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HSBC Holdings plc Interim Management Statement

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HSBC Holdings plc Interim Management Statement Powered By Docstoc
					Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong
Limited take no responsibility for the contents of this document, make no
representation as to its accuracy or completeness and expressly disclaim any liability
whatsoever for any loss howsoever arising from or in reliance upon the whole or any
part of the contents of this document.




The following is the text of an announcement released to the other stock exchanges on
which HSBC Holdings plc is listed.

10 November 2009

                              HSBC HOLDINGS PLC

                    INTERIM MANAGEMENT STATEMENT


HSBC Holdings plc (HSBC) will be conducting a trading update conference call with
analysts and investors today to coincide with the release of its Interim Management
Statement and the third quarter results of its principal operations in the United States
(‘US’), HSBC Finance Corporation and HSBC Bank USA Inc., whose formal SEC
10-Qs will be available at Investor Relations on www.hsbc.com shortly after 08.15
GMT (in London). The trading update call will take place at 11.30 GMT (in London),
and details for participating in the call and live audio webcast can be found at Investor
Relations on www.hsbc.com and at the end of this statement.
HSBC Interim Management Statement/2


                 HSBC INTERIM MANAGEMENT STATEMENT


Profitability for the first nine months of 2009 was stronger than our expectations at
the start of the year, as positive trends experienced in the first half continued into the
third quarter. As a result, year to date pre-tax profit was ahead of the comparable
period in 2008 on an underlying basis, excluding movements in fair value on our own
debt related to credit spreads. On the same basis, pre-tax profit for the third quarter of
2009 (‘Q3 2009’) was significantly ahead of Q3 2008. On a reported basis, HSBC’s
performance in Q3 2009 was lower than in Q3 2008, largely due to fair value
movements on our own debt caused by tightening credit spreads.


Building on its exceptional first-half results, Global Banking and Markets maintained
its record performance for the year to date. In the US consumer finance run-off
portfolio, loan impairment allowances declined in the quarter, representing the first
quarterly fall since the start of 2006. In emerging markets, revenues in Personal
Financial Services and Commercial Banking held up well and, with the exception of
the Middle East, loan impairment charges were notably lower than in the preceding
quarter as economic conditions improved. Tight cost control also ensured that total
costs for the year to date compared favourably with 2008.


The Group’s tier 1 ratio increased to 10.3 per cent, and the core equity tier 1 capital
ratio strengthened to 9.0 per cent. HSBC maintained its strong liquidity position, with
its published advances-to-deposits ratio remaining under 80 per cent. On 2 November,
the Board declared a third interim dividend of US$0.08 per ordinary share, with a
value of approximately US$1.4 billion, bringing total dividends in respect of the first
nine months to US$4.2 billion. Capital generation comfortably exceeded dividends in
each quarter.


Group Chief Executive, Michael Geoghegan, said:


“Thanks to a highly diversified business model, a clear and unchanged strategy and a
focus on banking fundamentals, HSBC continues to deliver broadly based profits at
this pivotal stage of the business cycle.
HSBC Interim Management Statement/3


“At a time when economic conditions have remained challenging and public trust in
banks has been seriously compromised, we are attracting new customers in our target
segments. We have maintained our strong deposit base and we continue to lend to and
support customers through difficult times.


“Driven by stabilised credit performance in the US, loan impairment charges have
fallen to their lowest quarterly level for over a year. The more positive signals that we
saw in the US run-off portfolio in the first half have continued, with the result that our
North American operations did not require any capital support from the Group during
the quarter. We should have further evidence by the year-end as to whether this is a
sustainable trend. All parts of the run-off portfolio continued to reduce during the
quarter.


“Global Banking and Markets is having a record year. Its distinctive emerging-
markets led and financing-focused strategy, consistently applied since 2006, is
continuing to deliver results. As liquidity improved, we have seen a recovery in the
market value of our available-for-sale asset-backed securities portfolios, which
continue to reduce as securities pay down in line with expectations.


“Despite continuing pressure on deposit spreads during the quarter, Commercial
Banking was solidly profitable in all regions and benefited from our strong
international presence. In Personal Financial Services, the number of HSBC Premier
customers reached 3.1 million and performance outside North America remained in
line with the first two quarters of 2009.


“We have continued to focus on cost control. Total costs and staff costs for the year to
date were both lower than in the comparable period in 2008.


“HSBC continues to strengthen its position as the world’s leading international bank,
and our decision to move the Group CEO’s principal office to Hong Kong is evidence
of our commitment to driving the business forward in the world’s fastest-growing
region.
HSBC Interim Management Statement/4


“We achieved lending growth in emerging markets during the quarter. In Asia, we
have been encouraged by renewed activity in equity markets and increased demand
for wealth management products. We agreed to increase our stake in Vietnam’s
largest insurer, and in mainland China we launched a new jointly-owned life
insurance company and announced our intention to establish a cards joint venture with
Bank of Communications. In Hong Kong, we increased commercial lending and
maintained our leading position in mortgage lending.”


