Last checked at 5 Mar 2007 12:19
HSBC Holdings PLC05 March 2007 Mr. Kenneth H. Robin's Compensation In January 2006, Mr. Robin's base salary remained the same as 2005, at $600,000.In making the decision to not increase Mr. Robin's base salary, the CompensationCommittee reviewed competitive compensation levels and found Mr. Robin's basesalary was above the 50th percentile among similarly-placed executives in ourComparator Group. In keeping with the goal of maintaining executive basesalaries in the 50th percentile, it did not recommend an increase to his salary. On January 23, 2006, REMCO approved the Compensation Committee's advisoryrecommendation that Mr. Robin receive Performance Shares with a grant date valueof $1,250,522. The award is subject to three-year performance vestingconditions. The vesting criteria of the Performance Shares is set out inFootnote 2 to the Grants and Plan-based Awards Table on page 200. The grantreflects REMCO's view of the value of his long-term contribution to andleadership of HSBC North America and HSBC's desire to retain Mr. Robin and toincent his performance. As discussed above, Mr. Robin's maximum cash incentive under the 2006 ExecutiveBonus Pool was 6% of the Available Bonus Pool, or $2,172,000. Based uponpreliminary results of HSBC Finance Corporation, the Compensation Committee madean advisory recommendation that Mr. Robin receive a bonus of $1 million. TheCompensation Committee made the award recommendation in recognition of the valueof Mr. Robin's strategic insight and his effective management of legal riskwithin the corporation. In considering Mr. Robin's award, the CompensationCommittee considered Mr. Robin's individual performance, demonstratedleadership, future potential, adherence to HSBC's ethical standards and theability to leverage capabilities across businesses. REMCO agreed with theCompensation Committee's assessment and approved the award. However, in earlyFebruary 2007 it was determined that the return on average stockholder's equitythreshold was not met and the Executive Bonus Pool was not funded. As a result,Mr. Robin was not entitled to an award under the plan. Subsequently, theCompensation Committee recommended and the HSBC CEO 196 agreed that Mr. Robin should receive a discretionary bonus award in the amountof $1 million. REMCO ratified these payments at a meeting held on March 1, 2007.This award was made in recognition of the need to ensure the continuity ofmanagement following the resignation of Mr. Mehta and recognition that Mr. Robinhad no responsibility for the events that led to the failure to meet the returnon average stockholder's equity threshold and the fact that Mr. Robin's equityaward was reduced as a result of the disappointing consolidated performance ofHSBC Finance Corporation. Other compensation paid to Mr. Robin, including perquisites such as lifeinsurance premiums, is consistent with perquisites paid to similarly-placedexecutive officers within and outside of HSBC. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The primary purpose of the Compensation Committee is to assist the Board ofDirectors in discharging its responsibilities related to the compensation of theChief Executive Officer of HSBC Finance Corporation and the officers that aredirect reports to the Chief Executive Officer and such other officers as may bedesignated by the Board of Directors. The Compensation Committee is currentlycomprised of the following directors: George A. Lorch (Chair), William R. P.Dalton, Gary G. Dillon and Cyrus F. Freidheim, Jr. (ex-officio member). No member of the Compensation Committee served as an officer or employee of HSBCFinance Corporation in 2006. Due to Mr. Dalton's prior service as Director andexecutive officer of HSBC, which terminated on May 28, 2004, Mr. Dalton is notconsidered an independent Director of HSBC Finance Corporation. Additionalinformation with regard to the Compensation Committee is contained in thesection of this Form 10-K entitled Item 10. Directors, Executive Officers andCorporate Governance - Corporate Governance. COMPENSATION COMMITTEE REPORT We, the Compensation Committee of the Board of Directors of HSBC FinanceCorporation, have reviewed and discussed the Compensation Discussion andAnalysis ("2006 CD&A") set forth above with management, and based on such reviewand discussion, have recommended to the Board of Directors that the 2006 CD&A beincluded in this Annual Report on Form 10-K. Compensation Committee George A. Lorch (Chair) William R. P. Dalton Gary G. Dillon Cyrus F. Freidheim, Jr. (ex-officio member) 197 EXECUTIVE COMPENSATION The following tables and narrative text discuss the compensation awarded to,earned by or paid to (i) Mr. Mehta, who served as our Chief Executive Officerduring 2006, (ii) Ms. Sibblies, who served as our Chief Financial Officer during2006 and (iii) our three other most highly compensated executive officers whoserved as executive officers, all as of December 31, 2006. SUMMARY COMPENSATION TABLE CHANGE IN PENSION VALUE AND NON-EQUITY NONQUALIFIED INCENTIVE DEFERRED STOCK OPTION PLAN COMPENSATIONNAME AND SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGSPRINCIPAL POSITION YEAR ($) $(1) ($)(2) ($)(3) ($)(4) ($)(5)--------------------------------------------------------------------------------------------------------------------- SIDDHARTH N. MEHTA....... 2006 $984,615 $ - $3,684,906 $1,575,292 $ - $ 351,288Chairman & ChiefExecutive Officer BEVERLEY A. SIBBLIES..... 2006 $375,000 $ - $ 216,824 $ - $ 543,750 $ 17,269Senior Vice President -Chief Financial Officer THOMAS M. DETELICH....... 2006 $650,000 $2,000,000 $2,069,519 $ 787,646 $ - $1,158,293Group Executive, Consumerand Direct Lending WALTER G. MENEZES........ 2006 $642,308 $2,000,000 $1,476,173 $ 394,302 $ - $1,311,749Group Executive, CardServices KENNETH H. ROBIN......... 2006 $600,000 $1,000,000 $1,889,505 $ 787,646 $ - $1,070,148Senior Executive Officer,General Counsel andCorporate Secretary ALL OTHERNAME AND COMPENSATION TOTALPRINCIPAL POSITION ($)(6) ($)------------------------- ------------------------- SIDDHARTH N. MEHTA....... $290,962 $6,887,063Chairman & ChiefExecutive OfficerBEVERLEY A. SIBBLIES..... $ 54,303 $1,207,146Senior Vice President -Chief Financial OfficerTHOMAS M. DETELICH....... $162,774 $6,828,232Group Executive, Consumerand Direct LendingWALTER G. MENEZES........ $151,568 $5,976,100Group Executive, CardServicesKENNETH H. ROBIN......... $134,791 $5,482,090Senior Executive Officer,General Counsel andCorporate Secretary --------------- (1) The amounts disclosed for Messrs., Detelich, Menezes and Robin represent the discretionary incentive bonus relating to 2006 performance but paid in February 2007. (2) The values reflected in the table above are the amounts of compensation expense amortized in 2006 for accounting purposes under FAS 123R for outstanding restricted stock grants made in the years 2003, 2004, 2005 and 2006. A portion of the expense reflected for Messrs. Mehta, Detelich, Menezes and Robin relates to Performance Shares granted in 2005 and 2006 that will vest in whole or in part three years from the date of grant if all or some of the performance conditions are met as follows: 50% of the award is subject to a total shareholder return measure ("TSR") against a comparator group. HSBC Finance Corporation's comparator group is comprised of U.S.-based organizations that compete with us for business, customers, and executive talent. The Performance Share comparator group includes: ABN AMRO Holding N.V., Banco Bilbao Vizcaya Argentaria, S.A., Banco Santander Central Hispano S.A., Bank of America Corporation, The Bank of New York Company, Inc., Barclays PLC, BNP Paribas S.A., Citigroup, Inc., Credit Agricole SA, Credit Suisse Group, Deutsche Bank AG, HBOS plc, JP Morgan Chase, Lloyds TSB Group plc, Mitsubishi Tokyo Financial Group Inc., Mizuho Financial Group Inc., Morgan Stanley, National Australia Bank Limited, Royal Bank of Canada, The Royal Bank of Scotland Group plc, Societe Generale, Standard Chartered PLC, UBS AG, Unicredito Italiano, US Bancorp, Wachovia Corporation, Wells Fargo & Company and Westpac Banking Corporation. Depending on HSBC's ranking against the comparator group at the end of the performance period, the TSR portion of the grant may vest on a sliding scale from 100% to 0%. The remaining 50% of the award is subject to satisfaction of an earnings per share measure ("EPS") and may vest based on an incremental EPS percentage in accordance with a defined formula. If the aggregate incremental EPS is less than 24%, the EPS portion will be forfeited and if it is 52% or more, the EPS component will vest in full. We have reduced the amount of expense related to the Performance Shares that would have been recorded by 50% due to the probability of a 0% vest on the TSR portion and a 100% vest on the EPS portion for both years 2005 and 2006. HSBC Finance Corporation records expense over the three year period based on the fair value which is 100% of the face value on the date of the award. The remaining grants are non-performance-based awards and are subject to various time vesting conditions as disclosed in the footnotes to the Outstanding Equity Awards at Fiscal Year End Table and will be released as long as the named executive officer is still in the employ of HSBC Finance Corporation at the time of vesting. HSBC Finance Corporation records expense based on the fair value over the vesting period which is 100% of the face value on the date of the award. Dividend equivalents, in the form of cash or additional shares, are paid on all underlying shares of restricted stock at the same rate as paid to ordinary share shareholders. 198 (3) HSBC and HSBC Finance Corporation's current philosophy is to reward executive officers with restricted shares, called "Achievement Shares" or "Performance Shares". HSBC last issued stock options to HSBC Finance Corporation's named executive officers in 2004. The amounts reflected above are the amounts of compensation expense amortized in 2006 for accounting purposes under FAS 123R for outstanding stock option grants made in 2002 and 2003. The methodology of the valuation of these options was based on a Black-Scholes model for each of the respective years. The stock option grant made to certain named executive officers in 2004 is performance-based with 100% of the condition tested on Total Shareholder Return in 2007. The amount of compensation expense amortized in 2006 for accounting purposes under FAS 123R has been excluded from the amounts shown above due to the probability of the performance condition not being satisfied. The performance condition will be subject to a re-test in 2008, and again in 2009, and must be satisfied in order for the shares to vest. (4) The amount disclosed for Ms. Sibblies represents the incentive bonus earned in 2006 but paid in February 2007 under the Management Incentive Program. (5) The HSBC-North America (U.S.) Retirement Income Plan ("RIP") and the Household Supplemental Retirement Income Plan ("SRIP") are described under Savings and Pension Plans on page 206. Increase in values by plan for each participant are: Mr. Mehta - $26,541 (RIP), $324,747 (SRIP); Ms. Sibblies - $4,725 (RIP), $12,544 (SRIP); Mr. Detelich - $43,845 (RIP), $1,114,448 (SRIP); Mr. Menezes - $72,502 (RIP), $1,239,247 (SRIP); Mr. Robin - $75,017 (RIP) $995,131 (SRIP). (6) Components of All Other Compensation are disclosed in the aggregate. All Other Compensation includes such items as financial planning services, physical exams, club initiation fees, expatriate benefits, and car allowances. The following itemizes benefits that individually or in the aggregate for each executive officer exceeds $10,000: Car allowances for Messrs. Mehta and Robin were $11,000 each in 2006. Messrs. Detelich and Menezes and Ms. Sibblies are not eligible for a car allowance. Personal use of aircraft for Mr. Mehta was $2,598, for Mr. Detelich was $1,922 and for Mr. Menezes was $4,844. Club Dues and Membership Fees for Mr. Mehta in 2006 was $11,000. Personal use of Corporate Apartment was $720 for Mr. Detelich and $1,800 for Mr. Menezes in 2006. Personal use of Corporate Limo for Mr. Mehta was $8,000. Financial Counseling for Messrs. Mehta, Detelich and Menezes was $10,000, $3,500 and $8,000, respectively. Executive Tax Services for Mr. Robin in 2006 was $4,000. Executive Physical expenses for Mr. Mehta was $1,527, for Mr. Menezes was $691 and for Ms. Sibblies was $1,428. Messrs. Mehta, Detelich, Menezes and Robin each received Executive Umbrella Liability Coverage in the amount of $10 million at a cost of $1,850 for 2006. The total in the All Other Compensation column also includes life insurance premiums paid by HSBC Finance Corporation in 2006 for the benefit of executives as follows: Mr. Mehta, $5,910; Mr. Detelich, $7,782; Mr. Menezes, $17,844; Mr. Robin, $12,941 and Ms. Sibblies, $3,375. All Other Compensation also includes HSBC Finance Corporation's contribution for the named executive officer's participation in the HSBC-North America (U.S.) Tax Reduction Investment Plan ("TRIP") and the Supplemental Household International Tax Reduction Investment Plan ("STRIP") in 2006 as follows: Mr. Mehta, $239,077; Mr. Detelich, $147,000; Mr. Menezes, $116,538; Mr. Robin, $105,000 and Ms. Sibblies, $49,500. TRIP and STRIP are described under Savings and Pension Plans - Deferred Compensation Plans on page 207. 199 GRANTS OF PLAN-BASED AWARDS TABLE ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS(1) INCENTIVE PLAN AWARDS(2) ----------------------------------------- ---------------------------------------- THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUMNAME GRANT DATE ($) ($) ($) (#)(4) (#) (#)------------------------------------------------------------------------------------------------------------------------------ SIDDHARTH N. MEHTA......... 3/6/06 0 N/A $7,240,000 66,657 N/A 222,189Chairman & Chief ExecutiveOfficer BEVERLEY A. SIBBLIES....... 3/31/06 0 $ 281,250 $ 562,500 N/A N/A N/ASenior Vice President -Chief Financial Officer THOMAS M. DETELICH......... 3/31/06 0 N/A $4,344,000 30,254 N/A 100,848Group Executive, Consumerand Direct Lending WALTER G. MENEZES.......... 3/31/06 0 N/A $4,344,000 30,254 N/A 100,848Group Executive, CardServices and RetailServices KENNETH H. ROBIN........... 3/31/06 0 N/A $2,172,000 21,356 N/A 71,187Senior Executive Officer,General Counsel andCorporate Secretary ALL OTHER ALL OTHER STOCK OPTION AWARDS: GRANT DATE AWARDS: NUMBER OF FAIR VALUE NUMBER OF SECURITIES OF STOCK SHARES OF STOCK UNDERLYING AND OPTION OR UNITS OPTIONS AWARDSNAME (#) (#) ($)(3)--------------------------- ---------------------------------------------- SIDDHARTH N. MEHTA......... N/A N/A $4,000,010Chairman & Chief ExecutiveOfficerBEVERLEY A. SIBBLIES....... 29,513(5) N/A $ 500,000(5)Senior Vice President -Chief Financial OfficerTHOMAS M. DETELICH......... N/A N/A $1,775,687Group Executive, Consumerand Direct LendingWALTER G. MENEZES.......... N/A N/A $1,775,687Group Executive, CardServices and RetailServicesKENNETH H. ROBIN........... N/A N/A $1,250,522Senior Executive Officer,General Counsel andCorporate Secretary --------------- (1) Messrs. Mehta, Detelich, Menezes and Robin participate in the Executive Bonus Pool. As discussed in the 2006 CD&A, this plan is an annual cash incentive plan that is comprised mainly of corporate and business quantitative goals and qualitative goals. For 2006, the quantitative goals were not met and therefore no awards were made under this plan. Ms. Sibblies participates in the Management Incentive Program. As discussed in the 2006 CD&A, the Management Incentive Program is an annual cash incentive plan that is comprised of both quantitative and qualitative individual, business unit or company objectives which are determined at the beginning of the year with each objective being assigned a target and maximum payout based upon a percentage of base salary. The percentage of target and maximum payout is determined by the market data for the position the executive officer holds and will not change unless the executive officer changes into a position which has a different target and maximum payout. Typically the maximum payout is a 1x, 2x or 3x multiplier of target. Ms. Sibblies' actual award for 2006 was $543,750. (2) Reflects the award of Performance Shares granted to Messrs. Mehta, Detelich, Menezes and Robin. As discussed in the 2006 CD&A and in Footnote 2 to the Summary Compensation Table, Performance Shares are subject to two performance conditions, each of which trigger potential payout of 50% of the aggregate award: the first objective is based upon Total Shareholder Return ("TSR") and the second objective is based upon earnings per share ("EPS"), both measured over a three year performance period. TSR means the growth in share value and declared dividend income on the shares, measured in Sterling, during the three year performance period and is based on HSBC's ranking against a comparator group of 28 major banks as listed on page 192. The calculation of the share price component within HSBC's TSR will be the average market price over the 20 dealing days commencing on the day when HSBC's annual results are announced with the end point being the average market price over the 20 dealing days commencing on the day on which the annual results of HSBC are announced three years later. The TSR portion of the award will vest on a sliding scale based on HSBC's relative ranking against the comparator group at the end of the three year period. If HSBC is ranked 1st through 7th the vesting percentage will be 100%. If HSBC is ranked 8th through 14th, the vesting percentage will fall by 10% per rank. If HSBC is ranked 15th through 28th, the vesting percentage will be zero. The percentage of the TSR which will vest is defined in the following formula: ((X-Z) x (A-B)) + B (Y-Z) where: X = the TSR performance of HSBC Z = the TSR performance of the bank immediately below X Y = the TSR performance of the bank immediately above X A = the vesting percentage linked to the ranking of Y as detailed above B = the vesting percentage linked to the ranking of Z as detailed above The second performance condition is based upon EPS, which for purposes of awarding Performance Shares is the profit, excluding goodwill amortization attributable to shareholder's return, divided by the weighted average number of shares in issue and held outside HSBC during the performance year. The base measure will be the EPS for the financial year preceding that in which the award is made. EPS will then be compared over the three consecutive financial years commencing with the year in which the award is made. Incremental EPS will be calculated by expressing, as a percentage of the EPS of the base year, the difference in each year of the measurement period between the EPS of that year and the EPS of the base year. These percentages will be aggregated to arrive at the 200 total incremental EPS for the measurement period. The percentage of the EPS objective that will vest will be in accordance with the following formula: 30+2.5(X-24) where: 30% is the minimum proportion of the EPS objective which may vest and X is the aggregate incremental EPS from the base year to the end of the measurement period between and including 24% and 52%. If the aggregate incremental EPS in accordance with the formula is less than 24% then the EPS objective will be forfeited and if it is more than 52% then the EPS objective will vest in full. (3) The total grant date fair value reflected for Mr. Mehta is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 6, 2006 (the date of grant) of GBP9.909706 and converted into U.S. dollars using the GBP exchange rate as of the time of funding the grant (1.816677). The total grant date fair value reflected for Messrs. Detelich, Menezes and Robin and Ms. Sibblies is based on 100% of the fair market value of the underlying HSBC ordinary shares on March 31, 2006 (the date of grant) of GBP9.6697 and converted into U.S. dollars using the GBP exchange rate as of the time of funding the grant (1.816677). (4) As described in Footnote 2 above, the executives could receive no awards under the equity incentive plan. However, the numbers presented under "Threshold" represent the minimum awards the executives could receive if the minimum (i.e., 30%) of either of the performance conditions is met. (5) Reflects the award of Achievement Shares granted to Ms. Sibblies, which award consists of shares of restricted stock that vest in full at the end of a three year period from the date of grant. The award amount of Achievement Shares is based on the executive officer's position within the organization, base salary, performance rating and scope for growth. At the executive level, officers eligible to receive Achievement Shares are eligible for awards ranging from 50% up to 300% of base salary. For both plans, additional shares are awarded in amounts equivalent to the same dividend rate on ordinary shares. 