served as Chief Risk Officer, HSBC Latin America. Mr. Gunton joined HSBC in 1977 and held numerous HSBC risk management positions including: Director of International Credit for Trinkaus and Burkhardt; General Manager of Credit and Risk for Saudi British Bank; and Chief Risk Officer, HSBC Latin America. He also managed a number of risk related projects for HSBC, including the implementation of the Group Basel II risk framework and served on the boards of a number of HSBC Group subsidiaries.

Gary E. Peterson, Senior Executive Vice President, Chief Compliance Officer of HSBC Finance Corporation, HSBC USA Inc. and HSBC North America since July 2012. Mr. Peterson was appointed Senior Executive Vice President, Anti-Money Laundering Director and Bank Secrecy Act Compliance Officer and Chief Compliance Officer in March 2012. Prior to that, Mr. Peterson was Executive Vice President, Anti-Money Laundering Director and Bank Secrecy Act Compliance Officer since October 2010 having been appointed the Acting Anti-Money Laundering Director in August 2010. Mr. Peterson was President of IMAG, the International Management Advisory Group from 1993 to 2010. In 2009, he was appointed as a member of Booz Allen Hamilton's Anti-Terrorist Financing Advisory Committee. Mr. Peterson was formerly Senior Vice President, Chief of Staff, General Counsel and Secretary of Midland Bank plc in the United States from 1980 to 1992.

Gregory T. Zeeman, Senior Executive Vice President and Chief Operating Officer USA of HSBC Finance Corporation, HSBC USA Inc., and HSBC North America since August 2012. From March 2012 to August 2012 he was Executive Vice President and Chief Operating Officer USA of HSBC Finance Corporation, HSBC USA, and HSBC North America. Prior to his current role, Mr. Zeeman served as Executive Vice President, Head of Change Delivery for the Americas since 2011. Mr. Zeeman served as Deputy Chief Executive Officer and Chief Technology Services Officer for HSBC in Singapore from 2009 through 2011 and Chief Servicing Officer for HSBC Consumer and Mortgage Lending from 2006 to 2009. Mr. Zeeman first joined the organization in 1999, where he has served in a wide range of general management and leadership roles, primarily focused on consumer oriented lines of business. Prior to joining the organization, he worked as a strategy consultant at the Boston Consulting Group.

Julie A. Davenport, Executive Vice President and General Counsel HSBC Finance Corporation since April 2011, and General Counsel HSBC Retail Banking and Wealth Management since December 2011. She joined Household International, Inc. in September of 1989. From 1989 to 1997, she held the positions of Counsel and then Senior Counsel in the Household Bank, f.s.b. law department, primarily supporting the Fannie Mae/Freddie Mac residential mortgage business. In 1997, she moved to the Credit Card Services law department where she held the positions of Associate General Counsel and then Deputy General Counsel. In March 2004, she was promoted to the position of General Counsel-Retail Services and after the integration of the Retail Services and Card Services business units in the summer of 2007, she became General Counsel of the combined businesses. In June 2009, she was promoted to the position of Senior Vice President-Group General Counsel leading a team of lawyers supporting the Personal Financial Services, Card and Retail Services, Taxpayer Financial Services and Insurance businesses, as well as the Technology Services function. Effective April 2011, she assumed the positions of General Counsel of HSBC Finance Corporation providing support for Card and Retail Services, Consumer and Mortgage Lending and Insurance and effective December 2011 she assumed the additional role of General Counsel of HSBC's Retail Banking and Wealth Management business.

Eric K. Ferren, Executive Vice President and Chief Accounting Officer of HSBC Finance Corporation, HSBC North America and HSBC USA Inc. since July 2010. Prior to Mr. Ferren's appointment as Chief Accounting Officer, Mr. Ferren was responsible for several accounting areas across HSBC North America and its subsidiaries. Prior to joining HSBC, Mr. Ferren was the Controller for UBS's North American Asset Management business from May 2005 to June 2006. Prior to that, Mr. Ferren was the Controller for Washington Mutual's Home Loans Capital Market's business and several finance roles within the Servicing business from January 2002 through May 2005. Prior to January 2002, Mr. Ferren was a Senior Manager at Ernst & Young LLP in Chicago where he focused on global banking, commercial banking, and securitizations. He is a Certified Public Accountant registered in the United States of America and a member of the American Institute of Certified Public Accountants.

Loren C. Klug, Executive Vice President, Head of Strategy and Planning of HSBC Finance Corporation, HSBC North America and HSBC USA Inc. since January 2012. He was previously Executive Vice President - Strategy & Planning of HSBC Finance Corporation and of HSBC North America from February 2008 through December 2011. From March 2004 to January 2008, he was Managing Director - Strategy and Development, and concurrently from January 2005 to November 2007 he was responsible for strategy development and customer group oversight for HSBC Group plc's global consumer finance activities. Mr. Klug joined HSBC Finance Corporation in 1989, and since that time has held a variety of commercial finance and strategy positions. Prior to such time he held positions in commercial real estate and banking.

Kathryn Madison, Executive Vice President and Chief Servicing Officer, Consumer and Mortgage Lending of HSBC Finance Corporation since July 2009. From August 2005 through December 2008, she was Executive Vice President of originations for Consumer and Mortgage Lending. From 2003 through July 2005, Ms. Madison was the Managing Director of Strategic Planning and Development for the Consumer Lending business. Prior to such time, she held various leadership positions in the consumer and direct lending businesses. Ms. Madison joined HSBC Finance Corporation in 1988 as a Manager of Strategic Planning for Consumer Lending.

Satyabama S. Ravi, Executive Vice President and Chief Auditor of HSBC Finance Corporation since November 2009. Prior to November 2009 and since joining HSBC Finance Corporation in February 2004, Ms. Ravi has held various positions of increasing responsibility, including a rotation as Head of Professional Practices for HSBC North America. Prior to February 2004, Ms. Ravi was with PricewaterhouseCoopers in the Financial Services Practice for six years. She began her career with Citigroup in India and was in various management positions in the areas of Credit, Loan Operations, Branch Banking and Audit located in India and the U.S. Ms. Ravi is also a Certified Public Accountant.

Patrick D. Schwartz, Corporate Secretary of HSBC Finance Corporation since September 2007 and Executive Vice President since February 2008. From June 2009 to May 2011 he was also the General Counsel and from May 2004 to June 2009 he was Deputy General Counsel. He served as a senior legal advisor of HSBC North America from February 2004 to May 2011 and has served as its Corporate Secretary since September 2007. Mr. Schwartz has been an Executive Vice President and Secretary of HSBC USA Inc. since May 2008. He has held several different legal titles for HSBC USA Inc. since September 2007, but served as its Secretary continuously since that time. Mr. Schwartz counsels management and the Board of Directors of HSBC Finance Corporation, HSBC USA Inc. and HSBC North America with respect to corporate governance matters. Mr. Schwartz is the Vice-Chairman of the Executive Committee and a member of the Audit Committee and the Personnel and Compensation Committee of the Village Church of Gurnee and has served in such capacities since 2007.

Lisa M. Sodeika, Executive Vice President - Corporate Affairs of HSBC Finance Corporation since July 2005 and of HSBC North America since June 2005. Ms. Sodeika directs HSBC North America's public affairs, internal communications, public policy and community engagement activities. Since joining HSBC Finance Corporation, Ms. Sodeika has held management positions in the personal financial services businesses including marketing, collections, quality assurance and compliance, underwriting and human resources. Ms. Sodeika served as member and chairperson of the Federal Reserve Board's Consumer Advisory Council from 2005 to 2007. Ms. Sodeika is also a board member of Junior Achievement USA and Big Brothers Big Sisters of Metropolitan Chicago.

Corporate Governance

Board of Directors - Board Structure The business of HSBC Finance Corporation is managed under the oversight of the Board of Directors, whose principal responsibility is to enhance the long-term value of HSBC Finance Corporation to HSBC. The Board of Directors also provides leadership in the maintenance of prudent and effective controls that enable management to assess and manage risks of the business. The affairs of HSBC Finance Corporation are governed by the Board of Directors, in conformity with the Corporate Governance Standards, in the following ways:

Ÿ providing input and endorsing business strategy formulated by management and HSBC;

Ÿ providing input and approving the annual operating, funding and capital plans and Risk Appetite Statement prepared by management;

Ÿ monitoring the implementation of strategy by management and HSBC Finance Corporation's performance relative to approved operating, funding and capital plans and its risk appetite;

Ÿ reviewing and advising as to the adequacy of the succession plans for the Chief Executive Officer and senior executive management;

Ÿ reviewing and providing input to HSBC concerning evaluation of the Chief Executive Officer's performance;

Ÿ reviewing and approving the Corporate Governance Standards and monitoring compliance with the standards;

Ÿ assessing and monitoring the major risks facing HSBC Finance Corporation consistent with the Board of Director's responsibilities to HSBC; and

Ÿ monitoring the risk management structure designed by management to ensure compliance with applicable law and regulation, HSBC policies, ethical standards and business strategies.

Board of Directors - Committees and Charters The Board of Directors of HSBC Finance Corporation has three standing committees: the Audit Committee, the Compliance Committee and the Risk Committee. The charters of the Audit Committee, the Compliance Committee and the Risk Committee, as well as our Corporate Governance Standards, are available on our website at www.us.hsbc.com or upon written request made to HSBC Finance Corporation, 26525 North Riverwoods Boulevard, Suite 100, Mettawa, Illinois 60045, Attention: Corporate Secretary.

Audit Committee The Audit Committee is responsible, on behalf of the Board of Directors, for oversight and advice to the Board of Directors with respect to:

Ÿ the integrity of HSBC Finance Corporation's financial reporting processes and effective systems of internal controls relating to financial reporting;

Ÿ HSBC Finance Corporation's compliance with legal and regulatory requirements that may have a material impact on our financial statements; and

Ÿ the qualifications, independence, performance and remuneration of HSBC Finance Corporation's independent auditors.

The Audit Committee is currently comprised of the following independent directors (as defined by our Corporate Governance Standards which are based upon the rules of the New York Stock Exchange ("NYSE")): Robert K. Herdman (Chair), Phillip D. Ameen, Samuel Minzberg and Larree M. Renda. The Board of Directors has determined that each of these individuals is financially literate. The Board of Directors has also determined that Mr. Herdman qualifies as an "audit committee financial expert."

Audit Committee Report During the previous year, the Audit Committee met and held discussions with management and KPMG LLP. The Audit Committee reviewed and discussed with management and KPMG LLP the audited financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The Audit Committee also discussed with KPMG LLP the matters required to be discussed by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence, such communications also included its findings related to internal controls in conjunction with its financial statement audit. The Audit Committee also discussed management's assessment of the effectiveness of internal controls over financial reporting.

KPMG LLP submitted to the Audit Committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence. The Audit Committee discussed with KPMG LLP such firm's independence.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in this Annual Report on Form 10-K for the year ended December 31, 2012 for filing with the SEC.

	Audit Committee

	Robert K. Herdman (Chair)
	Phillip D. Ameen
	Samuel Minzberg
	Laree M. Rhenda

Compliance Committee The Compliance Committee is responsible, on behalf of the Board of Directors, for monitoring and oversight of:

Ÿ the Bank Secrecy Act ("BSA") and Anti-Money Laundering ("AML") functions of the Corporation;

Ÿ the corrective actions in the foreclosure processing and loss mitigation functions of the Corporation and to ensure that the Corporation complies with the Federal Reserve Servicing Consent Order; and

Ÿ HSBC Finance Corporation's Compliance function and the development of a strong Compliance culture.

The Compliance Committee is currently comprised of the following Directors: George A. Lorch (Chair), Patrick J. Burke and Beatriz R. Perez.

Risk Committee The Risk Committee is responsible, on behalf of the Board of Directors, for oversight and advice to the Board with respect to:

Ÿ HSBC Finance Corporation's risk appetite, tolerance and strategy;

Ÿ our systems of risk management and internal control to identify, measure, aggregate, control and report risk;

Ÿ management of capital levels and regulatory ratios, related targets, limits and thresholds, and the composition of our capital;

Ÿ alignment of strategy with our risk appetite, as defined by the Board of Directors; and

Ÿ maintenance and development of a supportive and proactive risk management culture that is appropriately embedded through procedures, training and leadership actions so that all employees are alert to the wider impact on the whole organization of their actions and decisions and appropriately communicate regarding identified risks.

The Risk Committee is currently comprised of the following Directors: Robert K. Herdman (Chair), Phillip D. Ameen, George A. Lorch, Samuel Minzberg, Beatriz R. Perez and Larree M. Renda.

Nominating and Compensation Committees The Board of Directors of HSBC Finance Corporation does not maintain a standing nominating committee or compensation committee. The Nominating and Governance Committee of the HSBC North America Board of Directors (the "Nominating and Governance Committee") is responsible for, among other things, oversight and advice to the HSBC North America Board of Directors with respect to:

Ÿ making recommendations concerning the structure and composition of the HSBC North America Board of Directors and its committees and the Boards and committees of its subsidiaries, including HSBC Finance Corporation, to enable these Boards to function most effectively; and

Ÿ identifying qualified individuals to serve on the HSBC North America Board of Directors and its committees and the Boards and committees of its subsidiaries, including HSBC Finance Corporation.

The Nominating and Governance Committee also has specified responsibilities with respect to executive officer compensation. See Item 11. Executive Compensation - Compensation Discussion and Analysis - Oversight of Compensation Decisions. The Nominating and Governance Committee is currently comprised of the following Directors: Anthea Disney (Chair), George A. Lorch, Nancy G. Mistretta and Larree M. Renda. Ms. Disney and Ms. Mistretta currently serve as Directors of HSBC North America and HSBC USA. Mr. Lorch and Ms. Renda currently serve as Directors of HSBC North America and HSBC Finance Corporation.

Board of Directors - Director Qualifications HSBC and the Board of Directors believe a Board comprised of members from diverse professional and personal backgrounds who provide a broad spectrum of experience in different fields and expertise best promotes the strategic objectives of HSBC Finance Corporation. HSBC and the Board of Directors evaluate the skills and characteristics of prospective Board members in the context of the current makeup of the Board of Directors. This assessment includes an examination of whether a candidate is independent, as well as consideration of diversity, skills and experience in the context of the needs of the Board of Directors, including experience as a chief executive officer or other senior executive or in fields such as financial services, finance, technology, communications and marketing, and an understanding of and experience in a global business. Although there is no formal written diversity policy, the Board considers a broad range of attributes, including experience, professional and personal backgrounds and skills, to ensure there is a diverse Board. A majority of the non-executive Directors are expected to be active or retired senior executives of large companies, educational institutions, governmental agencies, service providers or non-profit organizations. Advice and recommendations from others, such as executive search firms, may be considered, as the Board of Directors deems appropriate.

The Board of Directors reviews all of these factors, and others considered pertinent by HSBC and the Board of Directors, in the context of an assessment of the perceived needs of the Board of Directors at particular points in time. Consideration of new Board candidates typically involves a series of internal discussions, development of a potential candidate list, review of information concerning candidates, and interviews with selected candidates. Under our Corporate Governance Standards, in the event of a major change in a Director's career position or status, including a change in employer or a significant change in job responsibilities or a change in the Director's status as an "independent director," the Director is expected to offer to resign. The Chairman of the Board, in consultation with the Chief Executive Officer and senior executive management, will determine whether to present the resignation to the Board of Directors. If presented, the Board of Directors has discretion after consultation with management to either accept or reject the resignation. In addition, the Board of Directors discusses the effectiveness of the Board and its committees on an annual basis, which discussion includes a review of the composition of the Board.

As set forth in our Corporate Governance Standards, while representing the best interests of HSBC and HSBC Finance Corporation, each Director is expected to:

Ÿ promote HSBC's brand values and standards in performing their responsibilities;

Ÿ have the ability to spend the necessary time required to function effectively as a Director;

Ÿ develop and maintain a sound understanding of the strategies, business and senior executive succession planning of HSBC Finance Corporation;

Ÿ carefully study all Board materials and provide active, objective and constructive participation at meetings of the Board and its committees;

Ÿ assist in affirmatively representing HSBC to the world;

Ÿ be available to advise and consult on key organizational changes and to counsel on corporate issues;

Ÿ develop and maintain a good understanding of global economic issues and trends; and

Ÿ seek clarification from experts retained by HSBC Finance Corporation (including employees of HSBC Finance Corporation) to better understand legal, financial or business issues affecting HSBC Finance Corporation.

Under the Corporate Governance Standards, Directors have full access to senior management and other employees of HSBC Finance Corporation. Additionally, the Board and its committees have the right at any time to retain independent outside financial, legal and other advisors, at the expense of HSBC Finance Corporation.

Board of Directors - Delegation of Authority The HSBC North America Board of Directors has delegated its powers, authorities and discretion, to the extent they concern the management and day to day operation of the businesses and support functions of HSBC North America and its subsidiaries to a management Executive Committee comprised of senior executives from the businesses and staff functions. Under this authority, the Executive Committee approves and addresses all matters which are of a routine or technical nature and relate to matters in the ordinary course of business. The HSBC Finance Corporation Chief Executive Officer, Chief Risk Officer, Chief Compliance Officer, Chief Operating Officer, Head of Strategy and Planning, Chief Servicing Officer of Consumer and Mortgage Lending, Corporate Secretary and Head of Corporate Affairs are members of the HSBC North America Executive Committee.

The objective of the Executive Committee is to maintain a reporting and control structure in which all of the line operations of HSBC North America and all its subsidiaries, including HSBC Finance Corporation, are accountable to individual members of the Executive Committee who report to the HSBC North America Chief Executive Officer, who in turn reports to the HSBC Chief Executive Officer.