Financial highlights


Summary financial metrics were as follows (commentary is on an underlying basis,
excluding the impact of fair value movements in respect of credit spread on own
debt):


• Net interest income in Q3 2009 was marginally below the run-rate reported in the
   first half of the year. On a year to date basis, net interest income was higher than
   the comparable period in 2008.


• Net fee income in Q3 2009 was higher than each of the first two quarters in 2009
   but was lower than Q3 2008, which benefited from higher volumes in the US
   cards business.


• Costs in Q3 2009 declined from Q3 2008 due to savings from restructuring in the
   US and tight cost control elsewhere, while revenues were modestly higher. Costs
   for Q3 2009 were broadly in line with the run-rate in the first two quarters of
   2009.


• Loan impairment charges and other credit risk provisions declined in Q3 2009
   from earlier in the year and were at their lowest quarterly level since Q2 2008. In
   the US, loan impairment charges in the consumer finance business in Q3 2009
   were encouragingly lower than the run-rate in the first half of the year.


• Total assets were broadly unchanged from 30 June 2009.
HSBC Interim Management Statement/5




• Reported risk-weighted assets (‘RWAs’) remained broadly stable in the quarter,
   benefiting from reductions in market risk. This reflected lower volatility in market
   prices which reduced value at risk, and there was also a reduction in legacy
   structured credit positions in Global Banking and Markets. The reduction in
   market risk RWAs was partly offset by a net increase from currency translation
   effects as the US dollar moved against a number of key currencies in the quarter.


• In Q3 2008, HSBC recorded a gain of US$2.4 billion on the sale of the French
   regional banks. The underlying basis comparatives exclude this one-off gain.


Items of note


• Trends in Q3 2009 described below have generally continued during October
   2009, including a further tightening of credit spreads resulting in an additional
   reduction in the cumulative net gain from fair value movements on HSBC’s own
   debt.


• Credit spreads narrowed significantly in Q3 2009, resulting in a negative
   movement of US$3.5 billion on HSBC’s own debt recorded at fair value compared
   with a gain of US$3.4 billion in Q3 2008 when credit spreads were widening. This
   item has been extremely volatile during 2009, with a sizeable gain in Q1 2009
   followed by a greater loss in Q2 2009, leaving a net loss of US$2.5 billion in the
   first half. These movements do not form part of managed performance internally
   and are excluded from regulatory capital calculations. The cumulative net gain of
   US$1.9 billion at the end of Q3 2009 will fully reverse over the life of the debt.


• On 10 November, HSBC Finance Corporation will announce the sale of HSBC’s
   US vehicle loan servicing operations and US$1 billion in vehicle loans to
   Santander Consumer USA Inc.
HSBC Interim Management Statement/6


Better than expected performance in the US consumer finance portfolios


In the US consumer finance business, loan balances continued to decline in all parts of
the portfolio. This reflected the previous curtailment of origination volumes, changes
in product offerings and management action to slow credit card balance growth in the
weaker economy. The agreement to now sell HSBC’s vehicle finance loan servicing
platform and US$1 billion in loan balances for US$904 million also represents further
progress in our strategy to proactively reduce the run-off portfolio. The deal is
expected to close in the first quarter of 2010 and Santander will service the remainder
of HSBC’s US vehicle loan portfolio.


During the quarter, credit conditions in the US and the severity of losses on parts of
the real estate secured lending portfolio stabilised and loan impairment charges were
lower than we had expected, even with higher levels of US unemployment. The cards
business remained profitable through Q3 2009 despite difficult economic conditions
and lower fees from reduced volumes; as a result of improved economic conditions,
we plan to resume marketing spend to grow new card originations modestly in certain
segments.


Record year to date performance sustained in Global Banking and Markets


Although lower than in the first two quarters of the year, revenues and profits in
Global Banking and Markets were strong and well ahead of the comparable quarter in
2008. Credit trading revenues were particularly good due to improving credit prices
and lower levels of write-downs. The Rates business also performed well.
Notwithstanding lower volumes, foreign exchange market share held up well, assisted
by the Group's strength in emerging markets. Equities trading and equity capital
markets took advantage of higher volumes to build market share in both the primary
and secondary markets, including in new issuance. Global Banking and Markets
continued to benefit from successful positioning in Balance Sheet Management and,
while not as beneficial as in the first half, the interest rate environment afforded some
opportunities to roll over maturing positions, extending the period of sustained
contribution from this business.
HSBC Interim Management Statement/7


Recovery in pricing on available-for-sale asset-backed securities


The available-for-sale (‘AFS’) portfolio of asset-backed securities (‘ABS’s)
performed in line with expectations. Impairments of US$966 million were recognised
in the year to date, including US$402 million in the quarter, which is within previous
guidance of US$2.0 billion to US$2.5 billion for the period 2009 to 2011. Expected
losses of US$182 million were recognised in the year to date, including
US$34 million in the quarter, also within the forecast range of US$600 million to
US$800 million. The deficit on the AFS ABS reserve further reduced to
US$14.2 billion as prices on certain ABSs improved and as assets amortised in line
with expectations.