201 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE STOCK AWARDS ---------------------------- OPTION AWARDS------------------------------------------------------------------------------------------------- EQUITY INCENTIVE PLAN AWARDS: NUMBER OF NUMBER OF NUMBER OF NUMBER OF MARKET VALUE SECURITIES SECURITIES SECURITIES SHARES OR OF SHARES OR UNDERLYING UNDERLYING UNDERLYING UNITS OF UNITS OF STOCK UNEXERCISED UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT THATHAVE OPTIONS (#) OPTIONS (#) UNEARNED EXERCISE EXPIRATION HAVE NOT NOTNAME EXERCISABLE UNEXERCISABLE OPTIONS (#) PRICE ($) DATE VESTED (#) VESTED($)(1)-------------------------------------------------------------------------------------------------------------------------------- SIDDHARTH N. MEHTA 802,500(2) 0 - $17.08 06/15/08 - -Chairman &Chief Executive Officer 358,450(2) 0 - $13.71 11/09/08 - - 331,700(2) 0 - $16.96 11/08/09 - - 401,250(2) 0 - $18.40 11/13/10 - - 535,000(2) 0 - $21.37 11/12/11 - - 535,000(2) 0 - $10.66 11/20/12 - - 306,000(3) 102,000 - GBP9.1350 11/03/13 - - - - 204,000(4) GBP8.2830 04/30/14 - - - - - - - 188,562(5) $3,437,485 - - - - - 403,308(6) $7,352,305 - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------BEVERLEY A. SIBBLIES - - - - - 29,513(9) $ 538,022Senior Vice President -Chief Financial Officer - - - - - 29,936(10) $ 545,733--------------------------------------------------------------------------------------------------------------------------------THOMAS M. DETELICH 53,500(2) 0 - $13.71 11/09/08 - -Group Executive,Consumer and Direct Lending 60,188(2) 0 - $16.96 11/08/09 - - 66,875(2) 0 - $18.40 11/13/10 - - 93,625(2) 0 - $21.37 11/12/11 - - 267,500(2) 0 - $10.66 11/20/12 - - 153,000(3) 51,000 - GBP9.1350 11/03/13 - - - - 102,000(4) GBP8.2830 04/30/14 - - - - - - - 141,421(5) $2,578,105 - - - - - 201,654(6) $3,676,152 - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------WALTER G. MENEZES 48,150(2) 0 - $13.71 11/09/08 - -Group Executive,Card Services 66,875(2) 0 - $16.96 11/08/09 - - 74,900(2) 0 - $18.40 11/13/10 - - 107,000(2) 0 - $21.37 11/12/11 - - 107,000(2) 0 - $10.66 11/20/12 - - 112,500(3) 37,500 - GBP9.1350 11/03/13 - - 150,000(4) GBP8.2830 04/30/14 - - - - - - - 44,584(11) $ 812,766 - - - - - 201,654(6) $3,676,152 - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------KENNETH H. ROBIN 160,500(2) - - $16.96 11/08/09 - -Senior Executive Officer,General Counsel andCorporate Secretary 200,625(2) - - $18.40 11/13/10 - - 240,750(2) - - $21.37 11/12/11 - - 66,875(2) - - $10.66 11/20/12 - - 153,000(3) 51,000 GBP9.1350 11/03/13 - - - - 102,000(4) GBP8.2830 04/30/14 - - - - - - - 63,017(12) $1,148,800 - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- STOCK AWARDS ------------------------------- EQUITY--------------------------- EQUITY INCENTIVE PLAN INCENTIVE PLAN AWARDS: AWARDS: MARKET OR NUMBER OF PAYOUT VALUE UNEARNED OF UNEARNED SHARES, UNITS SHARES, UNITS OR OTHER OR OTHER RIGHTS THAT RIGHTS THAT HAVE NOT HAVE NOTNAME VESTED (#) VESTED ($)(1)--------------------------- ------------------------------- SIDDHARTH N. MEHTA - -Chairman &Chief Executive Officer - - - - - - - - - - - - - - - - - - 190,079(7) $3,465,140 222,189(8) $4,050,505---------------------------BEVERLEY A. SIBBLIES - -Senior Vice President -Chief Financial Officer - ----------------------------THOMAS M. DETELICH - -Group Executive,Consumer and Direct Lending - - - - - - - - - - - - 95,040(7) $1,732,579 100,848(8) $1,838,459---------------------------WALTER G. MENEZES - -Group Executive,Card Services - - - - - - - - - - - - - - - - 95,040(7) $1,732,579 100,848(8) $1,838,459---------------------------KENNETH H. ROBIN - -Senior Executive Officer,General Counsel andCorporate Secretary - - - - - - - - - - - - 76,032(7) $1,386,063 71,187(8) $1,297,739--------------------------- (1) The market value of the shares on December 29, 2006 was GBP9.31 and the exchange rate from GBP to U.S. dollars was 1.958, which equates to a U.S. dollars share price of $18.23 per share. (2) Reflects fully vested options. (3) Seventy-five percent of this award vested on November 3, 2006. The remaining 25% of the award will vest on November 3, 2007. (4) This award will vest in full, subject to satisfaction of performance conditions, on the third anniversary of the date of grant, which was April 30, 2004. If the performance conditions are not satisfied on the third anniversary, the performance conditions will be re-tested on the fourth and fifth anniversaries of the date of grant. If the performance conditions are not met on the fifth anniversary of the date of grant, the options will be forfeited. (5) Twenty percent of this award vested on each of March 31, 2004, March 31, 2005 and March 31, 2006. Twenty percent of this award will vest on each of March 30, 2007 and May 31, 2008. 202 (6) Twenty percent of this award vested on May 26, 2006. Twenty percent of this award will vest on each of May 25, 2007, May 26, 2008, May 26, 2009 and May 26, 2010. (7) These awards will vest in part or in full on March 31, 2008 if performance conditions are met. (8) These awards will vest in part or in full on March 31, 2009 if performance conditions are met. (9) This award vests in full on March 31, 2008. (10) This award vests in full on March 31, 2009. (11) Thirty-three percent of this award vested on February 14, 2006 and 33% vested on February 14, 2007. The remaining 34% will vest on February 14, 2008. (12) Fifty percent of this award vested on May 26, 2006. The remaining 50% will vest on May 25, 2007. 203 OPTION EXERCISES AND STOCK VESTED TABLE OPTION AWARDS STOCK AWARDS ------------------------------------- ------------------------------------ NUMBER OF SHARES VALUE REALIZED NUMBER OF SHARES VALUE REALIZED ACQUIRED ON EXERCISE ON EXERCISE ACQUIRED ON VESTING ON VESTINGNAME (#) ($)(1) (#)(2) ($)(1)(2)------------------------------------------------------------------------------------------------------------- SIDDHARTH N. MEHTA............. 0 0 214,935(3) $3,692,196Chairman & Chief ExecutiveOfficer BEVERLEY A. SIBBLIES........... 0 0 0 0Senior Vice President - ChiefFinancial Officer THOMAS M. DETELICH............. 0 0 134,861(4) $2,311,557Group Executive, Consumer andDirect Lending WALTER G. MENEZES.............. 48,150(5) $ 175,489 74,968(6) $1,292,504Group Executive, Card Services KENNETH H. ROBIN............... 660,725(7) $3,885,272 120,092(8) $2,065,621Senior Executive Officer,General Counsel and CorporateSecretary --------------- (1) Value realized on exercise or vesting uses the GBP fair market value on the date of exercise/release and the exchange rate from GBP to U.S. dollars on the date of settlement. (2) Includes the release of additional awards accumulated over vesting period. (3) Includes the release of 94,280 shares granted on April 15, 2003 and 100,827 shares granted on May 26, 2005. Remaining shares are release of additional awards accumulated over the vesting period. (4) Includes the release of 71,710 shares granted on April 15, 2003 and 50,413 shares granted on May 26, 2005. Remaining shares are release of additional awards accumulated over the vesting period. (5) Includes exercise of stock options granted on November 10, 1997. (6) Includes the release of 22,291 shares granted on February 14, 2003 and 50,413 shares granted on May 26, 2005. Remaining shares are release of additional awards accumulated over the vesting period. (7) Includes the exercise of 120,375 stock options granted on November 11, 1996, 200,625 stock options granted on November 20, 2002, 160,500 stock options granted on November 10, 1997 and 179,225 stock options granted on November 9, 1998. (8) Includes the release of 47,141 shares granted on April 15, 2003 and 63,016 shares granted on May 26, 2005. Remaining shares are release of additional awards accumulated over the vesting period. 204 PENSION BENEFITS PAYMENTS NUMBER OF PRESENT VALUE OF DURING LAST YEARS CREDITED ACCUMULATED BENEFIT FISCAL YEARNAME PLAN NAME(4) SERVICE ($) ($)--------------------------------------------------------------------------------------------------------- SIDDHARTH N. MEHTA....... RIP-Household New 8.5 $ 133,162 $ 0Chairman & Chief SRIP-Household New 8.5 $1,729,179Executive Officer BEVERLEY A. RIP-Account Based 2.2 $ 12,453 SIBBLIES(1)............ $ 0Senior Vice President - SRIP-Account Based 2.2 $ 16,252Chief Financial Officer THOMAS M. DETELICH....... RIP-Household New 30.4 $ 401,208 $ 0Group Executive, Consumer SRIP-Household New 30.4 $3,713,123and Direct Lending WALTER G. MENEZES(2)..... RIP-Household New 10.2 $ 363,478 $ 0Group Executive, Card SRIP-Household New 10.2 $2,720,078Services KENNETH H. ROBIN(3)...... RIP-Household Old 17.1 $ 965,551 $ 0Senior Executive Officer, SRIP-Household Old 17.1 $6,270,582General Counsel andCorporate Secretary --------------- (1) Not yet vested; will be vested upon completion of three years of eligible service which is expected to occur in the second half of 2007. (2) Value of age 65 benefit. Participant is also eligible for an immediate early retirement benefit with value of $418,305 (RIP) and $3,138,082 (SRIP). (3) Value of age 65 benefit. Participant is also eligible for an immediate early retirement benefit with value of $1,186,386 (RIP) and $7,734,619 (SRIP). (4) Plans described under Savings and Pension Plans on page 206. 205 SAVINGS AND PENSION PLANS Retirement Income Plan (RIP) The HSBC-North America (U.S.) Retirement Income Plan ("RIP") is anon-contributory, defined benefit pension plan for employees of HSBC NorthAmerica and its U.S. subsidiaries who are at least 21 years of age with one yearof service and not part of a collective bargaining unit. Benefits are determinedunder a number of different formulas that vary based on year of hire andemployer. Supplemental Retirement Income Plan (SRIP) The Household Supplemental Retirement Income Plan ("SRIP") is a non-qualifiedretirement plan that is designed to provide benefits that are precluded frombeing paid to legacy Household employees by the RIP due to legal constraintsapplicable to all qualified plans. For example, the maximum amount ofcompensation during 2006 that can be used to determine a qualified plan benefitis $220,000, and the maximum annual benefit commencing at age 65 in 2006 is$175,000. SRIP benefits are calculated without regard to these limits. Theresulting benefit is then reduced by the value of qualified benefits payable byRIP so that there is no duplication of payments. Benefits are paid in a lump sumfor retired executives covered by a Household Old, Household New, or AccountBased Formula. Formulas for Calculating Benefits HOUSEHOLD OLD FORMULA: Applies to executives who were hired prior to January 1,1990 by Household International, Inc. The benefit at age 65 is determined underwhichever formula, A or B below, provides the higher amount. A. The normal retirement benefit at age 65 is the sum of (i) 51% of average salary that does not exceed the integration amount and (ii) 57% of average salary in excess of the integration amount. For this purpose, the integration amount is an average of the Social Security taxable wage bases for the 35 year period ending with the year of retirement. The benefit is reduced pro rata for executives who retire with less than 15 years of service. If an executive has more than 30 years of service, the benefit percentages in the formula, (the 51% and 57%) are increased 1/24 of 1 percentage point for each month of service in excess of 30 years, but not more than 5 percentage points. The benefit percentages are reduced for retirement prior to age 65. B. The normal retirement benefit at age 65 is determined under (a) below, limited to a maximum amount determined in (b): a. 55% of average salary, reduced pro rata for less than 15 years of service, and increased 1/24 of 1 percentage point for each month in excess of 30 years, but not more than 5 percentage points; the benefit percentage of 55% is reduced for retirement prior to age 65. b. The amount determined in (a) is reduced as needed so that when added to 50% of the primary Social Security benefit, the total does not exceed 65% of the average salary. This maximum is applied for payments following the age at which full Social Security benefits are available. Both formulas use an average of salaries for the 48 highest consecutive monthsselected from the 120 consecutive months preceding date of retirement; for thispurpose, salary includes total base wages and bonuses. For executives who were participants on January 1, 1978, had attained age 35 andhad at least 10 years of employment, the minimum normal retirement benefit is55% of final average salary. For this purpose, salary does not include bonusesand the average is based on 60 consecutive months, rather than 48. Executives who are at least age 50 with 15 years of service or at least age 55with 10 years of service may retire before age 65, in which case the benefitsare reduced. 206 HOUSEHOLD NEW FORMULA: Applies to executives who were hired after December 31,1989, but prior to January 1, 2000, by Household International, Inc. The normalretirement benefit at age 65 is the sum of (i) 51% of average salary that doesnot exceed the integration amount and (ii) 57% of average salary in excess ofthe integration amount. For this purpose, salaries include total base wages andbonuses and are averaged over the 48 highest consecutive months selected fromthe 120 consecutive months preceding date of retirement. The integration amountis an average of the Social Security taxable wage bases for the 35 year periodending with the year of retirement. The benefit is reduced pro rata forexecutives who retire with less than 30 years of service. If an executive hasmore than 30 years of service, the percentages in the formula, (the 51% and 57%)are increased 1/24 of 1 percentage point for each month of service in excess of30 years, but not more than 5 percentage points. Executives who are at least age55 with 10 or more years of service may retire before age 65 in which case thebenefit percentages (51% and 57%) are reduced. ACCOUNT BASED FORMULA: Applies to executives who were hired by HouseholdInternational Inc. after December 31, 1999. It also applies to executives whowere hired by HSBC Bank USA, National Association after December 31, 1996 andbecame participants in the Retirement Income Plan on January 1, 2005, or werehired by HSBC after March 28, 2003. The formula provides for a notional accountthat accumulates 2% of annual salary for each calendar year of employment. Forthis purpose, salary includes total base wages and bonuses. At the end of eachcalendar year, interest is credited on the notional account using the value ofthe account at the beginning of the year. The interest rate is based on thelesser of average yields for 10-year and 30-year Treasury bonds during Septemberof the preceding calendar year. The notional account is payable at terminationof employment for any reason after three years of service although payment maybe deferred to age 65. PROVISIONS APPLICABLE TO ALL FORMULAS: The amount of salary used to determinebenefits is subject to an annual maximum that varies by calendar year. The limitfor 2006 is $220,000. The limit for years after 2006 will increase fromtime-to-time as specified by IRS regulations. Benefits are payable as a lifeannuity, or for married participants, a reduced life annuity with 50% continuedto a surviving spouse. Participants (with spousal consent, if married) maychoose from a variety of other optional forms of payment, which are all designedto be equivalent in value if paid over an average lifetime. Retired executivescovered by a Household Old, Household New or Account Based Formula may elect alump sum form of payment (spousal consent is needed for married executives). Present Value of Accumulated Benefits For the Account Based formula: The value of the notional account balancescurrently available on December 31, 2006. For other formulas: The present value of benefit payable at assumed retirementusing interest and mortality assumptions consistent with those used forfinancial reporting purposes under SFAS 87 with respect to HSBC FinanceCorporation's audited financial statements for the period ending December 31,2006. However, no discount has been assumed for separation prior to retirementdue to death, disability or termination of employment. Further, the amount ofthe benefit so valued is the portion of the benefit at assumed retirement thathas accrued in proportion to service earned on December 31, 2006. Deferred Compensation Plans TAX REDUCTION INVESTMENT PLAN HSBC North America maintains the HSBC-NorthAmerica (U.S.) Tax Reduction Investment Plan ("TRIP"), which is a deferredprofit-sharing and savings plan for its eligible employees. With certainexceptions, a U.S. employee who has been employed for 30 days and who is notpart of a collective bargaining unit may contribute into TRIP, on a pre-tax andafter-tax basis, up to 40% (15% if highly compensated) of the participant's cashcompensation (subject to a maximum annual pre-tax contribution by a participantof $15,000, as adjusted for cost of living increases, and certain otherlimitations imposed by the Internal Revenue Code) and invest such contributionsin separate equity or income funds. 