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HSBC Finance Corporation

EXHIBIT 99.01

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholder

HSBC Finance Corporation:

We have audited the accompanying consolidated balance sheets of HSBC Finance Corporation, an indirect wholly-owned subsidiary of HSBC Holdings plc, and subsidiaries as of December 31, 2010 and 2009 and the related consolidated statements of income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2010. These consolidated financial statements are the responsibility of HSBC Finance Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HSBC Finance Corporation and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010 in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), HSBC Finance Corporation’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2011 expressed an unqualified opinion on the effectiveness of HSBC Finance Corporation’s internal control over financial reporting.

/s/ KPMG LLP

Chicago, Illinois

February 28, 2011, except as to Note 24

which is as of May 27, 2011

HSBC Finance Corporation

CONSOLIDATED STATEMENT OF INCOME (LOSS)


Year Ended December 31,	2010			2009			2008

	(in millions)

Finance and other interest income	$	7,208		$	8,887		$	13,616
Interest expense on debt held by:
HSBC affiliates		147			246			499
Non-affiliates		2,876			3,583			5,181

*Net interest income*		4,185			5,058			7,936
Provision for credit losses		6,180			9,650			12,410

*Net interest income (loss) after provision for credit losses*		(1,995	)		(4,592	)		(4,474	)

Other revenues:
Insurance revenue		274			334			417
Investment income		99			109			124
Net other-than-temporary impairment losses⁽¹⁾		-			(25	)		(54	)
Derivative related income (expense)		(379	)		300			(306	)
Gain (loss) on debt designated at fair value and related derivatives		741			(2,125	)		3,160
Fee income		188			650			1,687
Enhancement services revenue		404			484			700
Gain on bulk receivable sales to HSBC affiliates		-			50			-
Gain on receivable sales to HSBC affiliates		540			469			260
Servicing and other fees from HSBC affiliates		666			748			545
Lower of cost or fair value adjustment on receivables held for sale		2			(374	)		(514	)
Other income (expense)		32			92			(68	)

*Total other revenues*		2,567			712			5,951

Operating expenses:
Salaries and employee benefits		597			1,119			1,594
Occupancy and equipment expenses, net		92			182			238
Other marketing expenses		314			184			350
Real estate owned expenses		274			199			342
Other servicing and administrative expenses		814			947			1,020
Support services from HSBC affiliates		1,092			925			922
Amortization of intangibles		143			157			178
Goodwill and other intangible asset impairment charges		-			2,308			329
Policyholders’ benefits		152			197			199

*Operating expenses*		3,478			6,218			5,172

Loss from continuing operations before income tax benefit		(2,906	)		(10,098	)		(3,695	)
Income tax benefit		1,007			2,632			1,087

*Loss from continuing operations*		(1,899	)		(7,466	)		(2,608	)
Discontinued Operations (Note 3);
(Loss) gain from discontinued operations before income tax		(26	)		29			(227	)
Income tax benefit (expense)		9			(13	)		52

*(Loss) income from discontinued operations*		(17	)		16			(175	)

*Net loss*	$	(1,916	)	$	(7,450	)	$	(2,783	)


⁽¹⁾		During 2009, $36 million of gross other-than-temporary impairment losses on securities available-for-sale were recognized, of which $11 million was recognized in accumulated other comprehensive income (loss) (“AOCI”).

The accompanying notes are an integral part of the consolidated financial statements.

HSBC Finance Corporation

CONSOLIDATED BALANCE SHEET


December 31,	2010			2009

	(in millions,
	except share data)

*Assets*
Cash	$	175		$	289
Interest bearing deposits with banks		1,016			17
Securities purchased under agreements to resell		4,311			2,850
Securities available-for-sale		3,371			3,187
Receivables, net (including $6.3 billion and $6.8 billion at December 31, 2010 and 2009, respectively, collateralizing long-term debt)		61,333			74,308
Receivables held for sale		4			3
Intangible assets, net		605			748
Properties and equipment, net		202			201
Real estate owned		962			592
Derivative financial assets		75			-
Deferred income taxes, net		2,491			2,887
Other assets		1,791			4,563
Assets of discontinued operations		196			4,908

*Total assets*	$	76,532		$	94,553

*Liabilities*
Debt:
Due to affiliates (including $436 million at December 31, 2010 carried at fair value)	$	8,255		$	9,043
Commercial paper		3,156			4,291
Long-term debt (including $20.8 billion and $26.7 billion at December 31, 2010 and 2009, respectively, carried at fair value and $4.1 billion and $4.7 billion at December 31, 2010 and 2009, respectively, collateralized by receivables)		54,616			68,880

Total debt		66,027			82,214

Insurance policy and claim reserves		982			996
Derivative related liabilities		2			60
Liability for postretirement benefits		265			268
Other liabilities		1,519			1,822
Liabilities of discontinued operations		17			814

*Total liabilities*		68,812			86,174

*Shareholders’ equity*
Redeemable preferred stock:
Series B (1,501,100 shares authorized, $0.01 par value, 575,000 shares issued)		575			575
Series C (1,000 shares authorized, $0.01 par value, 1,000 shares issued)		1,000			-
Common shareholder’s equity:
Common stock ($0.01 par value, 100 shares authorized; 66 shares and 65 shares issued at December 31, 2010 and 2009, respectively)		-			-
Additional paid-in capital		23,321			23,119
Accumulated deficit		(16,685	)		(14,732	)
Accumulated other comprehensive loss		(491	)		(583	)

*Total common shareholder’s equity*		6,145			7,804

*Total liabilities and shareholders’ equity*	$	76,532		$	94,553

The accompanying notes are an integral part of the consolidated financial statements.

HSBC Finance Corporation

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY


	2010			2009			2008

	(dollars are in millions)

*Preferred stock*
Balance at the beginning of period		575			575			575
Issuance of Series C preferred stock		1,000			-			-

Balance at the end of period	$	1,575		$	575		$	575

Common shareholder’s equity
Common stock
Balance at beginning and end of period	$	-		$	-		$	-

Additional paid-in capital
Balance at beginning of period	$	23,119		$	21,485		$	18,227
Excess of book value over consideration received on sale of U.K. Operations to an HSBC affiliate		-			-			(196	)
Excess of book value over consideration received on sale of Canadian Operations to an HSBC affiliate		-			-			(46	)
Capital contribution from parent		200			2,685			3,500
Return of capital to parent		-			(1,043	)		-
Employee benefit plans, including transfers and other		2			(8	)		-

Balance at end of period	$	23,321		$	23,119		$	21,485

(Accumulated deficit) retained earnings
Balance at beginning of period	$	(14,732	)	$	(7,245	)	$	(4,423	)
Net loss		(1,916	)		(7,450	)		(2,783	)
Dividend equivalents on HSBC’s Restricted Share Plan		-			-			(2	)
Dividends:
Preferred stock		(37	)		(37	)		(37	)
Common stock		-			-			-

Balance at end of period	$	(16,685	)	$	(14,732	)	$	(7,245	)

Accumulated other comprehensive income (loss)
Balance at beginning of period	$	(583	)	$	(1,378	)	$	(220	)
Net change in unrealized gains (losses), net of tax, on:
Derivatives classified as cash flow hedges		57			684			(610	)
Securities available-for-sale, not other-than temporarily impaired		40			92			(53	)
Other-than-temporarily impaired debt securities available-for-sale⁽¹⁾		3			(7	)		-
Postretirement benefit plan adjustment, net of tax		(8	)		4			(1	)
Foreign currency translation adjustments, net of tax		-			22			(120	)

Other comprehensive income (loss), net of tax		92			795			(784	)
Reclassification of foreign currency translation and pension adjustments to additional paid-in capital resulting from sale of U.K. Operations		-			-			(380	)
Reclassification of foreign currency translation and pension adjustments to additional paid-in capital resulting from sale of Canadian Operations		-			-			6

Balance at end of period	$	(491	)	$	(583	)	$	(1,378	)

Total common shareholder’s equity	$	6,145		$	7,804		$	12,862

Comprehensive income ( loss)
Net loss	$	(1,916	)	$	(7,450	)	$	(2,783	)
Other comprehensive income (loss)		92			795			(784	)

Comprehensive income (loss)	$	(1,824	)	$	(6,655	)	$	(3,567	)

Preferred stock
Number of shares at beginning of period		575,000			575,000			575,000
Number of shares of Series C preferred stock issued		1,000			-			-

Number of shares at the end of period		576,000			575,000			575,000

Common stock
Number of shares at beginning of period		65			60			57
Number of shares of common stock issued to parent		1			5			3

Number of shares at end of period		66			65			60


⁽¹⁾		During 2010, gross other-than-temporary impairment (“OTTI”) recoveries on available-for-sale securities totaled $4 million, all relating to the non-credit component of OTTI previously recorded in accumulated other comprehensive income (“AOCI”). During 2009, $36 million of gross OTTI losses on securities available-for-sale were recognized, of which $11 million were recognized in AOCI.

The accompanying notes are an integral part of the consolidated financial statements.

HSBC Finance Corporation

CONSOLIDATED STATEMENT OF CASH FLOWS


Year Ended December 31,	2010			2009			2008

	(in millions)

*Cash flows from operating activities*
Net loss	$	(1,916	)	$	(7,450	)	$	(2,783	)
Loss from discontinued operations		(17	)		16			(175	)

Loss from continuing operations		(1,899	)		(7,466	)		(2,608	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses		6,180			9,650			12,410
Gain on bulk sale of receivables to HSBC Bank USA, National Association (“HSBC Bank USA”)		-			(50	)		-
Gain on receivable sales to HSBC affiliates		(540	)		(469	)		(260	)
Goodwill and other intangible impairment charges		-			2,308			329
Loss on sale of real estate owned, including lower of cost or market adjustments		128			101			229
Insurance policy and claim reserves		(53	)		(18	)		(41	)
Depreciation and amortization		179			202			243
Mark-to-market on debt designated at fair value and related derivatives		48			2,880			(2,924	)
Gain on sale of Visa Class B shares		-			-			(11	)
Deferred income tax (benefit) provision		315			(247	)		(13	)
Net change in other assets		2,813			(754	)		(206	)
Net change in other liabilities		(306	)		(584	)		(804	)
Originations of loans held for sale		(33,799	)		(38,089	)		(24,884	)
Sales and collections on loans held for sale		34,343			38,786			25,114
Foreign exchange and derivative movements on long-term debt and net change in non-FVO related derivative assets and liabilities		(630	)		(594	)		(161	)
Change in accrued finance income related to December 2009 charge-off policy changes and nonaccrual policy change for re-aged loans		-			541			-
Other-than-temporary impairment on securities		-			25			54
Lower of cost or fair value adjustments on receivables held for sale		(2	)		374			514
Other, net		438			185			148

Cash provided by operating activities-continuing operations		7,215			6,781			7,129
Cash provided by operating activities-discontinued operations		609			593			1,496

Net cash provided by (used in) operating activities		7,824			7,374			8,625

*Cash flows from investing activities*
Securities:
Purchased		(1,051	)		(536	)		(452	)
Matured		452			363			538
Sold		216			166			175
Net change in short-term securities available-for-sale		274			52			(510	)
Net change in securities purchased under agreements to resell		(1,461	)		(1,825	)		481
Net change in interest bearing deposits with banks		(999	)		8			251
Proceeds from sale of affiliate preferred shares to HSBC Holdings Plc		-			242			-
Proceeds from sale of Low Income Housing Tax Credit Investment Funds to HSBC Bank USA		-			106			-
Proceeds from sale of Visa Class B shares		-			-			11
Receivables:
Net (originations) collections		4,623			6,170			4,452
Purchases and related premiums		(45	)		(43	)		(48	)
Proceeds from sales of real estate owned		1,338			1,467			1,591
Proceeds from bulk sale of receivables to HSBC Bank USA		-			6,045			-
Proceeds from sales of real estate secured receivables held in portfolio to a third party		-			-			1,116
Properties and equipment:
Purchases		(15	)		(51	)		(77	)
Sales		-			-			50

Cash provided by (used in) investing activities-continuing operations		3,332			12,164			7,578
Cash provided by (used in) investing activities-discontinued operations		3,613			5,227			2,622

Net cash provided by (used in) investing activities		6,945			17,391			10,200

HSBC Finance Corporation

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)


Year Ended December 31,	2010			2009			2008

	(in millions)

*Cash flows from financing activities*
Debt:
Net change in short-term debt		(1,135	)		(5,348	)		1,914
Net change in due to affiliates		(1,553	)		(4,225	)		2,184
Long-term debt issued		1,714			4,078			4,075
Long-term debt retired		(14,734	)		(19,312	)		(29,029	)
Issuance of preferred stocks		1,000			-			-
Insurance:
Policyholders’ benefits paid		(80	)		(95	)		(95	)
Cash received from policyholders		66			58			54
Capital contribution from parent		200			2,410			3,500
Return of capital to parent		-			(1,043	)		-
Shareholder’s dividends		(37	)		(37	)		(37	)

Cash provided by (used in) financing activities-continuing operations		(14,559	)		(23,514	)		(17,434	)
Cash provided by (used in) financing activities-discontinued operations		(346	)		(1,195	)		(1,893	)

Net cash provided by (used in) financing activities		(14,905	)		(24,709	)		(19,327	)

Effect of exchange rate changes on cash		-			-			(26	)

Net change in cash		(136	)		56			(528	)
Cash at beginning of period⁽¹⁾		311			255			783

Cash at end of period⁽²⁾	$	175		$	311		$	255

Supplemental Cash Flow Information:
Interest paid	$	3,222		$	4,183		$	6,069
Income taxes paid during period		26			98			46
Income taxes refunded during period		4,135			1,030			264
Supplemental Noncash Activities:
Fair value of properties added to real estate owned	$	1,834		$	1,275		$	2,137
Transfer of receivables to held for sale		2,910			609			19,335
Transfer of receivables to held for investment		-			1,294			-
Extinguishment of indebtedness related to bulk receivable sale		(431	)		(6,077	)		-
Issuance of subordinated debt exchanged for senior debt		1,939			-			-
Extinguishment of senior debt exchanged for subordinated debt		(1,797	)		-			-
Redemption of junior subordinated notes underlying the mandatorily redeemable preferred securities of the Household Capital Trust VIII for common stock		-			(275	)		-


⁽¹⁾		Cash at beginning of period includes $22 million, $17 million and $204 million for discontinued operations as of December 31, 2010, 2009 and 2008, respectively.