Asia performing strongly


Asia continued to perform strongly, with growth benefiting from our share of income
from our mainland China associates. Although the slowdown in commercial activity
has affected fee-based businesses, and continuing low interest rates have left deposit
spreads compressed, we are now seeing some lending growth as regional economies
come out of recession and equity markets and cross-border trade improve. Loan
impairment charges moderated in Q3 2009. Performance in the residential mortgage
portfolio in Hong Kong remained sound, underpinned by conservative loan to value
ratios. In mainland China, we opened a further five outlets, including an additional
rural bank and a new Hang Seng Bank branch, and remain on track to have around
100 HSBC-branded branches by the end of the year. We were the first international
bank to conduct cross-border business in renminbi and expect this market to expand.
We also took steps to transfer our existing joint credit card activities with Bank of
Communications into a newly established joint venture company.


Positive contribution from Latin America and the Middle East


Revenue from Latin America and the Middle East held up well in slower economic
conditions in which lending declined. In Latin America, loan impairment charges
declined in the quarter as the application of more stringent underwriting criteria and
run-off progress on problem portfolios led to a contraction in personal loans. In the
HSBC Interim Management Statement/8


Middle East, lending portfolios also continued to reduce, though loan impairment
charges were higher than in the previous quarter as delinquency fed through the
portfolios. Despite the recovery in oil prices in Q3 2009, which supported government
infrastructure spending, credit conditions remained difficult.


Resilient performance in Europe


In the UK, although unemployment rose and the economy contracted, the impact was
moderated by continuing low interest rates and quantitative easing measures, together
with decisions implemented in 2006 and 2007 to restrict growth in unsecured lending.
Mortgage lending continued to perform well, benefiting from our very limited
exposure to buy-to-let and brokered mortgages. We have also taken action to
restructure the UK retail bank to improve efficiency. In line with our commitment to
UK customers, we increased our share of UK mortgage lending in the quarter to
9.9 per cent. We are on track to meet our commitment to lend £15 billion
(US$24 billion) in respect of new mortgages in 2009; and the average loan to value of
new business in the year to date remained under 60 per cent. Overdraft utilisation by
our Commercial Banking customers remained stable at under 50 per cent, underlining
the availability of credit when business demand recovers.


Outlook


Group Chief Executive, Michael Geoghegan, said:


“The global banking industry is in a period of significant and necessary change. The
need for strong, well capitalised banks is indisputable. But it is clear that careful
international co-ordination is crucial if changes are to be introduced in a rational way
which maintains market confidence and a level playing field, especially for those
banks with international capabilities.


“Regulatory policy also needs to be sensitive to fragile economic conditions. If capital
ratios are increased before Western economies have had the chance to stabilise, this
could trigger a number of unintended consequences. These include a rise in the cost
and a fall in the availability of credit, which would undermine the ability of the
HSBC Interim Management Statement/9


banking industry to play its full part in supporting economic recovery. It may also
encourage regulatory arbitrage and the emergence of a shadow banking system,
beyond the reach of regulation.


“I believe that the biggest jolt has now passed through the global economy. But it is
too early to claim victory, especially while unemployment is still rising in the West.
The world will likely experience a two-speed recovery and emerging markets
currently offer the brightest prospects for growth. Indeed, it now seems clear that they
will drive the global recovery.


“HSBC is strongly placed for the period of regulatory change that we anticipate
ahead, thanks to our financial strength, our diverse business model, and our prudent
structure as a holding company with a network of locally incorporated and separately
capitalised banks. We remain absolutely focused on supporting our customers and our
global footprint, combined with our leadership in faster-growing markets, will allow
us to take full advantage of opportunities for revenue growth and investment which
will emerge from the recovery.”


Conference call details


The conference call is being hosted by Michael Geoghegan, Group Chief Executive,
and Douglas Flint, Group Finance Director, and will be accessible by dialling the
following local telephone numbers:


UK:                       +44 (0) 20 7138 0815
UK toll free              0800 559 3272

USA:                      +1 718 354 1359
USA toll free:            1 866 239 0753

Hong Kong:                +852 3002 1615
Hong Kong toll free:      800 933 519

Restrictions may exist when accessing freephone/toll free numbers using a mobile
telephone.


Passcode:                     HSBC
HSBC Interim Management Statement/10




A recording of the conference call will be available from the close of business on
10 November 2009 until close of business on 10 December 2009.


