CONFORMED 1.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 31, 1999
HSBC USA Inc.
(Exact name of registrant as specified in charter)
MARYLAND 1-7436 13-2764867
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification No.)
452 FIFTH AVENUE, NEW YORK, NEW YORK 10018
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 525-6100
Not applicable
(Former name or former address, if changed since last report)
2.
Item 2. Acquisition or Disposition of Assets
As reported on Form 8-K dated January 7, 2000, the merger of Republic New
York Corporation (Republic) with HSBC USA Inc. (the Company) was completed on
December 31, 1999.
The required pro forma financial statements relating to the merger are
provided in Item 7.
3.
Item 7. Financial Statements and Exhibits
The following unaudited pro forma financial statements are provided:
- - Pro Forma Combined Condensed Balance Sheet of HSBC USA Inc. as of
September 30, 1999
- - Pro Forma Combined Condensed Income Statement of HSBC USA Inc. for the
year ended December 31, 1998
- - Pro Forma Combined Condensed Income Statement of HSBC USA Inc. for the
nine months ended September 30, 1999
- - Notes to Pro Forma Combined Condensed Financial Information of HSBC USA
Inc.
4.
HSBC USA Inc.
Unaudited Pro Forma Combined Condensed
Financial Information
Effective December 31, 1999, the Company acquired Republic through a
contribution from its parent, HSBC Holdings plc. The transaction was
accounted for under the purchase method of accounting. The following provides
the basis of presentation of the acquisition in the Company's unaudited pro
forma combined condensed financial information.
The accompanying unaudited pro forma combined condensed balance sheet as of
September 30, 1999 includes the assets and liabilities of Republic as adjusted
for their respective fair values at the date the transaction was consummated.
The accompanying unaudited pro forma combined condensed income statements, for
the nine months ended September 30, 1999 and the year ended December 31, 1998
present the pro forma impact of the acquisition of Republic assuming that the
acquisition had been completed as of the beginning of the respective periods
presented.
The pro forma information is based on the historical financial statements
after giving effect to the impact of purchase accounting adjustments relating
to the acquisition. Assumptions and adjustments made in connection with the
preparation of the pro forma combined condensed financial information are set
forth in the accompanying notes. Purchase accounting adjustments to reflect
estimated fair values have been made with respect to the assets and
liabilities acquired.
The pro forma information with respect to Republic has been prepared by the
Company's management based upon the historical financial information of
Republic obtained by the Company during its investigation of the activities
acquired. The pro forma financial information should be read in conjunction
with the notes thereto. This pro forma information may not be indicative of
the results that actually would have occurred if the purchase had been
consummated on the dates indicated or which may be obtained in the future.
While the Company expects to achieve certain operating cost savings as a
result of the combination, no adjustment has been included in the pro forma
amounts for anticipated operating cost savings or revenue enhancements.
<TABLE>
<CAPTION>
5.
HSBC USA INC.
Pro Forma Combined Condensed Balance Sheet
September 30, 1999
(unaudited)
(in millions)
- ------------------------------------------------------------------------------------------
HSBC USA Republic Pro Forma Combined
Inc. NY Corp. Adjustments Proforma
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ 867 $ 836 $ $ 1,703
Interest bearing deposits with banks 2,291 6,855 (18)(3) 9,128
Federal funds sold and securities
purchased under resale agreements 2,142 2,188 4,330
Trading assets 979 3,856 4,835
Securities 3,308 21,708 (106)(3) 24,910
Loans 23,541 14,731 (47)(3) 38,225
Less - allowance for credit losses 368 293 661
- ------------------------------------------------------------------------------------------
Loans, net 23,173 14,438 (47) 37,564
Goodwill and other acquisition
intangibles 326 236 2,745 (1) 3,307
Investment in affiliate 28 839 1,610 (2) 2,477
Other assets 1,263 2,096 329 (3) 3,688
- ------------------------------------------------------------------------------------------
Total assets $34,377 $53,052 $4,513 $91,942
==========================================================================================
Liabilities
Deposits in domestic offices $21,974 $13,225 $ (26)(3) $35,173
Deposits in foreign offices 4,758 18,631 (11)(3) 23,378
- ------------------------------------------------------------------------------------------
Total deposits 26,732 31,856 (37) 58,551
Trading account liabilities 56 3,142 3,198
Short-term borrowings 2,637 8,585 11,222
Interest, taxes and other liabilities 753 2,052 328 (3) 3,133
Long-term debt 1,846 4,139 (91)(3) 5,894
- ------------------------------------------------------------------------------------------
Total liabilities 32,024 49,774 200 81,998
- ------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock 500 500
Common shareholders' equity
Common stock 524 (524)(4)
Capital surplus 1,809 117 6,974 8,900
Retained earnings 572 2,589 (2,589)(4) 572
Accumulated other comprehensive loss (28) (452) 452 (4) (28)
- ------------------------------------------------------------------------------------------
Total common shareholders' equity 2,353 2,778 4,313 9,444
- ------------------------------------------------------------------------------------------
Total shareholders' equity 2,353 3,278 4,313 9,944
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $34,377 $53,052 $4,513 $91,942
==========================================================================================
See Notes to Pro Forma Combined Condensed Financial Information
(1) Purchase price of Republic $7,091, less Republic common equity $2,778, less fair value
adjustment attributable to HSBC Republic (formerly Safra Republic Holdings S.A.) $1,610,
plus $437 costs related to restructuring, asset write offs and deferred tax adjustments,
less $395 net other fair value adjustments.