⁽²⁾		Cash at end of period includes $22 million and $17 million for discontinued operations as of December 31, 2009 and 2008, respectively.

The accompanying notes are an integral part of the consolidated financial statements.

HSBC Finance Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	*Organization*

HSBC Finance Corporation is an indirect wholly owned subsidiary of HSBC North America Holdings Inc. (“HSBC North America”), which is an indirect wholly-owned subsidiary of HSBC Holdings plc (“HSBC”). HSBC Finance Corporation and its subsidiaries may also be referred to in these notes to the consolidated financial statements as “we,” “us” or “our.” HSBC Finance Corporation provides middle-market consumers with several types of loan products in the United States. Our lending products currently include MasterCard, Visa, American Express and Discover credit card receivables (“Credit Card”) as well as private label receivables. A portion of new credit card and all new private label originations are sold on a daily basis to HSBC Bank USA, National Association (“HSBC Bank USA”). We also offer specialty insurance products in the United States and Canada. Historically, our lending products have also included real estate secured, auto finance and personal non-credit card receivables in the United States, the United Kingdom and Canada and tax refund anticipation loans and related products in the United States. Additionally, we also previously offered credit and specialty insurance in the United Kingdom. We have two reportable segments: Card and Retail Services and Consumer. Our Card and Retail Services segment includes our credit card operations, including private label credit cards. Our Consumer segment consists of our run-off Consumer Lending and Mortgage Services businesses.


2.	*Summary of Significant Accounting Policies and New Accounting Pronouncements*

Summary of Significant Accounting Policies

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

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

On January 1, 2010, we adopted new guidance issued by the Financial Accounting Standards Board in June 2009 related to VIEs. The new guidance eliminated the concept of qualifying special purpose entities (“QSPEs”) that were previously exempt from consolidation and changed the approach for determining the primary beneficiary of a VIE, which is required to consolidate the VIE, from a quantitative approach focusing on risk and reward to a qualitative approach focusing on (a) the power to direct the activities of the VIE and (b) the obligation to absorb losses and/or the right to receive benefits that could be significant to the VIE. We assess whether an entity is a VIE and, if so, whether we are its primary beneficiary at the time of initial involvement with the entity and on an ongoing basis. A VIE must be consolidated by its primary beneficiary, which is the entity with the power to direct the activities of a VIE that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. We are involved with VIEs primarily in connection with our collateralized funding transactions. See Note 15, “Long-Term Debt,” for additional discussion of those activities and the use of VIEs.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Unless otherwise indicated, information included in these notes to consolidated financial statements relates to continuing operations for all periods presented. In 2010, we completed the sale of our auto finance receivable servicing operations and auto finance receivables portfolio to Santander Consumer USA and we exited the Taxpayer Financial Services business. As a result, both of these businesses are now reported as discontinued operations. See

HSBC Finance Corporation

Note 3, “Discontinued Operations,” for further details. Certain reclassifications have been made to prior period amounts to conform to the current year presentation.

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

Securities We maintain investment portfolios of debt securities (comprised primarily of corporate debt securities) in both our noninsurance and insurance operations. Our entire investment securities portfolio is classified as available-for-sale. Available-for-sale investment securities are intended to be invested for an indefinite period but may be sold in response to events we expect to occur in the foreseeable future. These investments are carried at fair value with changes in fair value recorded as adjustments to common shareholder’s equity in other comprehensive income (loss), net of income taxes.

When the fair value of a security has declined below its amortized cost basis, we evaluate the decline to assess if it is considered other-than-temporary. To the extent that such a decline is deemed to be other-than-temporary, an other-than-temporary impairment loss is recognized in earnings equal to the difference between the security’s cost and its fair value except that beginning in 2009, only the credit loss component of such a decline is recognized in earnings for a debt security that we do not intend to sell and for which it is not more-likely-than-not that we will be required to sell prior to recovery of its amortized cost basis. A new cost basis is established for the security that reflects the amount of the other-than-temporary impairment loss recognized in earnings.

Cost of investment securities sold is determined using the specific identification method. Realized gains and losses from the investment portfolio are recorded in investment income. Interest income earned on the noninsurance investment portfolio is classified in the statements of income in net interest income, while investment income from the insurance portfolio is recorded in investment income. Accrued investment income is classified with investment securities.

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

Receivables Held for Sale Receivables are classified as held for sale when management does not have the intent to hold the receivable for the foreseeable future. Such receivables are carried at the lower of aggregate cost or fair value with any subsequent write downs or recoveries charged to other income. Unearned income, unamortized deferred fees and costs on originated receivables, and discounts on purchased receivables are recorded as an adjustment of the cost of the receivable and are not reflected in earnings until the receivables are sold.

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

Provision and Credit Loss Reserves Provision for credit losses on receivables is made in an amount sufficient to maintain credit loss reserves at a level considered adequate, but not excessive, to cover probable incurred losses of principal, accrued interest and fees, including late, over limit and annual fees, in the existing loan portfolio. We estimate probable incurred losses for consumer receivables using a roll rate migration analysis that estimates the likelihood that a loan will progress through the various stages of delinquency and ultimately charge-off. This analysis considers delinquency status, loss experience and severity and takes into account whether loans are in bankruptcy, have been re-aged, or are subject to forbearance, an external debt management plan, hardship,

HSBC Finance Corporation

modification, extension or deferment. Our credit loss reserves also take into consideration the loss severity expected based on the underlying collateral, if any, for the loan in the event of default based on historical and recent trends. Delinquency status may be affected by customer account management policies and practices, such as the re-age of accounts, forbearance agreements, extended payment plans, modification arrangements, and deferments. When customer account management policies, or changes thereto, shift loans from a “higher” delinquency bucket to a “lower” delinquency bucket, this will be reflected in our roll rate statistics. To the extent that restructured accounts have a greater propensity to roll to higher delinquency buckets, this will be captured in the roll rates. Since the loss reserve is computed based on the composite of all these calculations, this increase in roll rate will be applied to receivables in all respective buckets, which will increase the overall reserve level. In addition, loss reserves on consumer receivables are maintained to reflect our judgment of portfolio risk factors which may not be fully reflected in the statistical roll rate calculation. Risk factors considered in establishing loss reserves on consumer receivables include product mix, bankruptcy trends, geographic concentrations, loan product features such as adjustable rate loans, economic conditions such as national and local trends in unemployment, housing markets and interest rates, portfolio seasoning, account management policies and practices, current levels of charge-offs and delinquencies, changes in laws and regulations and other items which can affect consumer payment patterns on outstanding receivables such as natural disasters and global pandemics.

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

Provisions for credit losses on consumer loans for which we have modified the terms of the loan as part of a troubled debt restructuring (“TDR Loans”) are determined using a discounted cash flow impairment analysis. Loans which have been granted a permanent modification, a twelve-month or longer modification, or two or more consecutive six-month modifications are considered TDR Loans as it is generally believed that the borrower is experiencing financial difficulty and a concession has been granted. Modifications may include changes to one or more terms of the loan, including but not limited to, a change in interest rate, an extension of the amortization period, a reduction in payment amount and partial forgiveness or deferment of principal. TDR Loans are considered to be impaired loans. Interest income on TDR Loans is recognized in the same manner as loans which are not TDRs. Once a loan is classified as a TDR, it continues to be reported as such until it is paid off or charged-off.

HSBC Finance Corporation

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


Product	Charge-off Policies and Practices	Nonaccrual Policies and Practices⁽¹⁾


Real estate secured⁽²⁾	Beginning in December 2009, carrying value in excess of net realizable value less cost to sell are generally charged-off at or before the time foreclosure is completed or settlement is reached with the borrower but, in any event, generally no later than the end of the month in which the account becomes six months contractually delinquent. If foreclosure is not pursued (which frequently occurs on loans in the second lien position) and there is no reasonable expectation for recovery (insurance claim, title claim, pre-discharge bankrupt account), the account is generally charged-off no later than the end of the month in which the account becomes six months contractually delinquent.	Interest income accruals are suspended when principal or interest payments are more than three months contractually past due. Beginning in October 2009, interest accruals are resumed and suspended interest is recognized when the customer makes the equivalent of six qualifying payments under the terms of the loan, while maintaining a current payment status at the point of the sixth payment. If the re-aged receivable again becomes more than three months contractually delinquent, any interest accrued beyond three months delinquency is reversed.
	Prior to December 2009, carrying values in excess of net realizable value were charged-off at or before the time foreclosure was completed or when settlement was reached with the borrower. If foreclosure was not pursued and there was no reasonable expectation for recovery, generally the account was charged-off no later than by the end of the month in which the account became eight months contractually delinquent.	Prior to October 2009, upon re-age interest accruals were resumed and all suspended interest was recognized. For Consumer Lending, if the re-aged receivable again became more than three months contractually delinquent, any interest accrued beyond three months delinquency was reversed.
Auto finance⁽³⁾	Carrying values in excess of net realizable value are charged off at the earlier of the following: • the collateral has been repossessed and sold, • the collateral has been in our possession for more than 30 days, or • the loan becomes 120 days contractually delinquent (prior to January 2009, 150 days contractually delinquent).	Interest income accruals are suspended and the portion of previously accrued interest expected to be uncollectible is written off when principal payments are more than two months contractually past due and resumed when the receivable becomes less than two months contractually past due.

HSBC Finance Corporation


Product	Charge-off Policies and Practices	Nonaccrual Policies and Practices⁽¹⁾


Credit card	Generally charged-off by the end of the month in which the account becomes six months contractually delinquent.	Interest generally accrues until charge-off.
Personal non-credit card⁽⁴⁾	Beginning in December 2009, accounts are generally charged-off by the end of the month in which the account becomes six months contractually delinquent. Prior to December 2009, accounts were generally charged-off the month following the month in which the account became nine months contractually delinquent and no payment was received in six months, but in no event exceeded 12 months contractually delinquent (except in our discontinued United Kingdom business which did not include a recency factor).	Interest income accruals are suspended when principal or interest payments are more than three months contractually past due. Interest subsequently received is generally recorded as collected and accruals are not resumed upon a re-age when the receivable becomes less than three months contractually delinquent. For PHL’s prior to October 2009 upon re-age, interest accruals were resumed and suspended interest accruals were recognized. If the receivable again becomes more than three months contractually delinquent, any interest accrued beyond three months delinquency is reversed.


⁽¹⁾		For our discontinued United Kingdom business, interest income accruals were suspended when principal or interest payments were more than three months contractually delinquent.

⁽²⁾		For our discontinued United Kingdom business, real estate secured carrying values in excess of net realizable value were charged-off at the time of sale.

⁽³⁾		Our Auto Finance business is now reported as discontinued operations as a result of the sale of our auto finance receivable servicing operations and auto finance receivables during 2010. See Note 3, “Discontinued Operations,” for additional information. For our discontinued Canadian business, interest income accruals on auto loans were suspended and the portion of previously accrued interest expected to be uncollectible was written off when principal payments are more than three months contractually past due and resumed when the receivables become less than three months contractually past due.

⁽⁴⁾		For our discontinued Canadian business, delinquent personal non-credit card receivables were charged off when no payment is received in six months but in no event is an account to exceed 12 months contractually delinquent.

Charge-off involving a bankruptcy for our credit card receivables occurs by the end of the month at the earlier of 60 days after notification or 180 days delinquent. For auto finance receivables, bankrupt accounts were charged off at the earlier of (i) 60 days past due and 60 days after notification, or (ii) the end of the month in which the account becomes 120 days contractually delinquent. Prior to January 2009, auto finance accounts involving a bankruptcy were charged-off no later than the end of the month in which the loan became 210 days contractually delinquent.