Board of Directors - Risk Oversight by Board HSBC Finance Corporation has a comprehensive risk management framework designed to ensure all risks, including credit, liquidity, interest rate, market, operational, reputational and strategic risk, are appropriately identified, measured, monitored, controlled and reported. The risk management function oversees, directs and integrates the various risk-related functions, processes, policies, initiatives and information systems into a coherent and consistent risk management framework. Our risk management policies are primarily implemented in accordance with the practices and limits by the HSBC Group Management Board. Oversight of all risks specific to HSBC Finance Corporation commences with the Board of Directors, which has delegated principal responsibility for a number of these matters to the Audit Committee, the Risk Committee and the Compliance Committee.

Audit Committee The Audit Committee has responsibility for oversight of and advice to the Board of Directors on matters relating to financial reporting and for oversight of internal controls over financial reporting. As set forth in our Audit Committee charter, the Audit Committee is responsible, on behalf of the Board of Directors, for oversight and advice to the Board of Directors with respect to:

Ÿ the integrity of HSBC Finance Corporation's financial reporting processes and effective systems of internal controls relating to financial reporting;

Ÿ HSBC Finance Corporation's compliance with legal and regulatory requirements that may have a material impact on our financial statements; and

Ÿ the qualifications, independence, performance and remuneration of HSBC Finance Corporation's independent auditors.

The Audit Committee also has the responsibility, power, direction and authority to receive regular reports from the Internal Audit Department concerning major findings of internal audits and to review the periodic reports from the Internal Audit Department that include an assessment of the adequacy and effectiveness of HSBC Finance Corporation's processes for controlling activities and managing risks.

Risk Committee As set forth in our Risk Committee charter, the Risk Committee has the responsibility, power, direction and authority to:

Ÿ receive regular reports from the Chief Risk Officer that enable the Risk Committee to assess the risks involved in the business and how risks are monitored and controlled by management and to give explicit focus to current and forward-looking aspects of risk exposure which may require an assessment of our vulnerability to previously unknown or unidentified risks;

Ÿ review and discuss with the Chief Risk Officer the adequacy and effectiveness of our internal control and risk management framework in relation to our strategic objectives and related reporting;

Ÿ oversee and advise the Board of Directors on all high-level risks;

Ÿ approve with HSBC the appointment and replacement of the Chief Risk Officer (who also serves as the North America Regional Chief Risk Officer for HSBC);

Ÿ review and approve the annual key objectives and performance review of the Chief Risk Officer;

Ÿ seek appropriate assurance as to the Chief Risk Officer's authority, access, independence and reporting lines;

Ÿ review the effectiveness of our internal control and risk management framework and whether management has discharged its duty to maintain an effective internal control system;

Ÿ consider the risks associated with proposed strategic acquisitions or dispositions;

Ÿ receive regular reports from HSBC Finance Corporation's Asset Liability Management Committee ("ALCO") in order to assess major financial risk exposures and the steps management has taken to monitor and control such exposures;

Ÿ review with senior management and, as appropriate, approve, guidelines and policies to govern the process for assessing and managing various risk topics, including litigation risk and reputational risk; and

Ÿ oversee the continuing maintenance and enhancement of a strong enterprise-wide risk management culture.

At each quarterly Risk Committee meeting, the Chief Risk Officer makes a presentation to the committee reviewing key and emerging risks for HSBC Finance Corporation, which may include operational and internal controls, market, credit, information security, capital management, liquidity and litigation. In addition, the head of each Risk functional area is available to provide the Risk Committee a review of particular potential risks to HSBC Finance Corporation and management's plan for mitigating these risks.

In 2011, the HSBC Finance Corporation Risk Management Committee was combined with the HSBC North America Holdings Inc. Risk Management Committee (the "Risk Management Committee"), which provides strategic and tactical direction to risk management functions throughout HSBC North America, including HSBC Finance Corporation, focusing on: credit, funding and liquidity, capital, market, operational, security, fraud, reputational and compliance risks. The Risk Management Committee is comprised of the function heads of each of these areas, as well as other control functions within the organization. The Chief Risk Officer of HSBC North America is the Chair of this committee. On an annual basis, the HSBC North America and HSBC Finance Corporation Boards review the Risk Management Committee's charter and framework. The HSBC North America Holdings Inc. Operational Risk & Internal Control Committee (the "ORIC Committee") and the HSBC Finance Corporation Disclosure Committee report to the Risk Management Committee and, together with the ALCO, define the risk appetite, policies and limits; monitor excessive exposures, trends and effectiveness of risk management; and promulgate a suitable risk management culture, focused within the parameters of their specific areas of risk.

ALCO provides oversight and strategic guidance concerning the composition of the balance sheet and pricing as it affects net interest income. It establishes limits of acceptable risk and oversees maintenance and improvement of the management tools and framework used to identify, report, assess and mitigate market, interest rate and liquidity risks.

In 2011, the HSBC Finance Corporation Operational Risk & Internal Control Committee was combined with the ORIC Committee, which is responsible for oversight of the identification, assessment, monitoring, appetite for, and proactive management and control of, operational risk for HSBC North America, including HSBC Finance Corporation. Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The ORIC Committee is designed to ensure that senior management fully considers and effectively manages our operational risk in a cost-effective manner so as to reduce the level of operational risk losses and to protect the organization from foreseeable future operational losses.

The HSBC Finance Corporation Disclosure Committee is responsible for maintenance and evaluation of our disclosure controls and procedures and for assessing the materiality of information required to be disclosed in periodic reports filed with the SEC. Among its responsibilities is the review of quarterly certifications of business and financial officers throughout HSBC Finance Corporation as to the integrity of our financial reporting process, the adequacy of our internal and disclosure control practices and the accuracy of our financial statements.

Compliance Committee As set forth in our Compliance Committee charter, the Compliance Committee has the responsibility, power, direction and authority to:

Ÿ receive regular reports from management on plans to strengthen our compliance risk management practices;

Ÿ oversee the continuing maintenance and enhancement of a strong compliance culture;

Ÿ receive regular reports from the Chief Compliance Officer that enable the Compliance Committee to assess major compliance exposures and the steps management has taken to monitor and control such exposures, including the manner in which the regulatory and legal requirements of pertinent jurisdictions are evaluated and addressed;

Ÿ approve the appointment and replacement of the Chief Compliance Officer and other statutory compliance officers and review and approve the annual key objectives and performance review of the Chief Compliance Officer;

Ÿ review the budget, plan, changes in plan, activities, organization and qualifications of the Compliance Department as necessary or advisable in the Committee's judgment;

Ÿ review and monitor the effectiveness of the Compliance Department and the Compliance Program, including testing and monitoring functions, and obtain assurances that the Compliance Department, including testing and monitoring functions, is appropriately resourced, has appropriate standing within the organization and is free from management or other restrictions;

Ÿ seek such assurance as it may deem appropriate that the Chief Compliance Officer participates in the risk management and oversight process at the highest level on an enterprise-wide basis; has total independence from individual business units; reports to the Compliance Committee and has internal functional reporting lines to the HSBC Head of Group Compliance; and has direct access to the Chairman of the Compliance Committee, as needed; and

Ÿ upon request of the Board, provide the Board with negative assurance as to such regulatory and legal requirements as the Compliance Committee deems possible.

In support of these responsibilities, HSBC Finance Corporation maintains an Executive Compliance Steering Committee, which is a management committee established to provide overall strategic direction and oversight to significant HSBC Finance Corporation compliance issues. Patrick Burke, the Chief Executive Officer and a Director, is the Chair of this committee, the membership of which also includes the heads of our business segments, our Chief Compliance Officer and senior management of our Compliance, Legal and other control functions. The Executive Compliance Steering Committee reports to both the Compliance Committee of the Board of Directors and the HSBC North America Executive Compliance Steering Committee, which serves a similar role for HSBC North America. This committee defines deliverables, provides ongoing direction to project teams, approves all regulatory submissions and prepares materials for presentation to the Board of Directors. The Project Steering Committee also provides oversight to individual project managers, compliance subject matter experts, and external consultants to ensure any regulatory requested deliverables are met.

For further discussion of risk management generally, see the "Risk Management" section of the MD&A.

Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act, as amended, requires certain of our Directors, executive officers and any persons who own more than 10 percent of a registered class of our equity securities to report their initial ownership and any subsequent change to the SEC and the NYSE. With respect to the issue of HSBC Finance Corporation preferred stock outstanding, we reviewed copies of all reports furnished to us and obtained written representations from our Directors and executive officers that no other reports were required. Based solely on a review of copies of such forms furnished to us and written representations from the applicable Directors and executive officers, all required reports of changes in beneficial ownership were filed on a timely basis for the 2012 fiscal year.

Code of Ethics HSBC Finance Corporation has adopted a Code of Ethics that is applicable to its chief executive officer, chief financial officer, chief accounting officer and controller, which Code of Ethics is incorporated by reference in Exhibit 14 to this Annual Report on Form 10-K. HSBC North America also has a general code of ethics applicable to all U.S. employees, including employees of HSBC Finance Corporation, which is referred to as its Statement of Business Principles and Code of Ethics. That document is available on our website at www.us.hsbc.com or upon written request made to HSBC Finance Corporation, 26525 North Riverwoods Boulevard, Suite 100, Mettawa, Illinois 60045, Attention: Corporate Secretary.

Item 11. Executive Compensation.

Compensation Discussion and Analysis

The following compensation discussion and analysis (the "2012 CD&A") summarizes the principles, objectives and factors considered in evaluating and determining the compensation of HSBC Finance Corporation's executive officers in 2012. Specific compensation information relating to HSBC Finance Corporation's Chief Executive Officer, Chief Financial Officer, and the next three most highly compensated executives is contained in this portion of the Form 10-K. Collectively, these officers are referred to as the Named Executive Officers ("NEOs").

Oversight of Compensation Decisions

Remuneration Committee The Board of Directors of HSBC Holdings plc ("HSBC") has a Remuneration Committee ("REMCO") which meets regularly to consider terms and conditions of employment, remuneration and retirement benefits. With authority delegated by the HSBC Board, REMCO is responsible for approving the remuneration policy of HSBC, including the terms of variable pay plans, share plans and other long-term incentive plans worldwide. In this role, REMCO is also responsible for approving the individual remuneration packages for the most senior HSBC executives, generally those having an impact on HSBC's risk profile and those in position of significant influence ("senior executives").

The members of REMCO during 2012 are the following non-executive directors of HSBC: J L Thornton (Chairman), J D Coombe, and W S H Laidlaw and G. Morgan (retired as a director on May 25, 2012). As an indirect wholly owned subsidiary of HSBC, HSBC Finance Corporation is subject to the remuneration policy established by HSBC, and the Chief Executive Officer of HSBC Finance Corporation is one of the senior executives whose compensation is reviewed and approved by REMCO.

Delegation of Authority from Remuneration Committee The remuneration of executives who are not "senior executives" within the broader view of HSBC is determined by HSBC executives who have the authority delegated to them by REMCO to endorse remuneration (up to pre-determined levels of compensation and levels of management that vary by level of delegated authority). At the highest level, REMCO delegates this authority to the HSBC Group Chief Executive, Stuart T. Gulliver ("Mr. Gulliver"). Within his powers, Mr. Gulliver further delegated this authority regionally to approve pay packages to Irene M. Dorner ("Ms. Dorner"), who as HSBC North America's (" HNAH") Chief Executive Officer had authority and oversight recommendation responsibility for HSBC North America and its subsidiaries. In a similar manner, Mr. Patrick J. Burke ("Mr. Burke"), as HSBC Finance Corporation's Chief Executive Officer, received delegated authority for approval over executive remuneration from Ms. Dorner. Remuneration decisions can be further delegated to other relevant authorities within HSBC, as appropriate, depending on their level of responsibility and the scope of their role. Those with delegated authority to approve remuneration for executives do so after consultation with HSBC's Group Managing Director of Human Resources as well as with the relevant heads of global business segments or heads of global staff functions, such as Finance or Compliance.

Board of Directors; HSBC North America Nominating and Governance Committee The Board of Directors reviewed and made recommendations concerning proposed 2012 performance assessments and variable pay compensation award proposals for the Chief Executive Officer, direct reports to the Chief Executive Officer and certain other Covered Employees ("Covered Employees"), inclusive of the NEOs. The Board of Directors also reviewed fixed pay recommendations for 2013 for the NEOs and had the opportunity to recommend changes before awards were finalized.

The Nominating and Governance Committee of HSBC North America (the "HNAH Nominating and Governance Committee") performed certain responsibilities related to oversight and endorsements of compensation for 2012 performance with respect to HSBC North America and its subsidiaries. The duties of the HNAH Nominating and Governance Committee, among others, include: i) reviewing the corporate governance framework to ensure that best practices are maintained and relevant stakeholders are effectively represented, ii) overseeing the framework for assessing risk in the responsibilities of employees, the determination of who are Covered Employees under the Interagency Guidelines on Incentive Based Compensation Arrangements as published by the Federal Reserve Board, and the measures used to ensure that risk is appropriately considered in making discretionary variable pay compensation recommendations, iii) making recommendations concerning proposed performance assessments and discretionary variable pay compensation award proposals for the Chief Executive Officer, direct reports of the Chief Executive Officer and certain other Covered Employees, including any recommendations for reducing or canceling discretionary variable pay compensation previously awarded, and iv) reviewing the coverage and competitiveness of employee pension and retirement plans and general benefits. The recommendations related to employee compensation are incorporated into the submissions to REMCO, or to Mr. Gulliver, Ms. Dorner and Mr. Burke, in instances where REMCO has delegated remuneration authority. During the fourth quarter of 2012 and in January 2013, the HNAH Nominating and Governance Committee reviewed the enhanced risk assessment measures with respect to risks taken and risk outcomes in connection with the performance review process and compensation recommendations for senior executives for 2012 performance. During the first quarter of 2013, the HNAH Nominating and Governance Committee reviewed the final risk evidencing statements that are required of all U.S. business units and functions to support 2012 variable pay recommendations for Covered Employees.

Compensation and Performance Management Governance Committee In 2010, HSBC North America established the Compensation and Performance Management Governance Committee ("CPMG Committee"). The CPMG Committee was created to provide a more systematic approach to incentive compensation governance and ensure the involvement of the appropriate levels of leadership in a comprehensive view of compensation practices and associated risks. The members of the CPMG Committee are senior executive representatives from HSBC North America's staff and control functions, consisting of Risk, Compliance, Legal, Finance, Audit, Human Resources and Corporate Secretary. The CPMG Committee has responsibility for oversight of compensation for Covered Employees; approves the list of Covered Employees and their mandatory performance scorecard objectives; reviews compensation and recommendations related to regulatory and audit findings; performs incentive plan reviews; may review guaranteed bonuses and buyouts of bonuses and equity grants; and can make recommendations to reduce or cancel previous grants of incentive compensation based on actual results and risk outcomes. The CPMG Committee can make its recommendations to the HNAH Nominating and Governance Committee, REMCO, Mr. Gulliver, Ms. Dorner or Mr. Burke, depending on the nature of the recommendation or the delegation of authority for making final decisions. The CPMG Committee held eight formal meetings in 2012, as well as two formal meetings during the first quarter of 2013.

Objectives of HSBC Finance Corporation's Compensation Program A global reward strategy for HSBC, as approved by REMCO, is utilized by HSBC Finance Corporation. The usage of a global reward strategy promotes a uniform compensation philosophy throughout HSBC, common standards and practices throughout HSBC's global operations, and a particular framework for REMCO to use in carrying out its responsibilities. The reward strategy includes the following elements:

Ÿ A focus on total compensation (fixed pay and annual discretionary variable pay) with the level of annual discretionary variable pay (namely, cash, deferred cash and the value of long-term equity incentives) differentiated by performance;

Ÿ An assessment of reward with reference to clear and relevant objectives set within a performance scorecard framework;

Our most senior executives, including Messrs. Burke, C. Mark Gunton ("Mr. Gunton"), Michael A. Reeves ("Mr. Reeves"), Gary E. Peterson ("Mr. Peterson"), and Ms. Kathryn Madison ("Ms. Madison") set objectives using a performance scorecard framework. Under a performance scorecard framework, objectives are separated into two categories, financial objectives and non-financial objectives, and the weighting between categories varies by executive. The performance scorecard also requires an assessment of the executive's adherence to HSBC values and behaviors consistent with managing a sound financial institution. Specific objectives required of all Covered Employees include targets relating to Compliance, Internal Audit and general risk and internal control measures.

In performance scorecards, certain objectives have quantitative standards that may include meeting designated financial performance targets for the company or the executive's respective business unit and increasing employee engagement metrics. Qualitative objectives may include key strategic business initiatives or projects for the executive's respective business unit. Quantitative and qualitative objectives only provide some guidance with respect to 2012 compensation. However, in keeping with HSBC's reward strategy, discretion played a considerable role in establishing the annual discretionary variable pay awards for HSBC Finance Corporation's senior executives;

Ÿ The use of considered discretion to assess the extent to which performance has been achieved, rather than applying a formulaic approach which, by its nature, is inherently incapable of considering all factors affecting results and may encourage inappropriate risk taking. In addition, environmental factors and social and governance aspects that would otherwise not be considered by applying absolute financial metrics may be taken into consideration. While there are specific quantitative goals as outlined above, the final reward decision is not solely dependent on the achievement of one or all of the objectives;

Ÿ Delivery of a significant proportion of variable pay in deferred HSBC shares to align recipient interests to the future performance of HSBC and to retain key talent; and

Ÿ A total compensation package (fixed pay, annual discretionary variable pay, and other benefits) that is competitive in relation to comparable organizations in respective markets in which HSBC operates.