Local replay access telephone numbers are:


UK (local):                    +44 (0) 20 7111 1244
UK toll free:                  0800 358 7735

USA (local):                   +1 347 366 9565
USA toll free:                 1 866 932 5017

Hong Kong (local):             +852 3011 4669

Replay access passcode:                4418806#


On 10 November 2009, the replay will also be accessible on HSBC’s website by
following this link: http://www.hsbc.com/hsbc/investor_centre


For further information, please contact:


Investor Relations                                        Media Relations
Alastair Brown                                            Patrick McGuinness
+44 (0) 20 7992 1938                                      +44 (0) 20 7991 0111


Note to editors:

HSBC Holdings plc
HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in London. The Group
serves customers worldwide from around 8,500 offices in 86 countries and territories in Europe, the
Asia-Pacific region, the Americas, the Middle East and Africa. With assets of US$2,422 billion at 30
June 2009, HSBC is one of the world’s largest banking and financial services organisations. HSBC is
marketed worldwide as ‘the world’s local bank’.


The Board of Directors of HSBC Holdings plc as at the date of this announcement are: S K Green, M F
Geoghegan, S A Catz†, V H C Cheng, M K T Cheung†, J D Coombe†, J L Durán†, R A Fairhead†, D J Flint, A A
Flockhart, W K L Fung*, S T Gulliver, J W J Hughes-Hallett†, W S H Laidlaw†, J R Lomax†, Sir Mark Moody-
Stuart†, G Morgan†, N R N Murthy†, S M Robertson†, J L Thornton† and Sir Brian Williamson†.

† Independent non-executive Director
* Non-executive Director

Hong Kong Stock Code: 5
HSBC Finance Corporation – Q3 2009 Financial Results

        US$ m                                                                                                             Q3 2008                Q2 2009               Q3 2009


        Net operating income before loan impairment charges excluding FVO                                             $           3,535 $                 3,450 $           2,943
        FVO                                                                                                                       1,607                  (4,919)           (1,430)
        Loan impairment and other related charges                                                                                (4,192)                 (3,362)           (3,008)
        Net operating income                                                                                                        950                  (4,831)           (1,495)
        Total operating expenses, excluding goodwill impairment                                                                  (1,145)                   (779)             (773)
        Goodwill impairment                                                                                                         -                    (1,300)              -
        Profit (Loss) from continuing operations before tax (1)                                                                    (195)                 (6,910)           (2,268)
        Profit (Loss) from discontinued operations before tax                                                                      (120)                    -                 -
        Profit (Loss) before tax                                                                                                   (315)                 (6,910)           (2,268)
        Cost efficiency ratio from continuing operations(2)                                                                       22.3%                      nm             51.1%
        Cost efficiency ratio - normalized (3)                                                                                    32.4%                   22.6%             26.3%

        Customer Loans & Advances (as at period end)(4)                                                                         155,772                132,262            125,873




Note:     The figures above and following are presented on an IFRS Management Basis. See Note 16 “Business Segments” of Form 10-Q for the period ended September 30, 2009 for a
          reconciliation of IFRS to U.S. GAAP.

(1)       Loss before tax from continuing operations excluding FVO and goodwill impairment for Q308 was $1,802 million, for Q209 was $691 million, and for Q309 was $838 million.
(2)       Cost efficiency ratio from continuing operations before tax excluding goodwill impairment charge. Q209 not meaningful (‘nm’).
(3)       Cost efficiency ratio from continuing operations before tax excluding goodwill impairment charge, and also normalized to exclude fair value option income.
(4)       Customer Loans & Advances included $3,948 million from discontinued operations in Q308, and reverse repo balances of $1,000 million in Q308, $1,000 million in Q209, and $1,050
          million in Q309.




                                                                                                                                                                                            1
HSBC Finance Corporation – U.S. Customer Loans

Run-off portfolio: Down 14% from December 2008

 Customer loans1, US $bn

                           120.3       117.6       114.2        109.9
                                                                            104.3          100.4
                            18.6        18.3                                                            95.9
                                                    17.6         16.9                                               91.2           86.6
    Run-off portfolio




                                                                             16.2          15.9                              0.8
                                                                                                        15.0        14.0                   1.0
                            49.9        50.2                                                                                       12.9
                                                    49.9        49.0         47.3          46.2         45.1        43.7           42.3
                            12.9        12.9        12.8         12.5        11.8          10.7         9.5          7.7            6.6
                            38.9        36.2        33.9        31.5         29.0          27.6         26.3        25.0           23.8

                           3Q07        4Q07         1Q08        2Q08        3Q08           4Q08        1Q09         2Q09           3Q09

                                                                                                                                            2
                        Mortgage services   Vehicle finance   Secured consumer lending      Unsecured personal credit and other     VF HFS
    Core portfolio




                            47.6        49.7         46.8         46.7        46.5           46.6
                                                                                                         42.7         40.9           39.2
                            17.7        18.7         17.4        17.4         17.5          18.0         16.4         15.8          15.3

                            29.9        31.0         29.4         29.3        29.0           28.6        26.3         25.1           23.9


                            3Q07        4Q07         1Q08        2Q08         3Q08          4Q08         1Q09         2Q09          3Q09


                                                                    Credit Cards     Private Label


Note:
(1) Excludes reverse repo balances
(2) Vehicle finance loans held for sale
                                                                                                                                                 2
HSBC Finance Corporation
Continued reduction of balance sheet in the U.S.

