**Corporate Decision #2003-2**

**April 2003**

March 27, 2003

Winthrop N. Brown, Esq.

Milbank, Tweed, Hadley & McCloy, LLP

1825 Eye Street, N.W.

Washington, D.C. 20006-5417

Re: Notice of Change in Bank Control

Household Bank (SB) National Association, Las Vegas, Nevada

Charter Number 22675

OCC Control Number 2002-WE-11-0004

Dear Mr. Brown:

On November 27, 2002, HSBC Holdings plc ("HSBC") filed with the Office
of the Comptroller of the Currency ("OCC") a Notice of Change in Bank
Control pursuant to the requirements of 12 U.S.C. § 1817(j) (the Change
in Bank Control Act, or "CBCA") and 12 C.F.R. § 5.50, with respect to
Household Bank (SB) National Association, Las Vegas, Nevada ("Household
Bank"). The Notice, as supplemented by additional material filed with
the OCC subsequent to the original submission, is referred to herein as
the "Notice." The Notice was prompted by HSBC's planned acquisition of
Household International, Inc. ("HII"), a diversified, multinational
company engaged in consumer, commercial and lease financing and
insurance. Household Bank, a \$3 billion, wholly owned subsidiary of
HII, is an insured limited purpose national bank engaged solely in
credit card operations.

As required by regulation, HSBC published notice of the filing on
December 4, 2002 initiating a twenty-day public comment period. In
response to requests to extend the comment period, we extended the
comment period until January 8, 2003. In addition, the OCC has continued
to accept comments from the public subsequent to the close of the
comment period. We received 69 comments from 22 community organizations,
individuals, and members of Congress. These comments raised numerous
concerns in connection with the broader transaction of which this Notice
is a small part. We carefully considered the comments in our review of
the Notice. The OCC forwarded all comments received to HSBC, and HSBC
submitted responses to those comments.

The Notice pending before the OCC pertains only to HSBC's acquisition of
Household Bank,

not of HII or any of its non-bank subsidiaries, nor does the OCC
regulate the activities of the subsidiaries or affiliates of HII beyond
Household Bank. Accordingly, our role in reviewing the Notice before us
is limited, and our focus is on the impact on Household Bank of the
proposed acquisition. The review standards under the CBCA also are
limited and different from those applicable to certain other corporate
applications involving acquisitions and mergers. Under the CBCA, an
agency does not approve the transaction; rather, the statute gives the
authority only to disapprove a Notice under one or more of six statutory
factors. The Community Reinvestment Act ("CRA") is not one of those
review standards. If the agency does not disapprove the Notice, the
acquisition may proceed when all remaining regulatory approvals are
received.

**[Disapproval Factors]{.underline}**

The specific factors for disapproving any notice of Change in Bank
Control and our findings with regard to each factor relative to HSBC's
Notice are as follows:

1\. [The proposed acquisition of control would result in a monopoly or
would be in furtherance of any combination or conspiracy to monopolize
or to attempt to monopolize the business of banking in any part of the
United States]{.underline}.

See discussion under #2 below.

2\. [The effect of the proposed acquisition of control in any section of
the country may be substantially to lessen competition or to tend to
create a monopoly or the proposed acquisition of control would in any
other manner be in restraint of trade, and the anticompetitive effects
of the proposed acquisition of control are not clearly outweighed in the
public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served]{.underline}.

Consumer credit card services are the sole business of Household Bank
and are a significant line of business engaged in by HSBC. Credit card
services include the marketing and issuance of credit cards, the
extension of credit to cardholders, and the processing of credit card
transactions.

The OCC and the Federal Reserve Board have recognized that the market
for credit card services is national in scope. Credit card companies
compete in soliciting and serving customers throughout the United
States. This national market is highly competitive and not concentrated
and will remain so if the proposed acquisition of Household Bank is
consummated. The nationwide population of credit card issuing depository
institutions is extensive, and there are numerous alternative card
lenders in the national marketplace. HSBC notes that HII is eighth in
the nation for receivables and credit card volume per the Nilson
Report[^1]. Based on the Nilson Report, HSBC Bank USA and Household Bank
combined would

still rank as the eighth-largest issuer in the country.