(2) Fair value adjustment for 49% equity investment in HSBC Republic.
(3) Fair value adjustments and other purchase accounting entries.
(4) Elimination of Republic common shareholders' equity and recognition of $7,091 capital
contribution for purchase price.
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6.
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<CAPTION>
HSBC USA Inc.
Pro Forma Combined Condensed Income Statement
Year Ended December 31, 1998
(unaudited)
(in millions)
- -------------------------------------------------------------------------------
Historical
--------------------
Republic
HSBC New York Pro Forma Pro Forma
USA Inc. Corp. Adjustments Combined
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $2,333 $3,234 $ 30 $5,597
Interest expense 1,168 2,200 46 3,414
- -------------------------------------------------------------------------------
Net interest income 1,165 1,034 (16) 2,183
Provision for credit loss 80 8 - 88
- -------------------------------------------------------------------------------
Net interest income after
provision for credit loss 1,085 1,026 (16) 2,095
Other operating income 460 289 (84) 665
- -------------------------------------------------------------------------------
1,545 1,315 (100) 2,760
Operating expenses 780 979 131 1,890
- -------------------------------------------------------------------------------
Income before taxes 765 336 (231) 870
Income tax expense (benefit) 238 88 (11) 315
- -------------------------------------------------------------------------------
Net income $ 527 $ 248 $(220) $ 555
===============================================================================
See Notes to Pro Forma Combined Condensed Financial Information
</TABLE>
<TABLE>
<CAPTION>
HSBC USA Inc.
Pro Forma Combined Condensed Income Statement
Nine Months Ended September 30, 1999
(unaudited)
(in millions)
- -------------------------------------------------------------------------------
Historical
--------------------
Republic
HSBC New York Pro Forma Pro Forma
USA Inc. Corp. Adjustments Combined
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $1,731 $2,080 $ 22 $3,833
Interest expense 808 1,291 34 2,133
- -------------------------------------------------------------------------------
Net interest income 923 789 (12) 1,700
Provision for credit loss 67 12 - 79
- -------------------------------------------------------------------------------
Net interest income after
provision for credit loss 856 777 (12) 1,621
Other operating income 339 509 (63) 785
- -------------------------------------------------------------------------------
1,195 1,286 (75) 2,406
Operating expenses 611 857 98 1,566
- -------------------------------------------------------------------------------
Income before taxes 584 429 (173) 840
Income tax expense (benefit) 234 113 (8) 339
- -------------------------------------------------------------------------------
Net income $ 350 $ 316 $(165) $ 501
===============================================================================
See Notes to Pro Forma Combined Condensed Financial Information
</TABLE>
7.
HSBC USA Inc.
Notes to Pro Forma Combined Condensed Financial Information
(unaudited)
NOTE 1. The assumptions underlying the pro forma purchase accounting
adjustments are summarized as follows:
(a) The estimated fair value adjustments have been determined by the Company
based upon information provided by Republic New York Corporation
(Republic), additional information obtained in the preliminary review of
the operations of the seller and various assumptions deemed appropriate
by the Company. The fair values ultimately determined may be different
from those values used in the pro forma adjustments included herein.
(1) Investment in affiliate, representing 49% equity interest in HSBC
Republic, formerly Safra Republic Holdings S.A. (a Luxembourg bank
holding company), was valued based upon price paid by HSBC for
majority share ownership.
(2) Interest bearing deposits with banks were valued based upon current
market rates.
(3) Securities were valued at their estimated fair market value.