                                       180   167.9
                                                     167.3    161.0      156.6
                                       160                                       150.8   147.0
                                                                                                 138.6
    Customer Loans (1)




                                       140                                                                131.3
                                                                                                                   124.8
                              US $bn




                                       120

                                       100

                                        80

                                        60

                                        40
                                             3Q07    4Q07     1Q08       2Q08    3Q08    4Q08    1Q09     2Q09     3Q09



                                       15%                                               16.5    16.6     16.3    16.8     18

                                                                                 13.8                             13.5%
     2+ Delinquency (1) (2)




                                                      11.9     12.3      12.4                            12.4%
                                                                                              12.0%
                                       10%                                               11.2%                             12




                                                                                                                                US $bn
                                              9.8
                                                                                 9.2%
                                                             7.7%       7.9%
                                                     7.1%
                                       5%    5.8%                                                                          6




                                       0%                                                                                  0
                                             3Q07    4Q07     1Q08       2Q08    3Q08    4Q08    1Q09    2Q09     3Q09




Note:
(1) Excludes reverse repo balances and vehicle finance loans held for sale

(2) 2+ Delinquency ratio as a percentage of end of period consumer loans


                                                                                                                                         3
HSBC Finance Corporation
U.S. Mortgages – continuing to shrink the mortgage portfolio
          US $bn

                                                                        Mortgage Services                                                                                                                         Consumer Lending


                             60
                                                                                                                                                                            60
       Customer Loans




                             50                                                                                                                                                   49.9          50.2            49.9           49.0             47.3           46.2             45.1
                                  38.9                                                                                                                                      50                                                                                                                 43.7               42.3
                             40                    36.2           33.9          31.5                                                                                        40
                                                                                               29.0         27.6
                             30                                                                                             26.3            25.0               23.8
                                                                                                                                                                            30
                             20
                                                                                                                                                                            20
                             10                                                                                                                                             10
                             0                                                                                                                                              0
                                  3Q07            4Q07           1Q08          2Q08           3Q08         4Q08            1Q09            2Q09            3Q09                  3Q07           4Q07           1Q08            2Q08            3Q08            4Q08            1Q09            2Q09            3Q09



                              8                                                                                                                                       20%    8                                                                                                                                           20%
                                                                                                                                          17.1%
                                                                                                           17.7%         17.4%
                                                                                                                                                          18.1%                                                                                                                                     17.5% 7.1
                              7                                  17.0%        16.6%           16.6%                                                                          7                                                                                                      16.2% 6.5
      2+ Delinquencies (1)




                                                                                                                                                                                                                                                                              6.2                           0.9
                                                                                                                                                          16.4%                                                                                              5.6     15.4%                                        16.8%
                                                                                                                 16.9%           17.2%                                                                                                                                                       0.9
                              6                          15.6%                                                                                  16.4%                 15%    6                                                                        14.5%                                                              15%
                                                                                                                                                                                                                                                                              0.9                  14.7%
                                                                  4.5                               14.2% 4.7            4.5                                                                                                                                 0.9                    13.5%
                              5                                                                                                                                              5                                                               11.3%
                                                   4.3                   12.4% 4.3 12.9% 4.2                                              4.2            4.2
                                          11.3%                                                                                                                                                                                                                     11.7%
                                                          11.0% 1.0                                       0.8             0.7                                                                                                 9.0%             3.9
                              4                                                0.9                                                        0.6            0.6          10%    4                                                                                                                                           10%
                                   3.4             1.1                                        0.8                                                                                                              8.0%
                                                                                                                                                                                                7.0%                                           0.7
                              3    0.8 8.1%                                                                                                                                  3                                                 2.8                                                                          6.2
                                                                                                                                                                                                                2.5                                  7.7%                     5.3            5.6
                                                                                                                                                                                  5.0%                                         0.6
                                                                                                                                                                                                 2.1            0.5                                          4.7
                              2                                                                           3.9             3.8                                         5%     2   1.6             0.5                                                                                                                     5%
                                                                  3.5          3.4            3.4                                         3.6            3.6                                                                          5.2%
                                                   3.2                                                                                                                                                                                         3.2
                                   2.6                                                                                                                                             0.3                                 4.5%
                              1                                                                                                                                              1                          3.7%    2.0            2.2
                                                                                                                                                                                         2.9%    1.6
                                                                                                                                                                                   1.3
                              0                                                                                                                                       0%     0                                                                                                                                           0%
                                  3Q 07           4Q 07          1Q 08        2Q 08       3Q 08          4Q 08           1Q 09           2Q 09          3Q 09                    3Q 07          4Q 07          1Q 08          2Q 08          3Q 08          4Q 08           1Q 09           2Q 09          3Q 09