207 If the employee has been employed for at least one year, HSBC FinanceCorporation contributes 3% of compensation on behalf of each participant whocontributes 1% and matches any additional participant contributions up to 4% ofcompensation. However, matching contributions will not exceed 6% of aparticipant's compensation if the participant contributes 4% or more ofcompensation. The plan provides for immediate vesting of all contributions. Withcertain exceptions, a participant's after-tax contributions which have not beenmatched by us can be withdrawn at any time. Both our matching contributions madeprior to 1999 and the participant's after-tax contributions which have beenmatched may be withdrawn after five years of participation in the plan. Aparticipant's pre-tax contributions and our matching contributions after 1998may not be withdrawn except for an immediate financial hardship, upontermination of employment, or after attaining age 59 1/2. Participants mayborrow from their TRIP accounts under certain circumstances. SUPPLEMENTAL TAX REDUCTION INVESTMENT PLAN HSBC North America also maintains theSupplemental Household International Tax Reduction Investment Plan ("STRIP")which is an unfunded plan for eligible employees of HSBC Finance Corporation andits participating subsidiaries whose participation in TRIP is limited by theInternal Revenue Code. Only matching contributions required to be made by uspursuant to the basic TRIP formula are invested in STRIP through a credit to abookkeeping account maintained by us which deems such contributions to beinvested in equity or income funds selected by the participant. NON-QUALIFIED DEFERRED COMPENSATION PLAN HSBC North America Holdings Inc.maintains a Non-Qualified Deferred Compensation Plan for the highly compensatedemployees in the organization, including executives of HSBC Finance Corporation.The named executive officers are eligible to contribute up to 80% of theirsalary and/or cash bonus compensation in any plan year. Participants arerequired to make an irrevocable election with regard to an amount or percentageof compensation to be deferred and the timing and manner of future payout. Twotypes of distributions are permitted under the plan, either a scheduledin-service withdrawal which must be scheduled at least 2 years after the end ofthe plan year in which the deferral is made, or payment upon termination ofemployment. For either the scheduled in-service withdrawal or payment upontermination, the participant may elect either a lump sum payment or if theparticipant has made at least $25,000 of contributions and has over 10 years ofservice, he may request installment payments over 10 years. Due to the unfundednature of the plan, participant elections are deemed investments whose gains orlosses are calculated by reference to actual earnings of the investment choices.The deemed investment choices are reviewed on a periodic basis by the InvestmentCommittee for the Plan which consists of members chosen by the Board orDirectors or Chief Executive Officer of HSBC North America Holdings Inc. and arechosen based on a conservative mix of funds and currently include Van KampenReal Estate Securities - A Shares, Oppenheimer Global - A Shares, AIM Small CapGrowth - Class A, HSBC Investor Small Cap Equity - Class Y, Fidelity Advisor MidCap Stock - Class A, Dreyfus S&P 500 Index, HSBC Investor Growth &Income - Class Y, HSBC Investor Fixed Income - Class Y and HSBC Investor MoneyMarket - Class Y. In order to provide the participants with the maximum amountof protection under an unfunded plan, a Rabbi Trust has been established wherethe participant contributions are segregated from the general assets of HSBCFinance Corporation. The Investment Committee for the plan endeavors to investthe contributions in a manner consistent with the participant's deemed electionsreducing the likelihood of an underfunded plan. 208 NONQUALIFIED DEFINED CONTRIBUTION AND OTHER NONQUALIFIED DEFERRED COMPENSATION PLANS SUPPLEMENTAL NONQUALIFIED TAX DEFERRED REDUCTION COMPENSATION INVESTMENT PLAN(1) PLAN(2) EXECUTIVE REGISTRANT AGGREGATE AGGREGATE AGGREGATE CONTRIBUTIONS CONTRIBUTIONS EARNINGS WITHDRAWALS/ BALANCENAME IN 2006 ($) IN 2006 ($) IN 2006 ($) DISTRIBUTIONS ($) AT 2006 ($)------------------------------------------------------------------------------------------------------------- SIDDHARTH N. MEHTA............ 0 $228,077 $203,181 0 $2,063,650Chairman &Chief Executive OfficerBEVERLEY A. SIBBLIES.......... 0 $ 38,500 $ 2,375 0 $ 41,507Senior Vice President - ChiefFinancial OfficerTHOMAS M. DETELICH............ 0 $136,000 $257,694 $193,424(3) $3,050,292Group Executive, Consumer andDirect LendingWALTER G. MENEZES............. 0 $105,538 $150,742 0 $1,723,722Group Executive, Card ServicesKENNETH H. ROBIN.............. 0 $ 94,000 $ 55,238 0 $ 986,539Senior Executive Officer,General Counsel and CorporateSecretary --------------- (1) The NonQualified Deferred Compensation Plan is described under Savings and Pension Plans on page 206. The executive officers have made contributions to the plan, but elected not to make contributions in 2006. (2) The Supplemental Tax Reduction Investment Plan (STRIP) is described under Savings and Pension Plans on page 206. Company contributions are invested in STRIP through a credit to a bookkeeping account, which deems such contributions to be invested in equity or income mutual funds selected by the participant. For this purpose, compensation includes amounts that would be compensation but for the fact they were deferred under the terms of the HSBC North America Non-Qualified Deferred Compensation Plan. Distributions are made in a lump sum upon termination of employment. (3) Amount represents a scheduled in-service withdrawal from the HSBC Non-Qualified Deferred Compensation Plan. 209 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL SIDDHARTH N. MEHTA INVOLUNTARY VOLUNTARY NOT FOR FOR GOODEXECUTIVE BENEFITS AND VOLUNTARY NORMAL CAUSE FOR CAUSE REASONPAYMENTS UPON TERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION DEATH----------------------------------------------------------------------------------------------------------------------------- CASH COMPENSATIONBase Salary................ - - - $ 1,250,000(1) - $ 1,250,000(1) -Short Term Incentive....... - - - $ 2,343,750(1) - $ 2,343,750(1) -LONG TERM INCENTIVEPerformance Shares(6)...... - $3,033,958(2) -- $ 3,033,958(2) - $ 3,033,958(2) $ 7,515,646(3)Stock Options:Unvested and Accelerated... - - - $ 446,145(4) - $ 446,145(4) $ 446,145(4)Restricted Stock(6):Unvested and Accelerated... - - - $10,789,790(5) - $10,789,790(5) $10,789,790(5)BENEFITS AND PERKSHealthcare................. - - - $ 28,336 - $ 28,336 -Life Insurance............. - - - $ 1,800 - $ 1,800 -Company Car and Driver..... - - - $ 13,750 - $ 13,750 -Financial Planning......... - - - $ 20,000 - $ 20,000 -Aircraft Usage............. - - - - - - -Umbrella Liability......... - - - $ 3,700 - $ 3,700 - CHANGE INEXECUTIVE BENEFITS AND CONTROLPAYMENTS UPON TERMINATION TERMINATION--------------------------- CASH COMPENSATIONBase Salary................ -Short Term Incentive....... -LONG TERM INCENTIVEPerformance Shares(6)...... $3,033,958(2)Stock Options:Unvested and Accelerated... -Restricted Stock(6):Unvested and Accelerated... -BENEFITS AND PERKSHealthcare................. -Life Insurance............. -Company Car and Driver..... -Financial Planning......... -Aircraft Usage............. -Umbrella Liability......... - --------------- (1) Mr. Mehta has an employment agreement which stipulates that he will receive his current salary and 75% of the average of his bonus in the years 2003, 2004 and 2005 from the date of termination through March 28, 2008. The figures above assume a termination date of December 31, 2006. (2) The figures above represent the pro-rata portion of the Performance Shares, assuming "good leaver" status is granted by REMCO, that would vest three years from the date of grant assuming a termination date of December 31, 2006 and the performance conditions being met on a 100% basis, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. For an explanation of the performance conditions please refer to Footnote 2 of the Grants of Plan-Based Awards Table. (3) The figure above represents a full vest of the Performance Shares that would vest three years from the date of grant assuming a termination date of December 31, 2006 and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (4) In the event of death, the figure represents accelerated vesting of 100% of the outstanding, unvested stock options assuming the difference between the strike price and the fair market value of HSBC ordinary shares on December 29, 2006. The amounts represent outstanding unvested stock options that would continue to vest according to schedule, if REMCO approves such continued vesting, if a termination was involuntary not for cause or voluntary for good reason, and assumes the satisfaction of all applicable performance conditions. (5) The figures above represent a full vest of the outstanding restricted shares assuming a termination date of December 31, 2006 and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (6) Does not include additional awards accumulated through December 31, 2006, the assumed date of termination. 210 BEVERLEY SIBBLIES INVOLUNTARY VOLUNTARY FOREXECUTIVE BENEFITS AND VOLUNTARY NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASONPAYMENTS UPON TERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION------------------------------------------------------------------------------------------------------------------------- CASH COMPENSATIONBase Salary........................ - - - $187,500(1) - -Short Term Incentive............... - - - $562,500(1) - - LONG TERM INCENTIVERestricted Stock:(4)Unvested and Accelerated........... - $450,279(2) - $450,279(2) - $450,279(2) CHANGE INEXECUTIVE BENEFITS AND CONTROLPAYMENTS UPON TERMINATION DEATH TERMINATION----------------------------------- CASH COMPENSATIONBase Salary........................ - -Short Term Incentive............... - -LONG TERM INCENTIVERestricted Stock:(4)Unvested and Accelerated........... $1,083,755(3) $450,279(2) --------------- (1) Under the terms of the HSBC Severance Policy, Ms. Sibblies will receive 26 weeks of her current salary upon separation from the company and a pro-rata amount of her earned bonus. The figures above represent the bonus payment at maximum assuming a termination date of December 31, 2006. (2) The figures above represent accelerated vesting of a pro-rata portion of the outstanding restricted shares assuming a termination date of December 31, 2006 and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (3) The figure above represents a full vest of the outstanding restricted shares assuming a termination date of December 31, 2006 and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (4) Does not include additional awards accumulated through December 31, 2006, the assumed date of termination. THOMAS DETELICH EARLY INVOLUNTARY VOLUNTARY FOREXECUTIVE BENEFITS AND VOLUNTARY RETIREMENT/ NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASONPAYMENTS UPON TERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION----------------------------------------------------------------------------------------------------------------------- CASH COMPENSATIONBase Salary..................... - - - $ 650,000(1) - -Short Term Incentive............ - - - $2,000,000(1) - - LONG TERM INCENTIVEPerformance Shares(6)........... - $1,470,286(2) - $1,470,286(2) - $1,470,286(2)Stock Options:Unvested and Accelerated........ - - - $ 222,583(4) - $ 222,583(4)Restricted Stock:(6)Unvested and Accelerated........ - - - $6,254,257(5) - $6,254,257(5) CHANGE INEXECUTIVE BENEFITS AND CONTROLPAYMENTS UPON TERMINATION DEATH TERMINATION-------------------------------- CASH COMPENSATIONBase Salary..................... - -Short Term Incentive............ - -LONG TERM INCENTIVEPerformance Shares(6)........... $3,571,038(3) $1,470,286(2)Stock Options:Unvested and Accelerated........ $ 222,583(4)Restricted Stock:(6)Unvested and Accelerated........ $6,254,257(5) - --------------- (1) Under the terms of the HSBC Severance Policy, Mr. Detelich will receive 52 weeks of his current salary upon separation from the company and a pro-rata amount of his earned bonus. The figures above represent the bonus payment earned in 2006 assuming a termination date of December 31, 2006. (2) The figures above represent the pro-rata portion of the Performance Shares, assuming "good leaver" status is granted by REMCO, that would vest three years from the date of grant assuming a termination date of December 31, 2006 and the performance conditions being met on a 100% basis, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. For an explanation of the performance conditions please refer to Footnote 2 of the Grants of Plan-Based Awards Table. (3) The figure above represents a full vest of the Performance Shares that would vest three years from the date of grant assuming a termination date of December 31, 2006 and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (4) In the event of death, the figure represents accelerated vesting of 100% of the outstanding, unvested stock options assuming the difference between the strike price and the fair market value of HSBC ordinary shares on December 29, 2006. The amounts represent outstanding unvested stock options that would continue to vest according to schedule, if REMCO approves such continued vesting, if a termination was involuntary not for cause or voluntary for good reason, and assumes the satisfaction of all applicable performance conditions. (5) The figures above represent a full vest of the outstanding restricted shares assuming a termination date of December 31, 2006 and assuming "good leaver" status is granted by REMCO. The figures are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (6) Does not include additional awards accumulated through December 31, 2006, the assumed date of termination. 211 WALTER G. MENEZES EARLY INVOLUNTARY VOLUNTARY GOODEXECUTIVE BENEFITS AND PAYMENTS VOLUNTARY RETIREMENT/ NORMAL NOT FOR CAUSE FOR CAUSE REASONUPON TERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION----------------------------------------------------------------------------------------------------------------------- CASH COMPENSATIONBase Salary................... - - - $ 450,000(1) - -Short Term Incentive.......... - - - $2,000,000(1) - - LONG TERM INCENTIVEPerformance Shares(9)......... - $1,470,286(2) - $1,470,286(2) - $1,470,286(2)()Stock Options:Unvested and Accelerated...... - - - $ 314,479(4) - $ 314,479(4)Restricted Stock:(9)Unvested and Accelerated...... - - - $4,488,918(5) - $4,488,918(5) BENEFITS AND PERKSIncremental Retirement Benefit...................... - - - - - -Post Retirement Health Care... - - - - - -Healthcare.................... - - - - - -Life Insurance................ - - - - - - CHANGE INEXECUTIVE BENEFITS AND PAYMENTS CONTROLUPON TERMINATION DEATH TERMINATION------------------------------- CASH COMPENSATIONBase Salary................... - $ 975,000(1)Short Term Incentive.......... - $3,250,000(1)LONG TERM INCENTIVEPerformance Shares(9)......... $3,571,038(3)() $1,470,286(2)Stock Options:Unvested and Accelerated...... $ 314,479(4) -Restricted Stock:(9)Unvested and Accelerated...... $4,488,918(5) -BENEFITS AND PERKSIncremental Retirement Benefit...................... - $1,572,547(6)Post Retirement Health Care... - -Healthcare.................... - $ 17,046(7)Life Insurance................ - $ 157,680(8) --------------- (1) See description of Mr. Menezes' Employment Protection Agreement on page 196. Under the terms of the HSBC Severance Policy, Mr. Menezes will receive 36 weeks of his current salary upon separation from the company and a pro-rata amount of his earned bonus. The figures above represent the bonus payment earned in 2006 assuming a termination date of December 31, 2006. (2) The figures above represent the pro-rata portion of the Performance Shares, assuming "good leaver" status is granted by REMCO, that would vest three years from the date of grant assuming a termination date of December 31, 2006 and the performance conditions being met on a 100% basis, and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. For an explanation of the performance conditions please refer to Footnote 2 of the Grants of Plan-Based Awards Table. (3) The figure above represents a full vest of the Performance Shares that would vest three years from the date of grant assuming a termination date of December 31, 2006 and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (4) In the event of death, the figure above represents accelerated vesting of 100% of the outstanding, unvested stock options assuming the difference between the strike price and the fair market value of HSBC ordinary shares on December 29, 2006. The amounts represent outstanding unvested stock options that would continue to vest according to schedule, if REMCO approves such continued vesting, if a termination was involuntary not for cause or voluntary for good reason, and assumes the satisfaction of all applicable performance conditions. (5) The figures above represent a full vest of the outstanding restricted shares assuming a termination date of December 31, 2006 and assuming "good leaver" status is granted by REMCO. The figures are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (6) Mr. Menezes has an employment agreement providing an additional 18 months of service and pay toward his retirement benefit. He would be entitled to an additional $10,733 per month if a termination due to a change in control occurred on December 31, 2006. The present value of this benefit was determined by HSBC Finance Corporation's actuaries to be $1,572,547. (7) Mr. Menezes has an employment agreement providing an additional 18 months of healthcare coverage for himself and his family with a total value of $13,256 if a termination due to a change in control occurred on December 31, 2006. The value of this healthcare is calculated based on the medical plan's COBRA rates. In addition, Mr. Menezes' agreement provides for annual physicals at the company's expense throughout the 18 month period. The value of two physicals is $3,790. This value is based on a rate negotiated through HSBC Finance Corporation's executive physical program. (8) Mr. Menezes' employment agreement provides for $2 million of life insurance coverage for himself for 18 months, if a termination due to a change in control occurred on December 31, 2006, with a total value of $157,680. This value is based on the cost to convert the company-provided group life insurance to an individual policy for 18 months. (9) Does not include additional awards accumulated through December 31, 2006, the assumed date of termination. 