HSBC USA Inc 1H04 10Q-Pt 2
HSBC Holdings PLC
2 August 2004
PART 2
40
------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2004 2003
------------------------------------------------------------------------------------------------------------------------
(in millions)
Credit risk exposure associated with derivative contracts:
Total fair value of derivative receivables ............................................ $ 7,442 $ 7,653
Collateral held against exposure ...................................................... (2,120) (2,580)
------- -------
Net credit risk exposure ................................................................ $ 5,322 $ 5,073
======= =======
Net fair value of all derivative contracts ............................................... $ (432) $ (566)
======= =======
Off-Balance Sheet Arrangements
--------------------------------------------------------------------------------
The following table provides information at June 30, 2004 related to the
off-balance sheet arrangements and lending and sales commitments. Descriptions
of these arrangements are found on pages 44-45 of the 2003 Form 10-K.
------------------------------------------------------------------------------------------------------------------------
One Over One Over
Year Through Five
June 30, 2004 or Less Five Years Years Total
------------------------------------------------------------------------------------------------------------------------
(in millions)
Standby letters of credit, net of participations ............. $3,245 $ 1,654 $ 92 $ 4,991(1)
Loan sales with recourse ...................................... -- 2 10 12(2)
Credit derivative contracts ................................... 1,356 31,389 5,829 38,574(3)
Securities lending indemnifications ........................... 3,206 -- -- 3,206
------ ------- ------ -------
Total ......................................................... $7,807 $33,045 $5,931 $46,783
====== ======= ====== =======
(1) Includes $311 million issued for the benefit of related parties.
(2) $9 million of this amount is indemnified by third parties.
(3) Includes $5,173 million issued for the benefit of related parties.
Standby Letters of Credit
Fees are charged for issuing letters of credit commensurate with the customer's
credit evaluation and the nature of any collateral. Included in other
liabilities are deferred fees on standby letters of credit, representing the
fair value of the "stand ready obligation to perform" under these guarantees,
amounting to $13 million and $12 million at June 30, 2004 and December 31, 2003
respectively. Also included in other liabilities is an allowance for credit
losses on unfunded standby letters of credit of $21 million and $25 million at
June 30, 2004 and December 31, 2003 respectively.
Credit Derivative Contracts
The Company enters into credit derivative contracts both for its own benefit and
to satisfy the needs of our customers. Credit derivatives are arrangements that
provide for one party (the "beneficiary") to transfer the credit risk of a
"reference asset" to another party (the "guarantor"). Under this arrangement the
guarantor assumes the credit risk associated with the reference asset without
directly purchasing it. The beneficiary agrees to pay to the guarantor a
specified fee. In return, the guarantor agrees to pay the beneficiary an agreed
upon amount if there is a default during the term of the contract.
Virtually all of the market risk assumed in selling credit guarantees through
credit derivative contracts is offset with another counterparty. Credit
derivatives, although having characteristics of a guarantee, are accounted for
as derivative instruments and are carried at fair value. The commitment amount
included in the table above is the maximum amount that the Company could be
required to pay, without consideration of the approximately equal amount
receivable from third parties and any associated collateral.
Securities Lending Indemnifications
The Company may lend securities of customers, on a fully collateralized basis,
as an agent to third party borrowers. Customers are indemnified against the risk
of loss, and collateral is obtained from the borrower with a market value
exceeding the value of the loaned securities. At June 30, 2004, the fair value
of that collateral was approximately $3,264 million.
41
Special Purpose and Variable Interest Entities
--------------------------------------------------------------------------------
The provisions of Financial Accounting Standards Board issued Interpretation No.
46 Revised, Consolidation of Variable Interest Entities (FIN 46R) were adopted
as of March 31, 2004. At June 30, 2004, none of the Variable Interest Entities
(VIEs) that the Company is involved with are required to be consolidated under
FIN 46R.