                                            2+ First Lien $                2+ Second Lien $              2+ 1st Lien (%)                  2+ 2nd Lien (%)                                 2+ First Lien $                2+ Second Lien $                   2+ 1st Lien (%)                  2+ 2nd Lien (%)



(1)          2+ Delinquency ratio as a percentage of end of period consumer loans


                                                                                                                                                                                                                                                                                                                               4
 HSBC Finance Corporation
 Impairment allowance (Reserve)
 US$m



   Mortgage Services – Real Estate Secured                                                                                 Consumer Lending – Real Estate Secured




     $m                                                                                                                      $m
   4500                                                                                                                    5000

                                                                                                                           4500                                                                         913               495             4,339
   4000   3,816              666             3,819            723
                                                                                                                                                                                                                                   2
                                                                                360               572             3,467                                                               854
                                     (13)                                                                                  4000
   3500
                                                                                                          (35)                                                                                                  (473)
                                                                                                                                                     ,31
                                                                                                                                                    1 8              3,403
                                                                      (647)
                                                                                                                           3500                               (1)
   3000            (650)                              (723)                                                                                                                                   (463)
                                                                                        (602)                              3000
   2500                                                                                                                                                                       (392)
                                                                                                                                  2,404
                                                                                                                           2500
   2000
                                                                                                                           2000            (318)
   1500
                                                                                                                           1500
   1000                                                                                                                    1000

    500                                                                                                                    500

      0                                                                                                                      0
          Sep-08   4Q C/O   4Q LIC   Other   Dec-08   1 C/O
                                                       Q       Q
                                                              1 LIC   2Q C/O   2Q LIC   3Q C/O   3Q LIC   Other   Sep-09          Sep-08   4Q C/O   4Q LIC   Other   Dec-08    Q
                                                                                                                                                                              1 C/O   1 LIC
                                                                                                                                                                                       Q      2Q C/O   2Q LIC   3Q C/O   3Q LIC   Other   Sep-09




                                                                                                                                                                                                                                                   5
Note: C/O = Net Charge-offs (amounts written off)
      LIC = Loan Impairment Charge
HSBC Finance Corporation
Managing risk in Cards
  US $bn


                                                              Credit Card                                                                     Private Label

                               40
                                                                                                              40
                                        29.9    31.0
                                                       29.4   29.3   29.0   28.6
       Customer Loans




                               30                                                  26.3   25.1    23.9        30

                               20                                                                                   17.7    18.7     17.4      17.4     17.5     18.0
                                                                                                              20                                                          16.4     15.8     15.3

                               10
                                                                                                              10

                                   0
                                                                                                              0
                                       3Q07    4Q07    1Q08   2Q08   3Q08   4Q08   1Q09   2Q09    3Q09
                                                                                                                    3Q07    4Q07     1Q08     2Q08      3Q08     4Q08     1Q09     2Q09     3Q09




                             16%                                                                          3
                                                                                                              12%                                                                                    2
      2+ Delinquencies (1)




                                                                            2.0     2.1
                             12%               1.8                   1.8                   1.8     1.8
                                                       1.8    1.7
                                       1.6                                                                    8%
                                                                                                                                                          0.7      0.7      0.7       0.7      0.7
                             8%                                                                                       0.6     0.6      0.6       0.6
                                                                                   8.0%            7.6%
                                                                                           7.4%
                                                                     6.3%
                                                                            6.9%                              4%                                                                              4.4%
                             4%                5.8%    5.9%   5.7%                                                                                                 4.1%     4.3%     4.3%
                                       5.2%                                                                                   3.4%     3.6%      3.6%     3.7%
                                                                                                                     3.2%

                             0%                                                                           0   0%                                                                                     0
                                       3Q07    4Q07    1Q08   2Q08   3Q08   4Q08   1Q09   2Q09    3Q09               3Q07    4Q07     1Q08      2Q08     3Q08     4Q08     1Q09      2Q09     3Q09




(1)        2+ Delinquency ratio as a percentage of end of period consumer loans


                                                                                                                                                                                                     6
 HSBC Finance Corporation
 Impairment allowance (Reserve)
 US$m


                                                             Credit Card and Private Label




                          $m
                       5000
                                                                                        1,509
                                                    1,542            4,384
                       4500                                                                                1,205
                                4,074                                                                                         1,170            4,122
                                                              (89)
                       4000                                                                                                            (35)
                       3500

                       3000                                                   (1,305)           ( 1,467)
                                          (1,143)                                                                   (1,339)
                       2500

                       2000

                       1500

                       1000

                        500

                           0
                                Sep-08   4Q C/O     4Q LIC   Other   Dec-08    Q
                                                                              1 C/O     1 LIC
                                                                                         Q      2Q C/O     2Q LIC   3Q C/O    3Q LIC   Other   Sep-09




                                                                                                                                                        7
Note: C/O = Net Charge-offs (amounts written off)
      LIC = Loan Impairment Charge
HSBC Finance Corporation
Manage personal non-credit card and vehicle finance run-off
                         US $bn