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

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

Transfers of Financial Assets and Securitizations Transfers of financial assets in which we have surrendered control over the transferred assets are accounted for as sales. In assessing whether control has been surrendered, we consider whether the transferee would be a consolidated affiliate, the existence and extent of any continuing involvement in the transferred financial assets and the impact of all arrangements or agreements made

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

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

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

Properties and Equipment, Net Properties and equipment are recorded at cost, net of accumulated depreciation and amortization. For financial reporting purposes, depreciation is provided on a straight-line basis over the estimated useful lives of the assets which generally range from 3 to 40 years. Leasehold improvements are amortized over the lesser of the useful life of the improvement or the term of the lease. Maintenance and repairs are expensed as incurred.

Repossessed Collateral Collateral acquired in satisfaction of a loan is initially recognized at the lower of amortized cost or its fair value less estimated costs to sell and reported as either real estate owned or within other assets depending on the collateral. A valuation allowance is created to recognize any subsequent declines in fair value less estimated costs to sell. These values are periodically reviewed and adjusted against the valuation allowance but not in excess of cumulative losses previously recognized subsequent to the date of repossession. Adjustments to the valuation allowance, costs of holding repossessed collateral, and any gain or loss on disposition are credited or charged to operating expense.

Insurance Insurance revenues on monthly premium insurance policies are recognized when billed. Insurance revenues on the remaining insurance contracts are recorded as unearned premiums and recognized into income based on the nature and terms of the underlying contracts. Liabilities for credit insurance policies are based upon estimated settlement amounts for both reported and incurred but not yet reported losses. Liabilities for future benefits on annuity contracts and specialty and corporate owned life insurance products are based on actuarial assumptions as to investment yields, mortality and withdrawals.

Intangible Assets Intangible assets currently consist of purchased credit card relationships and related programs, other loan related relationships, technology and customer lists. Intangible assets are amortized over their estimated useful lives on a straight-line basis. These useful lives range from 7 years for certain technology and other loan related relationships to approximately 10 years for certain purchased credit card relationships and related programs. Intangible assets are reviewed for impairment using discounted cash flows annually, or earlier if events indicate that the carrying amounts may not be recoverable. We consider significant and long-term changes in industry and economic conditions to be our primary indicator of potential impairment. Impairment charges, when required, are calculated using discounted cash flow models, using inputs and assumptions consistent with those used by market participants.

HSBC Finance Corporation

Goodwill Goodwill represents the excess purchase price over the fair value of identifiable assets acquired less liabilities assumed from business combinations. Goodwill is not amortized, but is reviewed for impairment annually using a discounted cash flow methodology. This methodology utilizes cash flow estimates based on internal forecasts updated to reflect current economic conditions and revised economic projections at the review date and discount rates that we believe adequately reflect the risk and uncertainty in our internal forecasts and are appropriate based on the implicit market rates in current comparable transactions. Impairment may be reviewed as of an interim date if circumstances indicate that the carrying amount may not be recoverable. We consider significant and long-term changes in industry and economic conditions to be our primary indicator of potential impairment.

The goodwill impairment analysis is a two step process. The first step, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, including allocated goodwill, there is no indication of impairment and no further procedures are required. If the carrying value including allocated goodwill exceeds fair value, the second step is performed to quantify the impairment amount, if any. If the implied fair value of goodwill, as determined using the same methodology as used in a business combination, is less than the carrying value of goodwill, an impairment charge is recorded for the excess. An impairment recognized cannot exceed the amount of goodwill assigned to a reporting unit. Subsequent reversals of goodwill impairment are not permitted. As of December 31, 2009, all of the goodwill previously recorded has been written off.

Derivative Financial Instruments All derivatives are recognized on the balance sheet at their fair value. At the inception of a hedging relationship, we designate the derivative as a fair value hedge, a cash flow hedge, or if the derivative does not qualify in a hedging relationship, a non-hedging derivative. Fair value hedges include hedges of the fair value of a recognized asset or liability and certain foreign currency hedges. Cash flow hedges include hedges of the variability of cash flows to be received or paid related to a recognized asset or liability and certain foreign currency hedges.

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

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

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

HSBC Finance Corporation

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

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

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

Prior to the sale of our U.K. and Canadian Operations in 2008, the functional currency for each of these foreign subsidiaries was its local currency. Assets and liabilities of these subsidiaries were translated at the rate of exchange in effect on the balance sheet date. Translation adjustments resulting from this process were accumulated in common shareholder’s equity as a component of accumulated other comprehensive income (loss). Income and expenses were translated at the average rate of exchange prevailing during the year.

Share-Based Compensation We account for all awards of HSBC stock granted to employees under various share option, restricted share, restricted stock units and employee stock purchase plans using the fair value based measurement method of accounting. The fair value of the rewards granted is recognized as expense over the requisite service period (e.g., vesting period), generally one, three or five years for options and three years for restricted share awards. The fair value of each option granted, measured at the grant date, is calculated using a methodology that is based on the underlying assumptions of the Black-Scholes option pricing model.

Compensation expense relating to restricted share awards is based upon the fair value of the shares on the date of grant.

Pension and Other Postretirement Benefits We recognize the funded status of our postretirement benefit plans on the consolidated balance sheets with the offset to accumulated other comprehensive income (loss), net of tax. Net postretirement benefit cost charged to current earnings related to these plans is based on various actuarial assumptions regarding expected future experience.

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

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

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

We recognize deferred tax assets and liabilities for the future tax consequences related to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax credits and net operating and other losses. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the deferred tax items are expected to be realized. If applicable, valuation

HSBC Finance Corporation

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

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

Further evaluation is performed at the HSBC Finance Corporation legal entity level to evaluate the need for a valuation allowance where we file separate company state income tax returns. Investment tax credits generated by leveraged leases are accounted for using the deferral method. Changes in estimates of the basis in our assets and liabilities or other estimates recorded at the date of our acquisition by HSBC are recorded through earnings. Prior to the adoption on January 1, 2009 of guidance issued by the FASB with respect to business combinations, these changes in estimates were adjusted against goodwill when it was determined that the difference pertained to a balance originating prior to our acquisition by HSBC.

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

New Accounting Pronouncements Adopted

Accounting for Transfers of Financial Assets In June 2009, the FASB issued guidance which amended the accounting for transfers of financial assets by eliminating the concept of a qualifying special-purpose entity (“QSPE”) and provided additional guidance with regard to the accounting for transfers of financial assets. The guidance became effective for all interim and annual periods beginning after November 15, 2009. The adoption of this guidance on January 1, 2010 did not have any impact on our financial position or results of operations.

Accounting for Consolidation of Variable Interest Entities In June 2009, the FASB issued guidance which amended the accounting rules related to the consolidation of variable interest entities (“VIE”). The guidance changed the approach for determining the primary beneficiary of a VIE from a quantitative risk and reward model to a qualitative model, based on control and economics. The guidance became effective for all interim and annual periods beginning after November 15, 2009. The adoption of this guidance on January 1, 2010 did not have an impact on our financial position or results of operations. See Note 25, “Variable Interest Entities,” in these consolidated financial statements for additional information.

HSBC Finance Corporation

Improving Disclosures about Fair Value Measurements In January 2010, the FASB issued guidance to improve disclosures about fair value measurements. The guidance requires entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair measurements and describe the reasons for those transfers. It also requires the Level 3 reconciliation to be presented on a gross basis, while disclosing purchases, sales, issuances and settlements separately. The guidance became effective for interim and annual financial periods beginning after December 15, 2009 except for the requirement to present the Level 3 reconciliation on a gross basis, which is effective for interim and annual periods beginning after December 15, 2010. We adopted the new disclosure requirements in their entirety effective January 1, 2010. See Note 26, “Fair Value Measurements” in these consolidated financial statements.

Subsequent Events In February 2010, the FASB amended certain recognition and disclosure requirements for subsequent events. The guidance clarified that an entity that either (a) is an SEC filer, or (b) is a conduit bond obligor for conduit debt securities that are traded in a public market is required to evaluate subsequent events through the date the financial statements are issued and in all other cases through the date the financial statements are available to be issued. The guidance eliminated the requirement to disclose the date through which subsequent events are evaluated for an SEC filer. The guidance was effective upon issuance. Adoption did not have an impact on our financial position or results of operations.

Derivatives and Hedging In March 2010, the FASB issued a clarification on the scope exception for embedded credit derivatives. The guidance eliminated the scope exception for credit derivatives embedded in interests in securitized financial assets, unless the credit derivative is created solely by subordination of one financial debt instrument to another. The guidance became effective beginning in the third quarter of 2010. Adoption did not have any impact to our financial position or results of operations.

Loan Modifications In April 2010, the FASB issued guidance affecting the accounting for loan modifications for those loans that are acquired with deteriorated credit quality and are accounted for on a pool basis. It clarified that the modifications of such loans do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows of the pool change. The new guidance became effective prospectively for modifications to loans acquired with deteriorating credit quality and accounted for on a pool basis occurring in the first interim or annual period ending on or after July 15, 2010. Adoption did not have any impact on our financial position or results of operations.

Credit Quality and Allowance for Credit Losses Disclosures In July 2010, the FASB issued guidance to provide more transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. The guidance amends the existing disclosure requirements by requiring an entity to provide a greater level of disaggregated information to assist financial statement users in assessing its credit risk exposures and evaluating the adequacy of its allowance for credit losses. Additionally, the update requires an entity to disclose credit quality indicators, past due information, and modification of its financing receivables. The amendment is effective beginning interim and annual reporting periods ending on or after December 15, 2010. However, in January 2011, the FASB delayed the disclosure requirements regarding troubled debt restructurings. The new disclosures about troubled debt restructurings are anticipated to be effective for interim and annual periods ending after June 15, 2011. We adopted the new disclosures in the amendment, excluding the disclosures related to troubled debt restructurings which have been delayed, during the year ended December 31, 2010. For purposes of our credit quality and allowance for credit losses disclosures, we have determined we have one portfolio segment (consumer receivables) and our products within this portfolio segment represent our receivable classes. See Note 7, “Receivables,” and Note 9, “Credit Loss Reserves,” in these consolidated financial statements for the expanded disclosure.


3.	*Discontinued Operations*

2010 Discontinued Operations:

Taxpayer Financial Services During the third quarter of 2010, the Internal Revenue Service (“IRS”) announced it would stop providing information regarding certain unpaid obligations of a taxpayer (the “Debt Indicator”), which

HSBC Finance Corporation

has historically served as a significant part of our underwriting process in our Taxpayer Financial Services (“TFS”) business. We determined that, without use of the Debt Indicator, we could no longer offer the product that has historically accounted for the substantial majority of our TFS loan production and that we might not be able to offer the remaining products available under the program in a safe and sound manner. As a result, in December 2010, it was determined that we would not offer any tax refund anticipation loans or related products for the 2011 tax season and we exited the TFS business. As a result of this decision, our TFS business, which was previously considered a non-core business, is now reported in discontinued operations. During the fourth quarter of 2010 we recorded closure costs of $25 million which primarily reflect severance costs and the write off of certain pre-paid assets which are included as a component of loss from discontinued operations. As a result of this transaction, our TFS business, previously included in the “All Other” caption within our segment reporting, is now reported as discontinued operations.

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


Year Ended December 31,	2010		2009		2008

	(in millions)

Net interest income and other revenues⁽¹⁾	$	68	$	106	$	158
Income from discontinued operations before income tax		20		62		103


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

The following summarizes the assets and liabilities of our TFS business at December 31, 2010 and 2009 which are now reported as Assets of discontinued operations and Liabilities of discontinued operations in our consolidated balance sheet.


At December 31,	2010		2009

	(in millions)

Deferred income tax, net	$	3	$	4
Other assets		55		76

Assets of discontinued operations	$	58	$	80

Other liabilities	$	10	$	7

Liabilities of discontinued operations	$	10	$	7

Auto Finance In March 2010, we sold our auto finance receivable servicing operations as well as auto finance receivables with a carrying value of $927 million, of which $379 million was purchased at estimated fair value from

HSBC Bank USA immediately prior to the sale, to Santander Consumer USA Inc. (“SC USA”) for $930 million in cash. Under the terms of the agreement, our auto finance servicing facilities in San Diego, California and Lewisville, Texas were assigned to SC USA at the time of close and the majority of the employees from those locations were offered the opportunity to transfer to SC USA. SC USA then serviced the remainder of our auto finance receivable portfolio. As the receivables sold were previously classified as held for sale and written down to fair value, we recorded a gain of $5 million ($3 million after-tax) during the first quarter of 2010 which primarily related to the sale of the auto servicing platform and reversal of certain accruals related to leases assumed by SC USA.

In August 2010, we sold the remainder of our auto finance receivable portfolio with an outstanding principal balance of $2.6 billion at the time of sale and other related assets to SC USA. The aggregate sales price for the auto finance receivables and other related assets was $2.5 billion which included the transfer of $431 million of indebtedness secured by auto finance receivables, resulting in net cash proceeds of $2.1 billion. We recorded a net loss as a result of this transaction of $43 million ($28 million after-tax) during the third quarter of 2010. This net loss

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is included as a component of loss from discontinued operations. Severance costs recorded as a result of this transaction were less than $1 million and are included as a component of loss from discontinued operations. As a result of this transaction, our Auto Finance business, previously included in our Consumer Segment, is now reported as discontinued operations.