The following table provides information for unconsolidated VIEs at June 30,
2004. Descriptions of these VIE relationships are included in pages 45-47 of the
2003 Form 10-K.
-----------------------------------------------------------------------------------------------------------------
Maximum
Total Exposure
Assets to Loss
-----------------------------------------------------------------------------------------------------------------
(in millions)
Asset-backed commercial paper conduit ............................... $ 2,595 $3,266
Securitization vehicles ............................................. 970 541
Investment funds .................................................... 8,217 151
Capital funding vehicles ............................................ 1,093 32
Low income housing tax credits ...................................... 1,123 73
------- ------
Total ............................................................... $13,998 $4,063
======= ======
Capital
--------------------------------------------------------------------------------
The following table presents the capital ratios of the Company and the Bank
calculated in accordance with banking regulations. To be categorized as
"well-capitalized" under the Federal Reserve Board and Federal Deposit Insurance
Corporation guidelines, a banking institution must have the minimum ratios
reflected in the table, and must not be subject to a directive, order, or
written agreement to meet and maintain specific capital levels.
-----------------------------------------------------------------------------------------------------------------
"Well-Capitalized" June 30, December 31,
Minimum 2004 2003
-----------------------------------------------------------------------------------------------------------------
Total capital (to risk weighted assets)
Company .................................................. 10.00% 12.07% 12.42%
Bank.. ................................................... 10.00 11.90 11.82
Tier 1 capital (to risk weighted assets)
Company .................................................. 6.00 7.83 8.53
Bank ..................................................... 6.00 8.38 8.99
Tier 1 capital (to average assets)
Company .................................................. 3.00 5.83 5.87
Bank ..................................................... 5.00 6.27 6.22
Tangible common equity (to risk weighted assets)
Company .................................................. 6.08 6.39
Bank ..................................................... 8.43 9.07
Although still well above "well-capitalized" minimums, capital ratios have
generally declined during 2004, due to increased consumer loan balances and
increased off-balance sheet commitments. In light of the balance sheet growth
that has already taken place, and in preparation for continued growth expected
for 2004 and future periods, management is considering various options for
raising capital and improving the capital ratios.
42
Risk Management
--------------------------------------------------------------------------------
Liquidity Management
The approach to address liquidity risk and to meet funding requirements is
summarized on pages 51-53 of the 2003 Form 10-K. During the second quarter of
2004, there were no significant changes in the approach towards liquidity
management.
In July 2004, Moody's Investors Service (Moody's) raised the long-term deposits
rating for the Bank from Aa3 to Aa2. Moody's also placed the Company on review
for a possible upgrade from its current short-term debt rating of A1. The
long-term and short-term debt ratings from the other major credit rating
agencies for the Company and the Bank are unchanged from December 31, 2003.
As a component of its overall funding strategy, the Company and the Bank
periodically issue debt instruments to fund balance sheet growth, to meet cash
and capital needs, or to fund investments in subsidiaries. See Note 7 to the
financial statements on page 12 of this Form 10-Q for an analysis of 2004
long-term debt activity.
In June 2004, the Bank completed a $10 billion Global Bank Note Program for the
issuance of subordinated and senior global notes. Through June 30, 2004,
approximately $589 million of debt has been issued from this program. In July,
an additional $1 billion was issued under this program. Also in July, the Global
Bank Note Program was expanded to $20 billion to allow for further opportunity
to access the market for longer term funding of anticipated balance sheet
growth.
It was previously reported that subject to receipt of regulatory and other
approvals the Company expected to purchase approximately $18 billion of credit
card receivables and approximately $9 billion of residual interests in
securitized credit card receivables pools from Household during 2004. It was
also reported that subsequent to the initial transfer, additional credit card
receivables would be purchased from Household on a daily basis and that various
methods of funding these transfers were being explored. Given recent growth and
funding needs, the Company now expects to apply for regulatory approval to
purchase only Household's private label credit card portfolio in 2004. Potential
assignment will be considered for some of Household's MasterCard and Visa
receivables in the future based upon continuing evaluations of capital and
liquidity at each entity.