Internal Equity HSBC Finance Corporation's executive officer compensation is analyzed internally at the direction of HSBC's Group Managing Director of Human Resources with a view to align treatment globally and across business segments and functions, taking into consideration individual responsibilities, size and scale of the businesses the executives lead, and contributions of each executive, along with geography and local labor markets. These factors are then calibrated for business and individual performance within the context of their business environment against their respective Comparator Group, as detailed herein.

Link to Company Performance HSBC's compensation plans are designed to motivate its executives to improve the overall performance and profitability of HSBC as well as the specific region, unit or function to which they are assigned. HSBC seeks to offer competitive fixed pay with a significant portion of discretionary variable pay compensation components determined by measuring overall performance of the executive, his or her respective business unit, legal entity and HSBC overall. The discretionary annual variable pay awards are based on individual and business performance, as more fully described under Elements of Compensation - Annual Discretionary Variable Pay Awards. Common objectives for the NEOs included: improvement in cost efficiency; execution of transformation projects, enhancement of control environment, mitigation of risk and compliance to regulatory and HSBC standards. Each NEO also had other individual objectives specific to his or her role.

We have a strong orientation to use variable pay to reward performance. Consequently, variable pay makes up a significant proportion of total compensation, while maintaining an appropriate balance between fixed and variable elements. Actual compensation paid will increase or decrease based on the executive's individual performance, including business results and the management of risk within his or her responsibilities.

As the determination of the variable pay awards relative to 2012 performance considered the overall satisfaction of objectives that could not be evaluated until the end of 2012, the final determination on 2012 total compensation was not made until February 2013. To make that evaluation, Mr. Gulliver, Ms. Dorner and Mr. Burke received reports from management concerning satisfaction of 2012 corporate, business unit and individual objectives.

Competitive Compensation Levels and Benchmarking When making compensation decisions, HSBC looks at the compensation paid to similarly-situated executives in our Comparator Group, a practice referred to as "benchmarking." Benchmarking provides a point of reference for measurement, but does not replace analyses of internal pay equity and individual performance of the executive officers that HSBC also considers when making compensation decisions. HSBC Finance Corporation strives to maintain a compensation program that may attract and retain qualified executives, but also has levels of compensation that vary based on performance.

In 2012, REMCO retained Towers Watson to provide REMCO with market trend information for use during the annual pay review process and advise REMCO as to the competitive position of HSBC's total direct compensation levels in relation to the Comparator Group. Towers Watson provided competitive positions on the highest level executives in HSBC, including Messrs. Burke and Peterson. Comparative competitor information was provided to Mr. Gulliver to evaluate the competitiveness of proposed executive compensation.

The primary Comparator Group consists of our global peers with comparable business operations located within U.S. borders. A secondary Comparator Group was also used which consisted of U.S.-based peers with comparable business operations. These organizations are publicly held companies that compete with HSBC for business, customers and executive talent and are broadly similar in size and international scope. The Comparator Group is reviewed annually with the assistance of Towers Watson. The Comparator Group for 2012 consisted of:

Global Peers
Bank of America		JPMorgan Chase
Barclays		Santander
BNP Paribas		Standard Chartered
Citigroup		UBS
Deutsche Bank

The aggregate fee paid to Towers Watson for services provided to HSBC was $484,567, of which $17,553 was apportioned to HSBC Finance Corporation. Separately, the management of HSBC North America retained Towers Watson to perform non-executive compensation consulting services. In 2012, the aggregate fee paid to Towers Watson by HSBC North America for these other services was $1,960,015.

The total compensation review for Messrs. Reeves and Gunton, and Ms. Madison included comparative competitor information based on broader financial services industry data and general industry data that was compiled from compensation surveys prepared by consulting firm McLagan Partners Inc. ("McLagan"). The aggregate fee paid to McLagan for executive compensation consulting services by HSBC North America was $55,143 and for non-executive consulting services was $48,150. Additionally, HSBC paid $606,113 to McLagan for fees related to compensation surveys used globally.

Elements of Compensation The primary elements of executive compensation, which are described in further detail below, are fixed pay and annual discretionary variable pay awards, which are delivered in cash, deferred cash and long-term equity incentive awards.

In addition, executives are eligible to receive company funded retirement benefits that are offered to employees at all levels who meet the eligibility requirements of such qualified and non-qualified plans. Although perquisites are provided to certain executives, they typically are not a significant component of compensation.

Fixed Pay Fixed pay helps HSBC attract and retain executive talent because it provides a degree of financial certainty and is less subject to risk than most other pay elements. In establishing individual fixed pay levels, consideration is given to market pay, as well as the specific responsibilities and experience of the NEO. Fixed Pay is reviewed annually and may be adjusted based on performance and changes in the competitive market. Consideration is given to compensation paid for similar positions at Comparator Group companies, particularly at the median level. Other factors such as specific job responsibilities, length of time in current position, pay history, internal equity, and retention concerns influence the final fixed pay recommendations for individual executives. Fixed pay increases proposed by senior management are prioritized towards high performing employees and those who have demonstrated rapid development. Additionally, consideration is given to maintaining an appropriate ratio between fixed pay and variable pay as components of total compensation.

Annual Discretionary Variable Pay Awards Annual discretionary variable pay ("variable pay") awards vary from year to year and are offered as part of the total compensation package to motivate and reward strong performance. Superior performance is encouraged by placing a part of the executive's total compensation at risk. In the event certain quantitative or qualitative performance goals are not met, cash awards may be reduced or not paid at all. Variable pay awards may be granted as cash, deferred cash, and long-term equity incentive awards. Employees will become fully entitled to deferred cash over a three year vesting period.

Long-term equity incentive awards may be made in the form of stock options, restricted shares, and restricted share units ("RSUs"). The purpose of equity-based compensation is to help HSBC attract and retain outstanding employees and to promote the growth and success of HSBC Finance Corporation's business over a period of time by aligning the financial interests of these employees with those of HSBC's shareholders.

Historically, (prior to the merger with HSBC in 2003), Household equity awards were primarily made in the form of stock options and restricted stock rights. The stock options typically vested in three, four or five equal installments, subject to continued employment and expire ten years from the grant date. No stock options have been granted to executive officers after 2004.

In 2005, HSBC shifted its equity-based compensation awards to restricted shares with a time vesting condition, in lieu of stock options. Starting in 2009, RSUs have been awarded as the long-term equity incentive component of variable discretionary pay. The restricted shares and RSUs granted consist of a number of shares to which the employee will become fully entitled, generally over a three year vesting period. The restricted shares and RSUs granted by HSBC also carry rights to dividend equivalents which are paid or accrue on all underlying share or share unit awards at the same rate paid to ordinary shareholders.

Following shareholder approval of the HSBC Share Plan 2011, HSBC introduced a new form of long-term equity incentive awards for senior executives under the Group Performance Share Plan ("GPSP"). Grants under the GPSP aim to achieve alignment between the interests of participants and the interests of shareholders and to encourage participants to deliver sustainable long-term business performance. Grants under the GPSP are approved by REMCO, by considering performance delivered prior to the date of grant against a pre-determined scorecard. Performance measures on the scorecard are reviewed annually and for 2012 composed of 60 percent financial measures, such as return on equity, capital efficiency ratio, capital strength and dividends, and 40 percent non-financial measures, including strategy execution, brand equity, compliance, reputation and people. Grants under the GPSP comprise a number of shares to which the employee will become fully entitled, over a five year vesting period, subject to continued employment with HSBC. Shares which are released upon vesting of an award must be retained until the employee retires from or terminates employment with HSBC.

In July 2011, HNAH requested and received approval for a supplemental incentive plan ("SIP") to provide financial incentive to key employees in four targeted business areas who are responsible for executing HSBC's business strategy. As of end of December 2012, HNAH has granted approximately 650 awards under the SIP program. Incentive awards are delivered in the form of Performance Based Restricted Share Units ("PBRSU") with metrics consistent with the business strategy. The award amounts for executives, management and specialists vary by individual criticality and/or time required to maintain and liquidate the consumer and mortgage loan portfolio. Key performance indicators, specific to each business scenario and measured over the corresponding performance period (12 to 36 months), will determine award payout. Demonstrated performance which meets or exceeds specified levels will result in full vesting of the PBRSUs at the conclusion of the performance period. Demonstrated performance which partially meets (i.e. threshold performance, employment during performance period) desired levels will result in partial vesting of the PBRSUs awarded; the unvested PBRSUs will lapse. All participating employees are required to maintain an individual performance rating of strong or higher throughout the duration of their respective performance period against the performance scorecard objectives.

REMCO consider and decide the grant of long term equity awards and consider the individual executive's performance and goal achievement as well as the total compensation package when determining the allocation. While share dilution is not a primary factor in determining award amounts, there are limits to the number of shares that can be issued under HSBC equity-based compensation programs. These limits, more fully described in the various HSBC Share Plans, were established by vote of HSBC's shareholders.

Perquisites HSBC Finance Corporation's philosophy is to provide perquisites that are intended to help executives be more productive and efficient or to protect HSBC Finance Corporation and its executives from certain business risks and potential threats. Our review of competitive market data indicates that the perquisites provided to executives are reasonable and within market practice. Perquisites are generally not a significant component of compensation, except as described below.

Mr. Gunton participated in general benefits available to executives of HSBC Finance Corporation and certain additional benefits and perquisites available to executives on international assignments. Compensation packages for international assignees are modeled to be competitive globally and within the country of assignment and attractive to the executive in relation to the significant commitment that must be made in connection with a global posting. The additional benefits and perquisites may be significant when compared to other compensation received by other executive officers of HSBC Finance Corporation and can consist of housing expenses, children's education costs, car allowances, travel expenses and tax equalization. These benefits and perquisites are, however, consistent with those paid to similarly-situated international assignees subject to appointment to HSBC locations globally and are deemed appropriate by HSBC senior management. Perquisites are further described in the Summary Compensation Table.

Retirement Benefits HSBC North America offered a qualified defined benefit pension plan under which HSBC Finance Corporation executives could participate and receive a benefit equal to that provided to all eligible employees of HSBC Finance Corporation with similar dates of hire. Effective January 1, 2013, this pension plan was frozen such that future contributions ceased under the Cash Balance formula, the plan closed to new participants and employees no longer accrue any future benefits. HSBC North America also maintains a qualified defined contribution plan with a 401(k) feature and company matching contributions. Executives and certain other highly compensated employees can elect to participate in a non-qualified deferred compensation plan, in which such employees can elect to defer the receipt of earned compensation to a future date. HSBC Finance Corporation does not pay any above-market or preferential interest in connection with deferred amounts. As international assignee, Mr. Gunton is accruing pension benefits under foreign-based defined benefit plans. Additional information concerning these plans is contained in the Pension Benefits Table.

Performance Year 2012 Compensation Actions HSBC and HSBC Finance Corporation aim to have a reward policy that adheres to the governance initiatives of all relevant regulatory bodies and appropriately considers the risks associated with elements of total compensation.

Levels of fixed pay were reviewed and management determined that, in some instances, the market did warrant adjustments to the fixed pay of NEOs. Effective March 19, 2012, Mr. Reeves received a fixed pay increase from $330,008 to $346,500 and Ms. Madison received a fixed pay increase from $425,000 to $500,000. Mr. Peterson also received a fixed pay increase from $400,000 to $650,000 effective March 14, 2012 upon his appointment as Chief Compliance Officer.

Although HSBC Finance Corporation continues to face difficult business conditions, financial performance in 2012 has improved relative to prior year period (profit before taxes when excluding the fair value option on owned debt). There were few significant one-off transactions, and strategy review announcements which have impacted our results. During the first half of 2012, we completed the sale of U.S. Card and Retail Services ("CRS") business to Capital One. Additionally, we announced that upon completion of a strategic review of our Insurance business we have decided to exit the manufacturing of all insurance products through the sale of our interest in substantially all of our insurance subsidiaries. We also announced designating our Consumer and Mortgage Lending's Non-Real Estate portfolio receivables and a pool of our Real Estate portfolio receivables as "held for sale." With completed sale of the CRS business and continued progress in executing the other announced initiatives we are making significant progress in liquidating the HSBC Finance Corporation's operations so to align HSBC's U.S. operations with the announced strategy. We believe the strength of our strategic objectives and the direction of our executive officers are united to support and protect HSBC's interests and that of HSBC's shareholders. Variable pay awards for HSBC Finance Corporation were approved to be awarded to all of the NEOs.

Variable pay awarded to most employees in respect of 2012 performance is subject to deferral requirements under the HSBC Group Minimum Deferral Policy, which requires 10% to 50% of variable pay be awarded in the form of RSUs for HSBC Holdings plc ordinary shares that are subject to a three year vesting period. The deferral percentage increases in a graduated manner in relation to the amount of total variable pay awarded.

Mr. Burke, however, is subject to a different set of deferral requirements because he is designated as Code Staff ("Code Staff"), as defined by the United Kingdom's Financial Services Authority ("FSA") Remuneration Code ("the Code"). HSBC Finance Corporation, as a subsidiary of HSBC, must have remuneration practices for executive officers that comply with the Code, which requires firms to identify Code Staff employees. Code Staff are defined as all employees that have a material impact on the firm's risk profile, including individuals who perform significant influence functions for a firm, executives, senior managers, and risk takers, as defined by the Code.

Variable pay awarded to Code Staff in respect of 2012 performance is subject to different deferral rates than other employees under the HSBC Group Minimum Deferral Policy. Variable pay awards in excess of $750,000 are subject to a 60% deferral rate, and variable pay awards below $750,000 are subject to 40% deferral rate. Deferral rates are applied to the total variable pay award (excluding the GPSP award amounts, if any, which are fully deferred). The deferral amounts are split equally between deferred cash and deferred RSUs. Thirty-three percent (33%) of the deferred cash and deferred RSUs vest on each of the first and second anniversaries of the grant date, and thirty-four percent (34%) on the third anniversary of the grant date. RSUs are subject to an additional six-month retention period upon becoming vested, with provision made for the release of shares as required to meet associated income tax obligations. At the end of the vesting period, deferred cash is credited with a notional rate of return equivalent to the annual dividend yield of HSBC Holdings plc shares over the period. Amounts not deferred are also split equally between non-deferred cash and non-deferred share awards. Non-deferred share awards granted are immediately vested, yet subject to a six-month retention period with a provision made for the release of shares as required to meet associated tax obligations. Non-deferred cash awarded for 2012 performance will be paid on March 22, 2013. Deferred cash, deferred RSUs, and non-deferred shares will be granted on March 11, 2013.

Mr. Burke was identified as Code Staff during 2012, and he also holds the title of Group General Manager. For Mr. Burke, the vesting of the deferred cash and deferred RSUs was different than those typically awarded to Code Staff. In 2012, HSBC Finance Corporation and HSBC entered into a deferred prosecution with the United States Department of Justice in connection with failure to have effective anti-money laundering controls in place. Related to this agreement, executives holding the title of Group General Manager or higher in 2012 have their deferred cash and deferred RSUs granted for performance in 2012 vest five years after the grant date. Additionally, deferred RSUs granted to Mr. Burke are not subject to an additional six-month retention period upon becoming vested. The proportions of his total variable pay award split between deferred cash, deferred share award, non-deferred cash and non-deferred share award are still consistent with other Code Staff.

Mr. Burke's variable pay award for performance in 2012 is $1,556,588. As Code Staff, his variable pay award was paid in the following components: He received GPSP award of $280,000. The deferred portion of his variable pay consists of $382,976 in deferred cash and $382,976 in deferred RSUs. Mr. Burke's remaining variable pay award is delivered in equal parts non-deferred cash ($255,318) and immediately-vested shares ($255,318).

Messrs. Reeves, Gunton and Peterson and Ms. Madison are not recognized as Code Staff employees and are not subject to the deferral rates applicable only to Code Staff. Under the HSBC Group Minimum Deferral Policy applicable to those not recognized as Code Staff, Messrs. Reeves, Gunton and Peterson, and Ms. Madison each will receive 20%, 35%, 35% and 30% respectively, in RSUs as a percent of their total variable pay award for performance in 2012. Messrs. Revees, Gunton, and Peterson and Ms. Madison did not receive GPSP awards.

The following table summarizes the compensation decisions made with respect to the NEOs for the 2011 and 2012 performance years. The table below differs from the Summary Compensation Table because we determine equity award amounts after the performance year concludes, while SEC rules require that the Summary Compensation Table include equity compensation in the year granted. Also, the Summary Compensation Table includes changes in pension value and non-qualified deferred compensation earnings and other elements of compensation as part of total compensation and those amounts are not shown in the table below.

	Fixed Pay				Annual Discretionary Variable Cash⁽¹⁾				Long-term Equity Incentive Award⁽²⁾				Total Compensation				Year over Year % Change
	2011		2012		2011		2012		2011		2012		2011		2012		Year over Year % Change
Patrick J. Burke Chief Executive Officer	$	688,885	$	700,000	$	825,000	$	638,294	$	1,175,000	$	918,294	$	2,688,885	$	2,256,588	(16	)%
Michael A. Reeves⁽⁵⁾ Executive Vice President, Chief Financial Officer	$	330,008	$	342,694	$	240,000	$	200,880	$	310,000	$	50,220	$	880,008	$	593,794	(33	)%
C. Mark Gunton⁽³⁾ Senior Executive Vice President and Chief Risk Officer	$	523,144	$	513,843	$	446,550	$	362,700	$	240,450	$	195,300	$	1,210,144	$	1,071,843	(11	)%
Kathryn Madison Executive Vice President and Chief Servicing Officer	N/A		$	482,692	N/A		$	341,775	N/A		$	146,475	N/A		$	970,942	-
Gary E. Peterson⁽⁴⁾ Senior Executive Vice President, Chief Compliance Officer	N/A		$	595,192	N/A		$	392,925	N/A		$	211,575	N/A		$	1,199,692	-

⁽¹⁾Annual Discretionary Variable Cash amount pertains to the performance year indicated and is paid in the first quarter of the subsequent calendar year. Amounts include cash and deferred cash.