The following summarizes the operating results of our Auto Finance business for the periods presented:


Year Ended December 31,	2010			2009			2008

	(in millions)

Net interest income and other revenues⁽¹⁾	$	219		$	548		$	960
Loss from discontinued operations before income tax		(46	)		(33	)		(324	)


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

The following summarizes the assets and liabilities of our Auto Finance business at December 31, 2010 and 2009 which are now reported as Assets of discontinued operations and Liabilities of discontinued operations in our consolidated balance sheet. Other assets of discontinued operations at December 31, 2010 reflects current income taxes receivable on our Auto Finance business for the 2010 tax year.


At December 31,	2010		2009

	(in millions)

Cash	$	-	$	22
Receivables, net of credit loss reserves of $172 million at December 31, 2009		-		3,823
Receivables held for sale		-		533
Deferred income tax, net		4		123
Other assets		134		327

Assets of discontinued operations	$	138	$	4,828

Long-term debt	$	-	$	778
Other liabilities		7		29

Liabilities of discontinued operations	$	7	$	807

Prior to the sale of our remaining auto finance receivable portfolio as discussed above, in January 2009, we sold certain auto finance receivables with an aggregate outstanding principal balance of $3.0 billion to HSBC Bank USA for an aggregate sales price of $2.8 billion. The sales price was based on an independent valuation opinion based on the fair values of the receivable in September 2008, the date the transaction terms were agreed upon. As a result, in the first quarter of 2009 we recorded a gain of $7 million ($4 million after-tax) on the sale of these auto finance receivables which is now reflected as a component of loss from discontinued operations. We continued to service these auto finance receivables for HSBC Bank USA for a fee until the sale of our auto finance servicing operations in March 2010.

2008 Discontinued Operations:

United Kingdom In May 2008, we sold all of the common stock of Household International Europe, the holding company for our United Kingdom operations (“U.K. Operations”) to HSBC Overseas Holdings (UK) Limited (“HOHU”), a subsidiary of HSBC. The sales price was GBP 181 million (equivalent to approximately $359 million at the time of sale). At the time of the sale, the assets of the U.K. Operations consisted primarily of net receivables of $4.6 billion and the liabilities consisted primarily of amounts due to HSBC affiliates of $3.6 billion. As a result of this transaction, HOHU assumed the liabilities of our U.K. Operations outstanding at the time of the sale. Because the sale was between affiliates under common control, the book value of the investment in our U.K. Operations in

HSBC Finance Corporation

excess of the consideration received at the time of sale which totaled $576 million was recorded as a decrease to common shareholder’s equity. Of this amount, $196 million was reflected as a decrease to additional paid-in-capital and $380 million was reflected as a decrease to other comprehensive income (loss), primarily related to foreign currency translation adjustments. There was no tax benefit recorded as a result of this transaction. Our U.K. Operations were previously reported in the International Segment.

Prior to the sale of our entire U.K. operations in May 2008, we had disposed of our U.K. insurance operations in November 2007 and our European operations in November 2006 which were part of our U.K. Operations as well as our U.K. credit card business in December 2005. None of these individual transactions previously qualified for discontinued operations presentation. However, as a result of reclassifying our entire remaining U.K. Operations as discontinued, the results of these previous dispositions are now included in our discontinued operation results for all historical periods.

The following summarizes the operating results of our U.K. Operations for the periods presented:


Year Ended December 31,	2008

	(in millions)

Net interest income and other revenues	$	190
Loss from discontinued operations before income tax		(14	)

Canada On November 30, 2008, we sold the common stock of HSBC Financial Corporation Limited, the holding company for our Canadian business (“Canadian Operations”) to HSBC Bank Canada. The sales price was approximately $279 million (based on the exchange rate on the date of sale). At the time of the sale, the assets of the Canadian Operations consisted primarily of net receivables of $3.1 billion, available-for-sale securities of $98 million and goodwill of $65 million. Liabilities at the time of the sale consisted primarily of long-term debt of $3.1 billion. As a result of this transaction, HSBC Bank Canada assumed the liabilities of our Canadian Operations outstanding at the time of the sale. However, we continue to guarantee the long-term and medium-term notes issued by our Canadian business prior to the sale. As of December 31, 2010, the outstanding balance of the guaranteed notes was $1.5 billion and the latest scheduled maturity of the notes is May 2012. Because the sale was between affiliates under common control, the book value of the investment in our Canadian Operations in excess of the consideration received at the time of sale which totaled $40 million was recorded as a decrease to common shareholder’s equity. Of this amount, $46 million was reflected as a decrease to additional paid-in-capital and $6 million was reflected as an increase to other comprehensive income (loss), primarily related to foreign currency translation adjustments. There was no tax benefit recorded as a result of this transaction. Our Canadian Operations were previously reported in the International Segment.

The following summarizes the operating results of our Canadian Operations for the periods presented:


Year Ended December 31,	2008

	(in millions)

Net interest income and other revenues	$	486
Income from discontinued operations before income tax		8


4.	*Receivable Portfolio Sales to HSBC Bank USA*

In January 2009, we sold our General Motors MasterCard receivable portfolio (“GM Portfolio”) and our Union Plus MasterCard/Visa receivable portfolio (“UP Portfolio”) with an aggregate outstanding principal balance of $6.3 billion and $6.1 billion, respectively, to HSBC Bank USA. The aggregate sales price for the GM and UP Portfolios was $12.2 billion which included the transfer of approximately $6.1 billion of indebtedness, resulting in net cash proceeds of $6.1 billion. The sales price was determined based on independent valuation opinions based on the fair values of the pool of receivables in late November and early December 2008, the dates the transaction terms were agreed upon, respectively. As a result, during the first quarter of 2009 we recorded a gain of $130 million ($84 million after-tax) on the sale of the GM and UP Portfolios. This gain was partially offset by a loss of $(80) million ($(51) million after-tax) recorded on the termination of cash flow hedges associated with the

HSBC Finance Corporation

$6.1 billion of indebtedness transferred to HSBC Bank USA as part of these transactions. We retained the customer account relationships and by agreement we sell additional receivable originations generated under existing and future accounts to HSBC Bank USA on a daily basis at a sales price for each type of portfolio determined using a fair value which is calculated semi-annually. We continue to service the receivables sold to HSBC Bank USA for a fee.

As it relates to our discontinued auto finance operations, in January 2009, we sold certain auto finance receivables with an aggregate outstanding principal balance of $3.0 billion to HSBC Bank USA for an aggregate sales price of $2.8 billion. See Note 3, “Discontinued Operations,” for additional information.

See Note 23, “Related Party Transactions,” for further discussion of the daily receivable sales to HSBC Bank USA and how fair value is determined.


5.	*Strategic Initiatives*

As discussed in prior filings, in prior years we performed several comprehensive evaluations of the strategies and opportunities of our operations. As a result of these various evaluations, we discontinued all new customer account originations except in our credit card business. There were no strategic initiatives during 2010 related to our continuing operations. Summarized below are a number of strategic actions which were undertaken in mid-2007, 2008 and 2009 for our continuing operations as a result of our evaluations:

2009 Strategic Initiatives During 2009, we undertook a number of actions including the following:


	>	Throughout 2009, we decided to exit certain lease arrangements and consolidate a variety of locations across the United States. The process of closing and consolidating these facilities, which began during the second quarter of 2009, was completed during the fourth quarter of 2010. As a result, we have exited certain facilities and/or significantly reduced our occupancy space in the following locations: Bridgewater, New Jersey; Minnetonka, Minnesota; Wood Dale, Illinois; Elmhurst, Illinois; Sioux Falls, South Dakota and Tampa, Florida. Additionally, we have consolidated our operations in Virginia Beach, Virginia into our Chesapeake, Virginia facility and consolidated certain servicing functions previously performed in Brandon, Florida to facilities in Buffalo, New York and Elmhurst, Illinois.

	>	In late February 2009, we decided to discontinue new customer account originations for all products by our Consumer Lending business and close all branch offices.

HSBC Finance Corporation

Summary of restructuring liability related to 2009 strategic initiatives The following summarizes the changes in the restructure liability during the year ended December 31, 2010 and 2009, respectively, relating to actions implemented during 2009:


	One-Time
	Termination and			Lease Termination
	Other Employee			and Associated
	Benefits			Costs			Other			Total

	(in millions)

Year ended December 31, 2010:
Restructuring liability at January 1, 2010	$	10		$	12		$	2		$	24
Restructuring costs recorded during the period		1			5			-			6
Restructuring costs paid during the period		(7	)		(10	)		-			(17	)
Adjustments to the restructure liability during the period		-			(1	)		(2	)		(3	)

Restructure liability at December 31, 2010	$	4		$	6		$	-		$	10

Year ended December 31, 2009:
Restructuring liability at January 1, 2009	$	-		$	-		$	-		$	-
Restructuring costs recorded during the period		79			57			11			147
Restructuring costs paid during the period		(69	)		(45	)		(9	)		(123	)
Adjustments to the restructure liability during the period		-			-			-			-

Restructure liability at December 31, 2009	$	10		$	12		$	2		$	24

2008 Strategic Initiatives During 2008, we undertook a number of actions including the following:


	>	During the third quarter of 2008, closed servicing facilities located in Jacksonville, Florida and White Marsh, Maryland in our Card and Retail Services business and redeployed these activities to other facilities in our Card and Retail Services business.

	>	Reduced headcount in our Card and Retail Services business during the fourth quarter of 2008; and

	>	Ceased operations of Solstice Capital Group, Inc, a subsidiary of our Consumer Lending business which originated real estate secured receivables for resale.

HSBC Finance Corporation

Summary of Restructuring Liability Related to 2008 Strategic Initiatives The following summarizes the changes in the restructure liability during the years ended December 31, 2010, 2009 and 2008 relating to the actions implemented during 2008:


	One-Time
	Termination and			Lease Termination
	Other Employee			and Associated
	Benefits			Costs			Total

	(in millions)

Year ended December 31, 2010:
Restructure liability at January 1, 2010	$	-		$	1		$	1
Restructuring costs paid during the period		-			(1	)		(1	)

Restructure liability at December 31, 2010	$	-		$	-		$	-

Year ended December 31, 2009:
Restructure liability at January 1, 2009	$	6		$	4		$	10
Restructuring costs paid during the period		(6	)		(1	)		(7	)
Adjustments to the restructuring liability during the period		-			(2	)		(2	)

Restructure liability at December 31, 2009	$	-		$	1		$	1

Year ended December 31, 2008:
Restructure liability at January 1, 2008	$	-		$	-		$	-
Restructuring costs recorded during the period		10			6			16
Restructuring costs paid during the period		(4	)		(2	)		(6	)

Restructure liability at December 31, 2008	$	6		$	4		$	10

2007 Strategic Initiatives Beginning in mid-2007 we undertook a number of actions including the following:


	>	Discontinued correspondent channel acquisitions of our Mortgage Services business;

	>	Ceased operations of Decision One Mortgage Company;

	>	Reduced Consumer Lending branch network to approximately 1,000 branches at December 31, 2007; and

	>	Closed our loan underwriting, processing and collections center in Carmel, Indiana.

HSBC Finance Corporation

Summary of Restructuring Liability Related to 2007 Strategic Initiatives The following summarizes the changes in the restructure liability during the years ended December 31, 2010, 2009 and 2008 relating to the actions implemented during 2007:


	One-Time
	Termination and			Lease Termination
	Other Employee			and Associated
	Benefits			Costs			Total

	(in millions)

Year ended December 31, 2010:
Restructure liability at January 1, 2010	$	-		$	14		$	14
Adjustments to the restructure liability during the period		-			(14	)		(14	)

Restructure liability at December 31, 2010	$	-		$	-		$	-

Year ended December 31, 2009:
Restructure liability at January 1, 2009	$	1		$	17		$	18
Restructuring costs paid during the period		(1	)		(3	)		(4	)

Restructure liability at December 31, 2009	$	-		$	14		$	14

Year ended December 31, 2008:
Restructure liability at January 1, 2008	$	17		$	37		$	54
Restructuring costs recorded during the period		-			4			4
Restructuring costs paid during the period		(9	)		(21	)		(30	)
Adjustments to the restructure liability during the period		(7	)		(3	)		(10	)

Restructure liability at December 31, 2008	$	1		$	17		$	18

HSBC Finance Corporation

Summary of Strategic Initiatives The following table summarizes the net cash and non-cash expenses recorded for all restructuring activities during the years ended December 31, 2010, 2009 and 2008:


	One-Time									Fixed Assets
	Termination and			Lease Termination						and Other
	Other Employee			and Associated						Non-Cash
	Benefits⁽¹⁾			Costs⁽²⁾			Other⁽³⁾			Adjustments⁽⁴⁾		Total

	(in millions)

Year ended December 31, 2010:
2009 Facility Closures	$	-		$	5		$	-		$	-	$	5
2009 Consumer Lending Closure		1			(1	)		(2	)		-		(2	)
2007 Mortgage Services initiatives		-			(14	)		-			-		(14	)

Total expense (expense release)	$	1		$	(10	)	$	(2	)	$	-	$	(11	)

Year ended December 31, 2009:
2009 Facility Closures	$	6		$	4		$	-		$	3	$	13
2009 Consumer Lending Closure⁽⁵⁾		73			53			11			14		151
2008 Card and Retail Services initiatives		-			(2	)		-			-		(2	)

Total expense (expense release)	$	79		$	55		$	11		$	17	$	162

Year ended December 31, 2008:
2008 Card and Retail Services initiatives	$	9		$	6		$	-		$	-	$	15
2008 Solstice Closure		1			-			-			-		1
2007 Mortgage Services initiatives		(4	)		2			-			-		(2	)
2007 Consumer Lending initiatives		(1	)		(1	)		-			-		(2	)
2007 Carmel Facility closure		(2	)		-			-			-		(2	)

Total expense (expense release)	$	3		$	7		$	-		$	-	$	10


⁽¹⁾		One-time termination and other employee benefits are included as a component of Salaries and employee benefits in the consolidated statement of income (loss).