Subject to regulatory and other approvals, the private label receivables
expected to be purchased from Household by year-end will have a principal
balance of approximately $11 billion. Residual interests in securitized private
label credit card receivables pools of approximately $4 billion will also be
acquired. These increases in credit card receivables will have significant
impact on net interest income and the provision and allowance for credit losses
in future periods. However, the impact on future period results cannot currently
be estimated due to the uncertainty as to the timing of the purchases.
Additional information on the financial impact of the proposed transfer will be
reported as the regulatory and other approval processes progress and the amounts
become quantifiable.
Interest Rate Risk Management
Various techniques are utilized to quantify and monitor risks associated with
the repricing characteristics of the Company's assets, liabilities, and
derivative contracts. The approach toward managing interest rate risk is
summarized on pages 53-56 of the 2003 Form 10-K. During the first six months of
2004, there were no significant changes in policies or approach for managing
interest rate risk.
Static "gap" measurement of interest rate risk is not used as a primary
management tool. In the course of managing interest rate risk, Present Value of
a Basis Point (PVBP) analysis is utilized in conjunction with a combination of
other risk assessment techniques, including capital at risk, dynamic simulation
modeling, capital risk and Value at Risk (VAR) analyses. The combination of
these tools enables management to identify and assess the potential impact of
interest rate movements and take appropriate action.
43
Institutional movement limits are established at the beginning of each fiscal
year for each of the assessment techniques discussed below. These limits act as
a guide for managing interest rate risk associated with balance sheet
composition and off-balance sheet hedging strategy (the risk position).
Calculated values within movement limit ranges reflect an acceptable risk
position, although an unfavorable trend may prompt consideration to adjust on or
off-balance sheet exposure. Calculated values outside of movement limit ranges
will result in consideration of adjustment of the risk position, or
consideration of temporary dispensation from making adjustments.
PVBP Analysis
For assets and liabilities whose cash flows are subject to change due to
movements in interest rates, such as the sensitivity of mortgage loans to
prepayments, data is reported based on the earlier of expected repricing or
maturity and reflects anticipated prepayments based on the current rate
environment. The resulting "gaps" are reviewed to assess the potential
sensitivity to earnings with respect to the direction, magnitude and timing of
changes in market interest rates.
Certain limits and benchmarks that serve as guidelines in determining the
appropriate levels of interest rate risk for the institution have been
established. One such limit is expressed in terms of the PVBP, which is the
change in value of the balance sheet for a one basis point upward movement in
all interest rates.
The following table reflects PVBP position at June 30, 2004.
------------------------------------------------------------------------------------------------------------------------
June 30, 2004 Values
------------------------------------------------------------------------------------------------------------------------
(in millions)
Institutional PVBP movement limit .................................................................... +/- $5.0
PVBP position at period end .......................................................................... (.7)
Capital at Risk
The Company also monitors capital at risk, which is the change in base case
valuation of the balance sheet for either a 200 basis point gradual rate
increase or a 100 basis point gradual rate decrease.
The following table reflects our capital at risk position at June 30, 2004.
------------------------------------------------------------------------------------------------------------------------
June 30, 2004 Values
------------------------------------------------------------------------------------------------------------------------
Institutional capital at risk movement limit ......................................................... +/- 10.0%
Projected change in value resulting from a gradual 200 basis point increase in interest rates ........ (9.9)
Projected change in value resulting from a gradual 100 basis point decrease in interest rates ........ (2.3)
The projected drop in value for a 100 basis point gradual decrease in rates is
primarily related to the anticipated acceleration of prepayments for the held
mortgage and mortgage backed securities portfolios in this lower rate
environment. This assumes that no management actions are taken to manage
exposures to the changing interest rate environment.