(4) Loans were valued based upon current market interest rates. The
resulting net discount is being amortized to income over the
remaining estimated life of the portfolio utilizing certain
prepayment assumptions so as to produce a constant yield to
maturity.
(5) Premises and equipment, included in other assets, were recorded at
their estimated fair value.
(6) Mortgage servicing rights, included in other assets, represent
acquired servicing rights and were valued at fair value. The
resulting premium is being amortized against income over the
remaining life of the servicing portfolio utilizing certain
prepayment assumptions.
(7) Derivatives were valued based upon current market rates.
(8) Prepaid pension asset was based on the excess of fair market value
over estimated projected benefit obligation.
(9) Deposits in domestic offices were valued based upon interest rates
for comparable deposit liabilities.
(10) Long-term debt was valued based upon current interest rates for
comparable borrowed funds.
(11) Excess of the cost of net assets acquired over their fair value is
being amortized into expense on a straight line basis over 20
years.
8.
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<CAPTION>
(b) The purchase price is estimated to be allocated as described in the
table below:
(in millions)
<S> <C> <C>
Cost of acquisition $ 7,091
Net assets acquired 2,778
------
4,313
Fair value adjustments:
Investment in affiliate (1,610)
Other
Interest bearing deposits $ 18
Securities 106
Loans 47
Other assets:
Premises and equipment (138)
Mortgage servicing rights (32)
Derivatives (169)
Prepaid pension (95)
Deposits (37)
Other liabilities
Postretirement benefits (4)
Long-term debt (91) (395)
----
Write off of assets
Existing intangible assets 236
Other 105
Restructuring costs 189
Deferred tax adjustment 143
------
Excess of cost of net assets
acquired over fair value (goodwill) $ 2,981
======
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<CAPTION>
NOTE 2. The Pro Forma Combined Condensed Income Statements for the year ended
December 31, 1998 and the nine months ended September 30, 1999 reflect the
combination of historical operating results of Company and Republic and
include the necessary purchase accounting adjustments as if the combination
had taken place at the beginning of the periods presented. The purchase
accounting adjustments used in the preparation of the Pro Forma Combined
Condensed Income Statements are summarized below:
- ------------------------------------------------------------------------------
Year Ended Nine months ended
December 31, 1998 September 30, 1999
- ------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Net income of the Company $ 527 $350
Net income of Republic 248 316
Pro forma adjustments
Amortization/accretion of
purchase accounting adjustments:
Investment in affiliate (80) (60)
Interest bearing deposits 18 13
Securities 80 60
Loans (36) (27)
Other assets (43) (32)
Deposits (37) (27)
Long-term debt (9) (7)
Other (4) (3)
Goodwill (120) (90)
Net tax effect associated with above
adjustments excluding amortization
of goodwill and investment in affiliate 11 8
- ------------------------------------------------------------------------------
Pro forma net income $ 555 $501
==============================================================================
</TABLE>
9.
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<CAPTION>
NOTE 3. The following table sets forth the projected effect of purchase
accounting adjustments relating to the Republic acquisition on the operating
results of future periods. The annual amortization of goodwill of $149
million (incremental $120 million) as well as the amortization of the premium
associated with the investment in affiliate of $80 million, is not subject to
deduction for Federal and state taxes. The projected amortization and
accretion is subject to change in the event of changes in fair value on the
consummation date, if such assets and liabilities are subsequently sold and
variations between future prepayments assumed in the preparation of the table
and those which may actually occur.
- ------------------------------------------------------------------------------
2000 2001 2002 2003 2004
- ------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Amortization of:
Premium/discount on:
Interest bearing deposits $ 18 $ - $ - $ - $ -
Securities 80 80 80 80 80
Loans (36) (8) 18 18 18
Other assets (43) (43) (43) (43) (43)
Deposits (37) - - - -
Long-term debt (9) (9) (9) (9) (9)
Other (4) (4) (4) (4) (4)
Investment in affiliate (80) (80) (80) (80) (80)
Goodwill (120) (120) (120) (120) (120)
- ------------------------------------------------------------------------------
Charge to operations $(231) $(184) $(158) $(158) $(158)
==============================================================================
* Income statement impact includes consideration of discount related to available
for sale securities of $322 million.
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10.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HSBC USA Inc.
(REGISTRANT)
/s/ Gerald A. Ronning
NAME: GERALD A. RONNING
TITLE: EXECUTIVE VICE PRESIDENT &
CONTROLLER
Date: March 8, 2000