212 KENNETH H. ROBIN EARLY INVOLUNTARY VOLUNTARY FOREXECUTIVE BENEFITS AND VOLUNTARY RETIREMENT/ NORMAL NOT FOR CAUSE FOR CAUSE GOOD REASONPAYMENT UPON TERMINATION TERMINATION DISABILITY RETIREMENT TERMINATION TERMINATION TERMINATION----------------------------------------------------------------------------------------------------------------------- CASH COMPENSATIONBase Salary..................... - - - $ 392,308(1) - -Short Term Incentive............ - - - $1,000,000(1) - -LONG TERM INCENTIVEPerformance Shares(6)........... - $1,132,472(2) - $1,132,472(2) - $1,132,472(2)Stock Options:Unvested and Accelerated........ - - - $ 222,583(4) - $ 222,583(4)Restricted Stock(6):Unvested and Accelerated........ - - - $1,148,800(5) - $1,148,800(5) CHANGE INEXECUTIVE BENEFITS AND CONTROLPAYMENT UPON TERMINATION DEATH TERMINATION-------------------------------- CASH COMPENSATIONBase Salary..................... - -Short Term Incentive............ - -LONG TERM INCENTIVEPerformance Shares(6)........... $2,683,802(3) $1,132,472(2)Stock Options:Unvested and Accelerated........ $ 222,583(4) -Restricted Stock(6):Unvested and Accelerated........ $1,148,800(5) - --------------- (1) Under the terms of the HSBC Severance Policy, Mr. Robin will receive 34 weeks of his current salary upon separation from the company and a pro-rata amount of his earned bonus. The figures above represent the bonus payment earned in 2006 assuming a termination date of December 31, 2006 (2) The figures above represent the pro-rata portion of the Performance Shares, assuming "good leaver" status is granted by REMCO, that would vest three years from the date of grant assuming a termination date of December 31, 2006 and the performance conditions being met on a 100% basis and are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. For an explanation of the performance conditions please refer to Footnote 2 of the Grants of Plan-Based Awards Table. (3)The figure above represents a full vest of the Performance Shares that would vest three years from the date of grant assuming a termination date of December 31, 2006 and is calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (4)In the event of death, the figure represents accelerated vesting of 100% of the outstanding, unvested stock options assuming the difference between the strike price and the fair market value of HSBC ordinary shares on December 29, 2006. The amounts represent outstanding unvested stock options that would continue to vest according to schedule, if REMCO approves such continued vesting, if a termination was involuntary not for cause or voluntary for good reason, and assumes the satisfaction of all applicable performance conditions. (5)The figures above represent a full vest of the outstanding restricted shares assuming a termination date of December 31, 2006 and assuming "good leaver" status is granted by REMCO. The figures are calculated using the closing price of HSBC ordinary shares and exchange rate on December 29, 2006. (6)Does not include additional awards accumulated through December 31, 2006, the assumed date of termination. 213 DIRECTOR COMPENSATION The following table and narrative text discusses the compensation awarded to,earned by or paid to our Directors in 2006. DIRECTOR COMPENSATION CHANGE IN PENSION VALUE AND NONQUALIFIED FEES EARNED STOCK OPTION DEFERRED ALL OTHER OR PAID IN AWARDS AWARDS COMPENSATION COMPENSATION TOTALNAME CASH(1) ($)(2) ($)(3) EARNINGS ($)(4) ($)------------------------------------------------------------------------------------------------------- William R. P. Dalton....... $170,000 -- -- -- 0 $170,000Gary G. Dillon............. $185,000 -- -- -- $ 1,850 $186,850J. Dudley Fishburn......... $170,000 -- -- -- 0 $170,000Cyrus F. Freidheim, Jr. ... $232,000 -- -- -- $45,819 $277,819Robert K. Herdman.......... $195,000 -- -- -- 0 $195,000Alan W. Jebson(5).......... -- -- -- -- -- --George A. Lorch............ $185,000 -- -- -- $ 2,570 $187,570Siddharth N. Mehta(5)...... -- -- -- -- -- --Larree M. Renda............ $200,000 -- -- -- $ 1,850 $201,850 --------------- (1) In 2006, the non-management Directors of HSBC Finance Corporation received an annual cash retainer of $170,000 (with the exception of Mr. Freidheim, who as Chair of the Executive Committee receives a retainer of $182,000). In addition to the Board retainer, Mr. Dillon received an additional $15,000 for his membership in the Audit Committee, Mr. Lorch received an additional $15,000 as Chair of the Compensation Committee, Ms. Renda received an additional $15,000 as Chair of the Nominating & Governance Committee, and an additional $15,000 for her membership on the Audit Committee, Mr. Herdman received an additional $25,000 as Chair of the Audit Committee, and Mr. Freidheim received an additional $50,000 as the Lead Director and Chair of the Executive Committee. HSBC Finance Corporation does not pay additional compensation for committee membership or meeting attendance fees to its Directors. Directors who are employees of HSBC Finance Corporation or any of its affiliates do not receive additional compensation related to their Board service. In February 2006, the Board reviewed its directors' compensation scheme relative to other same sized financial and professional service organizations and determined to make no changes to the current compensation structure. Directors have the ability to defer up to 100% of their annual retainers and/or fees into the HSBC-North America Directors Non-Qualified Deferred Compensation Plan. Under this plan, pre-tax dollars may be deferred with the choice of receiving payouts while still serving HSBC Finance Corporation according to a schedule established by the Director at the time of deferral or a distribution after leaving the Board in either lump sum, quarterly or annual installments. For 2006, Mr. Dillon deferred 100% of his retainer and Audit Committee fees. (2) HSBC Finance Corporation does not grant stock awards to its non-management directors nor do any portion of employee directors stock awards reflect services related to the Board. Prior to the merger with HSBC, non-management Directors could elect to receive all or a portion of their cash compensation in shares of common stock of Household International, Inc., defer it under the Deferred Fee Plan for Directors or purchase options to acquire common stock (as reflected in Footnote 3 below). Under the Deferred Fee Plan, Directors were permitted to invest their deferred compensation in either units of phantom shares of the common stock of HSBC Finance Corporation (then called Household International, Inc.), with dividends credited toward additional stock units, or cash, with interest credited at a market rate set under the plan. Prior to 1995, HSBC Finance Corporation offered a Directors' Retirement Income Plan where the present value of each Director's accrued benefit was deposited into the Deferred Phantom Stock Plan for Directors. Under the Deferred Phantom Stock Plan, Directors with less than ten years of service received 750 phantom shares of common stock of Household International, Inc. annually during the first ten years of service as a Director. In January 1997, the Board eliminated this and all future Director retirement benefits. All payouts to Directors earned under the Deferred Phantom Stock Plan will be made only when a Director leaves the Board due to death, retirement or resignation and will be paid in HSBC ordinary shares either in a lump sum or in installments as selected by the Director. Following the acquisition, all rights to receive common stock of Household International, Inc. under both plans described above were converted into rights to receive HSBC ordinary shares. In May 2004, when the plans were rolled into a non-qualified deferred compensation plan for Directors, those rights were revised into rights to receive American Depository Shares in HSBC ordinary shares, each of which represents five ordinary shares. No new shares may be issued under the plans. As of December 31, 2006, 14,452 American Depository Shares were held in the deferred compensation plan account for Directors. Specifically, Messrs. Dillon, Fishburn, and Lorch held 7,578, 810, and 6,038 American Depository Shares, respectively, and Ms. Renda held 26 American Depository Shares. 214 (3) HSBC Finance Corporation does not grant stock option awards to its non-management directors. As referenced in Footnote 2 above, as of December 31, 2006, 326,351 Stock Options were outstanding which were granted pursuant to the historical Directors Deferred Fee Plan. Specifically, Messrs. Dillon, Fishburn, and Lorch held options to purchase 69,550, 90,950 and 125,726 HSBC ordinary shares respectively, and Ms. Renda held options to purchase 40,125 HSBC ordinary shares. (4) Components of All Other Compensation are disclosed in the aggregate. All Other Compensation includes such items as personal use of aircraft and a corporate apartment. The following itemizes benefits to our Directors in 2006: Personal use of Corporate Apartment by Mr. Lorch was $720 in 2006. None of our directors had personal use of the corporate aircraft or limousine for 2006. All Other Compensation for Mr. Freidheim includes $43,969 in quarterly scheduled deferred compensation disbursements. We provide each Director with $250,000 of accidental death and dismemberment insurance and a $10,000,000 personal excess liability insurance policy for which the company paid premium is $1,850 per annum for each participating director. Under HSBC Finance Corporation's Matching Gift Program, for all directors elected prior to 2005, we match charitable gifts to qualified organizations (subject to a maximum of $10,000 per year), with a double match for the first $500 donated to higher education institutions (both public and private) and eligible non-profit organizations which promote neighborhood revitalization or economic development for low and moderate income populations. Each current independent Director may ask us to contribute up to $10,000 annually to charities of the Director's choice which qualify under our philanthropic program. (5) Employee Directors do not derive any compensation from their Board service. 215 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS.-------------------------------------------------------------------------------- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS HSBC Finance Corporation's common stock is 100% owned by HSBC Investments (NorthAmerica) Inc. ("HINO"). HINO is an indirect wholly owned subsidiary of HSBC. SECURITY OWNERSHIP BY MANAGEMENT-------------------------------------------------------------------------------- The following table lists the beneficial ownership, as of January 31, 2007, ofHSBC ordinary shares or interests in ordinary shares and Series B PreferredStock of HSBC Finance Corporation by each director and the executive officersnamed in the Summary Compensation Table on page 198, individually, and thedirectors and executive officers as a group. Each of the individuals listedbelow and all directors and executive officers as a group own less than 1% ofthe ordinary shares of HSBC and the Series B Preferred Stock of HSBC FinanceCorporation. HSBC SHARES HSBC NUMBER OF THAT MAY BE RESTRICTED SERIES B SHARES ACQUIRED WITHIN SHARES PREFERRED OF BENEFICIALLY 60 DAYS BY RELEASED NUMBER OF TOTAL HSBC HSBC OWNED OF HSBC EXERCISE OF WITHIN ORDINARY SHARE ORDINARY FINANCE HOLDINGS PLC(1)(2) OPTIONS(4) 60 DAYS(5) EQUIVALENTS(6) SHARES CORPORATION------------------------------------------------------------------------------------------------------------------------ DIRECTORSWilliam R. P. Dalton.... 106,679 - - - 106,679 -Gary G. Dillon.......... 218,050 69,550 - 37,890 325,490 -J. Dudley Fishburn...... 15,678 90,950 - 4,050 110,678 -Douglas J. Flint........ 72,622 - - - 72,622 -Cyrus F. Freidheim, Jr.................... - - - - - -Robert K. Herdman....... - - - - - -George A. Lorch......... 13,605 125,726 - 30,190 169,521 -Siddharth N. Mehta...... 268,976 3,269,900 107,912 61,120 3,707,908 -Larree M. Renda......... 8,250 40,125 - 130 48,505 50(3)Michael R. P. Smith..... 145,029 - 37,873(1) - 182,902 -NAMED EXECUTIVE OFFICERSBeverley A. Sibblies.... - - - - - -Thomas M. Detelich...... - 694,688 80,934 4,109 779,731 -Walter G. Menezes....... 128,108 516,425 22,291 - 666,824 -Kenneth H. Robin........ 194,015 821,750 - 68,129 1,083,894 -ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP............... 1,449,458(7) 7,112,464 315,469 285,582 9,162,973 50 --------------- (1) Directors and executive officers have sole voting and investment power over the shares listed above, except that the number of ordinary shares held by spouses, children and charitable or family foundations in which voting and investment power is shared (or presumed to be shared) is as follows: Mr. Dalton, 56,019; Mr. Lorch, 13,605; Ms. Renda, 8,250; Mr. Smith, 182,902; Mr. Robin, 1,070; other executive officers, 11,507; and Directors and executive officers as a group, 273,353.(2) Some of the shares included in the table above were held in American Depository Shares, each of which represents five HSBC ordinary shares.(3) Represents 2000 Depositary Shares, each representing one-fortieth of a share of 6.36% Non-Cumulative Preferred Stock, Series B.(4) Represents the number of ordinary shares that may be acquired by HSBC Finance Corporation's Directors and executive officers through April 1, 2007 pursuant to the exercise of stock options.(5) Represents the number of ordinary shares that may be acquired by HSBC Finance Corporation's Directors and executive officers through April 1, 2007 pursuant to the satisfaction of certain conditions.(6) Represents the number of ordinary share equivalents owned by executive officers under HSBC-North America (U.S.) Tax Reduction Investment Plan (TRIP) and HSBC North America Employee Non-Qualified Deferred Compensation Plan and by Directors under HSBC North America Directors Non-Qualified Deferred Compensation Plan. Some of the shares included in the table above were held in American Depository Shares, each of which represents five HSBC ordinary shares.(7) Of the amount of shares reported, 15,608 shares are pledged as security. 216 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE.-------------------------------------------------------------------------------- TRANSACTIONS WITH RELATED PERSONS During our fiscal year ended December 31, 2006, HSBC Finance Corporation was nota participant in any transaction, and there is currently no proposedtransaction, in which the amount involved exceeded or will exceed $120,000, andin which a director or an executive officer, or a member of the immediate familyof a director or an executive officer, had or will have a direct or indirectmaterial interest, other than the agreements with Messrs. Mehta and Menezesdescribed in Item 11. Executive Compensation - Compensation Discussion andAnalysis - Compensation of Officers Reported in the Summary Compensation Table. HSBC Finance Corporation maintains a written Policy for the Review, Approval orRatification of Transactions with Related Persons which provides that any"Transaction with a Related Person" must be reviewed and approved or ratified inaccordance with specified procedures. The term "Transaction with a RelatedPerson" includes any transaction, arrangement or relationship, or series ofsimilar transactions, arrangements or relationships, in which (1) the aggregatedollar amount involved will or may be expected to exceed $120,000 in anycalendar year, (2) HSBC Finance Corporation or any of its subsidiaries is, or isproposed to be, a participant, and (3) a director or an executive officer, or amember of the immediate family of a director or an executive officer, has orwill have a direct or indirect material interest (other than solely as a resultof being a director or a less than 10 percent beneficial owner of anotherentity). The following are specifically excluded from the definition ofTransaction with a Related Person: - compensation paid to directors and executive officers reportable under rules and regulations promulgated by the Securities and Exchange Commission; - transactions with other companies if the only relationship of the director, executive officer or family member to the other company is as an employee (other than an executive officer), director or beneficial owner of less than 10 percent of such other company's equity securities; - charitable contributions, grants or endowments by HSBC Finance Corporation or any of its subsidiaries to charitable organizations, foundations or universities if the only relationship of the director, executive officer or family member to the organization, foundation or university is as an employee (other than an executive officer) or a director; - transactions where the interest of the director, executive officer or family member arises solely from the ownership of HSBC Finance Corporation's equity securities and all holders of such securities received or will receive the same benefit on a pro rata basis; - transactions where the rates or charges involved are determined by competitive bids; and - transactions involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services. The policy requires each director and executive officer to notify the Office ofthe General Counsel in writing of any Transaction with a Related Person in whichthe director, executive officer or an immediate family member has or will havean interest and to provide specified details of the transaction. The Office ofthe General Counsel, through the Corporate Secretary, will deliver a copy of thenotice to the Chair of the Nominating and Governance Committee of the Board ofDirectors. The Nominating and Governance Committee will review the facts of eachproposed Transaction with a Related Person at each regularly scheduled committeemeeting and approve, ratify or disapprove the transaction. The vote of a majority of disinterested members of the Nominating and GovernanceCommittee is required for the approval or ratification of any Transaction with aRelated Person. The Nominating and Governance Committee may approve or ratify atransaction if the committee determines, in its business judgment, based on thereview of all available information, that the transaction is fair and reasonableto, and consistent with the best interests of, HSBC Finance Corporation and itssubsidiaries. In making this determination, the Nominating and GovernanceCommittee will consider, among other things, (i) the business purpose of thetransaction, (ii) whether the transaction is entered into on an arms-lengthbasis and on terms no less favorable than terms generally available to anunaffiliated third-party under the same or similar circumstances, (iii) whetherthe interest of the director, executive officer or family member in thetransaction is material and (iv) whether the transaction would violate anyprovision of the HSBC North America Holdings Inc. 217 Statement of Business Principles and Code of Ethics, the HSBC FinanceCorporation Code of Ethics for Senior Financial Officers or the HSBC FinanceCorporation Corporate Governance Standards, as applicable. In any case where the Nominating and Governance Committee determines not toapprove or ratify a transaction, the matter will be referred to the Office ofthe General Counsel for review and consultation regarding the appropriatedisposition of such transaction including, but not limited to, termination ofthe transaction, rescission of the transaction or modification of thetransaction in a manner that would permit it to be ratified and approved. DIRECTOR INDEPENDENCE The HSBC Finance Corporation Corporate Governance Standards, together with thecharters of committees of the Board of Directors, provide the framework for ourcorporate governance. Director independence is defined in the HSBC FinanceCorporation Corporate Governance Standards which are based upon the rules of theNew York Stock Exchange. The HSBC Finance Corporation Corporate GovernanceStandards are available on our website at www.hsbcusa.com or upon writtenrequest made to HSBC Finance Corporation, 2700 Sanders Road, Prospect Heights,Illinois 60070, Attention: Corporate Secretary. According to the HSBC Finance Corporation Corporate Governance Standards, amajority of the members of the Board of Directors must be independent. Thecomposition requirement for each committee of the Board of Directors is asfollows: COMMITTEE INDEPENDENCE/MEMBER REQUIREMENTS------------------------------------------------------------------------------------------------------ Audit Committee.................................... Chair and all voting membersCompensation Committee............................. Chair and a majority of membersNominating and Governance Committee................ Chair and a majority of membersExecutive Committee................................ 100% independent directors and the Chairman and Chief Executive Officer Messrs. Dillon, Freidheim, Herdman, Lorch and Ms. Renda are considered to beindependent directors. Mr. Dalton served as Executive Director of HSBC until May2004, Mr. Fishburn serves as chairman of the board of HFC Bank Ltd. and is amember of the board of HSBC Bank plc, Mr. Flint serves as Group Finance Directorat HSBC and Mr. Smith is the President and Chief Executive Officer of theHongkong and Shanghai Banking Corporation. Because of the positions held byMessrs. Dalton, Fishburn, Flint and Smith, they are not considered to beindependent directors. See Item 10. Directors, Executive Officers and Corporate Governance - CorporateGovernance - Board of Directors - Committees and Charters for more informationabout our Board of Directors and its committees. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.-------------------------------------------------------------------------------- AUDIT FEES. The aggregate amount billed by our principal accountant, KPMG LLP,for audit services performed during the fiscal years ended December 31, 2006 and2005 was $7,278,000 and $6,785,000, respectively. Audit services include theauditing of financial statements, quarterly reviews, statutory audits, and thepreparation of comfort letters, consents and review of registration statements. AUDIT RELATED FEES. The aggregate amount billed by KPMG LLP in connection withaudit related services performed during the fiscal years ended December 31, 2006and 2005 was $1,453,000 and $1,272,000, respectively. Audit related servicesinclude employee benefit plan audits, and audit or attestation services notrequired by statute or regulation. TAX FEES. Total fees billed by KPMG LLP for tax related services for the fiscalyears ended December 31, 2006 and 2005 were $127,000 and $658,000, respectively.These services include tax related research, general tax services in connectionwith transactions and legislation and tax services for review of Federal andstate tax accounts for possible overassessment of interest and/or penalties. 218 ALL OTHER. Other than those fees described above, there were no other feesbilled for services performed by KPMG LLP during the fiscal years ended December31, 2006 and December 31, 2005. All of the fees described above were approved by HSBC Finance Corporation'saudit committee. AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES. HSBC Finance Corporation'saudit committee pre-approves the audit and non-audit services performed by KPMGLLP, our principal accountants, in order to assure that the provision of suchservices does not impair KPMG LLP's independence. Unless a type of service to beprovided by KPMG LLP has received general pre-approval, it will require specificpre-approval by the audit committee. In addition, any proposed servicesexceeding pre-approval cost levels will require specific pre-approval by theaudit committee. The term of any pre-approval is 12 months from the date of pre-approval, unlessthe audit committee specifically provides for a different period. The auditcommittee will periodically revise the list of pre-approved services, based onsubsequent determinations, and has delegated pre-approval authority to the Chairof the audit committee. In the event the Chair of the audit committee exercisessuch delegated authority, he will report such pre-approval decisions to theaudit committee at its next scheduled meeting. The audit committee does notdelegate its responsibilities to pre-approve services performed by theindependent auditor to management. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.-------------------------------------------------------------------------------- (a)(1) Financial Statements. The consolidated financial statements listed below, together with an opinion ofKPMG LLP dated March 6, 2006 with respect thereto, are included in this Form10-K pursuant to Item 8. Financial Statements and Supplementary Data of thisForm 10-K. HSBC FINANCE CORPORATION AND SUBSIDIARIES: Report of Independent Registered Public Accounting Firm Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Changes in Shareholder's(s') Equity Notes to Consolidated Financial Statements Selected Quarterly Financial Data (Unaudited) (a)(2) Not applicable (a)(3) Exhibits. 3(i) Amended and Restated Certificate of Incorporation of HSBC Finance Corporation effective as of December 15, 2004, as amended (incorporated by reference to Exhibit 3.1 of HSBC Finance Corporation's Current Report on Form 8-K filed June 22, 2005 and Exhibit 3.1(b) of HSBC Finance Corporation's Current Report on Form 8-K filed December 19, 2005). 3(ii) Bylaws of HSBC Finance Corporation, as amended December 14, 2006. 4.1 Amended and Restated Standard Multiple-Series Indenture Provisions for Senior Debt Securities of HSBC Finance Corporation dated as of December 15, 2004 (incorporated by reference to Exhibit 4.1 of Amendment No. 1 to HSBC Finance Corporation's Registration Statements on Form S-3 Nos. 333-120494, 333-120495 and 333-120496 filed December 16, 2004). 219 4.2* Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance Corporation and JPMorgan Chase Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.2 of Amendment No. 1 to HSBC Finance Corporation's Registration Statements on Form S-3 Nos. 333-120495 and 333-120496 filed December 16, 2004). 4.3 The principal amount of debt outstanding under each other instrument defining the rights of Holders of our long-term senior and senior subordinated debt does not exceed 10 percent of our total assets. HSBC Finance Corporation agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument defining the rights of holders of our long-term senior and senior subordinated debt. 12 Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends. 14 Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14 of HSBC Finance Corporation's Annual Report on Form 10-K for the year ended December 31, 2004 filed February 28, 2005). 21 Subsidiaries of HSBC Finance Corporation. 23 Consent of KPMG LLP, Independent Registered Public Accounting Firm. 24 Power of Attorney (included on page 220 of this Form 10-K). 31 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Ratings of HSBC Finance Corporation and its significant subsidiaries. 99.2 Explanation of Differences between U.K. GAAP and IFRSs, an excerpt from Footnote 46, "Transitions to IFRSs," contained in HSBC Holdings Annual Report on Form 20-F for the year ended December 31, 2005. Upon receiving a written request, we will furnish copies of the exhibitsreferred to above free of charge. Requests should be made to HSBC FinanceCorporation, 2700 Sanders Road, Prospect Heights, Illinois 60070, Attention:Corporate Secretary.--------------- * Substantially identical indentures exist with U.S. Bank National Association, BNY Midwest Trust Company and JPMorgan Trust Company, National Association. 220 SIGNATURES-------------------------------------------------------------------------------- Pursuant to the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, HSBC Finance Corporation has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized on this, the 5th dayof March, 2007. HSBC FINANCE CORPORATION By: /s/ Brendan P. McDonagh ------------------------------------ Brendan P. McDonagh Chief Executive Officer Each person whose signature appears below constitutes and appoints P.D. Schwartzas his/her true and lawful attorney-in-fact and agent, with full power ofsubstitution and resubstitution, for him/her in his/her name, place and stead,in any and all capacities, to sign and file, with the Securities and ExchangeCommission, this Form 10-K and any and all amendments and exhibits thereto, andall documents in connection therewith, granting unto each such attorney-in-factand agent full power and authority to do and perform each and every act andthing requisite and necessary to be done, as fully to all intents and purposesas he/she might or could do in person, hereby ratifying and confirming all thatsuch attorney-in-fact and agent or their substitutes may lawfully do or cause tobe done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this reporthas been signed below by the following persons on behalf of HSBC FinanceCorporation and in the capacities indicated on the 5th day of March, 2007. SIGNATURE TITLE-------------------------------------------------------------------------------------------------------- /s/ B.P. MCDONAGH Chief Executive Officer ------------------------------------------------------ (as Principal Executive Officer) (B.P. McDonagh) /s/ D.J. FLINT Chairman and Director ------------------------------------------------------ (D.J. Flint) /s/ W. R. P. DALTON Director ------------------------------------------------------ (W. R. P. Dalton) /s/ G. G. DILLON Director ------------------------------------------------------ (G. G. Dillon) /s/ J. D. FISHBURN Director ------------------------------------------------------ (J. D. Fishburn) /s/ C. F. FREIDHEIM, JR. Director ------------------------------------------------------ (C. F. Freidheim, Jr.) /s/ R. K. HERDMAN Director ------------------------------------------------------ (R. K. Herdman) /s/ G. A. LORCH Director ------------------------------------------------------ (G. A. Lorch) 221 SIGNATURE TITLE-------------------------------------------------------------------------------------------------------- /s/ L. M. RENDA Director ------------------------------------------------------ (L. M. Renda) /s/ M.R.P. SMITH Director ------------------------------------------------------ (M.R.P. Smith) /s/ B. A. SIBBLIES Senior Vice President and Chief Financial ------------------------------------------------------ Officer (B. A. Sibblies) /s/ J. E. BINYON Vice President and Chief Accounting Officer ------------------------------------------------------ (J. E. Binyon) 222 EXHIBIT INDEX-------------------------------------------------------------------------------- 3(i) Amended and Restated Certificate of Incorporation of HSBC Finance Corporation effective as of December 15, 2004, as amended (incorporated by reference to Exhibit 3.1 of HSBC Finance Corporation's Current Report on Form 8-K filed June 22, 2005 and Exhibit 3.1(b) of HSBC Finance Corporation's Current Report on Form 8-K filed December 19, 2005). 3(ii) Bylaws of HSBC Finance Corporation, as amended December 14, 2006. 4.1 Amended and Restated Standard Multiple-Series Indenture Provisions for Senior Debt Securities of HSBC Finance Corporation dated as of December 15, 2004 (incorporated by reference to Exhibit 4.1 of Amendment No. 1 to HSBC Finance Corporation's Registration Statements on Form S-3 Nos. 333-120494, 333-120495 and 333-120496 filed December 16, 2004). 4.2* Amended and Restated Indenture for Senior Debt Securities dated as of December 15, 2004 between HSBC Finance Corporation and JPMorgan Chase Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.2 of Amendment No. 1 to HSBC Finance Corporation's Registration Statements on Form S-3 Nos. 333-120495 and 333-120496 filed December 16, 2004). 4.3 The principal amount of debt outstanding under each other instrument defining the rights of Holders of our long-term senior and senior subordinated debt does not exceed 10 percent of our total assets. HSBC Finance Corporation agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument defining the rights of holders of our long-term senior and senior subordinated debt. 12 Statement of Computation of Ratio of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends. 14 Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14 of HSBC Finance Corporation's Annual Report on Form 10-K for the year ended December 31, 2004 filed February 28, 2005). 21 Subsidiaries of HSBC Finance Corporation. 23 Consent of KPMG LLP, Independent Registered Public Accounting Firm. 24 Power of Attorney (included on page 220 of this Form 10-K). 31 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Ratings of HSBC Finance Corporation and its significant subsidiaries. 99.2 Explanation of Differences between U.K. GAAP and IFRSs, an excerpt from Footnote 46, "Transition to IFRSs," contained in HSBC Holdings Annual Report on Form 20-F for the year ended December 31, 2005. --------------- * Substantially identical indentures exist with U.S. Bank National Association, BNY Midwest Trust Company and JPMorgan Trust Company, National Association. EXHIBIT 3(II) HSBC FINANCE CORPORATION BYLAWS --------------------- (AS IN EFFECT DECEMBER 14, 2006) 1 --------------------- BYLAWS OF HSBC FINANCE CORPORATION --------------------- ARTICLE I. DEFINITIONS, PLACES OF MEETINGS. SECTION 1. Definitions. When used herein, "Board" shall mean the Board ofDirectors of this Corporation, and "Chairman" shall mean Chairman of the Boardof Directors. SECTION 2. Places of Meetings of Stockholders and Directors. Unless the Boardshall fix another place for the holding of the meeting, meetings of stockholdersand of the Board shall be held at the Corporation's headquarters, ProspectHeights, Cook County, Illinois, or at such other place specified by the personor persons calling the meeting. ARTICLE II. STOCKHOLDERS MEETINGS. SECTION 1. Annual Meeting of Stockholders. The annual meeting of stockholdersshall be held on such date and at such time as is fixed by the Board. Anypreviously scheduled annual meeting of stockholders may be postponed byresolution of the Board of Directors upon public announcement given prior to thedate previously scheduled for such annual meeting of stockholders. SECTION 2. Special Meetings. CALL. Special meetings of the stockholders may be called at any time by theChief Executive Officer or a majority of the Board of Directors. Any previouslyscheduled special meeting of stockholders may be postponed by resolution of theBoard of Directors upon notice to the stockholders given prior to the datepreviously scheduled for such special meeting of stockholders. REQUISITES OF CALL. A call for a special meeting of stockholders shall be inwriting, filed with the Secretary, and shall specify the time and place ofholding such meeting and the purpose or purposes for which it is called. SECTION 3. Notice of Meetings. Written notice of a meeting of stockholderssetting forth the place, date, and hour of the meeting and the purpose orpurposes for which the meeting is called shall be mailed not less than ten normore than sixty days before the date of the meeting to each stockholder entitledto vote at the meeting. SECTION 4. Quorum and Adjournments. At any meeting of stockholders, theholders of a majority of all the outstanding shares entitled to vote, present inperson or by proxy, shall constitute a quorum for the transaction of business,and a majority of such quorum shall prevail except as otherwise required by law,the Certificate of Incorporation, or the bylaws. If the stockholders necessary for a quorum shall fail to be present at the timeand place fixed for any meeting, the holders of a majority of the sharesentitled to vote who are present in person or by proxy may adjourn the meetingfrom time to time, until a quorum is present, provided, however, that anystockholders' meeting, annual or special, whether or not a quorum is present,may be adjourned from time to time by the Chairman of the meeting. At anyadjourned meeting, any business may be transacted which might have beentransacted at the original meeting. 