In addition, the proposed transaction was submitted for prior review by
the Federal Trade Commission and the Department of Justice pursuant to
the Hart-Scott-Rodino Act. Neither agency attempted to enjoin the
proposed transaction or to investigate further its competitive
structure. Accordingly, we concluded that HSBC's acquisition of
Household Bank would not create a monopoly or have a significantly
adverse effect on competition.

3\. [The financial condition of any acquiring person is such as might
jeopardize the financial stability of the bank or prejudice the
interests of the depositors of the bank]{.underline}.

HSBC, with \$759 billion in total assets (as of December 31, 2002), is a
diversified financial holding company, which operates on a global basis
and is subject to oversight by numerous regulators. The primary
regulator for HSBC, the Financial Services Authority ("FSA") in London,
England, disclosed no information to the OCC reflecting adversely on the
financial condition of HSBC. The financial ratings of HSBC as of
February 26, 2003 are as follow:

+-------------------------+--------+-------+-------+---------+---------+
|                         | **Moo  | **    | **Fi  | **Dom   | **Th    |
|                         | dy's** | S&P** | tch** | inion** | omson** |
+-------------------------+--------+-------+-------+---------+---------+
| #### Outlook            | Stable | S     | S     | \-      | \-      |
|                         |        | table | table |         |         |
+-------------------------+--------+-------+-------+---------+---------+
| **Subordinated Debt**   | A1     | \-    | \-    | \-      | \-      |
+-------------------------+--------+-------+-------+---------+---------+
| **LT Foreign Issuer     | \-     | A+    | \-    | \-      | \-      |
| Credit**                |        |       |       |         |         |
+-------------------------+--------+-------+-------+---------+---------+
| **LT Local Issuer       | \-     | A+    | \-    | \-      | \-      |
| Credit**                |        |       |       |         |         |
+-------------------------+--------+-------+-------+---------+---------+
| **ST Foreign Issuer     | \-     | A-1   | \-    | \-      | \-      |
| Credit**                |        |       |       |         |         |
+-------------------------+--------+-------+-------+---------+---------+
| **ST Local Issuer       | \-     | A-1   | \-    | \-      | \-      |
| Credit**                |        |       |       |         |         |
+-------------------------+--------+-------+-------+---------+---------+
| **Senior Unsecured      | \-     | \-    | AA-   | \-      | \-      |
| Debt**                  |        |       |       |         |         |
+-------------------------+--------+-------+-------+---------+---------+
| **Short Term**          | \-     | \-    | F1+   | R-1M    | WR      |
+-------------------------+--------+-------+-------+---------+---------+
| **Corporate Credit**    | \-     | \-    | \-    | AAL     | \-      |
+-------------------------+--------+-------+-------+---------+---------+

We considered the impact the change in control would have on the current
Operating Agreement and Liquidity Reserve Deposit Agreement between the
OCC and Household Bank. HSBC represented in a letter dated March 24,
2003 that it would seek written non-objection from the OCC prior to
transferring any receivables originated by Household Bank to an entity
other than Household Receivables Acquisition Company or Household
Receivables Acquisition Company II. HSBC also affirmed that it would
seek supervisory non-objection from the OCC prior to making any material
changes in the business plan.

Based upon our review of the application, public information and
discussions with HSBC's primary regulator, we have concluded that HSBC's
financial condition would not jeopardize the stability of Household Bank
or prejudice the interests of its depositors.

4\. The competence, experience, or integrity of any acquiring person, or
of any of the proposed management personnel, indicates that it would not
be in the interest of the depositors of the bank, or in the interest of
the public, to permit that person to control the bank.

HSBC is one of the world's largest banking and financial services
organizations and has been in business for 138 years. As of June 30,
2002, HSBC operated in 81 countries and territories through 7,000
offices. HSBC's annual report[^2] for December 31, 2002 shows HSBC has
total assets of \$759 billion, and net profits of over \$6 billion.
Total shareholders' equity was over \$52 billion.