44
Dynamic Simulation Modeling
In addition to the above mentioned limits, the Asset and Liability Policy
Committee (ALCO) uses various modeling techniques to monitor a number of
interest rate scenarios for their impact on net interest income. These
techniques include both rate shock scenarios which assume immediate market rate
movements of 200 basis points, as well as scenarios in which rates rise or fall
by 200 basis points over a twelve month period.
The following table reflects the impact on net interest income of the scenarios
utilized by these modeling techniques.
------------------------------------------------------------------------------------------------------------------------
June 30, 2004 Values
-------------------------
Amount %
------------------------------------------------------------------------------------------------------------------------
(in millions)
Projected change in net interest income (reflects projected rate movements on July 1, 2004):
Institutional base earnings movement limit ................................................. +/- 10
Change resulting from a gradual 200 basis point increase in the yield curve ................ $(30) (1)
Change resulting from a gradual 200 basis point decrease in the yield curve ................ 281 10
Other significant scenarios monitored (reflects projected rate movements on July 1, 2004):
Change resulting from an immediate 100 basis point increase in the yield curve ............. (26)
Change resulting from an immediate 100 basis point decrease in the yield curve ............. 74
Change resulting from an immediate 200 basis point increase in the yield curve ............. (138)
Change resulting from an immediate 200 basis point decrease in the yield curve ............. (134)
Change resulting from an immediate 100 basis point decrease in long term
rates, and a decrease of 50-75 basis points in short term rates ........................... 24
Change resulting from an immediate 100 basis point increase in short term rates ............ (87)
The projections do not take into consideration possible complicating factors
such as the effect of changes in interest rates on the credit quality, size and
composition of the balance sheet. Therefore, although this provides a reasonable
estimate of interest rate sensitivity, actual results will vary from these
estimates, possibly by significant amounts.
Capital Risk
Large movements of interest rates could directly affect some reported capital
and capital ratios. The mark to market valuation of available for sale
securities is credited on a tax effective basis through other comprehensive
income in the consolidated statement of shareholders' equity. This valuation
mark is excluded from Tier 1 and Tier 2 capital ratios but it would be included
in two important accounting based capital ratios: the tangible common equity to
tangible assets and the tangible common equity to risk weighted assets. As of
June 30, 2004, the Company had an available for sale securities portfolio of
approximately $14 billion with a net negative mark to market of $269 million
included in tangible common equity of $5 billion. An increase of 25 basis points
in interest rates of all maturities would further lower the mark to market by
approximately $93 million to a net loss of $362 million with the following
results on the tangible capital ratios.
------------------------------------------------------------------------------------------------------------------------
Proforma - Reflecting
25 Basis Points
June 30, 2004 Actual Increase in Rates
------------------------------------------------------------------------------------------------------------------------
Tangible common equity to tangible assets ..................................... 4.25% 4.20%
Tangible common equity to risk weighted assets ................................ 6.08 6.00
Value at Risk
VAR analysis is also used to measure interest rate risk and to calculate the
economic capital required to cover potential losses due to interest risk. VAR
looks at a two year historical observation period and shows, based upon that,
the potential loss from unfavorable market conditions during a "given period"
with a certain confidence level (99%). A one-day "given period" or "holding
period" is used for setting limits and measuring results. Thus, at a 99%
confidence level for 500 business days (about two calendar years), the fifth
worst loss performance in the last 500 business days is set as the limit. For
purposes of determining economic capital, a six month "given period" is used, a
conservative time to allow for adjustments of our interest rate risk profile.
45
The predominant VAR methodology used by the Company, "historical simulation",
has a number of limitations including the use of historical data as a proxy for
the future, the assumption that position adjustments can be made within the
holding period specified, and the use of a 99% confidence level, which does not
take into account potential losses that might occur beyond that level of
confidence.
Trading Activities
Trading portfolios reside primarily in the Treasury and mortgage banking areas
and include foreign exchange, derivatives, precious metals (gold, silver,
platinum), commodities, equities, money market instruments including "repos" and
securities. Trading occurs as a result of customer facilitation, proprietary
position taking, and economic hedging. In this context, economic hedging may
include, for example, forward contracts to sell residential mortgages and
derivative contracts which, while economically viable, may not satisfy the hedge
requirements of SFAS 133.