⁽²⁾		Lease termination and associated costs are included as a component of Occupancy and equipment expenses in the consolidated statement of income (loss).

⁽³⁾		The other expenses are included as a component of Other servicing and administrative expenses in the consolidated statement of income (loss).

⁽⁴⁾		Includes $32 million fixed asset write-offs during 2009, which were recorded as a component of Other servicing and administrative expenses in the consolidated statement of income (loss). Other expenses during 2009 also includes $3 million relating to stock based compensation and other benefits, a curtailment gain of $16 million and a reduction of pension expense of $2 million which were recorded as a component of Salaries and employee benefits in the consolidated statement of income (loss).

⁽⁵⁾		Excludes intangible asset impairment charges of $14 million recorded during 2009.

HSBC Finance Corporation


6.	*Securities*

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


			Non-Credit
			Loss
			Component			Gross		Gross
	Amortized		of OTTI			Unrealized		Unrealized			Fair
December 31, 2010	Cost		Securities⁽⁴⁾			Gains		Losses			Value

	(in millions)

U.S. Treasury	$	341	$	-		$	8	$	-		$	349
U.S. government sponsored enterprises⁽¹⁾		282		-			4		(1	)		285
U.S. government agency issued or guaranteed		10		-			1		-			11
Obligations of U.S. states and political subdivisions		29		-			1		-			30
Asset-backed securities⁽²⁾		65		(7	)		2		-			60
U.S. corporate debt securities⁽³⁾		1,714		-			94		(6	)		1,802
Foreign debt securities⁽⁵⁾		424		-			19		(1	)		442
Equity securities		9		-			-		-			9
Money market funds		353		-			-		-			353

Subtotal		3,227		(7	)		129		(8	)		3,341
Accrued investment income		30		-			-		-			30

Total securities available-for-sale	$	3,257	$	(7	)	$	129	$	(8	)	$	3,371


			Non-Credit
			Loss
			Component			Gross		Gross
	Amortized		of OTTI			Unrealized		Unrealized			Fair
December 31, 2009	Cost		Securities⁽⁴⁾			Gains		Losses			Value

	(in millions)

U.S. Treasury	$	196	$	-		$	1	$	(1	)	$	196
U.S. government sponsored enterprises⁽¹⁾		95		-			3		(1	)		97
U.S. government agency issued or guaranteed		20		-			1		-			21
Obligations of U.S. states and political subdivisions		31		-			1		-			32
Asset-backed securities⁽²⁾		94		(11	)		2		(2	)		83
U.S. corporate debt securities⁽³⁾		1,684		-			60		(20	)		1,724
Foreign debt securities⁽⁵⁾		351		-			15		-			366
Equity securities		12		-			-		-			12
Money market funds		627		-			-		-			627

Subtotal		3,110		(11	)		83		(24	)		3,158
Accrued investment income		29		-			-		-			29

Total securities available-for-sale	$	3,139	$	(11	)	$	83	$	(24	)	$	3,187


⁽¹⁾		Includes $33 million and $65 million of mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation as of December 31, 2010 and 2009, respectively.

⁽²⁾		At December 31, 2010 and 2009, the majority of our asset-backed securities are residential mortgage-backed securities.

⁽³⁾		At December 31, 2010 and 2009, the majority of our U.S. corporate debt securities represent investments in the financial services, consumer products, healthcare and industrials sectors.

HSBC Finance Corporation


⁽⁴⁾		For available-for-sale debt securities which are other-than-temporarily impaired, the non-credit loss component of other-than-temporary impairment is recorded in accumulated other comprehensive income beginning in 2009.

⁽⁵⁾		There were no foreign debt securities issued by the governments of Portugal, Ireland, Italy, Greece or Spain at December 31, 2010 or 2009.

A summary of gross unrealized losses and related fair values as of December 31, 2010 and 2009, classified as to the length of time the losses have existed follows:


	Less Than One Year							Greater Than One Year
			Gross			Aggregate				Gross			Aggregate
	Number of		Unrealized			Fair Value of		Number of		Unrealized			Fair Value of
December 31, 2010	Securities		Losses			Investments		Securities		Losses			Investments

	(dollars are in millions)

U.S. Treasury		1	$	-		$	25		-	$	-		$	-
U.S. government sponsored enterprises		13		(1	)		139		-		-			-
U.S. government agency issued or guaranteed		-		-			-		-		-			-
Obligations of U.S. states and political subdivisions		4		-			5		-		-			-
Asset-backed securities		-		-			-		8		(7	)		18
U.S. corporate debt securities		100		(5	)		209		6		(1	)		23
Foreign debt securities		24		(1	)		56		-		-			-
Equity Securities		1		-			4		-		-			-

		143	$	(7	)	$	438		14	$	(8	)	$	41


	Less Than One Year							Greater Than One Year
			Gross			Aggregate				Gross			Aggregate
	Number of		Unrealized			Fair Value of		Number of		Unrealized			Fair Value of
December 31, 2009	Securities		Losses			Investments		Securities		Losses			Investments

	(dollars are in millions)

U.S. Treasury		17	$	(1	)	$	97		-	$	-		$	-
U.S. government sponsored enterprises		1		-			5		1		(1	)		4
U.S. government agency issued or guaranteed		-		-			-		-		-			-
Obligations of U.S. states and political subdivisions		-		-			-		1		-			-
Asset-backed securities		7		(1	)		10		18		(12	)		34
U.S. corporate debt securities		59		(3	)		170		50		(17	)		150
Foreign debt securities		12		-			33		-		-			-

		96	$	(5	)	$	315		70	$	(30	)	$	188

Gross unrealized losses decreased during 2010 primarily due to the impact of lower interest rates. We have reviewed our securities for which there is an unrealized loss in accordance with our accounting policies for other-than-temporary impairment (“OTTI”). As a result of this review, OTTI of less than $1 million was recognized in earnings on certain debt securities during 2010. In addition, we recognized a recovery in accumulated other comprehensive income relating to the non-credit component of other-than-temporary impairment previously recognized in accumulated other comprehensive income totaling $4 million during 2010.

Our decision in the first quarter of 2009 to discontinue new customer account originations in our Consumer Lending business adversely impacted certain insurance subsidiaries that held perpetual preferred securities. Therefore,

HSBC Finance Corporation

during the first quarter of 2009 we determined it was more-likely-than-not that we would be required to sell the portfolio of perpetual preferred securities prior to recovery of amortized cost and, therefore, these securities were deemed to be other-than-temporarily impaired. We subsequently sold our entire portfolio of perpetual preferred securities during the second quarter of 2009. During 2009, we recorded $20 million of impairment losses related to these perpetual preferred securities as a component of investment income. The entire unrealized loss was recorded in earnings in accordance with new accounting guidance which we early adopted effective January 1, 2009 related to the recognition of other-than-temporary impairment and is described more fully below, as we determined it was more-likely-than-not that we would be required to sell the portfolio of perpetual preferred securities prior to recovery of amortized cost. Additionally, during the fourth quarter of 2009, certain asset-backed securities were determined to be other-than-temporarily impaired which resulted in an other-than-temporary impairment of $16 million being recognized on these investments. The credit loss component of the impairment on these debt securities which totaled $5 million was recorded as a component of OTTI losses in the consolidated statement of income (loss), while the remaining non-credit portion of the OTTI loss which totaled $11 million was recognized in other comprehensive income (loss).

We do not consider any other securities to be other-than-temporarily impaired because we expect to recover the entire amortized cost basis of the securities and we neither intend to nor expect to be required to sell the securities prior to recovery, even if that equates to holding securities until their individual maturities. However, additional other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

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

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

For all our debt securities, as of the reporting date we do not have the intention to sell these securities and believe we will not be required to sell these securities for contractual, regulatory or liquidity reasons.

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


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

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

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

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

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

At December 31, 2010, approximately 92 percent of our corporate debt securities are rated A- or better and approximately 66 percent of our asset-backed securities, which totaled $60 million are rated “AAA.” Although

HSBC Finance Corporation

OTTI of less than $1 million was recorded in earnings during 2010, without a sustained economic recovery, additional other-than-temporary impairments may occur in future periods.

Proceeds from the sale, call or redemption of available-for-sale investments totaled $216 million, $171 million and $229 million during 2010, 2009 and 2008, respectively. We realized gross gains of $7 million, $13 million and $5 million during 2010, 2009 and 2008, respectively. We realized gross losses of less than $1 million, $3 million and $14 million during during 2010, 2009 and 2008, respectively.

Contractual maturities and yields on investments in debt securities for those with set maturities were as follows:


	Due			After 1			After 5
	Within			but Within			but Within			After
December 31, 2010	1 Year			5 Years			10 Years			10 Years			Total

	(dollars are in millions)

U.S. Treasury:
Amortized cost	$	108		$	232		$	1		$	-		$	341
Fair value		109			239			1			-			349
Yield⁽¹⁾		.81	%		2.19	%		4.96	%		-			1.76	%
U.S. government sponsored enterprises:
Amortized cost	$	109		$	114		$	32		$	27		$	282
Fair value		109			113			35			28			285
Yield⁽¹⁾		.26	%		1.34	%		4.71	%		4.80	%		1.64	%
U.S. government agency issued or guaranteed:
Amortized cost	$	-		$	-		$	-		$	10		$	10
Fair value		-			-			-			11			11
Yield⁽¹⁾		-			-			-			5.01	%		5.01	%
Obligations of U.S. states and political subdivisions:
Amortized cost	$	-		$	-		$	11		$	18		$	29
Fair value		-			-			12			18			30
Yield⁽¹⁾		-			-			4.09	%		4.06	%		4.07	%
Asset-backed securities:
Amortized cost	$	-		$	27		$	5		$	33		$	65
Fair value		-			29			5			26			60
Yield⁽¹⁾		-			4.86	%		6.06	%		2.12	%		3.56	%
U.S. corporate debt securities:
Amortized cost	$	112		$	834		$	212		$	556		$	1,714
Fair value		114			879			224			585			1,802
Yield⁽¹⁾		4.58	%		4.12	%		4.56	%		5.35	%		4.61	%
Foreign debt securities:
Amortized cost	$	18		$	319		$	42		$	45		$	424
Fair value		18			332			43			49			442
Yield⁽¹⁾		3.09	%		3.73	%		3.97	%		6.26	%		4.00	%


⁽¹⁾		Computed by dividing annualized interest by the amortized cost of respective investment securities.

HSBC Finance Corporation


7.	*Receivables*

Receivables consisted of the following:


At December 31,	2010			2009

	(in millions)

Real estate secured:
First lien	$	43,859		$	51,988
Second lien		5,477			7,547

Total real estate secured		49,336			59,535
Credit card		9,897			11,626
Personal non-credit card		7,117			10,486
Commercial and other		33			50

Total receivables		66,383			81,697
HSBC acquisition purchase accounting fair value adjustments		43			(11	)
Accrued finance income		1,521			1,895
Credit loss reserve for owned receivables		(6,491	)		(9,091	)
Unearned credit insurance premiums and claims reserves		(123	)		(182	)

Total receivables, net	$	61,333		$	74,308

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

Net deferred origination fees, excluding MasterCard and Visa, totaled $277 million and $359 million at December 31, 2010 and 2009, respectively. MasterCard and Visa annual fees are netted with direct lending costs, deferred, and amortized on a straight-line basis over one year. Deferred MasterCard and Visa annual fees, net of direct lending costs related to these receivables, for continuing operations totaled $161 million and $140 million at December 31, 2010 and 2009, respectfully.

At December 31, 2010 and 2009, we had a net unamortized premium on our receivables of $254 million and $369 million, respectively. Unearned income on personal non-credit card receivables totaled $30 million and $96 million at December 31, 2010 and 2009, respectively.

Purchased Receivable Portfolios In November 2006, we acquired $2.5 billion of real estate secured receivables from Champion Mortgage (“Champion”) a division of KeyBank, N.A. Receivables purchased for which at the time of acquisition there was evidence of deterioration in credit quality since origination, for which it was probable that all contractually required payments would not be collected and for which the associated line of credit had been closed, if applicable, were recorded at an amount dependent upon the cash flows expected to be collected at the time of acquisition (“Purchased Credit-Impaired Receivables”). The carrying amount of Champion real estate secured receivables subject to these accounting requirements was $48 million and $36 million at December 31, 2010 and 2009, respectively, and is included in the real estate secured receivables in the table above. The remaining accretable yield for the Champion real estate secured receivables subject to these accounting requirements was $17 million and $13 million at December 31, 2010 and 2009, respectively.