2 SECTION 5. Polls. The date and time of the opening and the closing of thepolls for each matter upon which the stockholders will vote at a meeting shallbe announced at the meeting. No ballot, proxies or votes, nor any revocationsthereof or changes thereto, shall be accepted by the inspectors after theclosing of the polls unless the Court of Chancery of the State of Delaware uponapplication by a stockholder shall determine otherwise. ARTICLE III. BOARD OF DIRECTORS. SECTION 1. General Powers. The business and affairs of this Corporation shallbe managed under the direction of the Board. NUMBER. The number of directors shall be fixed from time to time by resolutionof the Board. TENURE. The directors shall be elected at the annual meeting of stockholders,except as provided in Section 5 of this Article III, and each director shallhold office until his successor is elected and qualified or until his earlierresignation or removal. SECTION 2. Regular Meetings of the Board. Regular meetings of the Board shallbe held at such times and places as the Board may fix. No notice shall berequired. SECTION 3. Special Meetings of the Board. Special meetings of the Board shallbe held whenever called by the Chairman of the Board or Chief Executive Officeror any four or more directors. At least twenty-four hours written notice or oralnotice of each special meeting shall be given to each director. If mailed,notice must be deposited in the United States mail at least seventy-two hoursbefore the meeting. SECTION 4. Quorum. A majority of the members of the Board if the total numberis odd or one-half thereof if the total number is even shall constitute a quorumfor the transaction of business, but if at any meeting of the Board there isless than a quorum the majority of those present may adjourn the meeting fromtime to time until a quorum is present. At any such adjourned meeting, a quorumbeing present, any business may be transacted which might have been transactedat the original meeting. Except as otherwise provided by law, the Certificate of Incorporation, or thebylaws, all actions of the Board shall be decided by vote of a majority of thosepresent. SECTION 5. Vacancies. When any vacancy occurs among the Board, the remainingmembers of the Board may elect a director to fill each such vacancy at anyregular meeting of the Board, or at a special meeting called for that purpose. Adirector elected to fill a vacancy shall serve for the unexpired portion of theterm of his predecessor in office. SECTION 6. Removal of Directors. Any director may be removed either with orwithout cause, at any time, by a vote of the holders of a majority of the sharesof the Corporation at any meeting of stockholders called for that purpose. SECTION 7. Committees. The Board may, by resolution passed by a majority ofthe entire Board, designate one or more committees of directors which to theextent provided in the resolution shall have and may exercise powers andauthority of the Board in the management of the business and affairs of theCorporation. SECTION 8. Action of the Board. Except as otherwise provided by law, corporateaction to be taken by the Board shall mean such action at a meeting of theBoard. Any action required or permitted to be taken by the Board may be takenwithout a meeting if all members of the Board consent in writing to a resolutionauthorizing the action. The resolution and the written consents thereto shall befiled with the minutes of the proceedings of the Board. Any one or more membersof the Board may participate in a meeting of the Board by means of a conferencetelephone or similar communications equipment allowing all persons participatingin the meeting to hear each other at the same time. Participation by such meansshall constitute presence in person at a meeting. 3 ARTICLE IV. OFFICERS. SECTION 1. Officers. The Policy Making Officers of the Corporation shall beappointed by the Board of Directors. The Board of Directors shall also appointGeneral Officers to manage the day-to-day business functions of the Corporation.Policy Making Officers shall have the authority to appoint other AssistantOfficers to assist in the ministerial aspects of their area of responsibilities. The Policy Making Officers of the Corporation shall include the Chief ExecutiveOfficer, the Chief Operating Officer (if any), the Chief Financial Officer, thePresident (if any), any Vice Chairman, any Senior Executive Vice President, anyExecutive Vice President, any Group Executive, any Managing Director, theGeneral Counsel, the Chief Accounting Officer (if any), and the Treasurer. TheGeneral Officers of the Corporation shall be any Senior Vice President, any VicePresident, the Controller, the Chief Governance Officer (if any) and theSecretary. Any person holding the title of Chairman or Chief Executive Officershall be a director of the Corporation. The Board may from time to time designate, employ, or appoint such otherofficers and assistant officers, agents, employees, counsel, and attorneys atlaw or in fact as it shall deem desirable for such periods and on such terms asit may deem advisable, and such persons shall have such titles, only such powerand authority, and perform such duties as the Board may determine. SECTION 2. Duties of Chairman of the Board. The Chairman shall sign and issue,jointly with the President (if any), all reports to the stockholders and shallpreside at all meetings of stockholders and of the Board. He shall, in general,perform duties incident to the office of Chairman as may be prescribed by theBoard. SECTION 3. Duties of Chief Executive Officer. At the next meeting of the Boardfollowing the Annual Meeting of Stockholders, or other meeting at which PolicyMaking Officers are or may be elected, the Board shall designate the Chairman orthe President (if any) as the Chief Executive Officer of the Corporation. TheChief Executive Officer shall have general authority over all matters relatingto the business and affairs of the Corporation subject to the control anddirection of the Board. In the absence or inability of the Chief ExecutiveOfficer to act, the Chair of the Executive Committee of the Board shall performthe duties of the Chief Executive Officer. SECTION 4. Duties of President. The President, if one is appointed by theBoard, shall, in general, perform all duties incident to the office of Presidentand shall perform such other duties as may be prescribed by the Board. In theabsence or inability of the Chairman, or the Chair of the Executive Committee inaccordance with Section 3 above, to act, the President shall perform the dutiesof the Chairman and Chief Executive Officer for such time period as required. SECTION 5. Duties of a Vice Chairman. A Vice Chairman, if one is appointed bythe Board, shall, in general, perform all duties incident to the office of aVice Chairman and shall perform such other duties as may be prescribed by theBoard. In the absence or inability of the President or the Chair of theExecutive Committee to act as the Chief Executive Officer in accordance withSections 3 and 4 above, the most senior Vice Chairman, as designated by theChairman, shall perform the duties of the Chief Executive Officer and Chairmanfor such time period as required. SECTION 6. Duties of Senior Executive Vice Presidents, Executive VicePresidents, Group Executives and Senior Vice Presidents. Each Senior ExecutiveVice President, Executive Vice President, Group Executive and Senior VicePresident shall have such powers and perform such duties as may be prescribed bythe Chief Executive Officer of the Corporation or the Board. The order ofseniority, if any, among the Senior Executive Vice Presidents, Executive VicePresidents, Group Executives and Senior Vice Presidents shall be as designatedfrom time to time by the Chief Executive Officer of the Corporation. In theabsence or inability of any Vice Chairman to act as the Chief Executive Officeras may be required in accordance with Section 5 above, the senior of the SeniorExecutive Vice Presidents, Executive Vice Presidents, Group Executives and 4 Senior Vice Presidents, if one has been so designated, shall perform the dutiesof the Chief Executive Officer and Chairman for such time period as required. SECTION 7. Duties of Secretary. The Secretary shall record the proceedings ofmeetings of the stockholders and directors, give notices of meetings, and shall,in general, perform all duties incident to the office of Secretary and suchother duties as may be prescribed by the Board. SECTION 8. Duties of Treasurer. The Treasurer shall have custody of all funds,securities, evidences of indebtedness, and other similar property of theCorporation, and shall, in general, perform all duties incident to the office ofTreasurer and such other duties as may be prescribed by the Board. ARTICLE V. STOCK AND STOCK CERTIFICATES. SECTION 1. Transfers. Shares of stock shall be transferable on the books ofthe Corporation only by the person named in the certificate or by an attorney,lawfully constituted in writing, and upon surrender of the certificate therefor.Every person becoming a stockholder by such transfer shall, in proportion to hisshares, succeed to all rights of the prior holder of such shares. SECTION 2. Stock Certificates. The certificates of stock of the Corporationshall be numbered and shall be entered in the books of the Corporation as theyare issued. They shall exhibit the holder's name and number of shares and shallbe signed by the President or Vice President and the Secretary or Treasurer.Every certificate shall have noted thereon any information required to be setforth by the applicable law. If the Corporation has a transfer agent or anassistant transfer agent or a transfer clerk acting on its behalf and aregistrar, the signature of any such officer may be a facsimile. In case anyofficer or officers who shall have signed, or whose facsimile signature orsignatures shall have been used on any such certificate or certificates shallcease to be such officer or officers of the Corporation, whether because ofdeath, resignation or otherwise, before such certificate or certificates shallhave been delivered by the Corporation, such certificate or certificates maynevertheless be adopted by the Corporation and be issued and delivered as thoughthe person or persons who signed such certificate or certificates or whosefacsimile signatures shall have been used thereon had not ceased to be suchofficer or officers of the Corporation. SECTION 3. Fixing Record Date. (A) In order that the Corporation may determine the stockholders entitled tonotice of or to vote at any meeting of stockholders or any adjournment thereof,or to express consent to corporate action in writing without a meeting, orentitled to receive payment of any dividend or other distribution or allotmentof any rights, or entitled to exercise any rights in respect of any change,conversion or exchange of stock or for the purpose of any other lawful action,the Board may fix, in advance, a record date, which shall not be more than sixtynor less than ten days before the date of such meeting, nor more than sixty daysprior to any other action. (B) If no record date is fixed: (1) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (2) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. SECTION 4. Registered Shareholders. The Corporation shall be entitled to treatthe holder of record of any share or shares of stock as the holder in factthereof and, accordingly, shall not be bound to recognize any equitable or otherclaim to or interest in such share on the part of any other person, whether ornot it shall have express or other notice thereof, save as expressly provided bythe law. 5 SECTION 5. Lost Certificates. Any person claiming a certificate of stock to belost or destroyed shall make an affidavit or affirmation of that fact andadvertise the same in such manner as the Board may require, and the Board may,in its discretion, require the owner of the lost or destroyed certificate, orhis legal representative, to give the Corporation a bond, sufficient toindemnify the Corporation against any claim that may be made against it onaccount of the alleged loss of any such certificate. A new certificate of thesame tenor and for the same number of shares as the one alleged to be lost ordestroyed may be issued without requiring any bond when, in the judgment of theBoard, it is proper so to do. ARTICLE VI. EMERGENCY BYLAWS. SECTION 1. When Operative. Notwithstanding any different provision in thepreceding Articles of the bylaws or in the Certificate of Incorporation, theemergency bylaws provided in this Article VI shall be operative during anyemergency resulting from an attack on the United States or on a locality inwhich the Corporation conducts its business or customarily holds meetings of itsBoard or its stockholders, or during any nuclear or atomic disaster, or duringthe existence of any catastrophe, or other similar emergency condition, as aresult of which a quorum of the Board or a standing committee thereof cannotreadily be convened for action. SECTION 2. Board Meetings. During any such emergency, a meeting of the Boardmay be called by any director or, if necessary, by any officer who is not adirector. The meeting shall be held at such time and place, within or withoutCook County, Illinois, specified by the person calling the meeting and in thenotice of the meeting which shall be given to such of the directors as it may befeasible to reach at the time and by such means as may be feasible at the time,including publication or radio. Such advance notice shall be given as, in thejudgment of the person calling the meeting, circumstances permit. Two directorsshall constitute a quorum for the transaction of business. To the extentrequired to constitute a quorum at the meeting, the officers present shall bedeemed, in order of rank and within the same rank in order of seniority,directors for the meeting. SECTION 3. Amendments to Emergency Bylaws. These emergency bylaws may beamended, either before or during any emergency, to make any further or differentprovision that may be practical and necessary for the circumstances of theemergency. ARTICLE VII. CONSENTS TO CORPORATE ACTION. SECTION 1. Action by Written Consent. Unless otherwise provided in theCertificate of Incorporation, any action which is required to be or may be takenat any annual or special meeting of stockholders of the Corporation, subject tothe provisions of Sections (2) and (3) of this Article VII, may be taken withouta meeting, without prior notice and without a vote if a consent in writing,setting forth the action so taken, shall have been signed by the holders ofoutstanding stock having not less than the minimum number of votes that would benecessary to authorize or to take such action at a meeting at which all sharesentitled to vote thereon were present and voted; provided, however, that promptnotice of the taking of the corporate action without a meeting and by less thanunanimous written consent shall be given to those stockholders who have notconsented in writing. SECTION 2. Determination of Record Date for Action by Written Consent. Therecord date for determining stockholders entitled to express consent tocorporate action in writing without a meeting shall be fixed by the Board ofDirectors of the Corporation. Any stockholder seeking to have the stockholdersauthorize or take corporate action by written consent without a meeting shall,by written notice to the Secretary, request the Board of Directors to fix arecord date. Upon receipt of such a request, the Secretary shall, as promptly aspracticable, call a special meeting of the Board of Directors to be held aspromptly as practicable. At such meeting, the Board of Directors shall fix arecord date as provided in Section 213(b) (or 6 its successor provision) of the Delaware General Corporation Law; that recorddate, however, shall not be more than 10 days after the date upon which theresolution fixing the record date is adopted by the Board nor more than 15 daysfrom the date of the receipt of the stockholder's request. Should the Board failto fix a record date as provided for in this Section 2, then the record dateshall be the day on which the first written consent is duly delivered pursuantto Section 213(b) (or its successor provision) of the Delaware GeneralCorporation Law, or, if prior action is required by the Board with respect tosuch matter, the record date shall be at the close of business on the day onwhich the Board adopts the resolution taking such action. SECTION 3. Procedures for Written Consent. In the event of the delivery to theCorporation of a written consent or consents purporting to represent therequisite voting power to authorize or take corporate action and/or relatedrevocations, the Secretary of the Corporation shall provide for the safekeepingof such consents and revocations. ARTICLE VIII. MISCELLANEOUS PROVISIONS. SECTION 1. Waiver of Notice. Whenever notice is required to be given, awritten waiver thereof signed by the person entitled to notice, whether beforeor after the time stated therein, shall be deemed equivalent to notice.Attendance of a person at a meeting shall constitute a waiver of notice of suchmeeting, except when the person attends a meeting for the express purpose ofobjecting, at the beginning of the meeting, to the transaction of any businessbecause the meeting is not lawfully called or convened. SECTION 2. Corporate Seal. The corporate seal shall have inscribed thereon thename of the Corporation, the year of its organization and the words "CorporateSeal, Delaware". The seal may be used by causing it or a facsimile thereof to beimpressed or affixed or in any manner reproduced. SECTION 3. Fiscal Year. The Fiscal Year of the Corporation shall be thecalendar year. SECTION 4. Records. The Bylaws and the proceedings of all meetings of thestockholders and the Board shall be recorded in appropriate minute booksprovided for the purpose. The minutes of each meeting shall be signed by theSecretary or other officer appointed to act as Secretary of the meeting. SECTION 5. Amendments. The Bylaws may be added to, amended, altered orrepealed at any regular meeting of the Board, by a vote of a majority of thetotal number of the directors, or at any meeting of stockholders, duly calledand held, by a majority of the stock represented at such meeting. 7 EXHIBIT 12 HSBC FINANCE CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS MARCH 29 JANUARY 1 YEAR ENDED YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 28, 2006 2005 2004 2003 2003 2002--------------------------------------------------------------------------------------------------------------------------- (SUCCESSOR) (SUCCESSOR) (SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (IN MILLIONS) Net income..................... $1,443 $1,772 $1,940 $1,357 $ 246 $1,558Income taxes................... 844 891 1,000 690 182 695 ------ ------ ------ ------ ------ ------Income before income taxes..... 2,287 2,663 2,940 2,047 428 2,253 ------ ------ ------ ------ ------ ------Fixed charges: Interest expense............. 7,374 4,832 3,143 2,031 898 3,879 Interest portion of rentals(1)................. 59 61 54 40 18 68 ------ ------ ------ ------ ------ ------Total fixed charges............ 7,433 4,893 3,197 2,071 916 3,947 ------ ------ ------ ------ ------ ------Total earnings as defined...... $9,720 $7,556 $6,137 $4,118 $1,344 $6,200Ratio of earnings to fixed charges...................... 1.31(3) 1.54 1.92(4) 1.99 1.47(5) 1.57(6) ====== ====== ====== ====== ====== ======Preferred stock dividends(2)... 58 125 108 86 32 91 ====== ====== ====== ====== ====== ======Ratio of earnings to combined fixed charges and preferred stock dividends.............. 