⁽²⁾Long-term Equity Incentive Award amount pertains to the performance year indicated and is typically awarded in the first quarter of the subsequent calendar year. For example, the Long-term Equity Incentive Award indicated above for 2012 is earned in performance year 2012 but will be granted in March 2013. However, as required in the Summary Compensation Table, the grant date fair market value of equity granted in March 2012 is disclosed for the 2012 fiscal year under the column of Stock Awards in that table. The grant date fair value of equity granted in March 2013 will be disclosed for the under the column of Stock Awards in the Summary Compensation Table reported for the 2013 fiscal year. Amounts include immediately-vested shares, deferred RSUs and GPSP awards.

⁽³⁾In his role as Chief Risk Officer of HSBC North America, Mr. Gunton has risk oversight over HSBC Finance Corporation, as well as HSBC USA. Amounts discussed within the 2012 CD&A and the accompanying executive compensation tables represent the full compensation paid to Mr. Gunton for his role as Senior Executive Vice President, Chief Risk Officer for all three companies. Mr. Gunton has also been disclosed as an NEO in the HSBC USA Form 10-K for the year ended December 31, 2012.

⁽⁴⁾In his role as Chief Compliance Officer of HSBC North America, Mr. Peterson has compliance oversight over HSBC Finance Corporation, as well as HSBC USA. Amounts discussed within the 2012 CD&A and the accompanying executive compensation tables represent the full compensation paid to Mr. Peterson for his role as Senior Executive Vice President, Chief Compliance Officer for all three companies.

⁽⁵⁾2011 Long-term Equity Incentive amount for Mr. Reeves includes a special award of $250,000, paid entirely in shares (RSUs), in recognition of NEOs critical contributions to sale of Credit Card business. This award is paid in addition to variable pay delivered in deferred RSUs ($60,000), and follows the same vesting schedule.

Compensation-Related Policies

Reduction or Cancellation of Deferred Cash and Long-Term Equity Incentive Awards, including "Clawbacks" REMCO has the discretion to reduce or cancel all unvested awards under HSBC share plans granted after January 1, 2010, including RSUs, deferred cash, and any accrued dividends on unvested awards. Circumstances that may prompt such action by REMCO include, but are not limited to: participant conduct considered to be detrimental or bringing the business into disrepute; evidence that past performance was materially worse than originally understood; prior financial statements are materially restated, corrected or amended; and evidence that the employee or the employee's business unit engaged in improper or inadequate risk analysis or failed to raise related concerns.

REMCO will assess the seriousness of the circumstances to determine the award reduction, up to a cancellation of the award. Factors considered in the assessment can include the degree of individual responsibility and the proximity of individuals to the event leading to a clawback; the magnitude or the financial impact of the event; the extent of the internal mechanisms failed; circumstances pointing to control weaknesses or poor performance; and whether the financial impact of the circumstances can be adequately covered by adjustments to the variable pay awards in the year in which the circumstance is discovered. The awards that may be reduced are not limited to unvested awards granted in the year in which the clawback event occurred, and all unvested awards are available for application of a clawback.

Additionally, all employees with unvested share awards or awards subject to a retention period will be required to certify annually that they have not used personal hedging strategies or remuneration contracts of insurance to mitigate the risk alignment of the unvested awards.

Employment Contracts and Severance Protection There are no employment agreements between HSBC Finance Corporation and the NEOs. However, Mr. Burke has an agreement that provides additional severance benefits upon a change in control of HSBC Finance Corporation. The terms of this agreement are as follows:

If during the 18 month period following a change in control of HSBC Finance Corporation his employment is terminated due to a "qualifying termination" (which includes a termination other than for "cause" or disability, or resignation by such person for "good reason"), he will be entitled to receive a cash payment consisting of:

Ÿ A pro rata annual bonus through the date of termination, based on the highest of the annual bonuses payable during the three years preceding the year in which the termination occurs;

Ÿ A payment equal to 1.5 times the sum of the applicable base salary and highest annual bonus; and

Ÿ A payment equal to the value of 18 months of additional employer contributions under HSBC North America's tax-qualified and supplemental defined contribution plans.

In addition, upon a qualifying termination following a change in control, Mr. Burke will be entitled to continue welfare benefit coverage for 18 months after the date of termination, 18 months of additional age and service credit under HSBC North America's tax-qualified and supplemental defined benefit retirement plans, and outplacement services. If any amounts or benefits received under the employment protection agreement or otherwise are subject to the excise tax imposed under section 4999 of the Internal Revenue Code, an additional payment will be made to restore such person to the after-tax position in which he would have been if the excise tax had not been imposed. However, if a small reduction in the amount payable would render the excise tax inapplicable, then this reduction will be made instead.

The HSBC-North America (U.S.) Severance Pay Plan and the HSBC-North America (U.S.) Supplemental Severance Pay Plan provide any eligible employees with severance pay for a specified period of time in the event that his or her employment is involuntarily terminated for certain reasons, including displacement or lack of work or rearrangement of work. Regular U.S. full-time or part-time employees who are scheduled to work 20 or more hours per week are eligible. Employees are required to sign an employment release as a condition for receiving severance benefits. Benefit amounts vary according to position. However, the benefit is limited for all employees to a 52-week maximum.

Repricing of Stock Options and Timing of Option Grants HSBC Finance Corporation does not, and our parent, HSBC, does not, reprice stock option grants. In addition, neither HSBC Finance Corporation nor HSBC has ever engaged in the practice known as "back-dating" of stock option grants, nor have we attempted to time the granting of historical stock options in order to gain a lower exercise price. For HSBC equity option plans, the exercise price of awards made in 2003 and 2004 was the higher of the average market value for HSBC ordinary shares on the five business days preceding the grant date or the market value on the date of the grant.

HSBC also offers to all employees a stock purchase plan under its Sharesave Plan in which an employee who commits to contributing up to 250 GBP each month for one, three or five years is awarded options to acquire HSBC ordinary shares. At the end of the term, the employee may opt to use the accumulated amount, plus interest, if any, to purchase shares under the option. The exercise price for each option is the average market value of HSBC ordinary shares on the five business days preceding the date of the invitation to participate, less a 15 to 20 percent discount (depending on the term).

Tax Considerations Limitations on the deductibility of compensation paid to executive officers under Section 162(m) of the Internal Revenue Code are not applicable to HSBC Finance Corporation, as it is not a public corporation as defined by Section 162(m). As such, all compensation to our executive officers is deductible for federal income tax purposes, unless there are excess golden parachute payments under Section 4999 of the Internal Revenue Code following a change in control.

Compensation Committee Interlocks and Insider Participation As described in the 2012 CD&A, HSBC Finance Corporation is subject to the remuneration policy established by REMCO and the delegations of authority with respect to executive officer compensation described above under "Oversight of Compensation Decisions."

Compensation Committee Report HSBC Finance Corporation does not have a Compensation Committee. While the HSBC North America Board of Directors and HSBC Finance Corporation Board of Directors were presented with information on proposed compensation for performance in 2012, the final decisions regarding remuneration policies and executive officer awards were made by REMCO or by Mr. Gulliver, Ms. Dorner or Mr. Burke where REMCO has delegated final decisions. We, the members of the Board of Directors of HSBC Finance Corporation, have reviewed the 2012 CD&A and discussed it with management, and have been advised that management of HSBC has reviewed the 2012 CD&A and believes it accurately reflects the policies and practices applicable to HSBC Finance Corporation executive compensation in 2011. HSBC Finance Corporation senior management has advised us that they believe the 2012 CD&A should be included in this Annual Report on Form 10-K. Based upon the information available to us, we have no reason to believe that the 2012 CD&A should not be included in this Annual Report on Form 10-K and therefore recommend that it should be included.

Board of Directors of HSBC Finance Corporation

Phillip D. Ameen

Patrick J. Burke

Robert K. Herdman

George A. Lorch

Samuel Minzberg

Beatriz R. Perez

Larree M. Renda

Executive Compensation The following tables and narrative text discuss the compensation awarded to, earned by or paid as of December 31, 2012 to (i) Mr. Patrick J. Burke who served as HSBC Finance Corporation's Chief Executive Officer, (ii) Mr. Michael A. Reeves, who served as HSBC Finance Corporation's Chief Financial Officer: and (iii) the next three most highly compensated executive officers (other than the Chief Executive Officer and Chief Financial Officer) who were serving as executive officers as of December 31, 2012.

Summary Compensation Table

Name and Principal Position	Year	Salary		Bonus⁽¹⁾		Stock Awards⁽²⁾		Option Awards		Non-Equity Incentive Plan Compen- sation		Change in Pension Value and Non-Qualified Deferred Compen- sation Earnings⁽³⁾		All Other Compensation⁽⁴⁾		Total
Patrick J. Burke	2012	$	700,000	$	638,294	$	1,175,000	$	-	$	-	$	877,143	$	83,597	$	3,474,034
Chief Executive Officer	2011	$	688,885	$	825,000	$	825,000	$	-	$	-	$	1,881,648	$	103,220	$	4,323,753
	2010	$	503,077	$	750,000	$	387,500	$	-	$	-	$	381,761	$	88,245	$	2,110,583
Michael A. Reeves	2012	$	342,694	$	200,880	$	310,000	$	-	$	-	$	279,899	$	15,000	$	1,148,473
Executive Vice President, Chief	2011	$	330,008	$	240,000	$	66,000	$	-	$	-	$	219,106	$	15,462	$	870,576
Chief Financial Officer	2010	$	330,008	$	264,000	$	75,000	$	-	$	-	$	295,614	$	15,600	$	980,222
C. Mark Gunton⁽⁵⁾	2012	$	513,843	$	362,700	$	240,450	$	-	$	-	$	860,445	$	813,436	$	2,381,382
Senior Executive Vice	2011	$	523,144	$	446,550	$	227,500	-		-		$	268,826	$	540,587	$	2,184,618
President, Chief Risk Officer	2010	$	514,157	$	422,500	$	300,000	$	-	$	-	$	159,083	$	797,513	$	2,193,253
Kathryn Madison⁽⁶⁾	2012	$	482,692	$	341,775	$	650,000	$	-	$	-	$	613,438	$	15,000	$	2,102,905
Executive Vice President, Chief Servicing Officer
Gary E. Peterson⁽⁵⁾⁽⁶⁾	2012	$	595,192	$	392,925	$	120,000	$	-	$	-	$	8,161	$	288,269	$	1,404,548
Senior Executive Vice President, Chief Compliance Officer

⁽¹⁾The amounts disclosed in 2012 are related to 2012 performance but paid in 2013. In the case of Mr. Burke amount includes portion granted in the form of deferred cash as disclosed under Performance Year 2012 Compensation Actions. Mr. Burke will become fully entitled to the deferred cash over a three year vesting period, and during the period, the deferred cash will be credited with a notional rate of return equal to the annual dividend yield of HSBC Holdings plc shares over the period.

⁽²⁾Reflects the aggregate grant date fair value of awards granted during the year. The grants are subject to various time vesting conditions as disclosed in the footnotes to the Outstanding Equity Awards at Fiscal Year End Table. Dividend equivalents, in the form of cash and additional shares, are paid on all underlying shares and restricted share units at the same rate as dividends paid on shares of HSBC Holding plc.

⁽³⁾The HSBC - North America (U.S.) Pension Plan ("Pension Plan"), the HSBC - North America Non-Qualified Deferred Compensation Plan ("NQDCP"), the Supplemental HSBC Finance Corporation Retirement Income Plan ("SRIP") and the HSBC International Staff Retirement Benefit Scheme (Jersey) ("ISRBS") are described under Savings and Pension Plans.

Increase in values by plan for each participant are: Mr. Burke - $207,767 (Pension Plan), $669,376 (SRIP); Mr. Reeves - $137,127 (Pension Plan), $96,413 (SRIP) $46,359 (NQDCP); Mr. Gunton - $860,445 (ISRBS); Ms. Madison - $215,482 (Pension Plan), $397,956 (SRIP); Mr. Peterson - $8,161 (Pension Plan). The amount reflected for Mr. Gunton for 2011 has been adjusted from the previously disclosed value.

⁽⁴⁾Components of All Other Compensation are disclosed in the aggregate. All Other Compensation includes perquisites and other personal benefits received by each Named Executive Officer, such as financial planning, expatriate benefits and car allowance to the extent such perquisites and other personal benefits exceeded $10,000 in 2012. The value of perquisites provided to Mr. Reeves and Ms. Madison did not exceed $10,000. The following itemizes perquisites and other benefits for each named executive officer who received perquisites and other benefits in excess of $10,000: Executive Travel Allowances for Mr. Gunton in amount of $66,280; Foreign/Temporary Housing Allowance and Utilities for Messrs. Burke, Gunton and Peterson were $30,397, $127,375, and $273,269 respectively; Relocation Assistance for Messrs. Burke in amount of $37,183; Tax Equalization resulted in net payments to Messrs. Burke and Gunton of $1,018 and $489,367 respectively; Mortgage Subsidies for Mr. Gunton in amount of $13,336; Children's Education Allowance for Mr. Gunton in amount of $67,451; Executive Physical and Medical Expenses for Mr. Gunton in amount of $2,981; Financial Planning and/or Executive Tax Services for Mr. Gunton in amount of $1,236.

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") in 2012, as follows: Messrs. Burke, Reeves and Peterson, and Ms. Madison each had a contribution of $15,000. Mr. Gunton had a company contribution in the HSBC International Retirement Benefit Plan ("IRBP") for International Managers in amount of $45,410. The value of Mr. Gunton's company contribution in the IRBP was calculated using an exchange rate from GBP to U.S. dollars of 1.6163. TRIP and IRBP are described under Savings and Pension Plans - Deferred Compensation Plans.

⁽⁵⁾Amounts shown for Messrs. Gunton and Peterson represent the compensation earned in connection with their respective service to HSBC Finance Corporation, as well as for HSBC USA. Mr. Gunton have also been disclosed as Named Executive Officers in the HSBC USA Form 10-K for year ended 2012.

⁽⁶⁾This table only reflects those officers who were Named Executive Officers for the particular referenced years above. Accordingly, Ms. Madison and Mr. Peterson were not Named Executive Officers in the years 2010 and 2011, so the table only reflects their compensation in fiscal year 2012.

Grants of Plan-Based Awards Table

Estimated Future Payouts

Under Non-Equity

Incentive Plan Awards

Estimated Future Payouts

Under Equity

Incentive Plan Awards

All

Other

Stock

Awards:

Number

of Stock

Units

All Other

Option

Awards:

Number of

Securities

Underlying

Options

Exercise

or Base

Price of

Option

Awards

Grant

Date

Fair

Value of

Stock

and

Option

Awards

Grant

Thres-hold

Target

Maxi-mum

Thres-hold

Target

Maxi-mum

Name

Date

($)

(#)

($/Sh)

($)

Patrick J. Burke

3/12/2012

⁽¹⁾

56,199

495,000

Chief Executive Officer

3/12/2012

⁽²⁾

37,466

330,000

3/12/2012

⁽³⁾

39,736

350,000

3/12/2012

⁽⁴⁾

495,000

Michael A. Reeves

3/12/2012

⁽⁵⁾

6,812

60,000

Executive Vice

President, Chief

Financial Officer

3/30/2012

⁽⁶⁾

28,819

250,000

C. Mark Gunton

3/12/2012

⁽⁵⁾

27,299

24,450

Senior Executive Vice

President, Chief Risk

Officer

Kathryn Madison

3/12/2012

⁽⁵⁾

17,030

150,000

Executive Vice

President, Chief Servicing

Officer

8/31/2012

⁽⁷⁾

57,710

500,000

Gary E. Peterson

3/12/2012

⁽⁵⁾

13,624

120,000

Senior Executive Vice

President, Chief

Compliance Officer

⁽¹⁾Reflects grant of RSUs, which vests thirty-three percent (33%) on the first and second anniversaries of the grant date, and thirty-four percent (34%) on the third anniversary of the grant date. Upon vesting, RSUs are subject to an additional six-month retention period, with provision made for the release of shares as required to meet associated income tax obligations. The total grant date fair value is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 12, 2012 of GBP 5.569 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.5816.

⁽²⁾Reflects grant of immediately-vested shares, yet subject to an additional six-month retention period, with provision made for the release of shares as required to meet associated income tax obligations. The total grant date fair value is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 12, 2012 of GBP 5.569 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.5816.

⁽³⁾Reflects grant of GPSP awards, which vests one-hundred percent (100%) on March 12, 2017. The total grant date fair value is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 12, 2012 of GBP 5.569 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.5816.

⁽⁴⁾Reflects grant of deferred cash, which vests thirty-three percent (33%) on the first and second anniversaries of the grant date, and thirty-four percent (34%) on the third anniversary of the grant date. At the end of the vesting period, deferred cash is credited with a notional rate of return equal to the annual dividend yield of HSBC Holdings plc. shares over the period.

⁽⁵⁾Reflects grant of RSUs, which vest thirty-three percent (33%) on the first and second anniversaries of the grant date, and thirty-four percent (34%) on the third anniversary of the grant date. The total grant date fair value is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 12, 2012 of GBP 5.569 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.5816.