Collateralized Funding Transactions We currently have secured conduit credit facilities with commercial banks which provide for secured financings of receivables on a revolving basis totaling $650 million and $400 million at December 31, 2010 and 2009, respectively. At December 31, 2010 and 2009, $455 million and $400 million, respectively, were available under these facilities. These facilities mature in the second quarter of 2011 and are renewable at the banks’ option. The amount available under these facilities will vary based on the timing and volume of secured financing transactions and as part of our ongoing liquidity management plans.

HSBC Finance Corporation

Secured financings issued under our current conduit credit facilities as well as secured financings previously issued under public trusts of $4.1 billion at December 31, 2010 are secured by $6.3 billion of closed-end real estate secured and credit card receivables. Secured financings of $4.7 billion at December 31, 2009 are secured by $6.8 billion of closed-end real estate secured receivables.

Age Analysis of Past Due Receivables The following table summarizes the past due status of our receivables at December 31, 2010. The aging of past due amounts are determined based on the contractual delinquency status of payments made under the receivable. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status may be affected by customer account management policies and practices such as re-age or modification. Additionally, delinquency status is also impacted by payment percentage requirements which vary between servicing platforms.


	Days Past Due⁽¹⁾						Total				Total
	1–29 days		30–89 days		>90 days		Past Due⁽¹⁾		Current		Receivables

	(in millions)

Real estate secured:
First lien	$	7,024	$	4,909	$	5,977	$	17,910	$	25,949	$	43,859
Second lien		935		568		421		1,924		3,553		5,477

Total real estate secured		7,959		5,477		6,398		19,834		29,502		49,336
Credit card		473		363		437		1,273		8,624		9,897
Personal non-credit card		968		604		507		2,079		5,038		7,117
Commercial and other		-		-		-		-		33		33

Total receivables	$	9,400	$	6,444	$	7,342	$	23,186	$	43,197	$	66,383


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

Contractual maturities Contractual maturities of our receivables were as follows:


	2011		2012		2013		2014		2015		Thereafter		Total

	(in millions)

Real estate secured
First lien	$	117	$	33	$	55	$	100	$	118	$	43,436	$	43,859
Second lien		76		23		36		45		34		5,263		5,477

Total real estate secured		193		56		91		145		152		48,699		49,336
Credit card⁽¹⁾		5,236		1,974		1,009		568		346		764		9,897
Personal non-credit card		278		190		188		95		59		6,307		7,117
Commercial and other		10		-		-		-		-		23		33

Total	$	5,717	$	2,220	$	1,288	$	808	$	557	$	55,793	$	66,383


⁽¹⁾		As credit card receivables do not have stated contractual maturities, the table reflects estimates based on historical repayment patterns.

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

HSBC Finance Corporation

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


	Over 1
	But Within		Over
At December 31, 2010	5 Years		5 Years

	(in millions)

Receivables at predetermined interest rates	$	1,641	$	47,121
Receivables at floating or adjustable rates		3,225		8,679

Total	$	4,866	$	55,800

Nonaccrual receivables Nonaccrual consumer receivables reflect all non-credit card receivables which are 90 or more days contractually delinquent and totaled $6.9 billion and $8.0 billion at December 31, 2010 and 2009, respectively. Nonaccrual receivables do not include receivables which have made qualifying payments and have been re-aged and the contractual delinquency status reset to current as such activity, in our judgment, evidences continued payment probability. If a re-aged loan subsequently experiences payment default and becomes 90 or more days contractually delinquent, it will be reported as nonaccrual. Nonaccrual receivable also do not include credit card receivables which, consistent with industry practice, continue to accrue until charge-off. Interest income that was not recorded but would have been recorded if such nonaccrual receivables had been current and in accordance with contractual terms was approximately $339 million in 2010 and $302 million in 2009. Interest income that was included in finance and other interest income prior to these loans being placed on nonaccrual status was approximately $489 million in 2010 and $620 million in 2009 of which portions have been written-off. For an analysis of reserves for credit losses, see Note 9, “Credit Loss Reserves.”

Nonaccrual receivables and accruing receivables 90 or more days delinquent are summarized in the following table.


At December 31,	2010			2009

	(in millions)

Nonaccrual receivables:
Real estate secured⁽¹⁾⁽²⁾	$	6,356		$	6,989
Personal non-credit card		530			998

Total non-accrual receivables		6,886			7,987
Nonaccrual receivables held for sale		4			6
Accruing credit card receivables 90 or more days delinquent⁽³⁾		447			890

Total nonperforming receivables	$	7,337		$	8,883

Credit loss reserves as a percent of nonperforming receivables-continuing operations⁽⁴⁾		88.5	%		102.4	%


⁽¹⁾		At December 31, 2010 and 2009, non-accrual real estate secured receivables includes $4.1 billion and $3.3 billion, respectively, of receivables that are carried at the lower of cost or net realizable value.

⁽²⁾		Nonaccrual real estate secured receivables, excluding receivables held for sale, are comprised of the following:


At December 31,	2010		2009


Real estate secured:
Closed-end:
First lien	$	5,906	$	6,298
Second lien		320		510
Revolving:
First lien		6		2
Second lien		124		179

Total real estate secured	$	6,356	$	6,989


⁽³⁾		Credit card receivables continue to accrue interest after they become 90 or more days delinquent, consistent with industry practice.

HSBC Finance Corporation


⁽⁴⁾		Ratio represents credit loss reserves divided by the corresponding outstanding balance of total nonperforming receivables. Nonperforming receivables include accruing loans contractually past due 90 days or more, but excludes nonperforming receivables associated with receivable portfolios which are considered held for sale as these receivables are carried at the lower of cost or fair value with no corresponding credit loss reserves.

Troubled Debt Restructurings The following table presents information about our TDR Loans:


At December 31,	2010		2009

	(in millions)

TDR Loans⁽¹⁾⁽²⁾:
Real estate secured:
First lien	$	8,697	$	8,379
Second lien		647		747

Total real estate secured⁽³⁾⁽⁴⁾		9,344		9,126
Credit card		427		461
Personal non-credit card		704		726

Total TDR Loans	$	10,475	$	10,313


At December 31,	2010		2009

	(in millions)

Credit loss reserves for TDR Loans:
Real estate secured:
First lien	$	1,728	$	1,766
Second lien		258		373

Total real estate secured		1,986		2,139
Credit card		154		158
Personal non-credit card		395		353

Total credit loss reserves for TDR Loans⁽¹⁾⁽⁵⁾	$	2,535	$	2,650


⁽¹⁾		TDR Loans are considered to be impaired loans regardless of accrual status. We use certain assumptions and estimates to compile our TDR balances and future cash flow estimates relating to these loans.

⁽²⁾		The TDR Loan balances included in the table above reflect the current carrying amount of TDR Loans and includes all basis adjustments on the loan, such as unearned income, unamortized deferred fees and costs on originated loans and premiums or discounts on purchased loans. The following table reflects the unpaid principal balance of TDR Loans:


At December 31,	2010		2009

	(in millions)

Real estate secured:
First lien	$	9,650	$	8,915
Second lien		709		767

Total real estate secured		10,359		9,682
Credit card		434		473
Personal non-credit card		705		726

Total TDR Loans	$	11,498	$	10,881


⁽³⁾		At December 31, 2010 and 2009, TDR Loans totaling $1.5 billion and $773 million, respectively, are recorded at net realizable value less cost to sell and, therefore, generally do not have credit loss reserves associated with them.

HSBC Finance Corporation


⁽⁴⁾		The following table summarizes real estate secured TDR Loans for our Mortgage Services and Consumer Lending businesses:


At December 31,	2010		2009

	(in millions)

Mortgage Services	$	4,114	$	4,350
Consumer Lending		5,230		4,776

Total real estate secured	$	9,344	$	9,126


⁽⁵⁾		Included in credit loss reserves.

Additional information relating to TDR Loans is presented in the table below:


Year Ended December 31,	2010			2009		2008

	(in millions)

Average balance of TDR Loans⁽¹⁾:
Real estate secured	$	9,534	⁽²⁾	$	5,743	$	3,521
Credit card		467			287		398
Personal non-credit card		736			731		530

Total average balance of TDR Loans	$	10,737		$	6,761	$	4,449

Interest income recognized on TDR Loans
Real estate secured:	$	446	⁽²⁾	$	323	$	266
Credit card		50			23		25
Personal non-credit card		47			53		41

Total interest income recognized on TDR Loans	$	543		$	399	$	332


⁽¹⁾		As previously disclosed in our 2009 Form 10-K, modified loans which otherwise qualified as a TDR have historically continued to be reported as a TDR until such loans left a qualifying modification status. This was the result of our financial accounting systems not having the ability to track and report modified real estate secured loans which previously had been considered a TDR once they left a qualifying modification status. During the second half of 2009, we developed enhanced tracking capabilities which enabled us to identify and report certain modified customer loans which had qualified as a TDR, but did not remain in compliance with the modified loan terms and were subsequently removed from modification status. Additionally, during the fourth quarter of 2009 we also discovered that certain loans which should have been identified and reported as TDRs prior to the fourth quarter of 2009 were not being captured in our disclosure. The impact of these system changes resulted in an increase in real estate secured and personal non-credit card TDR Loans reported during the second half of 2009 and impacts the comparability of the average balance of TDR Loans between the periods reported above.

⁽²⁾		The following summarizes the average balance of real estate secured TDR Loans and interest income recognized on real estate secured TDR Loans split between first and second lien loans for the year ended December 31, 2010:

First

Second

Total Real

Lien

Estate Secured

(in millions)

Average balance of real estate secured TDR Loans

8,832

702

9,534

Interest income recognized on real estate secured TDR Loans

407

446

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

HSBC Finance Corporation

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


	December 31, 2010					December 31, 2009
	Dollars of		Delinquency			Dollars of		Delinquency
	Delinquency		Ratio			Delinquency		Ratio

	(dollars are in millions)

Real estate secured:
First lien	$	7,504		17.11	%	$	8,372		16.10	%
Second lien		667		12.18			1,023		13.56

Total real estate secured		8,171		16.56			9,395		15.78
Credit card receivables		612		6.18			1,211		10.41
Personal non-credit card		779		10.94			1,432		13.65

Total	$	9,562		14.41	%	$	12,038		14.74	%

Nonperforming The status of our consumer receivable portfolio are summarized in the following table:


					Accruing Loans
					Contractually Past
	Performing		Nonaccrual		Due 90 days or
	Loans		Loans		More⁽¹⁾		Total

	(in millions)

At December 31, 2010
Real estate secured	$	42,976	$	6,360	$	-	$	49,336
Credit Cards		9,450		-		447		9,897
Personal non-credit card		6,587		530		-		7,117

Total	$	59,013	$	6,890	$	447	$	66,350

At December 31, 2009
Real estate secured	$	52,540	$	6,995	$	-	$	59,535
Credit Cards		10,736		-		890		11,626
Personal non-credit card		9,488		998		-		10,486

Total	$	72,764	$	7,993	$	890	$	81,647


⁽¹⁾		Credit card receivables continue to accrue interest after they become 90 days or more delinquent, consistent with industry practice.

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


8.	*Changes in Charge-off Policies During 2009*

We have historically maintained charge-off policies within our Consumer Lending and Mortgage Services businesses that were developed in consideration of the historical consumer finance customer profile. As such, these policies focused on maximizing the amount of cash collected while avoiding excessive collection expenses on loans which would likely become uncollectible. Our historical real estate secured charge-off policies reflected consideration of customer behavior in that initiation of foreclosure or repossession activities often served to prompt repayment of delinquent balances and, therefore, were designed to avoid ultimate foreclosure or repossession whenever it was economically reasonable. Charge-off policies for our personal non-credit card receivables were designed to be responsive to customer needs and collection experience which justified a longer collection and work out period for the consumer finance customer. Therefore, the charge-off policies for these products were historically longer than bank competitors who served a different market.

HSBC Finance Corporation

The impact of the economic turmoil which began in 2007 resulted in a change to the customer behavior patterns described above and it became clear in 2009 that the historical behavior patterns will not be re-established for the foreseeable future, if at all. As a result of these changes in customer behavior and resultant payment patterns, in December 2009 we elected to adopt more bank-like charge-off policies for our real estate secured and personal non-credit card receivables. As a result, real estate secured receivables are now written down to net realizable value less cost to sell generally no later than the end of the month in which the account becomes 180 days contractually delinquent. For personal non-credit card receivables, charge-off now occurs generally no later than the end of the month in which the account becomes 180 days contractually delinquent.

The impact of the changes in our charge-off policies adopted during the fourth quarter of 2009 resulted in an increase to our net loss of $227 million as summarized below:


				Personal
	Real Estate			Non-Credit
	Secured			Card			Total

	(in millions)

Net interest income:
Reversal of accrued interest income on charged-off accounts⁽¹⁾	$	246		$	105		$	351
Provision for credit losses:
Charge-offs to comply with charge-off policy changes		2,402			1,071			3,473
Release of credit loss reserves associated with principal and accrued interest income		(2,594	)		(878	)		(3,472	)
Tax benefit		(19	)		(106	)		(125	)

Reductions to net income	$	35		$	192		$	227


⁽¹⁾		Accrued interest income is reversed against finance and other interest income.