1.30(3) 1.51 1.86(4) 1.91 1.42(5) 1.54(6) ====== ====== ====== ====== ====== ====== --------------- (1) Represents one-third of rentals, which approximates the portion representing interest. (2) Preferred stock dividends are grossed up to their pretax equivalents. (3) The 2006 ratios have been positively impacted by the $78 million (after-tax) gain on sale of our investment in Kanbay. Excluding this item, our ratio of earnings to fixed charges would have been 1.30 percent and our ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.29 percent. These non-U.S. GAAP financial ratios are provided for comparison of our operating trends only. (4) The 2004 ratios have been negatively impacted by $121 million (after-tax) from the adoption of FFIEC charge-off policies for our domestic private label (excluding retail sales contracts at our consumer lending business) and credit card portfolios in December 2004 and positively impacted by the $423 million (after-tax) gain on the bulk sale of our domestic private label receivables (excluding retail sales contracts at our consumer lending business) to HSBC Bank USA in December 2004. Excluding these items, our ratio of earnings to fixed charges would have been 1.83 percent and our ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.77 percent. These non-U.S. GAAP financial ratios are provided for comparison of our operating trends only. (5) The 2003 ratios have been negatively impacted by the $167 million (after-tax) of HSBC acquisition related costs and other merger related items incurred by HSBC Finance Corporation. Excluding these charges, our ratio of earnings to fixed charges would have been 1.69 percent and our ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.63 percent. These non-U.S. GAAP financial ratios are provided for comparison of our operating trends only. (6) The 2002 ratios have been negatively impacted by the $333 million (after-tax) settlement charge and related expenses and the $240 million (after-tax) loss on the disposition of Thrift assets and deposits. Excluding these charges, our ratio of earnings to fixed charges would have been 1.80 percent and our ratio of earnings to combined fixed charges and preferred stock dividends would have been 1.76 percent. These non-U.S. GAAP financial ratios are provided for comparison of our operating trends only. EXHIBIT 21 SUBSIDIARIES OF HSBC FINANCE CORPORATION US -- STATENAMES OF SUBSIDIARIES ORGANIZED--------------------- -------------- AHLIC Investment Holdings Corporation....................... DelawareB.I.G. Insurance Agency, Inc. .............................. OhioBeaver Valley, Inc. ........................................ DelawareBencharge Credit Service Holding Company.................... DelawareBeneficial Alabama Inc. .................................... AlabamaBeneficial Arizona Inc. .................................... DelawareBeneficial California Inc. ................................. DelawareBeneficial Colorado Inc. ................................... DelawareBeneficial Commercial Corporation........................... DelawareBeneficial Commercial Holding Corporation................... DelawareBeneficial Company LLC (f/k/a Beneficial Corporation)....... DelawareBeneficial Connecticut Inc. ................................ DelawareBeneficial Consumer Discount Company........................ Pennsylvania dba BMC of PABeneficial Credit Services Inc. ............................ DelawareBeneficial Credit Services of Connecticut Inc. ............. DelawareBeneficial Credit Services of Mississippi Inc. ............. DelawareBeneficial Credit Services of South Carolina Inc. .......... DelawareBeneficial Delaware Inc. ................................... DelawareBeneficial Direct, Inc. .................................... New JerseyBeneficial Discount Co. of Virginia......................... DelawareBeneficial Facilities Corporation........................... New JerseyBeneficial Finance Co. ..................................... DelawareBeneficial Finance Co. of West Virginia..................... DelawareBeneficial Finance Services, Inc. .......................... KansasBeneficial Florida Inc. .................................... DelawareBeneficial Franchise Company Inc. .......................... DelawareBeneficial Georgia Inc. .................................... DelawareBeneficial Hawaii Inc. ..................................... DelawareBeneficial Homeowner Service Corporation.................... DelawareBeneficial Idaho Inc. ...................................... DelawareBeneficial Illinois Inc. ................................... DelawareBeneficial Income Tax Service Holding Co., Inc. ............ DelawareBeneficial Indiana Inc. .................................... Delaware dba Beneficial Mortgage Co. of IndianaBeneficial Investment Co. .................................. DelawareBeneficial Iowa Inc. ....................................... IowaBeneficial Kansas Inc. ..................................... KansasBeneficial Kentucky Inc. ................................... DelawareBeneficial Leasing Group, Inc. ............................. DelawareBeneficial Loan & Thrift Co. ............................... MinnesotaBeneficial Loan Corporation of Kentucky..................... Kentucky US -- STATENAMES OF SUBSIDIARIES ORGANIZED--------------------- -------------- Beneficial Louisiana Inc. .................................. DelawareBeneficial Maine Inc. ...................................... Delaware dba Beneficial Credit Services of MaineBeneficial Management Corporation........................... DelawareBeneficial Management Corporation of America................ DelawareBeneficial Management Headquarters, Inc. ................... New JerseyBeneficial Management Institute, Inc. ...................... New YorkBeneficial Mark Holding Inc. ............................... DelawareBeneficial Maryland Inc. ................................... DelawareBeneficial Massachusetts Inc. .............................. DelawareBeneficial Michigan Inc. ................................... DelawareBeneficial Mississippi Inc. ................................ DelawareBeneficial Missouri, Inc. .................................. DelawareBeneficial Montana Inc. .................................... DelawareBeneficial Mortgage Co. of Arizona.......................... DelawareBeneficial Mortgage Co. of Colorado......................... DelawareBeneficial Mortgage Co. of Connecticut...................... DelawareBeneficial Mortgage Co. of Florida.......................... DelawareBeneficial Mortgage Co. of Georgia.......................... DelawareBeneficial Mortgage Co. of Idaho............................ DelawareBeneficial Mortgage Co. of Indiana.......................... DelawareBeneficial Mortgage Co. of Kansas, Inc. .................... DelawareBeneficial Mortgage Co. of Louisiana........................ DelawareBeneficial Mortgage Co. of Maryland......................... DelawareBeneficial Mortgage Co. of Massachusetts.................... DelawareBeneficial Mortgage Co. of Mississippi...................... DelawareBeneficial Mortgage Co. of Missouri, Inc. .................. DelawareBeneficial Mortgage Co. of Nevada........................... DelawareBeneficial Mortgage Co. of New Hampshire.................... DelawareBeneficial Mortgage Co. of North Carolina................... DelawareBeneficial Mortgage Co. of Oklahoma......................... DelawareBeneficial Mortgage Co. of Rhode Island..................... DelawareBeneficial Mortgage Co. of South Carolina................... DelawareBeneficial Mortgage Co. of Texas............................ DelawareBeneficial Mortgage Co. of Utah............................. DelawareBeneficial Mortgage Co. of Virginia......................... DelawareBeneficial Mortgage Corporation............................. DelawareBeneficial Mortgage Holding Company......................... DelawareBeneficial Nebraska Inc. ................................... Nebraska dba BFC Mortgage of NebraskaBeneficial Nevada Inc. ..................................... DelawareBeneficial New Hampshire Inc. .............................. DelawareBeneficial New Jersey Inc. ................................. Delaware dba Beneficial Mortgage Co.Beneficial New Mexico Inc. ................................. Delaware US -- STATENAMES OF SUBSIDIARIES ORGANIZED--------------------- -------------- Beneficial New York Inc. ................................... New YorkBeneficial North Carolina Inc. ............................. DelawareBeneficial Ohio Inc. ....................................... DelawareBeneficial Oklahoma Inc. ................................... DelawareBeneficial Oregon Inc. ..................................... DelawareBeneficial Real Estate Joint Venture, Inc. ................. DelawareBeneficial Rhode Island Inc. ............................... DelawareBeneficial South Carolina Inc. ............................. DelawareBeneficial South Dakota Inc. ............................... DelawareBeneficial Systems Development Corporation.................. DelawareBeneficial Technology Corporation........................... DelawareBeneficial Tennessee Inc. .................................. TennesseeBeneficial Texas Inc. ...................................... TexasBeneficial Trademark Co. ................................... DelawareBeneficial Utah Inc. ....................................... DelawareBeneficial Vermont Inc. .................................... DelawareBeneficial Virginia Inc. ................................... DelawareBeneficial Washington Inc. ................................. DelawareBeneficial West Virginia, Inc. ............................. West VirginiaBeneficial Wisconsin Inc. .................................. DelawareBeneficial Wyoming Inc. .................................... WyomingBenevest Escrow Company..................................... DelawareBFC Agency, Inc. ........................................... DelawareBFC Insurance Agency of Nevada.............................. NevadaBMC Holding Company......................................... DelawareBon Secour Properties Inc. ................................. AlabamaCal-Pacific Services, Inc. ................................. CaliforniaCapital Financial Services Inc. ............................ Nevada dba Capital Financial Services I Inc. dba Capital Financial Services No. 1 Inc. dba CFSI, Inc. dba HB Financial ServicesCentral Insurance Administrators, Inc. ..................... DelawareChattanooga Valley Associates............................... TennesseeCom Realty, Inc. ........................................... DelawareCraig-Hallum Corporation.................................... DelawareDecision One Loan Company of Minnesota...................... MinnesotaDecision One Mortgage Company............................... North CarolinaDecision One Mortgage Company, LLC.......................... North CarolinaEighth HFC Leasing Corporation.............................. DelawareEleventh Avenue Properties Corporation...................... DelawareFifth HFC Leasing Corporation............................... DelawareFinancial Network Alliance, L.L.P. ......................... IllinoisFirst Central National Life Insurance Company of New York... New YorkFNA Consumer Discount Company............................... Pennsylvania US -- STATENAMES OF SUBSIDIARIES ORGANIZED--------------------- -------------- Fourteenth HFC Leasing Corporation.......................... DelawareFourth HFC Leasing Corporation.............................. DelawareH I Venture Four, Inc. ..................................... FloridaH I Venture One, Inc. ...................................... FloridaH I Venture Three, Inc. .................................... FloridaHamilton Investments, Inc. ................................. DelawareHarbour Island Inc. ........................................ FloridaHFC Agency of Missouri, Inc. ............................... MissouriHFC Commercial Realty, Inc. ................................ DelawareHFC Company LLC (f/k/a Household Group, Inc.)............... DelawareHFC Leasing, Inc. .......................................... DelawareHFS Investments, Inc. ...................................... NevadaHFTA Consumer Discount Co. ................................. PennsylvaniaHFTA Corporation............................................ DelawareHFTA Eighth Corporation..................................... OhioHFTA Fifth Corporation...................................... NevadaHFTA First Financial Corp. ................................. CaliforniaHFTA Fourth Corporation..................................... MinnesotaHFTA Ninth Corporation...................................... West VirginiaHFTA Second Corporation..................................... AlabamaHFTA Seventh Corporation.................................... New JerseyHFTA Sixth Corporation...................................... NevadaHFTA Tenth Corporation...................................... WashingtonHFTA Third Corporation...................................... DelawareHousehold Acquisition Corporation........................... DelawareHousehold Affinity Funding Corporation III.................. DelawareHousehold Aviation, LLC..................................... DelawareHousehold Business Services, Inc. .......................... DelawareHousehold Capital Markets LLC............................... DelawareHousehold Commercial Financial Services, Inc. .............. DelawareHousehold Commercial of California, Inc. ................... CaliforniaHousehold Consumer Loan Corporation......................... NevadaHousehold Consumer Loan Corporation II...................... DelawareHousehold Credit Services Overseas, Inc. ................... DelawareHousehold Finance Consumer Discount Company................. PennsylvaniaHousehold Finance Corporation II............................ Delaware dba Household Finance Corporation of VirginiaHousehold Finance Corporation III........................... Delaware dba HFC Mortgage of Nebraska dba Household Mortgage Services dba HSBC MortgageHousehold Finance Corporation of Alabama.................... AlabamaHousehold Finance Corporation of California................. DelawareHousehold Finance Corporation of Nevada..................... DelawareHousehold Finance Corporation of West Virginia.............. West Virginia US -- STATENAMES OF SUBSIDIARIES ORGANIZED--------------------- -------------- Household Finance Industrial Loan Company................... WashingtonHousehold Finance Industrial Loan Company of Iowa........... IowaHousehold Finance Realty Corporation of Nevada.............. DelawareHousehold Finance Realty Corporation of New York............ DelawareHousehold Financial Center Inc. ............................ TennesseeHousehold Global Funding, Inc. ............................. DelawareHousehold Industrial Finance Company........................ MinnesotaHousehold Industrial Loan Co. of Kentucky................... KentuckyHousehold Insurance Agency, Inc. ........................... MichiganHousehold Insurance Agency, Inc. Nevada..................... NevadaHousehold Insurance Group Holding Company................... DelawareHousehold Insurance Group, Inc. ............................ DelawareHousehold Investment Funding, Inc. ......................... DelawareHousehold Ireland Holdings Inc. ............................ DelawareHousehold Life Insurance Co. of Arizona..................... ArizonaHousehold Life Insurance Company............................ MichiganHousehold Life Insurance Company of Delaware................ DelawareHousehold OPEB I, Inc. ..................................... IllinoisHousehold Pooling Corporation............................... NevadaHousehold Realty Corporation................................ Delaware dba Household Realty Corporation of VirginiaHousehold Recovery Services Corporation..................... DelawareHousehold REIT Corporation.................................. NevadaHousehold Relocation Management, Inc. ...................... IllinoisHousehold Servicing, Inc. .................................. DelawareHousehold Tax Masters Acquisition Corporation............... DelawareHousekey Financial Corporation.............................. IllinoisHSBC -- GR Corp. (f/k/a Household Financial Group, Ltd.).... DelawareHSBC Affinity Corporation I (f/k/a HFC Card Funding Corporation).............................................. DelawareHSBC Auto Accounts Inc. (f/k/a OFL-A Receivables Corp.)..... DelawareHSBC Auto Credit Inc. (f/k/a Household Automotive Credit Corporation).............................................. DelawareHSBC Auto Finance Inc. (f/k/a Household Automotive Finance Corporation).............................................. DelawareHSBC Auto Receivables Corporation (f/k/a Household Auto Receivables Corporation).................................. NevadaHSBC Bank Nevada, N. A. (f/k/a Household Bank (SB), N.A.)... United StatesHSBC Card Services Inc. (f/k/a Household Credit Services, Inc.)..................................................... DelawareHSBC Card Services (II) Inc. (f/k/a Household Credit Services II, Inc.)........................................ OregonHSBC Card Services (III) Inc. (f/k/a Household Card Services, Inc.)........................................... NevadaHSBC Consumer Lending (USA) Inc. ........................... DelawareHSBC Credit Center, Inc. ................................... DelawareHSBC Home Equity Loan Correspondent Corporation I (f/k/a HSBC Mortgage Funding Corporation I )..................... DelawareHSBC Home Equity Loan Corporation I (f/k/a HFC Revolving Corporation).............................................. DelawareHSBC Home Equity Loan Corporation II (f/k/a Household Receivables Acquisition Company).......................... DelawareHSBC Insurance Company of Delaware (f/k/a Service General Insurance Company)........................................ OhioHSBC Mortgage Services Inc. (f/k/a Household Financial Services Inc.)............................................ Delaware US -- STATENAMES OF SUBSIDIARIES ORGANIZED--------------------- -------------- HSBC Mortgage Services Warehouse Lending Inc. (f/k/a HFC Funding Corporation)...................................... DelawareHSBC Pay Services, Inc. (f/k/a Household Payroll Services, Inc.)..................................................... DelawareHSBC Private Label Corporation (f/k/a Household Corporation).............................................. DelawareHSBC Receivables Acquisition Company I (f/k/a Household Receivables Acquisition Company II........................ DelawareHSBC Receivables Funding Inc. I (f/k/a Household Receivables Funding, Inc. III)........................................ DelawareHSBC Retail Services Inc. (f/k/a Household Retail Services, Inc.)..................................................... DelawareHSBC Single Seller Depositor (USA) LLC...................... DelawareHSBC Taxpayer Financial Services Inc. (f/k/a Household Tax Masters Inc.)