⁽⁶⁾Reflects grant of RSUs, which vest thirty-three percent (33%) on March 12, 2013, thirty-three percent (33%) on March 12, 2014, and thirty-four percent (34%) on March 12, 2015. The total grant date fair value is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 30, 2012 of GBP 5.47 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.591.

⁽⁷⁾Reflects grant of PBRSU award, granted under SIP plan as described under Annual Discretionary Variable Pay Awards. This award vests one-hundred percent (100%) on December 31, 2014, upon satisfying specified performance conditions. The total grant date fair value is based on 100% of the fair market value of the underlying HSBC ordinary shares on August 31, 2012 of GBP 5.479 and converted into U.S. dollars using the GBP exchange rate as of the date of grant which was 1.5813.

Outstanding Equity Awards At Fiscal Year-End Table

				Option Awards					Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexer- cisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)⁽¹⁾		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)⁽¹⁾
Patrick J. Burke	68,852	⁽²⁾			GBP 7.9606	11/3/2013	14,144	⁽³⁾	$	147,887
Chief Executive Officer	68,852	⁽²⁾			GBP 7.2181	4/30/2014	52,626	⁽⁴⁾	$	550,249
							8,246	⁽⁵⁾	$	86,219
							41,578	⁽⁶⁾	$	434,733
							58,803	⁽⁷⁾	$	614,835
Michael A. Reeves							2,737	⁽³⁾	$	28,618
Executive Vice President and							4,631	⁽⁴⁾	$	48,421
Chief Financial Officer							7,127	⁽⁷⁾	$	74,519
							29,698	⁽⁷⁾	$	310,518
C. Mark Gunton							10,952	⁽³⁾	$	114,512
Senior Executive Vice President and							15,963	⁽⁴⁾	$	166,907
Chief Operating Officer							28,564	⁽⁷⁾	$	298,661
Kathryn Madison	41,770	⁽²⁾			GBP 7.9606	11/3/2013	4,380	⁽³⁾	$	45,797
Executive Vice President and	45,902	⁽²⁾			GBP 7.2181	4/30/2014	10,525	⁽⁴⁾	$	110,048
Chief Servicing Officer							17,819	⁽⁷⁾	$	186,313
							63,775	⁽⁸⁾	$	666,821
							58,238	⁽⁹⁾	$	608,927
Gary E. Peterson							14,255	⁽⁷⁾	$	149,048
Senior Executive Vice President and
Chief Compliance Officer

⁽¹⁾The HSBC share market value of the shares on December 31, 2012 was GBP 6.469 and the exchange rate from GBP to U.S. dollars was 1.6163.

⁽²⁾Reflects fully vested options adjusted for the HSBC share rights issue completed in April 2009. During the rights issue, HSBC raised capital by offering the opportunity to purchase new shares at a fixed price to all qualifying shareholders on the basis of five new shares for every twelve existing shares. The number of unvested restricted shares and restricted share units held by employees was automatically increased, without any action required on the part of employees, in an effort to not disadvantage employees by the rights issue. Similarly, the number of unexercised stock options held by employees was automatically increased and a corresponding decrease was made in the option exercise price, without any action required on the part of employees and such that the employee will pay the same total amount to exercise the adjusted stock option award as before the rights issue. The adjustments to stock options, restricted shares and restricted share units were made based on a formula that HSBC's auditors, KPMG, confirmed was fair and reasonable.

⁽³⁾Thirty-three percent (33%) of this award vested on February 28, 2011, thirty-three percent (33%) vested on February 27, 2012, and thirty-four percent (34%) will vest on February 25, 2013.

⁽⁴⁾Thirty-three percent (33%) of this award vested on March 15, 2012, thirty-three percent (33%) will vest on March 15, 2013, and thirty-four percent (34%) will vest on March 17, 2014.

⁽⁵⁾This award will vest in full on March 15, 2016.

⁽⁶⁾This award will vest in full on March 12, 2017.

⁽⁷⁾Thirty-three percent (33%) of this award will vest on March 12, 2013, thirty-three percent (33%) will vest on March 12, 2014, and thirty-four percent (34%) will vest on March 12, 2015.

⁽⁸⁾This award will vest in full on August 14, 2013.

⁽⁹⁾This award will vest in full on December 31, 2014.

Option Exercises and Stock Vested Table

	Option Awards				Stock Awards
Name	Number of Shares Acquired on Exercise (#)⁽²⁾		Value Realized on Exercise (#)⁽¹⁾			Number of Shares Acquired on Vesting (#)⁽²⁾		Value Realized on Vesting ($)⁽¹⁾
Patrick J. Burke	23,023	⁽³⁾	$	8,881		166,122	⁽⁴⁾	$	1,463,209
Chief Executive Officer
Michael A. Reeves						29,629	⁽⁵⁾	$	259,987
Executive Vice President and Chief Financial Officer
C. Mark Gunton						35,817	⁽⁶⁾	$	318,691
Senior Executive Vice President and Chief Risk Officer
Kathryn Madison						49,076	⁽⁷⁾	$	425,971
Executive Vice President and Chief Servicing Officer
Gary E. Peterson⁽⁸⁾
Senior Executive Vice President and Chief Compliance Officer

⁽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 USD on the date of settlement.

⁽²⁾Includes the exercise of options/release of shares adjusted for the HSBC share rights issue completed in April 2009.

⁽³⁾Reflects exercise of options granted on November 20, 2002.

⁽⁴⁾Includes the release of 59,693 shares granted on March 2, 2009, release of 12,009 shares granted on June 30, 2009, release of 37,466 shares granted on March 12, 2012, partial release of 37,321 shares granted on March 1, 2010, and partial release of 71,913 shares granted on March 15, 2011.

⁽⁵⁾Includes the release of 19,284 shares granted on March 2, 2009, partial release of 7,223 shares granted on March 1, 2010, and partial release of 6,328 shares granted on March 15, 2011.

⁽⁶⁾Includes the release of 13,852 shares granted on March 2, 2009, the partial release of 28,894 shares granted on March 1, 2010, and the partial release of 21,813 shares granted on March 15, 2011.

⁽⁷⁾Includes the release of 22,687 shares granted on March 2, 2009, release of 9,536 shares granted on August 3, 2009, partial release of 11,557 shares granted on March 1, 2010, and partial release of 14,382 shares granted on March 15, 2011.

⁽⁸⁾Mr. Peterson did not exercise options nor had any share releases in 2012.

Pension Benefits

Name	Plan Name⁽¹⁾	Number of Years Credited Service (#)		Present Value of Accumulated Benefit ($)⁽²⁾			Payments During Last Fiscal Year ($)
Patrick J. Burke(3)	Pension Plan-Household	23.8		$	1,059,344		$	-
Chief Executive Officer	SRIP-Household	21.8		$	3,545,308		$	-
Michael A. Reeves	Pension Plan-Household	19.7		$	642,897		$	-
Executive Vice President and Chief Financial Officer	SRIP-Household	17.7		$	503,905		$	-
C. Mark Gunton	ISRBS	34.0		$	4,426,084	⁽⁴⁾	$	-
Senior Executive Vice President and Chief Risk Officer							$	-
Kathryn Madison(5)	Pension Plan-Household	24.1		$	1,080,094		$	-
Executive Vice President and Chief Servicing Officer	SRIP-Household	22.1		$	2,117,205
Gary E. Peterson(6)	Pension Plan	17.0	⁽⁷⁾	$	31,385		$	-
Senior Executive Vice President and Chief Compliance Officer

⁽¹⁾Plan described under Savings and Pension Plans.

⁽²⁾Value of benefit at normal retirement age (or current year, if later). Calculations as of December 31, 2012.

⁽³⁾Value of age 65 benefit. Participant is also eligible for an immediate early retirement benefit with a value of $1,175,091 (Pension Plan) and $4,058,579 (SRIP).

⁽⁴⁾The amounts were converted into USD from GBP utililizing the exchange rate of 1.6163 at December 31, 2012.

⁽⁵⁾Value of age 65 benefit. Participant is also eligible for an immediate early retirement benefit with a value of $1,195,802 (Pension Plan) and $2,430,365 (SRIP).

⁽⁶⁾Value of age 65 benefit. Participant is also eligible for an immediate early retirement benefit with a value of $34,383 (Pension Plan).

⁽⁷⁾Number of years credit service for Mr. Peterson includes 15 years earned while employed by Midland Bank, which was acquired by HSBC in 1992.

Savings and Pension Plans

Pension Plan The HSBC - North America (U.S.) Pension Plan ("Pension Plan"), formerly known as the HSBC - North America (U.S.) Retirement Income Plan, 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. As further described in Note 22, "Pension and Other Postretirement Benefits" in the accompanying consolidated financial statements, effective January 1, 2013, the Pension Plan was frozen such that future contributions ceased under the Cash Balance formula and the Pension Plan closed to new participants and employees no longer accrue any future benefits under the Pension Plan. Effective January 1, 2011, no benefits presently were earned under any of the legacy formulas of the Pension Plan. However, the Legacy Household Formula (New) was amended in 2011 to provide an Adjusted Benefit Formula to all participants who were actively employed by of HSBC North America and its U.S. subsidiaries at any time in 2011 and did not meet the requirements for early retirement eligibility upon their termination of employment. The Adjusted Benefit Formula accelerated the service proration component of the Legacy Household benefit calculation that previously would have occurred only upon satisfying the age and service requirements for early retirement eligibility. This change was made to ensure full compliance with applicable regulations and eliminate the need to complete annual testing of early retirement benefits.

Supplemental Retirement Income Plan (SRIP) The Supplemental HSBC Finance Corporation Retirement Income Plan ("SRIP") is a non-qualified defined benefit retirement plan that is designed to provide benefits that are precluded from being paid to legacy Household employees by the Pension Plan due to legal constraints applicable to all qualified plans. SRIP benefits are calculated without regard to these limits but are reduced effective January 1, 2008, for compensation deferred to the HSBC - North America Non-Qualified Deferred Compensation Plan ("NQDCP"). The resulting benefit is then reduced by the value of qualified benefits payable by the Pension Plan so that there is no duplication of payments. Benefits are paid in a lump sum to executives covered by a Household or Account Based Formula between July and December in the calendar year following the year of termination. No additional benefits accrued under SRIP after December 31, 2010.

Formulas for Calculating Benefits

Legacy Household Formula (Old): Applies to executives who were hired prior to January 1, 1990 by Household International. The benefit at age 65 is determined under whichever formula, A or B below, provides the higher amount. 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.

A. The normal retirement benefit at age 65 is the sum of (i) 51 percent of average salary that does not exceed the integration amount and (ii) 57 percent of average compensation 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 percent and 57 percent) 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 percent 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 percent is reduced for retirement prior to age 65.

(b) The amount determined in (a) is reduced as needed so that when added to 50 percent of the primary Social Security benefit, the total does not exceed 65 percent 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.

Legacy Household Formula (New): 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 compensation in excess of the integration amount. For this purpose, compensation includes total fixed pay and cash variable pay (as earned); provided, effective January 1, 2008, compensation is reduced by any amount deferred under the NQDCP, and is 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 after December 31, 1999. It also applies to executives who were hired by HSBC Bank USA after December 31, 1996 and became participants in the Pension 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 fixed pay for each calendar year of employment. For this purpose, compensation includes total fixed pay and cash incentives as paid (effective January 1, 2008, compensation is reduced by any amount deferred under the NQDCP). 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 compensation used to determine benefits is subject to an annual maximum that varies by calendar year. The limit for 2012 is $250,000. The limit for years after 2012 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 Legacy Household or Account Based Formula may elect a lump sum form of payment (spousal consent is required for married executives).

HSBC International Staff Retirement Benefits Scheme (Jersey) (ISRBS) The HSBC International Staff Retirement Benefits Scheme (Jersey) ("ISRBS") is a defined benefit plan maintained for certain international managers. Each member must contribute five percent of his fixed pay to the plan during his service, but each member who has completed 20 years of service or who enters the senior management or general management sections during his service shall contribute 6 2/3 percent of his salary. In addition, a member may make voluntary contributions, but the total of voluntary and mandatory contributions cannot exceed 15 percent of his total compensation. Upon leaving service, the value of the member's voluntary contribution fund, if any, shall be commuted for a retirement benefit.

The annual pension payable at normal retirement is 1/480 of the member's final fixed pay for each completed month in the executive section, 1.25/480 of his final fixed pay for each completed month in the senior management section, and 1.50/480 of his final fixed pay for each completed month in the general management section. A member's normal retirement date is the first day of the month coincident with or next following his 53rd birthday. Payments may be deferred or suspended but not beyond age 75.

If a member leaves before normal retirement with at least 15 years of service, he will receive a pension which is reduced by 0.25 percent for each complete month by which termination precedes normal retirement. If he terminates with at least 5 years of service, he will receive an immediate lump sum equivalent of his reduced pension.

If a member dies before age 53 while he is still accruing benefits in the ISRBS then both a lump sum and a widow's pension will be payable immediately.

The lump sum payable would be the cash sum equivalent of the member's Anticipated Pension, where the Anticipated Pension is the notional pension to which the member would have been entitled if he had continued in service until age 53, computed on the assumption that his final fixed pay remains unaltered. In addition, where applicable, the member's voluntary contributions fund will be paid as a lump sum.

In general, the widow's pension payable would be equal to one half of the member's Anticipated Pension. As well as this, where applicable, a children's allowance is payable on the death of the Member equal to 25% of the amount of the widow's pension.

If the member retires before age 53 on the grounds of infirmity he will be entitled to a pension as from the date of his leaving service equal to his Anticipated Pension, where Anticipated Pension has the same definition as in the previous section.

Present Value of Accumulated Benefits

For the Account Based formula: The value of the notional account balances currently available on December 31, 2012.

For other formulas: The present value of the benefit payable at assumed retirement using interest and mortality assumptions consistent with those used for financial reporting purposes under SFAS 87 with respect to the company's audited financial statements for the period ending December 31, 2012. 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, 2012.

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 (after-tax contributions are limited to employees classified as non-highly compensated), up to 40 percent of the participant's cash compensation (subject to a maximum annual pre-tax contribution by a participant of $17,000 for 2012 (plus an additional $5,500 catch-up contribution for participants age 50 and over for 2012), 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.

If the employee has been employed for at least one year, HSBC Finance Corporation contributes three percent of compensation each pay period on behalf of each participant who contributes one percent and matches any additional participant contributions up to four percent of compensation. However, matching contributions will not exceed six percent of a participant's compensation if the participant contributes four percent or more of compensation. The plan provides for immediate vesting of all contributions. With certain exceptions, a participant's after-tax contributions that 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 that 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 59½. Participants may borrow from their TRIP accounts under certain circumstances.

Supplemental Tax Reduction Investment Plan: HSBC North America also maintains the Supplemental HSBC Finance Corporation Tax Reduction Investment Plan ("STRIP"), which is an unfunded plan for eligible employees of HSBC Finance Corporation and its participating subsidiaries who are legacy Household employees and whose compensation exceeded limits imposed by the Internal Revenue Code. Beginning January 1, 2008, STRIP participants received a 6% contribution for such excess compensation, reduced by any amount deferred under the NQDCP, 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. Employer contributions to STRIP participants terminated on December 31, 2010.

Non-Qualified Deferred Compensation Plan: HSBC North America maintains the NQDCP for the highly compensated employees in the organization, including executives of HSBC Finance Corporation. Certain NEOs are eligible to contribute up to 80 percent of their fixed pay and/or cash variable pay in any plan year. Participants are required to make an irrevocable election with regard to the 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 over 10 years of service, 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. 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.

HSBC International Retirement Benefit Plan ("IRBP") for International Managers: The HSBC International Retirement Benefit Plan ("IRBP") is a defined contribution retirement savings plan maintained for certain international managers who have attained the maximum number of years of service for participation in other plans covering international managers, including the ISRBS. Participants receive an employer paid contribution equal to 15% of fixed pay and may elect to contribute 2.5% of fixed pay as non-mandatory employee contributions, which contributions are matched by employer contributions. Additionally, participants can make unlimited additional voluntary contributions of fixed pay. The plan provides for participant direction of account balances in a wide range of investment funds and immediate vesting of all contributions.

Non-Qualified Defined Contribution and Other Non-Qualified Deferred Compensation Plans

Name	Executive Contributions in 2012⁽¹⁾		Employer Contributions in 2012 ⁽²⁾		Aggregate Earnings in 2012		Aggregate Withdrawals/ Distributions in 2012		Aggregate Balance at 12/31/2012⁽³⁾
Patrick J. Burke	$	-	$	-	$	52,624	$	-	$	381,848
Chief Executive Officer
Michael A. Reeves	$	-	$	-	$	48,582	$	-	$	642,355
Executive Vice President and Chief Financial Officer
C. Mark Gunton	$	32,436	$	45,410	$	5,384	N/A		$	245,875
Senior Executive Vice President and Chief Risk Officer
Kathryn Madison	$	-	$	-	$	7,852	$	-	$	259,510
Executive Vice President and Chief Servicing Officer
Gary E. Peterson	N/A		N/A		N/A		N/A		N/A
Senior Executive Vice President and Chief Compliance Officer

⁽¹⁾For Mr. Gunton, amount reflects contributions under the International Retirement Benefit Plan ("IRBP") for International Managers, converted from GBP to USD using the exchange rate of 1.6163 as of December 31, 2012. The IRBP for International Managers are described under Savings and Pension Plans.

⁽²⁾For Mr. Gunton, amount reflects employer contributions under the IRBP for International Managers, converted from GBP to USD using the exchange rate of 1.6163 as of December 31, 2012.