The trading portfolios have defined limits pertaining to items such as
permissible investments, risk exposures, loss review, balance sheet size and
product concentrations. "Loss review" refers to the maximum amount of loss that
may be incurred before senior management intervention is required.
Trading Activities - Treasury
Value at Risk
Value at Risk (VAR) analysis is relied upon as a basis for quantifying and
managing risks associated with the Treasury trading portfolios. The VAR
methodology employed is summarized on pages 56-57 of the 2003 Form 10-K.
The following table summarizes trading VAR for 2004, assuming a 99% confidence
level for 500 business days and a 10 day "holding period".
------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2004
June 30, ------------------------------------ December 31,
2004 Minimum Maximum Average 2003
------------------------------------------------------------------------------------------------------------------------
(in millions)
Total trading ................................. $ 30 $18 $47 $30 $23
Commodities ................................... 4 1 11 4 --
Credit derivatives ............................ 3 1 6 2 4
Equities ...................................... -- -- 1 -- 1
Foreign exchange .............................. 5 2 23 8 11
Interest rate ................................. 23 15 28 22 16
Trading Volatility
The following tables summarize the frequency distribution of daily market
risk-related revenues for Treasury trading activities during 2004. Market
risk-related Treasury trading revenues include realized and unrealized gains
(losses) related to Treasury trading activities, but excludes the related net
interest income. Analysis of the second quarter of 2004 gain (loss) data shows
that the largest daily gain was $7 million and the largest daily loss was $2
million. Analysis of the first six months of 2004 gain (loss) data shows that
the largest daily gain was $12 million and the largest daily loss was $9
million.
------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 2004
------------------------------------------------------------------------------------------------------------------------
Ranges of daily Treasury trading revenue
earned from market risk-related activities
Below $(2) to $0 to $2 to $4 to Over
(in millions) $ (2) $ 0 $ 2 $ 4 $ 6 $6
Number of trading days market risk-related
revenue was within the stated range ............. 1 19 24 12 5 1
46
------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2004
------------------------------------------------------------------------------------------------------------------------
Ranges of daily Treasury trading revenue
earned from market risk-related activities
Below $(2) to $0 to $2 to $4 to Over
(in millions) $(2) $0 $2 $4 $6 $6
Number of trading days market risk-related
revenue was within the stated range ................. 2 30 43 29 13 7
Trading Activities - Mortgage Banking
Mortgage servicing rights (MSRs) are assets that represent the net present value
of net servicing income (servicing fees, ancillary income, and float, net of
servicing costs). MSRs are recognized upon the sale of the underlying loans.
MSRs are subject to interest rate risk, in that the value of MSRs will decline
(as a result of actual and expected acceleration of prepayment of the underlying
loans) in a falling interest rate environment.
Interest rate risk is mitigated through an active hedging program that uses
available for sale (AFS) securities and derivative instruments to offset changes
in value of MSRs. Since the hedging program involves trading activity, risk is
quantified and managed using a number of risk assessment techniques.
A review of the Company's MSRs hedging program was conducted in light of the
unprecedented market conditions of 2003. This was to ensure that a program is in
place to support anticipated business growth while at the same time limiting
volatility in the mortgage banking results. Existing risk limits were tightened
and additional risk limits were established for hedging of economic losses.
Rate Shock Analysis
Modeling techniques are used to monitor certain interest rate scenarios for
their impact on the value of MSRs, as reflected in the following table.
------------------------------------------------------------------------------------------------------------------------
June 30, 2004 Values
--------------------------
Amount %
------------------------------------------------------------------------------------------------------------------------
(in millions)
Projected change in net market value of hedged MSRs portfolio (reflects projected rate
movements on July 1, 2004):
Value of hedged MSRs portfolio ......................................................... $436
Change resulting from an immediate 50 bp decrease in the yield curve:
Change limit ....................................................................