9.	*Credit Loss Reserves*

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


	2010			2009			2008

	(in millions)

Credit loss reserves at beginning of period	$	9,091		$	12,030		$	10,127
Provision for credit losses		6,180			9,650			12,410	⁽¹⁾
Charge-offs		(9,500	)		(13,087	)⁽²⁾		(9,975	)
Recoveries		720			498			646
Reserves on receivables transferred to held for sale		-			-			(1,168	)
Other, net		-			-			(10	)

Credit loss reserves at end of period	$	6,491		$	9,091		$	12,030


⁽¹⁾		Includes $191 million in 2008 related to the lower of cost or fair value adjustment attributable to credit for receivables transferred to held for sale. See Note 10, “Receivables Held for Sale,” for further discussion.

⁽²⁾		Includes $3.5 billion related to the changes in charge-off polices for real estate secured and personal non-credit card receivables in December 2009. See Note 8, “Changes to Charge-off Policies During 2009,” for additional information.

HSBC Finance Corporation

The following table summarizes the changes in credit loss reserves by product/class and the related receivable balance by product during the years ended December 31, 2010, 2009 and 2008:


	Real Estate Secured
	First			Second			Credit			Private		Personal Non-			Comm’l
	Lien			Lien			Card			Label		Credit Card			and Other		Total


Year ended December 31, 2010:
Credit loss reserve balances at beginning of period	$	3,997		$	1,430		$	1,816		$	-	$	1,848		$	-	$	9,091
Provision for credit losses		3,126			789			834			-		1,431			-		6,180
Charge-offs		(3,811	)		(1,456	)		(1,905	)		-		(2,328	)		-		(9,500	)
Recoveries		43			69			233			-		375			-		720

Net charge-offs		(3,768	)		(1,387	)		(1,672	)		-		(1,953	)		-		(8,780	)

Credit loss reserve balance at end of period	$	3,355		$	832		$	978		$	-	$	1,326		$	-	$	6,491

Ending balance: collectively evaluated for impairment	$	1,611		$	571		$	824		$	-	$	931		$	-	$	3,937
Ending balance: individually evaluated for impairment⁽³⁾		1,728			258			154			-		395			-		2,535
Ending balance: loans acquired with deteriorated credit quality		16			3			-			-		-			-		19

Total credit loss reserves	$	3,355		$	832		$	978		$	-	$	1,326		$	-	$	6,491

Receivables:
Collectively evaluated for impairment	$	31,556		$	4,762		$	9,470		$	-	$	6,413		$	33	$	52,234
Individually evaluated for impairment⁽³⁾		7,240			635			427			-		704			-		9,006
Receivables carried at net realizable value		5,022			73						-		-			-		5,095
Receivables acquired with deteriorated credit quality		41			7			-			-		-			-		48

Total receivables	$	43,859		$	5,477		$	9,897		$	-	$	7,117		$	33	$	66,383

Year ended December 31, 2009:
Credit loss reserve balances at beginning of period	$	4,998		$	2,115		$	2,249		$	-	$	2,668		$	-	$	12,030
Provision for credit losses		3,354			1,558			1,746			-		2,992			-		9,650
Charge-offs⁽¹⁾		(4,381	)		(2,282	)		(2,385	)		-		(4,039	)		-		(13,087	)
Recoveries		26			39			206			-		227			-		498

Net charge-offs		(4,355	)		(2,243	)		(2,179	)		-		(3,812	)		-		(12,589	)
Receivables transferred to held for sale		-			-			-			-		-			-		-

Credit loss reserve balance at end of period	$	3,997		$	1,430		$	1,816		$	-	$	1,848		$	-	$	9,091

Ending balance: collectively evaluated for impairment	$	2,206		$	1,051		$	1,658		$	-	$	1,495		$	-	$	6,410
Ending balance: individually evaluated for impairment⁽³⁾		1,766			373			158			-		353			-		2,650
Ending balance: loans acquired with deteriorated credit quality		25			6			-			-		-			-		31

Total credit loss reserves	$	3,997		$	1,430		$	1,816		$	-	$	1,848		$	-	$	9,091

HSBC Finance Corporation


	Real Estate Secured
	First			Second			Credit			Private			Personal Non-			Comm’l
	Lien			Lien			Card			Label			Credit Card			and Other			Total


Receivables:
Collectively evaluated for impairment	$	40,972		$	6,753		$	11,165		$	-		$	9,760		$	50		$	68,700
Individually evaluated for impairment⁽³⁾		7,613			741			461			-			726			-			9,541
Receivables carried at net realizable value		3,374			46						-			-			-			3,420
Receivables acquired with deteriorated credit quality		29			7			-			-			-			-			36

Total receivables	$	51,988		$	7,547		$	11,626		$	-		$	10,486		$	50		$	81,697

Year ended December 31, 2008:
Balance at beginning of period	$	2,350		$	2,604		$	2,635		$	26		$	2,511		$	1		$	10,127
Provision for credit losses		4,684			1,978			3,333			19			2,396			-			12,410
Charge-offs		(1,956	)		(2,362	)		(3,147	)		(35	)		(2,474	)		(1	)		(9,975	)
Recoveries		10			39			369			6			222			-			646

Net charge-offs		(1,946	)		(2,323	)		(2,778	)		(29	)		(2,252	)		(1	)		(9,329	)
Receivables transferred to held for sale		(80	)		(144	)		(944	)		-			-			-			(1,168	)
Release of credit loss reserves related to loan sales		(10	)		-			-			-			-			-			(10	)

Balance at end of period	$	4,998		$	2,115		$	2,246		$	16	⁽²⁾	$	2,655		$	-		$	12,030


⁽¹⁾		Includes $2.0 billion for first lien real estate secured receivables, $434 million for second lien real estate secured receivables and $1.1 billion for personal non-credit card receivables related to the December 2009 Charge-off Policy Changes.

⁽²⁾		In the first quarter of 2009, we began reporting our liquidating private label receivable portfolio, which consists primarily of the liquidating retail sales contracts in our Consumer Lending business prospectively within our personal non-credit card receivable portfolio. Accordingly, beginning in the first quarter of 2009, we have also begun reporting the associated credit loss reserves for these receivables with the appropriate receivable product, primarily personal non-credit card receivables.

⁽³⁾		These amounts represent TDR Loans for which we evaluate reserves using a discounted cash flow methodology. Each loan is individually identified as a TDR Loan and then grouped together with other TDR Loans with similar characteristics. The discounted cash flow impairment analysis is then applied to these groups of TDR Loans.

Credit loss reserves at December 31, 2009 were significantly impacted by changes in our charge-off policies for real estate secured, personal non-credit card and auto finance receivables. See Note 8, “Changes in Charge-off Policies During 2009,” for further discussion.


*10.*	*Receivables Held for Sale*

Receivables held for sale, which are carried at the lower of cost or fair value, consisted of the following:


	2010		2009

	(in millions)

Real estate secured receivables held for sale⁽¹⁾	$	4	$	3


⁽¹⁾		These receivables were originated with the intent to sell.

HSBC Finance Corporation

The following table shows the activity in receivables held for sale during 2010 and 2009:


	2010			2009

	(in millions)

Receivables held for sale at beginning of period	$	3		$	13,894
Receivable sales		-			(12,112	)
Additional lower of cost or fair value adjustment subsequent to transfer to receivables held for sale		2			(374	)
Transfer into receivables held for investment at the lower of cost or fair value:
Real estate secured		-			(216	)
Credit card		-			(1,078	)
Net change in receivable balance		(1	)		(111	)

Receivables held for sale at end of period	$	4		$	3

In January 2009, we sold our GM and UP Portfolios to HSBC Bank USA. See Note 4, “Receivable Portfolio Sales to HSBC Bank USA,” and Note 23, “Related Party Transactions,” for details of these transactions.

In March and September 2009, we transferred real estate secured receivables previously classified as receivables held for sale to receivables held for investment as we now intend to hold these receivables for the foreseeable future, generally twelve months for real estate secured receivables. These receivables were transferred at their current fair market value of $216 million.

In June and December 2009, we transferred credit card receivables previously classified as receivables held for sale to receivables held for investment as we now intend to hold these receivables for the foreseeable future. These receivables were transferred at their current fair market value of $1.1 billion.

The following table summarizes the components of the lower of cost or fair value adjustments recorded at the date of transfer to receivables held for sale during 2010, 2009 and 2008:


Year Ended December 31,	2010		2009		2008

	(in millions)

Provision for credit losses⁽¹⁾	$	-	$	-	$	191
Lower of cost or fair value adjustment recorded as a component of other income⁽²⁾		-		-		200

Total lower of cost or fair value adjustment	$	-	$	-	$	391


⁽¹⁾		The portion of the lower of cost or fair value adjustment attributable to credit was recorded as a provision for credit losses. This was determined by giving consideration to the impact of over-the-life credit loss estimates as compared to the existing credit loss reserves prior to our decision to transfer to receivables held for sale.

⁽²⁾		Reflects the impact on value caused by current marketplace conditions including changes in interest rates and illiquidity.

The valuation allowance on receivables held for sale was $3 million and $7 million at December 31, 2010 and 2009, respectively.

As it relates to our discontinued auto finance operations, in June and September 2009, we transferred auto finance receivables with a combined fair value of $533 million to receivables held for sale and recorded a lower of cost or fair value adjustment of $44 million during 2009 attributable to credit and marketplace conditions and is included as a component loss from discontinued operations. These receivables were sold to SC USA during March 2010. Additionally, in July 2010, we transferred auto finance receivables to held for sale with an outstanding principal balance of $2.9 billion at the time of transfer and recorded a lower of cost or fair value adjustment of $87 million attributable to credit which was included as a component of loss from discontinued operations. These receivables were sold to SC USA in August 2010. See Note 3, “Discontinued Operations,” for additional information on these transactions.

HSBC Finance Corporation


*11.*	*Properties and Equipment*

Property and Equipment consisted of the following:


							Depreciable
At December 31,	2010			2009			Life

	(dollars are in millions)

Land	$	13		$	13		-
Buildings and improvements		257			233		10-40 years
Furniture and equipment		43			47		3-10

Total		313			293
Accumulated depreciation and amortization		(111	)		(92	)

Properties and equipment, net	$	202		$	201

Depreciation and amortization expense for continuing operations totaled $29 million, $38 million and $56 million in 2010, 2009 and 2008, respectively.


*12.*	*Intangible Assets*

Intangible assets consisted of the following:

Cumulative

Impairment

Accumulated

Carrying

At December 31, 2010

Gross

Charges

Amortization

Value

(in millions)

Purchased credit card relationships and related programs⁽¹⁾

1,736

1,131

605

Consumer loan related relationships

333

163

170

Technology, customer lists and other contracts

261

252

Total

2,330

172

1,553

605


			Cumulative
			Impairment		Accumulated		Carrying
December 31, 2009	Gross		Charges		Amortization		Value

	(in millions)

Purchased credit card relationships and related programs⁽¹⁾	$	1,736	$	-	$	992	$	744
Consumer loan related relationships		333		163		170		-
Technology, customer lists and other contracts		261		9		248		4

Total	$	2,330	$	172	$	1,410	$	748


⁽¹⁾		Purchased credit card relationships are being amortized to their estimated residual value of $162 million at December 31, 2010 and 2009.

During the third quarter of 2010, we completed our annual impairment testing of intangible assets. As a result of this testing, we determined that the fair value of each remaining intangible asset exceeded its carrying value. Therefore, we concluded that none of our intangible assets were impaired.

The weighted-average amortization period for our purchased credit card relationships and related programs as of December 31, 2010 was 106 months.

HSBC Finance Corporation

Intangible amortization expense totaled totaled $143 million, $157 million and $178 million in 2010, 2009 and 2008, respectively. Estimated amortization expense associated with our intangible assets for each of the following years is as follows:


Year Ending December 31,	(in millions)


2011	$	138
2012		135
2013		99
2014		71


*13.*	*Goodwill*

Changes in the carrying amount of goodwill for continuing operations are as follows:


	2010			2009

	(in millions)

Balance at beginning of year	$	-		$	2,294
Goodwill impairment related to the Insurance Services business		-			(260	)
Goodwill impairment related to the Card and Retail Services business		-			(2,034	)

Balance at end of year	$	-	⁽¹⁾	$	-	⁽¹⁾


⁽¹⁾		At December 31, 2010 and 2009, accumulated impairment losses on goodwill totaled $6.0 billion.

As a result of the continuing deterioration of economic conditions throughout 2008 and into 2009 as well as the adverse impact to our Insurance Services business which resulted from the closure of all of our Consumer Lending branches, we wrote off all of our remaining goodwill balance during the first half of 2009.

HSBC Finance Corporation


*14.*	*Commercial Paper*


	Commercial
	Paper

	(in millions)

December 31, 2010
Balance	$	3,156
Highest aggregate month-end balance		4,864
Average borrowings		3,732
Weighted-average interest rate:
At year-end		.3	%
Paid during year		.3
December 31, 2009
Balance	$	4,291
Highest aggregate month-end balance		6,973
Average borrowings		5,412
Weighted-average interest rate:
At year-end		.4	%
Paid during year		.9
December 31, 2008
Balance	$	9,639
Highest aggregate month-end balance		11,901
Average borrowings		7,853
Weighted-average interest rate:
At year-end		1.0	%
Paid during year		2.6

Interest expense for commercial paper totaled $11 million in 2010, $49 million in 2009 and $207 million in 2008.