⁽³⁾For Messrs. Burke, Reeves and Ms. Madison the aggregate balance includes their respective balances under the Supplemental HSBC Finance Corporation Tax Reduction Investment Plan ("STRIP"). For Mr. Reeves the aggregate balance also includes his balance under the HSBC-North America Non-Qualified Deferred Compensation Plan ("NQDCP"). For Mr. Gunton his respective aggregate balance reflects his balance under the IRBP. Both the NQDCP and the STRIP are described under Savings and Pension Plans.

Potential Payments Upon Termination Or Change-In-Control The following tables describe the payments that HSBC Finance Corporation would be required to make as of December 31, 2012 to each of Messrs. Burke, Reeves, Gunton and Peterson, and Ms. Madison as a result of their termination, retirement, disability or death or a change in control of the company as of that date. These amounts shown are in addition to those generally available to salaried employees, such as disability benefits, accrued vacation pay and COBRA continuation coverage. The specific circumstances that would trigger such payments are identified, and the terms of such payments are defined under the HSBC North America (U.S.) Severance Pay Plan and the particular terms of deferred cash awards and long-term equity incentive awards.

Patrick J. Burke

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability			Normal Retirement			Involuntary Not for Cause Termin- ation			For Cause Termination	Voluntary for Good Reason Termination			Death			Change in Control Termination
Cash Compensation
Fixed Pay								$	619,231	⁽¹⁾								$	1,050,000	⁽²⁾
Variable Pay																		$	5,000,000	⁽²⁾
Long-term Incentive Awards
Deferred Cash		$	495,000	⁽³⁾	$	495,000	⁽³⁾	$	495,000	⁽³⁾		$	495,000	⁽³⁾	$	495,000	⁽³⁾	$	495,000	⁽³⁾
Restricted Stock/Units		$	1,833,924	⁽⁴⁾	$	1,833,924	⁽⁴⁾	$	1,833,924	⁽⁴⁾		$	1,833,924	⁽⁴⁾	$	1,833,924	⁽⁴⁾	$	1,833,924	⁽⁴⁾
Benefits and Perquisites
Defined Contribution Retirement Benefit																		$	22,500	⁽⁵⁾
Welfare Benefit Coverage																		$	26,661	⁽⁶⁾
Defined Benefit Retirement Benefit																		$	1,413,053	⁽⁷⁾
Outplacement Services																		$	7,400

⁽¹⁾Under the terms of the HSBC - North America (U.S.) Severance Pay Plan, Mr. Burke would receive 46 weeks of his current fixed pay upon separation from the company.

⁽²⁾Refer to the description of Mr. Burke's employment protection agreement. Mr. Burke will be entitled to receive a pro rata annual variable pay through the date of termination, based on the highest of the annual variable pay payable during the three years proceeding the year in which the termination occurs; and a payment equal to 1.5 times the sum of the applicable fixed pay and highest annual variable pay.

⁽³⁾This amount represents a full vesting of the outstanding deferred cash assuming "good leaver" status is granted by REMCO and a termination date of December 31, 2012.

⁽⁴⁾This amount represents a full vesting of the outstanding restricted stock units assuming "good leaver" status is granted by REMCO and a termination date of December 31, 2012, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2012.

⁽⁵⁾Mr. Burke's employment protection agreement provides 18 months of additional employer contributions under HSBC North America's tax-qualified plan.

⁽⁶⁾Mr. Burke's employment protection agreement provides continued welfare benefit coverage for 18 months after the date of termination. The value of this coverage is calculated based on the COBRA rates applicable to Mr. Burke's current coverage election and assumes termination due to change in control occurred on December 31, 2012.

⁽⁷⁾Mr. Burke's employment protection agreement provides an additional 18 months of age and service credit under HSBC North America's supplemental defined benefit retirement plan. The present value of this benefit was determined by HSBC Finance Corporation's actuaries to be $1,413,053.

Michael A. Reeves

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability			Normal Retirement			Involuntary Not for Cause Termin- ation			For Cause Termination	Voluntary for Good Reason Termination			Death			Change in Control Termination
Fixed Pay								$	253,212	⁽¹⁾
Restricted Stock/Units		$	462,075	⁽²⁾	$	462,075	⁽²⁾	$	462,075	⁽²⁾		$	462,075	⁽²⁾	$	462,075	⁽²⁾	$	462,075	⁽²⁾

⁽¹⁾Under the terms of the HSBC - North America (U.S.) Severance Pay Plan, Mr. Reeves would receive 38 weeks of his current fixed pay upon separation from the company.

⁽²⁾This amount represents a full vesting of the outstanding restricted stock units assuming "good leaver" status is granted by REMCO and a termination date of December 31, 2012, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2012.

C. Mark Gunton

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability			Normal Retirement			Involuntary Not for Cause Termin- ation			For Cause Termination	Voluntary for Good Reason Termination			Death			Change in Control Termination
Fixed Pay
Restricted Stock/Units		$	580,080	⁽¹⁾	$	580,080	⁽¹⁾	$	580,080	⁽¹⁾		$	580,080	⁽¹⁾	$	580,080	⁽¹⁾	$	580,080	⁽¹⁾

⁽¹⁾This amount represents a full vesting of the outstanding restricted stock units assuming "good leaver" status is granted by REMCO and termination date of December 31, 2012, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2012.

Kathryn Madison

Executive Benefits and Payments Upon Termination	Voluntary Termination	Disability			Normal Retirement			Involuntary Not for Cause Termin-ation			For Cause Termination	Voluntary for Good Reason Termination			Death			Change in Control Termination
Fixed Pay								$	461,538	⁽¹⁾
Restricted Stock/Units		$	342,157	⁽²⁾	$	342,157	⁽²⁾	$	342,157	⁽²⁾		$	342,157	⁽²⁾	$	342,157	⁽²⁾	$	342,157	⁽²⁾
Performance Based Restricted Stock Units		$	621,902	⁽³⁾	$	621,902	⁽³⁾	$	621,902	⁽³⁾		$	621,902	⁽³⁾	$	621,902	⁽³⁾	$	621,902	⁽³⁾

⁽¹⁾Under the terms of the HSBC - North America (U.S.) Severance Pay Plan, Ms. Madison would receive 48 weeks of her current fixed pay upon separation from the company.

⁽²⁾This amount represents a full vesting of the outstanding restricted stock units, granted as deferred portion of the annual discretionary variable pay, assuming "good leaver" status is granted by REMCO and termination date of December 31, 2012, and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 31, 2012.

⁽³⁾This amount reflects partial vesting of the performance based restricted stock units granted under SIP plan, as described under Annual Discretionary Variable Pay Awards. The amount was calculated assuming "good leaver" status is granted by REMCO and a termination date of December 31, 2012, and using the closing price of HSBC ordinary shares and exchange rate on December 31, 2012.

Gary E. Peterson

Executive Benefits and Payments Upon Termination	Voluntary Termin-ation	Disability			Normal Retirement			Involuntary Not for Cause Termination			For Cause Termin-ation	Voluntary for Good Reason Termination			Death			Change in Control Termination
Fixed Pay								$	325,000	⁽¹⁾
Restricted Stock/Units		$	149,048	⁽²⁾	$	149,048	⁽²⁾	$	149,048	⁽²⁾		$	149,048	⁽²⁾	$	149,048	⁽²⁾	$	149,048	⁽²⁾

⁽¹⁾Under the terms of the HSBC - North America (U.S.) Severance Pay Plan, Mr. Peterson would receive 26 weeks of his current fixed pay upon separation from the company.

Director Compensation The following table and narrative footnotes discuss the compensation earned by our Non-Executive Directors in 2012. As an Executive Director, Mr. Burke received no additional compensation for service on the Board of Directors in 2012.

The table below outlines the annual compensation program for Non-Executive Directors for 2012. Amounts are pro-rated based on dates of service for newly appointed Non-Executive Directors.

Annualized Compensation Rates for Non-Executive Directors Related to Service on the Board of Directors and Committees for HSBC Finance Corporation and HSBC North America
Board Retainer
HSBC North America	$	105,000
HSBC Finance Corporation	$	105,000
Audit Committee
Audit Committee Chair for HSBC North America, HBSC USA and HSBC Finance Corporation	$	80,000
Audit Committee Member for HSBC North America and HBSC Finance Corporation	$	20,000
Risk Committee
Risk Committee Chair for HSBC North America, HBSC USA and HSBC Finance Corporation	$	80,000
Risk Committee Member for HSBC North America and HBSC Finance Corporation	$	20,000
Compliance Committee
Compliance Committee Chair for HSBC Finance Corporation	$	80,000
Compliance Committee Member for HSBC North America and HSBC Finance Corporation	$	50,000
Nominating Committee
Nominating Committee Member for HSBC North America	$	20,000
Grandfathered Amount
George A. Lorch	$	65,000

The 2012 total compensation of our Non-Executive Directors in their capacities as directors of HSBC North America and HSBC Finance Corporation, and in the case of Mr. Herdman, also as the director of HSBC USA, is shown in the following table:

Name	Fees Earned or Paid in Cash ($)(1)		Stock Awards ($)(2)		Option Awards ($)(2)		Change in Pension Value And Non-Qualified Deferred Compensation Earnings ($)(3)		All Other Compensation ($)(4)		Total ($)
Phillip D. Ameen	$	187,500	$	-	$	-	$	1,772	$	1,843	$	191,115
Robert K. Herdman	$	475,000	$	-	$	-	$	-	$	154	$	475,154
George A. Lorch	$	395,000	$	-	$	-	$	149,455	$	1,843	$	546,298
Samuel Minzberg	$	250,000	$	-	$	-	$	-	$	1,843	$	251,843
Beatriz R. Perez	$	280,000	$	-	$	-	$	-	$	1,843	$	281,843
Larree M. Renda	$	270,000	$	-	$	-	$	467	$	1,843	$	272,310

⁽¹⁾Represents aggregate compensation for service on Board of Directors and Committees HSBC North America, HSBC Finance Corporation and, in the case of Mr. Herdman, HSBC USA.

Fees paid to Mr. Ameen include the following amounts for 2012: $78,750 annual cash retainer for membership on each of the HSBC North America and HSBC Finance Corporation boards; $5,000 for membership on the HSBC North America Audit Committee, and $10,000 for membership on the HSBC Finance Corporation Audit Committee; $5,000 for membership on the HSBC North America Risk Committee, and $10,000 for membership on the HSBC Finance Corporation Risk Committee.

Fees paid to Mr. Herdman include the following amounts for 2012: $105,000 annual cash retainer for membership on each of the HSBC North America, HSBC Finance Corporation and HSBC USA boards; $26,667 for serving as Chair of each of the Audit Committees of HSBC North America, HSBC Finance Corporation and HSBC USA; and $26,667 for serving as Chair of each of the Risk Committees of HSBC North America, HSBC Finance Corporation and HSBC USA.

Fees paid to Mr. Lorch include the following amounts for 2012: $105,000 annual cash retainer for membership on each of the HSBC North America and HSBC Finance Corporation boards; $80,000 for serving as Chair of the Compliance Committee for HSBC Finance Corporation; $20,000 for membership on the HSBC North America Nominating Committee; $6,667 for membership on the HSBC North America Risk Committee, and $13,333 for membership on the HSBC Finance Corporation Risk Committee; and $65,000 in grandfathered fees related to his level of compensation in 2007.

Fees paid to Mr. Minzberg include the following amounts for 2012: $105,000 annual cash retainer for membership on each of the HSBC North America and HSBC Finance Corporation boards; $6,667 for membership on the HSBC North America Audit Committee, and $13,333 for membership on the HSBC Finance Corporation Audit Committee; $6,667 for membership on the HSBC North America Risk Committee, and $13,333 for membership on the HSBC Finance Corporation Risk Committee.

Fees paid to Ms. Perez include the following amounts for 2012: $105,000 annual cash retainer for membership on each of the HSBC North America and HSBC Finance Corporation boards; $16,667 for membership on the HSBC North America Compliance Committee, and $33,333 for membership on the HSBC Finance Corporation Compliance Committee; $6,667 for membership on the HSBC North America Risk Committee, and $13,333 for membership on the HSBC Finance Corporation Risk Committee.

Fees paid to Ms. Renda include the following amounts for 2012: $105,000 annual cash retainer for membership on HSBC North America and HSBC Finance Corporation boards; $20,000 for membership on the Nominating Committee for HSBC North America; $6,667 for membership on the HSBC North America Audit Committee, and $13,333 for membership on the HSBC Finance Corporation Audit Committee; $6,667 for membership on the HSBC North America Risk Committee, and $13,333 for membership on the HSBC Finance Corporation Risk Committee.

⁽²⁾HSBC Finance Corporation does not grant stock awards or stock options to its Non-Executive Directors.

Prior to the merger with HSBC, Non-Executive 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. 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 the HSBC North America Directors Non-Qualified Deferred Compensation Plan, 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, 2012, 8,470 American Depository Shares were held in the deferred compensation plan account for Directors currently serving on the Board of Directors. Of the current Non-Executive Directors, Mr. Lorch held 8,444 American Depository Shares and Ms. Renda held 26 American Depository Shares.

⁽³⁾The HSBC North America Directors Non-Qualified Deferred Compensation Plan allows Non-Executive Directors to elect to defer their cash fees in any plan year. 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 on the Board of 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 or quarterly installments. Amounts shown for Mssrs. Ameen and Lorch and Ms. Renda reflect the gains or losses calculated by reference to the actual earnings of the investment choices.

⁽⁴⁾Components of All Other Compensation are disclosed in aggregate. We provide each Director with $250,000 of accidental death and dismemberment insurance for which the company paid a premium of $154 per annum for each participating Director and a $10,000,000 personal excess liability insurance policy for which the company paid premium of $1,689 per annum for each participating Director. Mr. Herdman declined the personal excess liability insurance policy; the amount shown pertains to the annual premium for AD&D insurance exclusively.

Under HSBC's Matching Gift Program, for all Non-Executive Directors who were members of the Board in 2006 and continue to be on the Board, we match charitable gifts to qualified organizations (subject to a maximum of $10,000 per year), including eligible non-profit organizations which promote neighborhood revitalization or economic development for low and moderate income populations, with a double match for the first $500 donated to higher education institutions (both public and private). Additionally, each current Non-Executive Director, who was a member of the Board in 2006 and continues to be on the Board, may ask us to contribute up to $10,000 annually to charities of the Director's choice which qualify under our philanthropic program. We made charitable donations of $9,250 under the Matching Gift Program and $10,000 under the philanthropic program at Mr. Lorch's request and $10,500 under the Matching Gift Program and $10,000 under the philanthropic program at Ms. Renda's request.

Compensation Policies and Practices Related to Risk Management

All HSBC Finance Corporation employees are eligible for some form of incentive compensation; however, those who actually receive payments are a subset of eligible employees, based on positions held and individual and business performance. Employees participate in either the annual discretionary variable pay plan, the primary incentive compensation plan for all employees, or in formulaic plans, which are maintained for specific groups of employees who are typically involved in production/call center or direct sales environments.

A key feature of HSBC's remuneration policy is that it is risk informed, seeking to ensure that risk-adjusted returns on capital are factored into the determination of annual variable pay and that variable pay pools are calculated only after appropriate risk-adjusted return has accrued on shareholders' capital. We apply Economic Profit (defined as the average annual difference between return on invested capital and HSBC's benchmark cost of capital) and other metrics to develop variable pay levels and target a 12 percent to 15 percent return on shareholder equity. These requirements are built into the performance scorecard of the senior HSBC executives and are incorporated in regional and business scorecards in an aligned manner, thereby ensuring that return, risk, and efficient capital usage shape reward considerations. The HSBC Group Chief Risk Officer and the Global Risk Function of HSBC provide input into the performance scorecard, ensuring that key risk measures are included.

The use of a performance scorecard framework ensures an aligned set of objectives and impacts the level of individual pay received, as achievement of objectives is considered when determining the level of variable pay awarded under the annual discretionary cash award plan. On a performance scorecard, objectives are separated into two categories: financial and non-financial. Financial objectives, as well as other objectives relating to efficiency and risk mitigation, customer development and the productivity of human capital are all measures of performance that may influence reward levels. . Overall performance under both scorecards is also judged on adherence to the HSBC Values principles of being 'open, connected and dependable' and acting with 'courageous integrity'.

In 2010, building upon the combined strengths of our performance scorecard and risk management processes, outside consultants were engaged to assist in the development of a formal incentive compensation risk management framework. Commencing with the 2011 objectives-setting process, standard risk performance measures and targets were established and monitored for employees who were identified as having the potential to expose the organization to material risks, or who are responsible for controlling those risks.

The Nominating and Governance Committee of HSBC North America and the Compensation and Performance Management Governance Committee ("CPMG Committee") have been established, which among other duties, have oversight for objectives-setting and risk monitoring. The Nominating and Governance Committee of HSBC North America has oversight and endorsement of certain compensation matters. As part of its duties, the Nominating and Governance Committee oversees the framework for assessing risk in the responsibilities of employees, the determination of who are Covered Employees ("Covered Employees") under the Interagency Guidelines on Incentive Based Compensation Arrangements as published by the Federal Reserve Board, and the measures used to ensure that risk is appropriately considered in making variable pay recommendations. The Nominating and Governance Committee also can make recommendations concerning proposed performance assessments and incentive compensation award proposals for the Chief Executive Officer, direct reports of the Chief Executive Officer and certain other Covered Employees, including any recommendations for reducing or canceling incentive compensation previously awarded. The recommendations related to employee compensation are incorporated into the submissions to the HSBC Holdings plc Remuneration Committee ("REMCO") of the Board of Directors of HSBC, or to Mr. Gulliver, Ms. Dorner, or Mr. Burke in instances where REMCO has delegated remuneration authority.