------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 2004
------------------------------------------------------------------------------------------------------------------------
Ranges of mortgage trading revenue earned
from market risk-related activities
Below $(5) to $0 to $5 to Over
(in millions) $(5) $0 $5 $10 $10
Number of trading weeks market risk-related
revenue was within the stated range ............... 6 3 5 -- --
------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2004
------------------------------------------------------------------------------------------------------------------------
Ranges of mortgage trading revenue earned
from market risk-related activities
Below $(5) to $0 to $5 to Over
(in millions) $(5) $0 $5 $10 $10
Number of trading weeks market risk-related
revenue was within the stated range .............. 8 7 8 3 2
48
Item 3. Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------------------
Refer to the disclosure in Item 2 of the Management's Discussion and Analysis of
Financial Condition and Results of Operations under the captions "Interest Rate
Risk Management" and "Trading Activities".
Item 4. Controls and Procedures
--------------------------------------------------------------------------------
Under the direction of the Company's Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), the Company has reviewed its "disclosure controls and
procedures". That term means controls and other procedures designed to ensure
that information required to be disclosed in the Company's reports filed with
the United States Securities and Exchange Commission (SEC) is recorded,
processed, summarized and reported by the due dates specified by the SEC's
rules. Such controls and procedures must be designed to ensure that information
required to be disclosed in reports filed with the SEC, is accumulated and
communicated to the Company's management personnel to allow timely decisions
regarding required disclosure. Also, this process directly supports the CEO and
CFO certifications included as exhibits to this report.
Since 1993, the CEO and CFO have reported on the Bank's internal controls over
financial reporting pursuant to Federal Deposit Insurance Corporation
Improvement Act (FDICIA) regulations. The Company's independent registered
public accounting firm has annually attested, without qualification, to the
reports. Thus management is well acquainted with the process underlying the
attestation to financial reporting controls. The current review process is built
on the annual review at the Bank in accordance with FDICIA as well as various
other internal control processes and procedures, which management has
established and monitors. The review is conducted quarterly and includes all
subsidiaries of the Company.
To monitor the Company's compliance with the disclosure controls and procedures,
the Company has formed a Disclosure Committee chaired by its CFO. The Disclosure
Committee is composed of key members of senior management, who have knowledge of
significant portions of the Company's internal control system as well as the
business and competitive environment in which the Company operates. The
Disclosure Committee covers all of the Company's significant business and
administrative functions. One of the key responsibilities of each Committee
member is to review the document to be filed with the SEC as it progresses
through the preparation process. Open lines of communication to financial
reporting management exist for Disclosure Committee members to convey comments
and suggestions.
The Disclosure Committee has designated a preparation working group that is
responsible for providing and/or reviewing the detail supporting financial
disclosures. The Disclosure Committee also has designated a business issues
working group that is responsible for the development of forward-looking
disclosures.
The Company's CEO and CFO have concluded that, based on the deliberations of the
Disclosure Committee and input received from senior business and financial
managers, the Company's disclosure controls and procedures were effective as of
June 30, 2004 and that those controls and procedures support the disclosures in
this document. During the six months ended June 30, 2004, there were no material
changes in the Company's internal controls over financial reporting.
49
Part II - OTHER INFORMATION
--------------------------------------------------------------------------------
Item 1 - Legal Proceedings
The Company is named in and is defending legal actions in various
jurisdictions arising from its normal business. None of these
proceedings is regarded as material litigation. In addition,
there are certain proceedings related to the "Princeton Note
Matter" that are described below.