                          Personal Non-Credit Card and Other Unsecured                                                                           Vehicle Finance (1)

                                  30
                                                                                                                       30
  Customer Loans




                                        18.5    18.1   17.5
                                  20                           16.8    16.2    15.7    15.0                            20
                                                                                               13.8    12.9                  12.9        12.9    12.8    12.5    11.8    10.7     9.5
                                  10                                                                                   10                                                                 7.7      6.6


                                   0                                                                                    0
                                       3Q07    4Q07    1Q08    2Q08    3Q08    4Q08    1Q09    2Q09    3Q09                  3Q07     4Q07       1Q08    2Q08    3Q08    4Q08     1Q09    2Q09     3Q09




                                                                                                                      15%                                                                                  1
                              25%                                               3.0                            3
                                                                        2.7             2.8     2.7     2.7
                                                2.6     2.6     2.6
  2+ Delinquencies (2)




                              20%       2.2                                                                                               0.5                      0.5     0.5
                                                                                                       20.7%          10%
                                                                               18.8%   18.8%   19.3%                           0.4                0.4     0.4
                              15%
                                                                       16.8%                                                                                                        0.3     0.3
                                                       15.0%   15.4%                                                                                                       5.0%                      0.3
                                               14.4%                                                                                                              4.3%
                              10%                                                                                              3.5%       3.7%            3.5%                                      4.3%
                                       11.9%                                                                           5%                         2.9%                                      3.9%
                                                                                                                                                                                   2.8%
                                  5%

                                  0%                                                                           0       0%                                                                                  0
                                       3Q07    4Q07    1Q08    2Q08    3Q08    4Q08    1Q09    2Q09    3Q09
                                                                                                                              3Q07       4Q07     1Q08    2Q08    3Q08    4Q08     1Q09    2Q09     3Q09




(1)        Vehicle Finance data excludes $963 million of customer loans and $43 million of delinquency for loans held for sale in Q309
(2)        2+ Delinquency ratio as a percentage of end of period consumer loans

                                                                                                                                                                                                               8
      HSBC Finance Corporation (U.S.)
      Loan Impairment Charges(1)(2)
       US $bn
                                         Core Portfolio                                                                       Run – Off Portfolio



             15%                                   1.5     1.5    1.5                  2         15%              3.2                           3.1                          3
                            1.4                                                                                                         2.7
                                                                         1.2                                                                            2.4
                                           1.2                                  1.2                      2.3                                                   2.2
                    1.1                                                                                                   2.2    2.2
                                   1.0            12.8% 13.3% 13.4%
             10%           11.6%                                         11.5% 11.6%             10%                                            11.9%                 1.8
                                          10.6%                                                                  10.6%
                                                                                                                                        10.0%           9.9%
                    9.1%                                                                                                                                       9.2%
                                   8.5%                                                                                                                               8.3%
                                                                                                         7.5%            7.4%    7.7%
              5%                                                                                 5%



              0%                                                                       0         0%                                                                          0
                    3Q07   4Q07    1Q08   2Q08    3Q08    4Q08    1Q09   2Q09   3Q09                     3Q07    4Q07    1Q08    2Q08   3Q08    4Q08    1Q09   2Q09   3Q09



                                                                   Total HSBC Finance Corp

                                                 15%             4.6                               4.6                                  5
                                                                                           4.2
                                                                                                               3.9
                                                                                                                        3.4
                                                         3.4                    3.4
                                                                         3.2                      12.3%
                                                 10%                                                                            3.0
                                                                 10.9%                 10.8%                   11.0%
                                                                                                                        9.9%
                                                                                                                                9.3%
                                                                                8.5%
                                                         8.0%            7.7%
                                                  5%




                                                  0%                                                                                    0
                                                         3Q07    4Q07    1Q08   2Q08   3Q08        4Q08        1Q09     2Q09    3Q09

(1)   Excludes reverse repo balances                                                                                                                                             9
(2)   Loan Impairment Charge ratio as a percentage of average total loans (quarter annualized)
      HSBC Finance Corporation (U.S.)
      Amount Written–Off (Charge–Offs)(1)(2)
       US $bn
                                          Core Portfolio                                                                   Run – Off Portfolio


             20%                                                                       2             12%                                                                   3

                                                                         1.5
                                                                                 1.3                                                    2.0           2.0    1.9    2.0
             15%                                                1.3                                                              1.9
                                                         1.1                                         8%                                        1.8                         2
                                           1.0    1.0                                                                     1.6                                       8.6%
                                   1.0                                  14.0% 13.3%                                                                   8.2%   8.4%
             10%            0.8                                 11.6%                  1                           1.2                  7.5%
                     0.7                                                                                    1.1                  6.8%          6.9%
                                                        9.9%                                                              5.7%
                                          8.9%   8.8%                                                4%                                                                    1
              5%                   8.0%
                           6.6%                                                                                    4.2%
                    5.7%                                                                                    3.6%
              0%                                                                       0             0%                                                                    0
                    3Q07   4Q07    1Q08   2Q08   3Q08 4Q08      1Q09    2Q09   3Q09                         3Q07   4Q07   1Q08   2Q08   3Q08   4Q08   1Q09   2Q09   3Q09