............................................. DelawareHSBC TFS I 2005 LLC......................................... DelawareHSBC TFS I LLC.............................................. DelawareHSBC TFS II 2005 LLC........................................ DelawareHSBC TFS II LLC............................................. DelawareHull 752 Corporation........................................ DelawareHull 753 Corporation........................................ DelawareJV Mortgage Capital Consumer Discount Company............... PennsylvaniaJV Mortgage Capital, Inc. .................................. DelawareJV Mortgage Capital, L.P. .................................. DelawareKMD Center, Inc. ........................................... DelawareLeasing at Sixty-First Corporation.......................... DelawareMacray Corporation.......................................... CaliforniamagnUS Services, Inc. ...................................... DelawareMES Insurance Agency, LLC................................... DelawareMetris Receivables, Inc. ................................... DelawareMoore's Realty Inc. ........................................ DelawareMortgage One Corporation.................................... DelawareMortgage Two Corporation.................................... DelawareMTX LLC..................................................... DelawareNeil Corporation............................................ DelawareNineteenth HFC Leasing Corporation.......................... DelawareNorth Indemnity Insurance Company........................... DelawareOld K & B Corporation....................................... MichiganPacific Agency, Inc. ....................................... NevadaPacific Finance Loans....................................... CaliforniaPargen Corporation.......................................... CaliforniaPersonal Mortgage Corporation............................... DelawarePersonal Mortgage Holding Company........................... DelawarePPSG Corporation............................................ DelawareProperties on Twenty-Second Corporation..................... DelawareReal Estate Collateral Management Company................... DelawareRenaissance Bankcard Services of Kentucky................... KentuckyService Administrators, Inc. (USA).......................... ColoradoService Management Corporation.............................. OhioSeven Acres Leasing Corporation............................. DelawareSeventh HFC Leasing Corporation............................. Delaware US -- STATENAMES OF SUBSIDIARIES ORGANIZED--------------------- -------------- Silliman Corporation........................................ DelawareSixth HFC Leasing Corporation............................... DelawareSolstice Capital Group, Inc. ............................... DelawareSouth Property Corporation.................................. DelawareSouthwest Beneficial Finance, Inc. ......................... IllinoisSouthwest Texas General Agency, Inc. ....................... TexasSPE 1 2005 Manager Inc. .................................... DelawareSPE 1 Manager Inc. ......................................... DelawareTampa Island Transit Company, Inc. ......................... FloridaTenth Leasing Corporation................................... DelawareThird HFC Leasing Corporation............................... DelawareThirteenth HFC Leasing Corporation.......................... DelawareTwenty-Sixth Place Corporation.............................. DelawareValley Properties Corporation............................... TennesseeWasco Properties, Inc. ..................................... Delaware NON-US AFFILIATES NAMES OF SUBSIDIARIES COUNTRY ORGANIZED--------------------- ----------------- Amstelveen FSC, Ltd. ....................................... BermudaB&Q Financial Services Limited.............................. EnglandBeneficial Limited.......................................... EnglandBeneficial Premium Services Limited......................... EnglandBFC Insurance (Life) Limited................................ IrelandBFC Insurance Limited....................................... IrelandBFC Ireland (Holdings) Limited.............................. IrelandBFC Pension Plan (Ireland) Limited.......................... IrelandBFC Reinsurance Limited..................................... IrelandD.L.R.S. Limited............................................ EnglandEndeavour Personal Finance Limited.......................... EnglandHamilton Financial Planning Services Ltd. .................. EnglandHamilton Insurance Company Limited.......................... EnglandHamilton Life Assurance Company Limited..................... EnglandHFC Bank Limited............................................ EnglandHFC Financial Services Holdings (Ireland) Limited........... IrelandHFC Pension Plan (Ireland) Limited.......................... IrelandHFC Pension Plan Limited.................................... EnglandHousehold (Jersey) Limited.................................. Channel IslandHousehold Commercial Canada, Inc. .......................... CanadaHousehold Computer Services Limited......................... EnglandHousehold Finance Limited................................... EnglandHousehold Funding plc....................................... EnglandHousehold Global Holdings, BV............................... NetherlandsHousehold International Europe Limited...................... EnglandHousehold Investments Limited............................... EnglandHousehold Leasing Limited................................... England NAMES OF SUBSIDIARIES COUNTRY ORGANIZED--------------------- ----------------- Household Management Corporation Limited.................... England & WalesHousehold Overseas Limited.................................. EnglandHousehold Realty Corporation Limited........................ CanadaHousehold Trust Company..................................... CanadaHSBC Finance Corporation Canada (f/k/a Household Finance Corporation of Canada).................................... CanadaHSBC Financial Corporation Limited (f/k/a Household Financial Corporation Limited)............................ CanadaHSBC Retail Services Limited (f/k/a Household Financial Corporation Inc.)......................................... CanadaICOM Limited................................................ BermudaInvis Inc. ................................................. CanadaNight Watch FSC, Ltd. ...................................... BermudaSterling Credit Limited..................................... EnglandSterling Credit Management Limited.......................... EnglandSterling Mortgages Limited.................................. England EXHIBIT 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of HSBC Finance Corporation: We consent to the incorporation of our report dated March 2, 2007, included inthis Annual Report on Form 10-K of HSBC Finance Corporation (the Company) as ofDecember 31, 2006 and 2005 and for each of the years in the three-year periodended December 31, 2006, into the Company's previously filed RegistrationStatements No. 2-86383, No. 33-21343, No. 33-45454, No. 33-45455, No. 33-52211,No. 33-58727, No. 333-00397, No. 333-03673, No. 333-36589, No. 333-39639, No.333-47073, No. 333-58291, No. 333-58289, No. 333-58287, No. 333-30600, No.333-50000, No. 333-70794, No. 333-71198, No. 333-83474 and No. 333-99107 on FormS-8 and Registration Statements No. 33-55043, No. 33-55561, No. 33-64175, No.333-02161, No. 333-14459, No. 333-47945, No. 333-59453, No. 333-60543, No.333-72453, No. 333-82119, No. 333-33240, No. 333-45740, No. 333-56152, No.333-61964, No. 333-73746, No. 333-75328, No. 333-85886, No. 333-111413, No.33-44066, No. 33-57249, No. 333-01025, No. 333-27305, No. 333-33052, No.333-53862, No. 333-60510, No. 333-100737, No. 333-120494, No. 333-120495, No.333-120496 , No. 333-130580 and No. 333-128369 on Form S-3. /s/ KPMG LLPChicago, IllinoisMarch 2, 2007 EXHIBIT 31 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Brendan P. McDonagh, Chief Executive Officer of HSBC Finance Corporation,certify that: 1. I have reviewed this annual report on Form 10-K of HSBC FinanceCorporation; 2. Based on my knowledge, this annual report does not contain any untruestatement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this annualreport; 3. Based on my knowledge, the financial statements, and other financialinformation included in this annual report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based onour most recent evaluation, to the registrant's auditors and the audit committeeof the registrant's board of directors (or persons performing the equivalentfunctions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 5, 2007 /s/ BRENDAN P. MCDONAGH -------------------------------------- Brendan P. McDonagh Chief Executive Officer EXHIBIT 31 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Beverley A. Sibblies, Senior Vice President and Chief Financial Officer ofHSBC Finance Corporation, certify that: 1. I have reviewed this annual report on Form 10-K of HSBC FinanceCorporation; 2. Based on my knowledge, this annual report does not contain any untruestatement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this annualreport; 3. Based on my knowledge, the financial statements, and other financialinformation included in this annual report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based onour most recent evaluation, to the registrant's auditors and the audit committeeof the registrant's board of directors (or persons performing the equivalentfunctions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 5, 2007 /s/ BEVERLEY A. SIBBLIES -------------------------------------- Beverley A. Sibblies Senior Executive Vice President and Chief Financial Officer EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The certification set forth below is being submitted in connection with the HSBCFinance Corporation (the "Company") Annual Report on Form 10-K for the fiscalyear ended December 31, 2006 as filed with the Securities and ExchangeCommission on the date hereof (the "Report") for the purpose of complying withRule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the"Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United StatesCode. I, Brendan P. McDonagh, Chief Executive Officer of the Company, certify that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of HSBC Finance Corporation. March 5, 2007 /s/ BRENDAN P. MCDONAGH -------------------------------------- Brendan P. McDonagh Chief Executive Officer This certification accompanies each Report pursuant to Section 906 of theSarbanes-Oxley Act of 2002 and shall not, except to the extent required by theSarbanes-Oxley Act of 2002, be deemed filed by HSBC Finance Corporation forpurposes of Section 18 of the Securities Exchange Act of 1934, as amended. Signed originals of these written statements required by Section 906 of theSarbanes-Oxley Act of 2002 have been provided to HSBC Finance Corporation andwill be retained by HSBC Finance Corporation and furnished to the Securities andExchange Commission or its staff upon request. EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The certification set forth below is being submitted in connection with the HSBCFinance Corporation (the "Company") Annual Report on Form 10-K for the fiscalyear ended December 31, 2006 as filed with the Securities and ExchangeCommission on the date hereof (the "Report") for the purpose of complying withRule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the"Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United StatesCode. I, Beverley A. Sibblies, Senior Vice President and Chief Financial Officer ofthe Company, certify that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of HSBC Finance Corporation. March 5, 2007 /s/ BEVERLEY A. SIBBLIES -------------------------------------- Beverley A. Sibblies Senior Vice President and Chief Financial Officer This certification accompanies each Report pursuant to Section 906 of theSarbanes-Oxley Act of 2002 and shall not, except to the extent required by theSarbanes-Oxley Act of 2002, be deemed filed by HSBC Finance Corporation forpurposes of Section 18 of the Securities Exchange Act of 1934, as amended. Signed originals of these written statements required by Section 906 of theSarbanes-Oxley Act of 2002 have been provided to HSBC Finance Corporation andwill be retained by HSBC Finance Corporation and furnished to the Securities andExchange Commission or its staff upon request. EXHIBIT 99.1 HSBC FINANCE CORPORATION AND SUBSIDIARIES DEBT AND PREFERRED STOCK SECURITIES RATINGS STANDARD & MOODY'S DOMINION POOR'S INVESTORS BOARD RATING CORPORATION SERVICE FITCH, INC. SERVICE------------------------------------------------------------------------------------------------------ AS OF MARCH 5, 2007HSBC Finance Corporation Senior debt................................... AA- Aa3 AA- AA (low) Senior subordinated debt...................... A+ A2 A+ * Commercial paper.............................. A-1+ P-1 F-1+ R-1 (middle) Series B preferred stock...................... A-2 A2 A+ *HFC Bank Limited Senior debt................................... AA- Aa3 AA- * Commercial paper.............................. A-1+ P-1 F-1+ *HSBC Financial Corporation Limited Senior notes and term loans................... * * * AA (low) Commercial paper.............................. * * * R-1 (middle) --------------- * Not rated by this agency. EXHIBIT 99.2 EXPLANATION OF DIFFERENCES BETWEEN U.K. GAAP AND IFRSS,-- AN EXCERPT FROM FOOTNOTE 46, "TRANSITION TO IFRSS," CONTAINED IN HSBC HOLDINGS ANNUAL REPORT ON FORM 20-F FOR THE YEAR ENDED DECEMBER 31, 2005. DERIVATIVES AND HEDGE ACCOUNTING Under UK GAAP derivatives were classified as trading or non-trading. Tradingderivatives were reported at market value in the balance sheet, with movementsin market value recognised immediately in the income statement. Non-tradingderivatives, which were transacted for hedging and risk management purposes,were accounted for on an accruals basis, equivalent to the assets, liabilitiesor net positions being hedged. IAS 39 requires that all derivatives be recognised at fair value in the balancesheet as assets or liabilities. The accounting for changes in the fair value ofa derivative depends on the intended use of the derivative and its resultingdesignation, as described in Note 2(k). INVESTMENT SECURITIES Debt securities and equity shares intended to be held on a continuing basisunder UK GAAP were disclosed as investment securities and included in thebalance sheet at cost less provision for any permanent diminution in value.Other debt securities and equity shares held for trading purposes were includedin the balance sheet at market value. Under IAS 39, all investment securities (debt securities and equity shares) areclassified and disclosed within one of the following three categories:'held-to-maturity'; 'available-for-sale'; or 'at fair value through profit orloss'. FAIR VALUE OPTION Under IAS 39, financial assets and financial liabilities may be designated atfair value if they meet the criteria set out in the 'Amendment to IAS 39Financial Instruments; Recognition and Measurement; The Fair Value Option' ('theAmendment'). HSBC has designated at fair value at 1 January 2005 certain loansand advances to customers, financial investments, and some own debt issued whichsatisfied the criteria in the Amendment. FEE INCOME Fee income was previously accounted for in the period when receivable, exceptwhen charged to cover the costs of a continuing service to, or risk borne for,the customer, or was interest in nature. In these cases, income was recognisedon an appropriate basis over the relevant period. Under IFRSs, the main changein accounting relates to loan fee income and incremental directly attributableloan origination costs, which are amortised to the income statement over theexpected life of the loan as part of the effective interest calculation. NON-EQUITY MINORITY INTEREST RECLASSIFICATION Preference shares issued by subsidiaries were previously classified in thebalance sheet as non-equity minority interests with preference share dividendsrecorded as non-equity minority interests in the income statement. Under IAS 32,preference shares are generally classified in the balance sheet as liabilities. LOAN IMPAIRMENT Under HSBC's UK GAAP accounting policies, loans in the consumer finance businesswere written off to the income statement in accordance with a predeterminedoverdue status. Under IAS 39, impairment losses are recognised when an entity has objectiveevidence that an advance is impaired. Impairment under IAS 39 is calculated on adiscounted future cash flow basis and does not result in an impaired loan beingfully written off until it is considered that cash flows will no longer bereceived. INSURANCE Under UK GAAP, a value was placed on HSBC's interest in long-term assurancebusiness, including a valuation of the discounted future earnings expected toemerge from business currently in force. From 1 January 2005, only long-termcontracts meeting the definition of an insurance contract under IFRS 4 continueto be accounted for in this way. Long-term contracts not transferringsignificant insurance risk, referred to as investment contracts, are accountedfor as financial instruments. Accordingly, it is no longer possible to includefor such contracts an asset representing the value of the discounted futureearnings expected to emerge from business currently in force, lending to areduction in equity of US$192 million. Income on such contracts will berecognised in later periods, as investment management fees and incrementaldirectly attributable costs are spread over the period in which the services areprovided. OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Under UK GAAP the netting of asset and liability balances in the balance sheetis only allowed when there is the ability to insist on net settlement. Under IAS32 the offsetting of financial assets and financial liabilities is only allowedwhen there is a legally enforceable right to offset and the intention to settlenet. The change from an ability to insist on net settlement to an intention tosettle on a net basis is not in line with market practice in a number of areas. Acceptances were accounted for on a net basis under UK GAAP. There was nogrossing up of the amount to be paid and the amount receivable from theoriginator, and thus no balance appeared on the balance sheet for theseproducts. Under IAS 39 it is necessary to recognise a liability for acceptancesfrom the date of acceptance. A corresponding asset due from the originator isalso recognised. This information is provided by RNS The company news service from the London Stock Exchange
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Share Price:
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