In relation to the Princeton Note Matter, as disclosed in the
Company's 2003 Annual Report on Form 10-K, two of the noteholders
were not included in the settlement and their civil suits are
continuing. The U.S. Government excluded one of them from the
restitution order (Yakult Honsha Co., Ltd.) because a senior
officer of the noteholder was being criminally prosecuted in
Japan for his conduct relating to its Princeton Notes. The senior
officer in question was convicted during September 2002 of
various criminal charges related to the sale of the Princeton
Notes. The U.S. Government excluded the other noteholder (Maruzen
Company, Limited) because the sum it is likely to recover from
the Princeton Receiver exceeds its losses attributable to its
funds transfers with Republic New York Securities Corporation as
calculated by the U.S. Government. Both of these civil suits seek
compensatory, punitive, and treble damages pursuant to RICO and
assorted fraud and breach of duty claims arising from unpaid
Princeton Notes with face amounts totaling approximately $125
million. No amount of compensatory damages is specified in either
complaint. These two complaints name HSBC USA Inc., the Bank, and
Republic New York Securities Corporation as defendants. HSBC USA
Inc. and the Bank have moved to dismiss both complaints. The
motion is fully briefed and sub judice. Mutual production of
documents took place in 2001, but additional discovery
proceedings have been suspended pending the Court's resolution of
the motions to dismiss.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits -
3(i) Registrant's Restated Certificate of Incorporation and
Amendments thereto, Exhibit 3(a) to the Company's 1999
Annual Report on Form 10-K incorporated herein by
reference.
(ii) Registrant's By-Laws, as Amended to Date, Exhibit 3 to the
Company's Form 10-Q for the quarter ended June 30, 2002
incorporated herein by reference.
4 Instruments Defining the Rights of Security Holders,
including Indentures, incorporated by reference to
previously filed periodic reports.
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.0 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
A current report on Form 8-K was filed June 28, 2004 announcing
approval by the Office of the Comptroller of the Currency for
HSBC USA Inc. to consolidate its banking operations under a
single national charter.
50
SIGNATURE
--------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HSBC USA Inc.
-------------
(Registrant)
Date: August 2, 2004 /s/ Joseph R. Simpson
--------------------------------------
Joseph R. Simpson
Senior Vice President & Controller
(On behalf of Registrant and
as Chief Accounting Officer)
51
Exhibit 31.1
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
--------------------------------------------------------------------------------
I, Martin J. G. Glynn, certify that:
1. I have reviewed this report on Form 10-Q for the quarterly period ended
June 30, 2004 of HSBC USA Inc.;
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
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)) for the registrant
and 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) 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
c) Disclosed in this report any change in the registrant's internal
controls 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 controls over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control 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 controls over financial reporting.
Date: August 2, 2004 /s/ Martin J. G. Glynn
-----------------------------------------
Martin J. G. Glynn
President and Chief Executive Officer
52
Exhibit 31.2
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
--------------------------------------------------------------------------------
I, Roger K. McGregor, certify that:
1. I have reviewed this report on Form 10-Q for the quarterly period ended
June 30, 2004 of HSBC USA Inc.;
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
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)) for the registrant
and 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) 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
c) Disclosed in this report any change in the registrant's internal
controls 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 controls over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control 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 controls over financial reporting.
Date: August 2, 2004 /s/ Roger K. McGregor
-------------------------------
Roger K. McGregor
Executive Vice President and
Chief Financial Officer
53
Exhibit 32.0
Certification of Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
--------------------------------------------------------------------------------
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code), each of the
undersigned officers of HSBC USA Inc., a Maryland corporation (the Company),
does hereby certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (the Form
10-Q) of the Company fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 and information contained in the
Form 10-Q fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: August 2, 2004 /s/ Martin J. G. Glynn
-------------------------------------
Martin J. G. Glynn
President and Chief Executive Officer
Dated: August 2, 2004 /s/ Roger K. McGregor
-------------------------------------
Roger K. McGregor
Executive Vice President and
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter
63 of title 18, United States Code) and is not being filed as part of the Form
10-Q or as a separate disclosure document.
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to HSBC USA Inc. and will be retained
by HSBC USA Inc. and furnished to the United States Securities and Exchange
Commission or its staff upon request.
54
This information is provided by RNS
The company news service from the London Stock Exchange