We maintain various bank credit agreements primarily to support commercial paper borrowings. We had committed back-up lines of credit totaling $6.3 billion and $7.8 billion at December 31, 2010 and 2009, respectively. At December 31, 2009, one of these facilities totaling $2.5 billion was with an HSBC affiliate to support our issuance of commercial paper. This $2.5 billion credit facility was renewed in September 2010 as a new $2.0 billion back-up credit facility, split evenly between 364 day and two year tenors. Credit lines expire at various dates through 2012. Borrowings under these lines generally are available at a spread over LIBOR.

Our third party back-up line agreements contain a financial covenant which requires us to maintain a minimum tangible common equity to tangible assets ratio of 6.75 percent. Additionally, we are required to maintain a minimum of $6.0 billion of debt extended to us from affiliates through June 30, 2011 and $5.0 billion thereafter. At December 31, 2010, we were in compliance with all applicable financial covenants.

Annual commitment fee expenses to support availability of these lines during 2010, 2009 and 2008 totaled $33 million, $18 million and $8 million, respectively, and included $16 million, $9 million and $2 million, respectively, for the HSBC lines.

HSBC Finance Corporation


*15.*	*Long-Term Debt*

Long-term debt consisted of the following:


At December 31,	2010			2009

	(in millions)

Senior debt:
Fixed rate:
Secured financings:
5.00% to 5.99%; due 2019 to 2021		373			488
Other fixed rate senior debt:
1.00% to 1.99%; due 2013		3			-
2.00% to 2.99%; due 2010 to 2032		697			1,269
3.00% to 3.99%; due 2010 to 2015		440			152
4.00% to 4.99%; due 2010 to 2023		4,069			6,442
5.00% to 5.49%; due 2010 to 2021		11,613			13,226
5.50% to 5.99%; due 2010 to 2020		6,281			8,972
6.00% to 6.49%; due 2010 to 2033		6,165			7,261
6.50% to 6.99%; due 2010 to 2033		2,111			2,162
7.00% to 7.49%; due 2011 to 2032		1,864			2,109
7.50% to 7.99%; due 2012 to 2032		1,075			1,646
8.00% to 9.00%; due 2010		-			1,178
Variable interest rate:
Secured financings – .32% to 2.76%; due 2010 to 2023		3,704			4,190
Other variable interest rate senior debt – .33% to 5.89%; due 2010 to 2016		13,004			18,719
Subordinated debt		2,208			-
Junior subordinated notes issued to capital trusts		1,031			1,031
Unamortized discount		(89	)		(99	)
Obligation under capital lease		17			18
HSBC acquisition purchase accounting fair value adjustments		50			116

Total long-term debt	$	54,616		$	68,880

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

At December 31, 2010, long-term debt included carrying value adjustments relating to derivative financial instruments which increased the debt balance by $34 million and a foreign currency translation adjustment relating to our foreign denominated debt which increased the debt balance by $2.1 billion. At December 31, 2009, long-term debt included carrying value adjustments relating to derivative financial instruments which increased the debt balance by $55 million and a foreign currency translation adjustment relating to our foreign denominated debt which increased the debt balance by $2.3 billion.

At December 31, 2010 and 2009, we have elected fair value option accounting for certain of our fixed rate debt issuances. See Note 16, “Fair Value Option,” for further details. At December 31, 2010 and 2009, long-term debt totaling $20.8 billion and $26.7 billion, respectively, was carried at fair value.

Weighted-average interest rates on long-term debt were 4.6 percent and 4.1 percent at December 31, 2010 and 2009, respectively (excluding HSBC acquisition purchase accounting adjustments). Interest expense for long-term debt was $2.9 billion in 2010, $3.5 billion in 2009 and $5.0 billion in 2008. There are no restrictive financial covenants in any of our long-term debt agreements. Debt denominated in a foreign currency is included in the applicable rate category based on the effective U.S. dollar equivalent rate as summarized in Note 17, “Derivative Financial Instruments.”

During the fourth quarter of 2010, we offered noteholders of certain series of our debt the ability to exchange their existing senior notes for newly issued subordinated debt. As a result, we issued $1.9 billion in new 10-year fixed rate

HSBC Finance Corporation

subordinated debt in exchange for tendered debt totaling $1.8 billion. Of the newly issued subordinated debt, $1.2 billion was recorded in long-term debt and $731 million was recorded in due to affiliates. In December 2010, we issued an additional $1.0 billion of 10-year fixed rate subordinated debt to institutional investors.

During 2010, we redeemed $1.0 billion of retail medium-term notes in four phases of approximately $250 million each. These redemptions were funded through a new $1.0 billion 364-day uncommitted revolving credit agreement with HSBC North America which was also executed during the third quarter of 2010 and allowed for borrowings with maturities of up to 15 years. During 2010, we borrowed $1.0 billion under this credit agreement with scheduled maturities between 2022 and 2025. In November 2010, we replaced the $1.0 billion outstanding under this loan through the issuance of preferred stock to HSBC Investments (North America) Inc. (“HINO”). See Note 19, “Redeemable Preferred Stock,” for additional information regarding this issuance of preferred stock.

Receivables we have sold in collateralized funding transactions structured as secured financings remain on our balance sheet. The entities used in these transactions are VIEs and we are deemed to be their primary beneficiary because we hold beneficial interests that expose us to the majority of their expected losses. Accordingly, we consolidate these entities and report the debt securities issued by them as secured financings in long-term debt. Secured financings previously issued under public trusts of $3.9 billion at December 31, 2010 are secured by $5.9 billion of closed-end real estate secured receivables, which are reported as receivables in the consolidated balance sheet. Secured financings previously issued under public trusts of $4.7 billion at December 31, 2009 are secured by $6.8 billion of closed-end real estate secured receivables. The holders of debt instruments issued by consolidated VIEs have recourse only to the receivables securing those instruments and have no recourse to our general credit.

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


	HSBC Finance Capital
	Trust IX
	(“HFCT IX”)

	(dollars are
	in millions)

Junior Subordinated Notes:
Principal balance	$	1,031
Interest rate		5.91	%
Redeemable by issuer		November 2015
Stated maturity		November 2035
Preferred Securities:
Rate		5.91	%
Face value	$	1,000
Issue date		November 2005

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

HSBC Finance Corporation

Maturities of long-term debt at December 31, 2010, including secured financings, conduit facility renewals and capital lease obligations were as follows:


	(in millions)


2011⁽¹⁾	$	12,904
2012		11,373
2013		6,981
2014		2,931
2015		5,291
Thereafter		15,136

Total	$	54,616


⁽¹⁾		Weighted average interest rate on long-term debt maturing in 2011 is 5.1%.

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


*16.*	*Fair Value Option*

We have elected FVO reporting for certain of our fixed rate debt issuances. At December 31, 2010, fixed rate debt accounted for under FVO totaled $21.3 billion, of which $20.8 billion is included as a component of long-term debt and $436 million is included as a component of due to affiliates. At December 31, 2010, we had not elected FVO for $16.8 billion of fixed rate long-term debt carried on our balance sheet. Fixed rate debt accounted for under FVO at December 31, 2010 has an aggregate unpaid principal balance of $20.4 billion which included a foreign currency translation adjustment relating to our foreign denominated FVO debt which increased the debt balance by $404 million.

Long-term debt at December 31, 2009 includes $26.7 billion of fixed rate debt accounted for under FVO. At December 31, 2009, we did not elect FVO for $18.2 billion of fixed rate long-term debt currently carried on our balance sheet. Fixed rate debt accounted for under FVO at December 31, 2009 had an aggregate unpaid principal balance of $25.9 billion which includes a foreign currency translation adjustment relating to our foreign denominated FVO debt which increased the debt balance by $488 million.

We determine the fair value of the fixed rate debt accounted for under FVO through the use of a third party pricing service. Such fair value represents the full market price (credit and interest rate impact) based on observable market data for the same or similar debt instruments. See Note 26, “Fair Value Measurements,” for a description of the methods and significant assumptions used to estimate the fair value of our fixed rate debt accounted for under FVO.

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


Year Ended December 31,	2010			2009			2008

	(in millions)

Mark-to-market on debt designated at fair value⁽¹⁾:
Interest rate component	$	(269	)	$	1,063		$	(1,957	)
Credit risk component		109			(3,334	)		3,106

Total mark-to-market on debt designated at fair value		(160	)		(2,271	)		1,149
Mark-to-market on the related derivatives⁽¹⁾		112			(609	)		1,775
Net realized gains on the related derivatives		789			755			236

Gain (loss) on debt designated at fair value and related derivatives	$	741		$	(2,125	)	$	3,160


⁽¹⁾		Mark-to-market on debt designated at fair value and related derivatives excludes market value changes due to fluctuations in foreign currency exchange rates. Foreign currency translation gains (losses) recorded in derivative related income associated with debt designated at fair value was a gain of $84 million during 2010 compared to a loss of $75 million during 2009. Offsetting gains (losses) recorded in derivative related income associated with the related derivatives was a loss of $84 million during 2010 compared to a gain of $75 million during 2009.

HSBC Finance Corporation

The movement in the fair value reflected in gain (loss) on debt designated at fair value and related derivatives includes the effect of credit spread changes and interest rate changes, including any economic ineffectiveness in the relationship between the related swaps and our debt and any realized gains or losses on those swaps. With respect to the credit component, as credit spreads widen accounting gains are booked and the reverse is true if credit spreads narrow. Differences arise between the movement in the fair value of our debt and the fair value of the related swap due to the different credit characteristics and differences in the calculation of fair value for debt and derivatives. The size and direction of the accounting consequences of such changes can be volatile from period to period but do not alter the cash flows intended as part of the documented interest rate management strategy. On a cumulative basis, we have recorded fair value option adjustments which increased the value of our debt by $873 million and $842 million at December 31, 2010 and 2009, respectively.

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


	•	Interest rate curve – Interest rates in the U.S. decreased during 2010 resulting in a loss in the interest rate component on the mark-to-market of the debt and a gain on the mark-to-market of the related derivative. An increase in long-term U.S. interest rates during 2009 resulted in gains in the interest rate component on the mark-to-market of the debt and losses on the mark-to-market of the related derivative. Changes in the value of the interest rate component of the debt as compared to the related derivative are also affected by differences in cash flows and valuation methodologies for the debt and the derivatives. Cash flows on debt are discounted using a single discount rate from the bond yield curve for each bond’s applicable maturity while derivative cash flows are discounted using rates at multiple points and multiple rates along an interest rate curve. The impacts of these differences vary as short-term and long-term interest rates shift and time passes. Furthermore, certain derivatives have been called by the counterparty resulting in certain FVO debt having no related derivatives. As a result, approximately 7 percent of our FVO debt does not have a corresponding derivative at both December 31, 2010 and 2009, respectively. Income from net realized gains increased during 2010 due to reduced short-term U.S. interest rates.

	•	Credit – During 2010 we experienced an overall gain in the credit component of our debt primarily resulting from widening of credit spreads in our longer-dated debt, which was partially offset by the tightening of credit spreads in our shorter-dated debt. During 2009, our credit spreads tightened due to increased market confidence and improvements in marketplace liquidity resulting in a loss in the credit component of debt recorded at fair value.

Net income volatility, whether based on changes in the interest rate or credit risk components of the mark-to-market on debt designated at fair value and the related derivatives, impacts the comparability of our reported results between periods. Accordingly, gain (loss) on debt designated at fair value and related derivatives for 2010 should not be considered indicative of the results for any future periods.


*17.*	*Derivative Financial Instruments*

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

HSBC Finance Corporation

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

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

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

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

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

At December 31, 2010 and 2009, substantially all of our existing derivative contracts are with HSBC subsidiaries, making them our primary counterparty in derivative transactions. Most swap agreements require that payments be made to, or received from, the counterparty when the fair value of the agreement reaches a certain level. Generally, third-party swap counterparties provide collateral in the form of cash which is recorded in our balance sheet as derivative related liabilities. At December&


Delaware		86-1052062
(State of Incorporation)		(IRS Employer Identification Number)
26525 North Riverwoods Boulevard Mettawa, Illinois		60045
(Address of principal executive offices)		(Zip Code)


o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


	Item 8.01 Other Events
	Item 9.01 Financial Statements and Exhibits.
	Signature
EX-99.01
EX-99.02
EX-99.03


Exhibit No.			Description


	99	.01	Historical audited consolidated financial statements of HSBC Finance Corporation, reflecting the change in segment composition. Also included is the Report of Independent Registered Public Accounting Firm dated February 28, 2011, except as to Note 24, which is dated as of May 27, 2011.
	99	.02	Historical segment results of HSBC Finance Corporation included in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, reflecting the change in segment composition.
	99	.03	Consent of KPMG LLP.

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Table of Contents

Table of Contents


	By:	/s/ MIKE A. REEVES