                                                                          Total HSBC Finance Corp
                                                        15%                                                        3.4           4
                                                                                                             3.3          3.3
                                                                                       2.9    3.0    2.9
                                                                               2.6                                               3
                                                        10%
                                                                        2.0
                                                               1.8                                                 10.1% 10.1%
                                                                                                            9.3%                 2
                                                                                       7.4%   7.9%   7.9%
                                                         5%                    6.4%
                                                                                                                                 1
                                                                        4.9%
                                                               4.2%
                                                         0%                                                                      0
                                                               3Q07     4Q07   1Q08    2Q08   3Q08   4Q08   1Q09   2Q09   3Q09




(1)   Excludes reverse repo balances                                                                                                                                           10
(2)   Amount written-off ratio as a percentage of average consumer loans (quarter annualized)
      HSBC Finance Corporation (U.S.)
      Impairment Allowance (Reserve)(1)(2)
       US $bn


                                        Core Portfolio                                                                      Run – Off Portfolio



           15%                                          4.4     4.6     4.3             5               15%                                              10.6           10.7   12
                                                                                                                                                 10.3            10.8
                                                4.1                             4.1
                                         3.6                                                                                              9.0
                          3.4     3.4                                                                                       8.3    8.5
                                                                                                                      7.7
           10%     2.8                                                                                  10%                                                      12.0% 12.5%
                                                                10.7% 10.5% 10.5%                              5.8                                       11.1%
                                                                                                                                                 10.2%
                                                8.8%    9.4%
                                                                                                                                          8.7%
                                 7.3%    7.7%                                                                               7.2%   7.7%
             5%           6.8%                                                                           5%          6.6%
                   5.9%
                                                                                                              4.8%

             0%                                                                         0                0%                                                                    0
                  3Q07    4Q07   1Q08    2Q08   3Q08    4Q08    1Q09    2Q09    3Q09                          3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09




                                                                  Total HSBC Finance Corp

                                                  15%                                          14.7    15.2   15.1   14.8   16
                                                                                        13.1
                                                                         11.7    12.1
                                                                 11.1
                                                  10%                                                              11.8%
                                                         8.6                                           11.0% 11.5%
                                                                                               10.0%
                                                                                        8.7%
                                                                         7.2%    7.7%
                                                   5%            6.6%
                                                         5.1%

                                                   0%                                                                       0
                                                         3Q07 4Q07       1Q08 2Q08      3Q08 4Q08 1Q09        2Q09 3Q09



(1)                                                                                                                                                                                 11
      Excludes reverse repo balances
(2)   Impairment Allowance ratio as a percentage of end of period total loans
      HSBC Finance Corporation (U.S.)
      2+ Delinquency(1)(2)
       US $bn
                                       Core Portfolio                                                                                 Run – Off Portfolio


                                                                                                       20%                                              13.8   13.8   13.8    14.3    15
           10%                                            2.7      2.8     2.5              3
                           2.4                    2.5                               2.5                                                         11.3
                                   2.4    2.3
                   2.1                                                                                 15%                      9.9      10.1
                                                                                                                        9.5                                                   16.7%
                                                                                            2                                                                         15.2%           10
                                                                                                                7.7
                                                                                                                                                        13.7% 14.4%
             5%                                                    6.6%    6.2%     6.4%               10%
                                                  5.4%    5.8%                                                                                  10.9%
                           4.9%   5.1%    4.9%                                                                                           9.2%                                         5
                   4.4%                                                                     1                           8.1%    8.7%
                                                                                                       5%
                                                                                                               6.4%

             0%                                                                             0          0%                                                                             0
                   3Q07   4Q07    1Q08    2Q08    3Q08    4Q08     1Q09    2Q09     3Q09                       3Q07 4Q07        1Q08 2Q08       3Q08    4Q08 1Q09     2Q09 3Q09


                                                                           Total HSBC Finance Corp


                                                    18%                                                 16.5     16.6    16.3    16.8      18
                                                                                                13.8
                                                                    11.9     12.3    12.4
                                                    12%     9.8                                                                            12
                                                                                                                                 13.5%
                                                                                                                 12.0% 12.4%
                                                                                                        11.2%
                                                                                                9.2%
                                                     6%                      7.7%    7.9%                                                  6
                                                                    7.1%
                                                            5.8%

                                                     0%                                                                                    0
                                                           3Q07 4Q07         1Q08 2Q08          3Q08 4Q08 1Q09           2Q09 3Q09



(1)                                                                                                                                                                                   12
      Excludes reverse repo balances
(2)   2+ Delinquency ratio as a percentage of end of period consumer loans

				
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