HSBC is headquartered in London and does business in five regions:
Europe; Hong Kong; the rest of Asia-Pacific; Latin America; and North
America. North America is subdivided into HSBC Bank Canada and HSBC USA,
Inc. HSBC has demonstrated competency, experience and integrity to
operate a banking institution in the United States by its satisfactory
operation of HSBC Bank USA, an \$86 billion institution based in
Buffalo, New York. HSBC Bank USA is currently well capitalized. The FSA,
Federal Reserve, and New York State Banking Department[^3] have provided
no information that would lead us to adversely evaluate the competency,
experience, or integrity of HSBC's management.

We received several comments regarding HSBC management practices and
management qualifications at HSBC. Some letters challenged HSBC's
management capability to oversee Household Bank. Commenters questioned
HSBC's decision to retain the current Chief Executive Officer ("CEO") of
HII as the head of HII and thereafter as the chairman and CEO of HII and
HSBC North America, Inc. The OCC, however, is charged with evaluating
the impact of HSBC management on *Household Bank*. Keeping the current
CEO in place would not result in any change in management that could be
expected to adversely affect Household Bank. The comments also expressed
concerns with management integrity based on HSBC\'s record with respect
to money laundering.  We found no evidence that would cause us to object
to the transaction on this basis. We requested, and received comment
from the FSA, the primary regulator of HSBC. The FSA provided no
information that would cause us to object to the transaction on this
basis.

Based upon all the information in the record and other regulators'
supervisory experience with HSBC's management of HSBC and HSBC Bank USA,
we concluded that the competence, experience, and integrity of HSBC does
not indicate that it would be contrary to the interests of the
depositors of Household Bank or the public, for HSBC to control
Household Bank.

5\. [An acquiring person neglects, fails, or refuses to furnish the OCC
all the information it requires]{.underline}.

HSBC has provided the OCC all requested information.

6\. [The proposed transaction would result in an adverse effect on the
Bank Insurance Fund or the Savings Association Insurance
Fund]{.underline}.

We evaluated the potential for adverse risk to the insurance fund,
taking into account the agreements between Household Bank and the OCC.
We concluded there is no reason to disapprove the Notice on the basis of
an adverse effect on the federal deposit insurance fund.

Based on HSBC's financial and managerial resources noted above, we have
concluded that HSBC's acquisition of Household Bank would not result in
an adverse effect on the deposit insurance funds.

**[Other Comments]{.underline}**

Many of the comments we received related to the regulatory and public
scrutiny of HII resulting from its settlement of alleged violations of
consumer protection laws in its subprime real estate-secured lending
programs.[^4] Commenters expressed concern that the settlement does not
go far enough in addressing HII's allegedly predatory practices and does
not adequately compensate alleged victims.[^5] Some commenters also
voiced concern that after HSBC's acquisition of HII, HII's subprime and
allegedly predatory lending business would be expanded. These comments
addressed issues that are beyond the scope of our review under the CBCA,
since Household Bank, a limited purpose credit card bank, does not
engage in real estate lending and was not a party to the settlement.

We also received comments criticizing certain aspects of Household
Bank's credit card operations, including claims that its disclosures
concerning annual membership fees are inaccurate, that it fails to
provide proper monthly statements, that it posts payments late,
resulting in unwarranted late fees, and that it reports to credit
bureaus using varied creditor or retailer names. These comments have
been referred to the OCC's Customer Assistance Group. The Bank's
compliance with consumer laws also will be subject to ongoing oversight
through the OCC's supervisory process.[^6]

Additionally, some commenters expressed concerns regarding HSBC's CRA
record and its record of mortgage lending to minorities. As previously
noted, however, an institution's record of CRA performance is not one of
the statutory factors upon which the OCC may disapprove a notice.
Further, HSBC Bank USA is not within the OCC's regulatory jurisdiction.
We will ensure that comments pertaining to HSBC Bank USA are forwarded
to the Federal Reserve Board for consideration in connection with its
evaluation of that Bank's CRA performance.

**[Request for Hearings and for Further Extension of the Comment
Period]{.underline}**

Many of the commenters requested that the OCC grant additional time to
comment and to hold public hearings. As mentioned previously, the OCC
extended the comment period to January 8, 2003.

