Discontinued Operations

2012 Discontinued Operations:

Insurance During the second quarter of 2012, we decided to exit the manufacturing of all insurance products through the sale of our interest in substantially all of our insurance subsidiaries as this business did not fit with HSBC's core strategy in the United States and Canada. Insurance products will continue to be offered to HSBC customers through non-affiliate providers. As a result, our Insurance operations are part of a disposal group held for sale and we began reporting this business as discontinued operations in the second quarter of 2012. Since the carrying value of the disposal group was greater than its estimated fair value less costs to sell, during 2012 we recorded a pre-tax lower of amortized cost or fair value less cost to sell adjustment of $119 million ($90 million after-tax) which took into consideration foreign currency translation adjustments and unrealized gains on available-for-sale securities associated with the disposal group which were reflected in accumulated other comprehensive income.

On March 29, 2013, we sold our interest in substantially all of our insurance subsidiaries to Enstar for $153 million in cash and recorded a gain at sale of $21 million ($13 million after-tax), which is reflected in the table below. There were no assets or liabilities in our discontinued Insurance operations at either December 31, 2014 or December 31, 2013. The following table summarizes the operating results of our discontinued Insurance business for the periods presented:



Year Ended December 31,	2014		2013			2012
	(in millions)
Net interest income and other revenues⁽¹⁾⁽²⁾	$	—	$	70		$	167
Income (loss) from discontinued operations before income tax⁽²⁾	—		(10		)	(162		)

⁽¹⁾

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


⁽²⁾	For the year ended December 31, 2012, amounts include the lower of amortized cost or fair value adjustment of $119 million, as discussed above, which was reported as a component of other revenues within discontinued operations.

Commercial In the second quarter of 2012, we began reporting our Commercial business in discontinued operations as there were no longer any outstanding receivable balances or any remaining significant cash flows generated from this business. At December 31, 2014 and December 31, 2013, assets of our Commercial business totaled $62 million and $63 million, respectively. Liabilities of our Commercial business totaled $1 million at December 31, 2013. There were no liabilities in our Commercial business at December 31, 2014. The following table summarizes the operating results of our discontinued Commercial business for the periods presented:



Year Ended December 31,	2014		2013		2012
	(in millions)
Net interest income and other revenues	$	10	$	22	$	23
Income from discontinued operations before income tax	6		14		20

2011 Discontinued Operations:

Card and Retail Services On May 1, 2012, HSBC, through its wholly-owned subsidiaries HSBC Finance Corporation, HSBC USA Inc. ("HSBC USA") and other wholly-owned affiliates, sold its Card and Retail Services business to Capital One Financial Corporation (“Capital One”) for a premium of 8.75 percent of receivables. In addition to receivables, the sale included real estate and certain other assets and liabilities which were sold at book value or, in the case of real estate, appraised value. The total cash consideration was $11,786 million, which resulted in a pre-tax gain of $2,178 million ($1,421 million after-tax) being recorded during the second quarter of 2012. The majority of the employees in our Card and Retail Services business transferred to Capital One. As such, no significant one-time closure or severance costs were incurred as a result of this transaction. Our Card and Retail Services business is reported in discontinued operations.

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



Year Ended December 31,	2014			2013			2012
	(in millions)
Net interest income and other revenues⁽¹⁾⁽²⁾	$	—		$	1		$	3,342
Income (loss) from discontinued operations before income tax⁽²⁾⁽³⁾	(33		)	(253		)	2,649

⁽¹⁾


⁽²⁾	For 2012, amounts include the gain on sale to Capital One of $2,178 million. For 2012, amounts also include a gain of $79 million resulting from the sale of account relationships to HSBC Bank USA which we had previously purchased from HSBC Bank USA in July 2004.

⁽³⁾

For 2014 and 2013, the amounts include expenses related to activities to complete the separation of the credit card operational infrastructure between us and Capital One. We expect costs associated with the separation of the credit card operational infrastructure to continue in 2015. Additionally, 2014 and 2013 include an incremental expense of $7 million and $87 million recorded based on actions taken and actions planned to be taken in connection with an industry review of enhancement services products. For 2013, amounts also reflect a legal accrual of $40 million. See Note 22, "Litigation and Regulatory Matters," for further discussion of the legal matter.

At December 31, 2014 and December 31, 2013, assets of our discontinued Card and Retail Services business totaled $1 million and $102 million, respectively. Liabilities of our Card and Retail Services business totaled $71 million and $102 million, at December 31, 2014 and December 31, 2013, respectively, which primarily consists of certain legal accruals.

Through our discontinued Cards and Retail Services business, we previously offered or participated in the marketing, distribution, or servicing of products, such as identity theft protection and credit monitoring products, that were ancillary to the provision of credit to the consumer (enhancement services products). We ceased the marketing, distribution and servicing of these products by May 2012. The offering and administration of these, and other enhancement services products such as debt protection products, has been the subject of enforcement actions against other institutions by regulators, including the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation. These enforcement actions have resulted in orders to pay restitution to customers and the assessment of penalties in substantial amounts. We have made restitution to certain customers in connection with certain enhancement services products and we continue to cooperate with our regulators in connection with their on-going review. In light of the actions regulators have taken in relation to other credit card issuers regarding their enhancement services products, one or more regulators may order us to pay additional restitution to customers and/or impose civil money penalties or other relief arising from our prior offering and administration of such enhancement services products, and such amounts, if ordered by our regulators, may be material to our results of operations.