In 2010, HSBC North America established the CPMG Committee. The CPMG Committee was created to provide a more systematic approach to discretionary compensation governance and to ensure the involvement of the appropriate levels of leadership, while providing a comprehensive view of compensation practices and associated risks. The CPMG Committee comprises senior executive representatives from HSBC North America's staff and control functions, consisting of Risk, Compliance, Legal, Finance, Audit, and Human Resources and Corporate Secretary. The CPMG Sub-Committee has responsibility for oversight of the compensation framework for Covered Employees;; compensation-related regulatory and audit findings and recommendations related to such findings; incentive plan review; review of guaranteed bonuses and buyouts of bonuses and equity grants, including any exceptions to established policies; and recommendation to REMCO of clawback of previous grants of discretionary compensation based on actual results and risk outcomes. Additionally, compensation processes for employees are evaluated by the CPMG Committee to ensure adequate controls are in place, while reinforcing the distinct performance expectations for employees. The CPMG Committee can make its recommendations to the Nominating and Governance Committee, REMCO, Mr. Gulliver, Ms. Dorner, or Mr. Burke, depending on the nature of the recommendation or the delegation of authority for making final decisions.

Risk oversight of formulaic plans is ensured through HSBC's formal policies requiring that the HSBC North America Office of Operational Risk Management approve all plans relating to the sale of "credit," which are those plans that impact employees selling loan products such as credit cards.

Discretionary compensation awards are also impacted by controls established under a comprehensive risk management framework that provides the necessary controls, limits, and approvals for risk taking initiatives on a day-to-day basis ("Risk Management Framework"). Business management cannot bypass these risk controls to achieve scorecard targets or performance measures. As such, the Risk Management Framework is the foundation for ensuring excessive risk taking is avoided. The Risk Management Framework is governed by a defined risk committee structure, which oversees the development, implementation, and monitoring of the risk appetite process for HSBC Finance Corporation. Risk Appetite is set by the Board of HSBC. A risk appetite for U.S. operations and is annually reviewed and approved by the HSBC North America Risk Management Committee and the HSBC North America Board of Directors.

Risk Adjustment of Discretionary Compensation HSBC Finance Corporation uses a number of techniques to ensure that the amount of discretionary compensation received by an employee appropriately reflects risk and risk outcomes, including risk adjustment of awards, deferral of payment, appropriate performance periods, and reducing sensitivity to short-term performance. The techniques used vary depending on whether the discretionary compensation is paid under the general discretionary cash award plan or a formulaic plan.

The discretionary plan is designed to allow managers to exercise judgment in making variable pay recommendations, subject to appropriate oversight. When making award recommendations for an employee participating in the discretionary plan, performance against the objectives established in the performance scorecard is considered. Where objectives have been established with respect to risk and risk outcomes, managers will consider performance against these objectives when making variable pay award recommendations. Managers will also consider pertinent material risk events when making variable pay award recommendations.

Participants in the discretionary plan are subject to the HSBC Group Minimum Deferral Policy, which provides minimum deferral guidelines for variable pay awards. Deferral rates applicable to compensation earned in performance year 2012, ranging from 0 to 60%, increase in relation to the level of variable pay earned and in respect of an employee's classification under the United Kingdom's Financial Services Authority ("FSA") Remuneration Code ("the Code"), as further described under the section "Performance Year 2012 Compensation Actions" in the 2012 CD&A. Variable pay is deferred in the form of cash and/or through the use of Restricted Share Units. The deferred Restricted Share Units have a three-year graded vesting. At the end of the vesting period, deferred cash is credited with a notional rate of return equivalent to the annual dividend yield of HSBC Holdings plc shares over the period. The economic value of pay deferred in the form of Restricted Share Units will ultimately be determined by the ordinary share price and foreign exchange rate in effect when each tranche of shares awarded is released. Grants under the Group Performance Share Plan ("GPSP") consist of a number of shares to which the employee will become fully entitled, generally over a five-year vesting period, subject to the individual remaining in employment. Shares that are released upon vesting of an award must be retained until the employee retires from or terminates employment with HSBC. An employee who retires from or terminates employment with "good leaver status" will have vested awards under the GPSP released immediately. An employee who terminates employment without "good leaver status" will have vested awards under the GPSP released in three equal installments on the first, second and third anniversaries of the termination of employment with HSBC.

An employee who terminates employment without "good leaver" status being granted by REMCO forfeits all unvested equity and deferred cash. Deferred variable pay awards are also subject to clawback, as further described under the section "Reduction or Cancellation of Long-Term Equity Awards" in the 2012 CD&A. Additionally, all employees with unvested awards or awards subject to a retention period are required to certify annually that they have not used personal hedging strategies or remuneration contracts of insurance to mitigate the risk alignment of the unvested awards.

Employees in formulaic plans are held to performance standards that may result in a loss of discretionary compensation when quality standards are not met. For example, participants in these plans may be subject to a reduction in future commission payments if they commit a "reportable event" (e.g., an error or omission resulting in a loss or expense to the company) or fail to follow required regulations, procedures, policies, and/or associated training. Participants may be altogether disqualified from participation in the plans for unethical acts, breach of company policy, or any other conduct that, in the opinion of HSBC Finance Corporation, is sufficient reason for disqualification or subject to a recapture provision, if it is determined that commissions were paid in excess of the amount that should have been paid. Some formulaic incentive plans include limits or caps on the financial measures that are considered in the determination of discretionary award amounts.

Performance periods for the formulaic plans are often one month or one quarter, with features that may reserve or hold back a portion of the discretionary award earned until year-end. This design is a conscious effort to align the reward cycle to the successful performance of job responsibilities, as longer performance periods may fail to adequately reinforce the desired behaviors on the part of formulaic plan participants.

Discretionary Compensation Monitoring HSBC North America monitors and evaluates the performance of its incentive compensation arrangements, both the discretionary and formulaic plans, to ensure adequate focus and control.

The nature of the discretionary plan allows for compensation decisions to reflect individual and business performance based on performance scorecard achievements. Payments under the discretionary plan are not tied to a formula, which enables payments to be adjusted as appropriate based on individual performance, business performance, and risk assessment. Performance scorecards may also be updated as needed by leadership during the performance year to reflect significant changes in the operating plan, risk, or business strategy of HSBC Finance Corporation. The discretionary plan is reviewed annually by REMCO to ensure that it is meeting the desired objectives. The review includes a comparison of actual payouts against the targets established, a cost/benefit analysis, the ratio of payout to overall business performance and a review of any unintended consequences (e.g., deteriorating service standards).

In 2012, HSBC Finance Corporation initiated enhanced monitoring activity consisting of: 1) validating relationships among measures of financial performance, risks taken, risk outcomes, and amounts of incentive compensation awards/payouts; 2) reviewing how discretion is used in evaluating performance and adjusting incentive compensation awards for high levels of risk taking and adverse risk outcomes, and whether discretionary decisions are having an appropriate impact; and 3) evaluating the extent to which automated systems play, or could play a role in monitoring activities. Consequently, HSBC Finance Corporation identified areas for improvement, not only with respect to tactical reward decisions and documenting discretion, but also in terms of utilizing information systems to support monitoring and validation activities. HSBC Finance Corporation will strive to make improvements to its monitoring and validation activities in future reward cycles.

Formulaic programs are reviewed and revised annually by HSBC North America Human Resources using an incentive plan review template, which highlights basic identifiers for overall plan performance. The review includes: an examination of overall plan expenditures versus actual business performance versus planned expenditures; an examination of individual pay out levels within plans; a determination of whether payment levels align with expected performance levels and market indicators; and a determination of whether the compensation mix is appropriate for the role in light of market practice and business philosophy.

In addition to the annual review, plan performance is monitored regularly by the business management and periodically by HSBC North America Human Resources, which tracks plan expenditures and plan performance to ensure that plan payouts are consistent with expectations. Calculations for plans are performed systematically based on plan measurement factors to ensure accurate calculation of incentives, and all performance payouts are subject to the review of the designated plan administrator to ensure payment and performance of the plan are tracking in line with expectations. Plan inventories are refreshed during the course of the year to identify plans to be eliminated, consolidated, or restructured based on relevant business and commercial factors. Finally, all plans contain provisions that enable modification of the plan if necessary to meet business objectives.

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, 2013, of HSBC ordinary shares or interests in HSBC ordinary shares and Series B Preferred Stock of HSBC Finance Corporation held by each director and each executive officer named in the Summary Compensation Table, 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 one percent of the HSBC ordinary shares and the Series B Preferred Stock of HSBC Finance Corporation. No director or executive officer of HSBC Finance Corporation owned any of HSBC's American Depositary Shares, Series A at January 31, 2013.

	Number of Shares Beneficially Owned of HSBC Holdings plc(1)(2)	HSBC Shares That May Be Acquired Within 60 Days By Exercise of Options(3)	HSBC Restricted Shares Released Within 60 Days(4)	Number of HSBC Ordinary Share Equivalents(5)	Total HSBC Ordinary Shares(2)	Series B Preferred of HSBC Finance Corporation
Directors
Patrick J. Burke⁽⁶⁾	24,492	137,704	59,860	-	222,056	-
Phillip D. Ameen	-	-	-	-	-	-
Robert K. Herdman	82	-	-	-	82	-
George A. Lorch	2,730	-	-	8,444	11,174	-
Samuel Minzberg	500	-	-	-	500	-
Beatriz R. Perez	150	-	-	-	150	-
Larree M. Renda	650	-	-	26	676	10	⁽⁷⁾
Named Executive Officers
Michael A. Reeves	5,280	-	17,204	-	22,484	-
C. Mark Gunton	115	-	28,360	-	28,475	-
Kathryn Madison	-	87,671	15,522	-	103,193	-
Gary E. Peterson	-	-	4,704	-	4,704	-
All directors and executive officers as a group	183,580	672,913	247,299	8,470	1,112,262	10

⁽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: Directors and executive officers as a group, 14,902.

⁽²⁾Some of the shares included in the table above were held in American Depository Shares, each of which represents five HSBC ordinary shares, including the shares listed above in the first column for Messrs. Minzberg and Reeves and Mss. Renda and Perez.

⁽³⁾Represents the number of ordinary shares that may be acquired by HSBC Finance Corporation's Directors and executive officers through April 1, 2013 pursuant to the exercise of stock options.

⁽⁴⁾Represents the number of ordinary shares that may be acquired by HSBC Finance Corporation's Directors and executive officers through April 1, 2013 pursuant to the satisfaction of certain conditions.

⁽⁵⁾Represents the number of ordinary share equivalents owned by executive officers under the HSBC North America Employee Non-Qualified Deferred Compensation Plan and by Directors under the HSBC North America Directors Non-Qualified Deferred Compensation Plan. The shares included in the table above were held in American Depository Shares, each of which represents five HSBC ordinary shares.

⁽⁶⁾Also a Named Executive Officer.

⁽⁷⁾Represents 400 Depositary Shares, each representing one-fortieth of a share of 6.36% Non-Cumulative Preferred Stock, Series B.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Transactions with Related Persons During the fiscal year ended December 31, 2012, 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 agreement with Mr. Burke 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 Board of Directors. The Board of Directors will review the material 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 Board of Directors is required for the approval or ratification of any Transaction with a Related Person. The Board of Directors may approve or ratify a Transaction with a Related Person if the Board of Directors 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 Board of Directors 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. 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 Board of Directors determines not to approve or ratify a Transaction with a Related Person, 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.us.hsbc.com or upon written request made to HSBC Finance Corporation, 26525 North Riverwoods Boulevard, Mettawa, Illinois 60045, 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
Compliance Committee		A majority of all members
Risk Committee		Chair and all voting members

Messrs. Ameen, Herdman, Lorch and Minzberg, Ms. Perez and Ms. Renda are considered to be independent directors. Mr. Burke currently serves as Chief Executive Officer of HSBC Finance Corporation and is a Group General Manager of HSBC. Because of the positions held by Mr. Burke, he is not considered to be an independent director.

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, 2012 and 2011 was $2,613,000 and $4,355,800, 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, 2012 and 2011 was $492,650 and $240,000, respectively. Audit related services include employee benefit plan audits, and audit or attestation services not required by statute or regulation.

Tax Fees. The aggregate amount billed by KPMG LLP for tax related services performed during the fiscal year ended December 31, 2012 and 2011 was $317,043 and $218,700, 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 over assessment of interest and/or penalties.

All Other Fees. The aggregate amount billed by KPMG LLP for other services performed during the fiscal year ended December 31, 2011 was $10,159. There were no amounts billed by KPMG LLP for other services during the fiscal year ended December 31, 2012.

All of the fees described above were approved by HSBC Finance Corporation's Audit Committee.

The Audit Committee has a written policy that requires pre-approval of all services to be provided by KPMG LLP, including audit, audit-related, tax and all other services. Pursuant to the policy, the Audit Committee annually pre-approves the audit fee and terms of the audit services engagement. The Audit Committee also approves a specified list of audit, audit-related, tax and permissible non-audit services deemed to be routine and recurring services. Any service not included on this list must be submitted to the Audit Committee for pre-approval. On an interim basis, any proposed engagement that does not fit within the definition of a pre-approved service may be presented to the Chair of the Audit Committee for approval and to the full Audit Committee at its next regular meeting.

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 4, 2013 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 (Loss)

Consolidated Balance Sheet

Consolidated Statement of Cash Flows

Consolidated Statement of Changes in Shareholders' 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, Exhibit 3.1(b) to HSBC Finance Corporation's Current Report on Form 8-K filed December 19, 2005 and Exhibit 3.1 to HSBC Finance Corporation's Current Report on Form 8-K filed November 30, 2010).
3(ii)		Bylaws of HSBC Finance Corporation, as amended July 26, 2011 (incorporated by reference to Exhibit 3.1 to HSBC Finance Corporation's Current Report on Form 8-K filed July 28, 2011).
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 to Amendment No. 1 to HSBC Finance Corporation's Registration Statements on Form S-3 Nos. 333-120494, 333-120495 and 333-120496.
4.2		Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance (successor to Household Finance Corporation) and U.S. Bank National Association (formerly known as First Trust of Illinois, National Association, successor in interest to Bank of America Illinois, formerly known as Continental Bank, National Association), as Trustee, amending and restating the Indenture dated as of October 1, 1992 between Household Finance Corporation and the Trustee (incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-120494).
4.3		Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance (successor to Household Finance Corporation) and The Bank of New York Mellon Trust Company, N.A. (formerly BNY Midwest Trust Company, formerly Harris Trust and Savings Bank), as Trustee, amending and restating the Indenture dated as of December 19, 2003 between Household Finance Corporation and the Trustee (incorporated by reference to Exhibit 4.4 to Amendment No. 1 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-120494).
4.4		Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance (successor to Household Finance Corporation) and The Bank of New York Mellon Trust Company, N.A. (as successor to J.P. Morgan Trust Company, National Association, as successor in interest to Bank One, National Association, formerly known as the First National Bank of Chicago), as Trustee, amending and restating the Indenture dated as of April 1, 1995 between Household Finance Corporation and the Trustee (incorporated by reference to Exhibit 4.5 to Amendment No. 1 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-120494).
4.5		Indenture for Senior Debt Securities dated as of March 7, 2007 between HSBC Finance and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.12 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-130580).
4.6		Indenture for Senior Subordinated Debt Securities dated December 17, 2008 between HSBC Finance and The Bank of New York Mellon Trust Company, N.A., as Trustee, as amended and supplemented (incorporated by reference to Exhibit 4.2 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-156219 and Exhibit 4.3 to HSBC Finance Corporation's Current Report on Form 8-K filed December 9, 2010).
4.7		Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance Corporation (successor to Household Finance Corporation) and The Bank of New York Mellon Trust Company, N.A., as Trustee, amended and restating the Indenture for Senior Debt Securities dated December 1, 1993 between Household Finance Corporation and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, N.A., as successor to The Chase Manhattan Bank (National Association)), as Trustee (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-120495).
4.8		Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance Corporation (successor to Household Finance Corporation) and The Bank of New York Mellon Trust Company, N.A., as Trustee, amended and restating the Indenture for Senior Debt Securities dated March 1, 2001 and amended and restated April 30, 2003, between Household Finance Corporation and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, N.A., formerly known as The Chase Manhattan Bank), as Trustee (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-120496).
4.9		The principal amount of debt outstanding under each other instrument defining of 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.
10		Purchase and Assumption Agreement, dated August 10, 2011, among HSBC Finance Corporation, HSBC USA Inc., HSBC Technology and Services (USA) Inc. and Capital One Financial Corporation (incorporated by reference to Exhibit 2.1 of HSBC Finance Corporation's Current Report on Form 8-K filed August 12, 2011).
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 the signature page 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.
101.INS		XBRL Instance Document(1),(2)
101.SCH		XBRL Taxonomy Extension Schema Document(1),(2)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document(1),(2)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document(1),(2)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document(1),(2)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document(1),(2)

⁽¹⁾Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in our Annual Report on Form 10-K for the year ended December 31, 2012, formatted in eXentsible Business Reporting Language ("XBRL") interactive data files: (i) the Consolidated Statement of Income (Loss) for the years ended December 31, 2012, 2011 and 2010, (ii) the Consolidated Statement of Comprehensive Income (Loss) for the years ended December 31, 2012, 2011 and 2010, (iii) the Consolidated Balance Sheet as of December 31, 2012 and 2011, (iv) the Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 2012, 2011 and 2010, (iv) the Consolidated Statement of Cash Flows for the years ended December 31, 2012, 2011 and 2010, and (v) the Notes to Consolidated Financial Statements.