Neither the CBCA nor our regulations provide for public hearings on
notices filed under that Act. Nevertheless, we did carefully consider
whether to conduct a public hearing. One significant factor in
determining whether to hold public hearings on filings that are subject
to hearing provisions is whether hearings are needed to establish a
sufficient record upon which we can make an informed decision. In
connection with this Notice, we reviewed the contents of the Notice,
supporting documents, comments received from the public, publicly
available information, and outside regulatory comments. We also
contacted the primary foreign regulator of HSBC, the Federal Reserve and
the New York State Banking Department, in whose jurisdiction HSBC
conducts a large portion of its U.S. banking activities.

Based on the information received and available to the OCC from all
sources as noted above, we determined that a record of the issues that
must be evaluated under the applicable review standards had been fully
developed. Therefore, neither hearings nor a further extension of the
comment period would add measurably to the relevant information already
received. Accordingly, the OCC determined not to conduct public hearings
in connection with this Notice or to extend the comment period beyond
January 8, 2003. However, the OCC considered all comments received prior
to March 25, 2003. National Bank Examiners will review any subsequent
relevant comments related to Household Bank in their ongoing supervision
of the bank.

**[Conclusion]{.underline}**[^7]

Based on the Notice as amended, and the responses by HSBC to comments
received, the OCC determined that the Notice is complete, and, upon
consideration of the applicable statutory factors, we have today
determined not to object to the acquisition of Household Bank by HSBC
under 12 U.S.C. § 1817(j). Accordingly, HSBC may proceed with the
acquisition upon receipt of any other required regulatory approvals.

A separate letter is enclosed requesting your opinion of our service in
processing your notice. We would appreciate your response so we may
evaluate our service. If you have questions, please contact Geryl Race,
Senior Licensing Analyst at (415) 545-5916.  

Sincerely,

/s/ Julie L. Williams

Julie L. Williams

First Senior Deputy Comptroller and Chief Counsel

Enclosure: Survey Letter

[^1]: December 2002 issue of the Nilson Report (www.nilsonreport.com)
    Issue 778, \"Top Bank Card Issuers Worldwide.\"

[^2]: Annual Report on Form 20-F to the US Securities and Exchange
    Commission for the year ended December 31, 2002.

[^3]: The New York State Banking Department approved HSBC's application
    to acquire the New York licensed subsidiaries of HII on March 25,
    2003.

[^4]: A number of commenters also criticized HII's tax refund
    anticipation loan program. Household Bank, however, as a credit card
    bank with a limited charter, does not engage in tax refund
    anticipation lending.

[^5]: All 50 states and the District of Columbia have decided to
    participate in the settlement. As part of the settlement, HII has
    agreed to provide up to \$484 million to reimburse consumers who
    were affected by the real estate lending practices that were the
    basis for the settlement. Additionally, HII has adopted, as part of
    the settlement, numerous consumer protections. These protections
    include requiring that real estate-secured loans provide a net
    tangible benefit to the borrower; capping loan origination fees and
    points at 5%; affording consumers the option of loans without
    prepayment penalties and declining to charge prepayment penalties
    after the first 24 months after origination; improving and
    simplifying disclosures; and not offering single-premium credit
    insurance on mortgage loans.

[^6]: We note that on March 25, 2003, the OCC entered into a Formal
    Agreement with Household Bank regarding the Bank's financing of
    door-to-door sales of heating, ventilation and air conditioning
    systems. The Agreement requires the Bank to provide restitution to
    affected consumers and to ensure that the Bank\'s private label
    credit card programs operate safely and soundly and in compliance
    with applicable laws, rules, and regulations.

[^7]: This decision, and the activities and communications by OCC
    employees in connection with the filing, do not constitute a
    contract, express or implied, or any other obligation binding upon
    the OCC, the U.S., any agency or entity of the U.S., or an officer
    or employee of the U.S., and do not affect the ability of the OCC to
    exercise its supervisory, regulatory, and examination authorities
    under applicable law and regulations. The foregoing may not be
    waived or modified by any employee or agent of the OCC or the U.S.