⁽²⁾As provided in Rule 406T of Regulation S-T, this information shall be not be deemed "filed" for purposes of Section 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

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, 26525 North Riverwoods Boulevard, Mettawa, Illinois 60045, Attention: Corporate Secretary.

Index

Accounting:		concentration
new pronouncements		critical accounting policy
policies (critical)		management
policies (significant)		Critical accounting policies and estimates
Account management policies and practices		Current environment
Assets:		Deferred tax assets
by business segment		Derivatives:
fair value of financial assets		accounting policy
fair value measurements		cash flow hedges
nonperforming		critical accounting policy
Audit committee		fair value hedges
Auditor's report		income (expense)
Balance sheet (consolidated)		non-qualifying hedges
Basel II		notional value
Basel III		Directors:
Basis of reporting		biographies
Business:		board of directors
consolidated performance review		executive
focus		compensation (executives)
operations		responsibilities
organizational history		Discontinued operations
Capital:		Employees:
2013 funding strategy		compensation and benefits
common equity movements		number of
consolidated statement of changes		Equity:
selected capital ratios		consolidated statement of changes
Cash flow (consolidated)		ratios
Cautionary statement regarding forward-looking statements		Estimates and assumptions
Committees		Executive overview
Competition		Fair value measurements:
Compliance committee		assets and liabilities recorded at fair value on a recurring basis
Compliance risk		assets and liabilities recorded at fair value on a non-recurring basis
Consumer business segment		fair value adjustments
Contingent liabilities:		financial instruments
critical accounting policy		hierarchy
litigation		transfers into/out of Level 1 and Level 2
Controls and procedures		transfers into/out of Level 2 and Level 3
Corporate governance and controls		valuation control framework
Customers		valuation techniques
Credit quality		Financial highlights metrics
Credit risk:
accounting policy

Financial liabilities:		New accounting pronouncements adopted
designated at fair value		New accounting pronouncements to be adopted in future periods
fair value of financial liabilities		Nominating and compensation committee
Forward looking statements		Operating expenses
Funding		Operational risk
Gain (loss) from debt designated at fair value and related derivatives		Other revenues
Geographic concentration of receivables		Pension and other postretirement benefits:
Impairment:		accounting policy
accounting policy		risk management
available-for-sale securities		Performance, developments and trends
credit losses		Profit (loss) before tax:
critical accounting policy		by segment - IFRSs basis
nonaccrual receivables		consolidated
nonperforming receivables		Properties
Income taxes:		Property, plant and equipment:
accounting policy		accounting policy
critical accounting policy - deferred taxes		Provision for credit losses
expense		Ratios:
Internal control		capital
Interest income:		charge-off (net)
net interest income		credit loss reserve related
sensitivity		delinquency
Interest rate risk		earnings to fixed charges - Exhibit 12
Key performance indicators		efficiency
Legal proceedings		financial
Liabilities:		Re-aged receivables
commercial paper		Real estate owned
commitments		Receivables:
financial liabilities designated at fair value		by category
lines of credit		by charge-off (net)
long-term debt		by delinquency
Lease commitments		geographic concentration
Liquidity and capital resources		held for sale
Liquidity risks		modified and/or re-aged
Litigation and regulatory matters		nonaccrual
Loans and advances - see Receivables		overall review
Loan impairment charges - see Provision for credit losses		risk concentration
Market risk		troubled debt restructures
Market turmoil - see Current environment		Reconciliation to U.S. GAAP financial measures
Model risk		Reconciliation of U.S. GAAP results to IFRSs
Mortgage Lending products		Refreshed loan-to-value
Net interest income		Regulation
		Related party transactions

Reputational risk		Segment results - IFRSs basis:
Results of operations		consumer
Risk committee		"All Other" grouping
Risk and uncertainties		overall summary
Risk elements in the loan portfolio by product		Selected financial data
Risk factors		Senior management:
Risk management:		biographies
credit		Sensitivity:
compliance		projected net interest income
interest rate		Share-based payments:
liquidity		accounting policy
market		Statement of cash flows
model		Statement of changes in shareholders' equity
operational		Statement of comprehensive income (loss)
overview		Statement of income (loss)
pension		Strategic initiatives and focus
reputational		Strategic risk
strategic		Table of content
security and fraud		Tangible common equity to tangible assets
Securities:		Tax expense
fair value		Troubled debt restructures
		Unresolved staff comments
		Variable interest entities

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 4th day of March, 2013.

HSBC FINANCE CORPORATION

By:		/s/ Patrick J. Burke
		Patrick J. Burke
		Chief Executive Officer

Each person whose signature appears below constitutes and appoints P. D. Schwartz and M. J. Forde as his/her true and lawful attorneys-in-fact and agents, 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 attorneys-in-fact and agents 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 4th day of March, 2013.

Signature	Title

/S/ (P. J. BURKE)	Chief Executive Officer, Chairman and Director
(P. J. Burke)	(as Principal Executive Officer)

/S/ (P. A. AMEEN)	Director
(P. A. Ameen)

/S/ (R. K. HERDMAN)	Director
(R. K. Herdman)

/S/ (G. A. LORCH)	Director
(G. A. Lorch)

/S/ (S. MINZBERG)	Director
(S. Minzberg)

/S/ (B. R. PEREZ)	Director
(B. R. Perez)

/S/ (L. M. RENDA)	Director
(L. M. Renda)

/S/ (M. A. REEVES)	Executive Vice President and Chief Financial Officer
(M. A. Reeves)	(as Principal Financial Officer)

/S/ (E. K. FERREN)	Executive Vice President and Chief Accounting Officer
(E. K. Ferren)	(as Principal Accounting Officer)

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, Exhibit 3.1(b) to HSBC Finance Corporation's Current Report on Form 8-K filed December 19, 2005 and Exhibit 3.1 to HSBC Finance Corporation's Current Report on Form 8-K filed November 30, 2010).
3(ii)		Bylaws of HSBC Finance Corporation, as amended July 26, 2011 (incorporated by reference to Exhibit 3.1 to HSBC Finance Corporation's Current Report on Form 8-K filed July 28, 2011).
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 to Amendment No. 1 to HSBC Finance Corporation's Registration Statements on Form S-3 Nos. 333-120494, 333-120495 and 333-120496.
4.2		Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance (successor to Household Finance Corporation) and U.S. Bank National Association (formerly known as First Trust of Illinois, National Association, successor in interest to Bank of America Illinois, formerly known as Continental Bank, National Association), as Trustee, amending and restating the Indenture dated as of October 1, 1992 between Household Finance Corporation and the Trustee (incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-120494).
4.3		Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance (successor to Household Finance Corporation) and The Bank of New York Mellon Trust Company, N.A. (formerly BNY Midwest Trust Company, formerly Harris Trust and Savings Bank), as Trustee, amending and restating the Indenture dated as of December 19, 2003 between Household Finance Corporation and the Trustee (incorporated by reference to Exhibit 4.4 to Amendment No. 1 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-120494).
4.4		Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance (successor to Household Finance Corporation) and The Bank of New York Mellon Trust Company, N.A. (as successor to J.P. Morgan Trust Company, National Association, as successor in interest to Bank One, National Association, formerly known as the First National Bank of Chicago), as Trustee, amending and restating the Indenture dated as of April 1, 1995 between Household Finance Corporation and the Trustee (incorporated by reference to Exhibit 4.5 to Amendment No. 1 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-120494).
4.5		Indenture for Senior Debt Securities dated as of March 7, 2007 between HSBC Finance and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.12 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-130580).
4.6		Indenture for Senior Subordinated Debt Securities dated December 17, 2008 between HSBC Finance and The Bank of New York Mellon Trust Company, N.A., as Trustee, as amended and supplemented (incorporated by reference to Exhibit 4.2 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-156219 and Exhibit 4.3 to HSBC Finance Corporation's Current Report on Form 8-K filed December 9, 2010).
4.7		Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance Corporation (successor to Household Finance Corporation) and The Bank of New York Mellon Trust Company, N.A., as Trustee, amended and restating the Indenture for Senior Debt Securities dated December 1, 1993 between Household Finance Corporation and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, N.A., as successor to The Chase Manhattan Bank (National Association)), as Trustee (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-120495).
4.8		Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance Corporation (successor to Household Finance Corporation) and The Bank of New York Mellon Trust Company, N.A., as Trustee, amended and restating the Indenture for Senior Debt Securities dated March 1, 2001 and amended and restated April 30, 2003, between Household Finance Corporation and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, N.A., formerly known as The Chase Manhattan Bank), as Trustee (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to HSBC Finance Corporation's Registration Statement on Form S-3, Registration No. 333-120496).
4.9		The principal amount of debt outstanding under each other instrument defining of 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.
10		Purchase and Assumption Agreement, dated August 10, 2011, among HSBC Finance Corporation, HSBC USA Inc., HSBC Technology and Services (USA) Inc. and Capital One Financial Corporation (incorporated by reference to Exhibit 2.1 of HSBC Finance Corporation's Current Report on Form 8-K filed August 12, 2011).
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 the signature page 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.
101.INS		XBRL Instance Document(1),(2)
101.SCH		XBRL Taxonomy Extension Schema Document(1),(2)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document(1),(2)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document(1),(2)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document(1),(2)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document(1),(2)

EXHIBIT 12

HSBC FINANCE CORPORATION

COMPUTATION OF RATIO OF EARNINGS (LOSS) TO FIXED CHARGES AND TO

COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

	Year Ended December 31,Year Ended December 31,

2012					2011					2010					2009					2008
	(dollars are in millions)(dollars are in millions)
Loss from continuing operations
$		(2,405	)		$		(2,326	)		$		(2,549	)		$		(5,908	)		$		(3,951	)
Income tax benefit	1,406					1,431					1,453					2,881					1,252
Loss from continuing operations before income tax benefit	(3,811			)		(3,757			)		(4,002			)		(8,789			)		(5,203			)
Fixed charges:
Interest expense	1,777					2,346					2,905					3,602					5,688
Interest portion of rentals(1)	8					9					7					34					37
Total fixed charges	1,785					2,355					2,912					3,636					5,725
Total earnings from continuing operations as defined	$		(2,026	)		$		(1,402	)		$		(1,090	)		$		(5,153	)		$		522
Ratio of earnings to fixed charges	(1.14			)		(.60			)		(.37			)		(1.42			)		.09
Preferred stock dividends(2)	$		189			$		194			$		57			$		57			$		57
Ratio of earnings to combined fixed charges and preferred stock dividends	(1.03			)		(.55			)		(.37			)		(1.40			)		.09

(1) Represents one-third of rentals, which approximates the portion representing interest.

(2) Preferred stock dividends are grossed up to their pretax equivalents.

EXHIBIT 21

Subsidiaries of HSBC Finance Corporation

Names of Subsidiaries	US - State Organized
AHLIC Investment Holdings Corporation	Delaware
Bencharge Credit Service Holding Company	Delaware
Beneficial Commercial Corporation	Delaware
Beneficial Commercial Holding Corporation	Delaware
Beneficial Company LLC	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 Direct, Inc.	New Jersey
Beneficial Finance Co.	Delaware
Beneficial Financial I Inc.	California
dba Beneficial Member HSBC Group
Beneficial Florida Inc.	Delaware
Beneficial Franchise Company Inc.	Delaware
Beneficial Homeowner Service Corporation	Delaware
Beneficial Investment Co.	Delaware
Beneficial Kentucky Inc.	Delaware
Beneficial Leasing Group, Inc.	Delaware
Beneficial Loan & Thrift Co.	Minnesota
Beneficial Louisiana Inc.	Delaware
Beneficial Maine Inc.	Delaware
dba Beneficial Credit Services of Maine
Beneficial Management Corporation of America	Delaware
Beneficial Massachusetts Inc.	Delaware
Beneficial Michigan Inc.	Delaware
Beneficial Mortgage Corporation	Delaware
Beneficial New Hampshire Inc.	Delaware
Beneficial New York Inc.	New York
Beneficial Oregon Inc.	Delaware
Beneficial Rhode Island Inc.	Delaware
Beneficial South Dakota Inc.	Delaware
Beneficial Tennessee Inc.	Tennessee
Beneficial West Virginia, Inc.	West Virginia
Beneficial Wyoming Inc.	Wyoming
BFC Insurance Agency of Nevada	Nevada
BMC Holding Company	Delaware
Cal-Pacific Services, Inc.	California
Capital Financial Services Inc.	Nevada
dba Capital Financial Services I Inc.

Names of Subsidiaries	US - State Organized
dba Capital Financial Services No. 1 Inc.
dba CFSI, Inc.
dba HB Financial Services
Decision One Mortgage Company, LLC	North Carolina
Eighth HFC Leasing Corporation	Delaware
First Central National Life Insurance Company of New York	New York
Fourteenth HFC Leasing Corporation	Delaware
Harbour Island Inc.	Florida
HFC Agency of Missouri, Inc.	Missouri
HFC Commercial Realty, Inc.	Delaware
HFC Company LLC	Delaware
HFC Leasing Inc.	Delaware
Household Capital Markets LLC	Delaware
Household Commercial Financial Services, Inc.	Delaware
Household Commercial of California, Inc.	California
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
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. Nevada	Nevada
Household Insurance Group Holding Company	Delaware
Household Insurance Group, 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 Pooling Corporation	Nevada
Household Realty Corporation	Delaware
dba Household Realty Corporation of Virginia
Household Servicing, Inc.	Delaware
HSBC Auto Finance Inc.	Delaware
HSBC Auto Receivables Corporation	Nevada
HSBC Bank Nevada, N. A.	United States

Names of Subsidiaries	US - State Organized
HSBC Card Services Inc.	Delaware
HSBC Card Services (III) Inc.	Nevada
HSBC Consumer Lending (USA) Inc.	Delaware
HSBC Credit Center, Inc.	Delaware
HSBC Home Equity Loan Corporation I	Delaware
HSBC Home Equity Loan Corporation II	Delaware
HSBC Insurance Company of Delaware	Ohio
HSBC Mortgage Services Inc.	Delaware
HSBC Pay Services Inc.	Delaware
HSBC Receivables Acquisition Company I	Delaware
HSBC Receivables Funding Inc. II	Delaware
HSBC Retail Services Inc.	Delaware
HSBC Taxpayer Financial Services Inc.	Delaware
HSBC TFS I 2005 LLC	Delaware
HSBC TFS II 2005 LLC	Delaware
Mortgage One Corporation	Delaware
Mortgage Two Corporation	Delaware
Neil Corporation	Delaware
Palatine Hills Leasing, Inc.	Delaware
PHL One, Inc.	Delaware
PHL Four, Inc.	New Jersey
Real Estate Collateral Management Company	Delaware
Renaissance Bankcard Services of Kentucky	Kentucky
Secured Lending Services, GP	Pennsylvania
Silliman Associates Limited Partnership	Massachusetts
Silliman Corporation	Delaware
SPE 1 2005 Manager Inc.	Delaware
Thirteenth HFC Leasing Corporation	Delaware
Wasco Properties, Inc.	Delaware

Non-US Affiliates

Names of Subsidiaries	Country Organized
BFC Ireland (Holdings) Limited	Ireland
ICOM Limited	Bermuda

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

To the Board of Directors

HSBC Finance Corporation

We consent to the incorporation by reference in the Registration Statements No. 33-64175, No. 333-14459, No. 333-47945, No. 333-33240, No. 333-56152, No. 333-61964, No. 333-73746, No. 333-75328, No. 333-85886, No. 33-57249, No. 333-60510, No. 333-120494, No. 333-120495, No. 333-120496 and No. 333-128369 on Form S-3, Registration Statements No. 333-130580 and No. 333-156219 on Form S-3ASR, and Registration Statement No. 333-174628 on Form S-4 of HSBC Finance Corporation (the "Company") of our report dated March 4, 2013, with respect to the consolidated balance sheet of the Company as of December 31, 2012 and 2011, and the related consolidated statements of income (loss), comprehensive income (loss), changes in the shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2012, which report appears in the December 31, 2012 annual report on Form 10-K of the Company.

Our report refers to the Company's adoption of the provisions of Accounting Standards Update No. 2011-02-Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring, in the third quarter of 2011.

/s/ KPMG LLP

Chicago, Illinois

March 4, 2013

EXHIBIT 31

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Certification of Chief Executive Officer

I, Patrick J. Burke, Chairman of the Board and Chief Executive Officer of HSBC Finance Corporation, certify that:

1. I have reviewed this report on Form 10-K of HSBC Finance Corporation;

2. Based on my knowledge, this 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 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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this 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

d. disclosed in this 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 of internal control over financial reporting, 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 4, 2013

/s/ PATRICK J. BURKE

Patrick J. Burke

Chairman of the Board and Chief Executive

Officer

Certification of Chief Financial Officer

I, Michael A. Reeves, Executive Vice President and Chief Financial Officer of HSBC Finance Corporation, certify that:

1. I have reviewed this report on Form 10-K of HSBC Finance Corporation;

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 4, 2013

/s/ MICHAEL A. REEVES

Michael A. Reeves

Executive Vice President and

Chief Financial Officer

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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 period ending December 31, 2012 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, Patrick J. Burke, Chairman of the Board and 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.

Date: March 4, 2013

/s/ PATRICK J. BURKE

Patrick J. Burke

Chairman of the Board and Chief Executive Officer

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Michael A. Reeves, Executive 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.

Date: March 4, 2013

/s/ MICHAEL A. REEVES

Michael A. Reeves

Executive Vice President

and Chief Financial Officer

These certifications accompany 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.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR LZLBBXXFFBBQ

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