HSBC France 2Y Fixed-Floating Switchable Note (USD) Denominated in USD, 100% Principal Protected at Maturity. The Hongkong and Shanghai Banking Corporation Limited's authorised sales staff must go through this document with you once you have decided to invest in HSBC France 2Y Fixed-Floating Switchable Note ( the Note ). This document is prepared to assist you in understanding this Note. We recommend that you keep this document for future reference. Unless otherwise defined, terms used in this document shall have the same meaning as in the relevant Final Terms. Issuer HSBC France Ratings Long-term senior debt rating of the Issuer (as at 9 March 2009): AA (S&P) Aa3 (Moody s) Tenor 2 years Principal Protection 100% principal protected at maturity Underlying Index ( the Index ) 3 month USD-LIBOR-BBA Product Description This Note pays investors of the Note (the Noteholders ) a fixed coupon of 2.50% p.a. on a quarterly basis (the Fixed Coupon ) unless the Issuer exercises the Issuer Switch Option. Starting from the 3rd quarter on each Switchable Date, the Issuer has the right to switch irrevocably from paying a fixed coupon to a (Reference Rate + 0.50%*) p.a. (the Floating Coupon ). Once switched, the Noteholder will receive a Floating Coupon till maturity. * To be determined by the Issuer in good faith on Trade Date 2 years Required Period of Holding Currency Noteholders must be prepared to hold this investment for the full 2-year tenor. Any early redemption is subject to the Issuer s approval and may cause the loss of principal. USD Minimum Investment USD 150,000 (Minimum Investment Amount may be lower for an Accredited Investor) Incremental Investment USD 10,000 Risk Rating 1 (suitable for investors with a Cautious risk attitude) For more details on the terms of the Note, please refer to indicative term sheet on Page 7 to Page 10 of this document.
Issuer & Distributor Information HSBC France is the issuer of the Note which is a wholly owned subsidiary of HSBC Holdings plc, the holding company of the HSBC Group. The long term senior debt ratings of the issuer of the Note are AA (S&P)/Aa3 (Moody s) as at 9 Mar 2009. HSBC France Registered Office of the Issuer: 103, avenue des Champs-Elysées, 75419 Paris Cedex 08 France Tel: 33 1 40 70 70 40, Fax: 33 1 40 70 70 09 HSBC France is regulated by Autorite des Marches Finaciers The Hongkong and Shanghai Banking Corporation Limited is the distributor which is a wholly owned subsidiary of HSBC Holdings plc, the holding company of the HSBC Group. The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch Regulated by the Monetary Authority of Singapore Licensed under the Banking Act (Cap. 19) Exempt financial adviser and exempt capital markets services licence holder Unique Entity Number S16FC0010A Business Office: 21 Collyer Quay, #14-01 HSBC Building, Singapore 049320 Tel: 1800 HSBC NOW (4722 669), Member of HSBC Group Headquartered in London, HSBC Group is one of the largest banking and financial services organisations in the world. Its international network comprises some 10,000 properties in 86 countries and territories in Europe, Hong Kong, Rest of Asia- Pacific, including the Middle East and Africa, North America and Latin America. Page 2 of 15
Hypothetical Examples The following examples are purely hypothetical. The hypothetical rates of return shown in the following 4 scenario examples are meant for illustrative purposes only. The levels/movement/trends shown have no reference to historical data and are not actual or indicative of future performance. The Issuer and The Hongkong and Shanghai Banking Corporation Limited in Singapore makes no representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information, projection, representation or warranty (expressed or implied) in, or omission from the below scenario analysis. The following examples show what the Noteholder s potential return on the investment in the Note could be under 4 different scenarios based on a principal investment of USD150,000. Initial parameters Initial investment Fixed Coupon Floating Coupon Reference Rate USD150,000 2.50% p.a. (Reference rate + 0.5%*) p.a. 3 month USD-LIBOR-BBA * To be determined by the Issuer in good faith on Trade Date Scenario 1: No switch occurs during the tenor of the Note Quarter Fixed Coupon In this scenario, the Issuer did not switch to a Floating Coupon after the first 2 quarters and throughout the tenor of the Note. Therefore, the redemption at maturity will be as follows: Total coupon payout = 5.00% Switch to Floating Coupon Reference Rate fixing Floating Coupon (Reference Rate + 0.50%) p.a. Coupon payout 1 2.50% p.a. NA NA NA 0.625% 2 2.50% p.a. NA NA NA 0.625% 3 2.50% p.a. No NA NA 0.625% 4 2.50% p.a. No NA NA 0.625% 5 2.50% p.a. No NA NA 0.625% 6 2.50% p.a. No NA NA 0.625% 7 2.50% p.a. No NA NA 0.625% 8 2.50% p.a. No NA NA 0.625% Total coupon payout 5.00% Total redemption proceeds = 100% of Principal + Coupon Payout = USD 150, 000 (Principal) + USD 7,500.00 (Coupon) = USD 157,500 over 2 years. The Noteholder s simple annualized return is then 2.50% p.a. on the initial investment. Page 3 of 15
Scenario 2: Switch to Floating Coupon (increasing rate environment) Quarter Fixed Coupon Switch to Floating Coupon Reference rate fixing Floating Coupon (Reference Rate + 0.50%) p.a. Coupon payout 1 2.50% p.a. NA NA NA 0.6250% 2 2.50% p.a. NA NA NA 0.6250% 3 NA Yes 1.50 (1.50% + 0.5%) 2.00% p.a. 0.5000% 4 NA Yes 1.75 (1.75% + 0.5%) 2.25% p.a. 0.5625% Yes 2.00 (2.00% + 0.5%) 0.6250% 5 NA 2.5% p.a. Yes 2.25 (2.25% + 0.5%) 0.6875% 6 NA 2.75% p.a. Yes 2.50 (2.50% + 0.5%) 0.7500% 7 NA 3.00% p.a. Yes 2.75 (2.75% + 0.5%) 0.8125% 8 NA 3.25% p.a. Total coupon 5.1875% payout In this scenario, the Noteholder receives a Fixed Coupon of 2.50% p.a. for the first 2 quarters. Starting from the 3 rd quarter and quarterly thereafter, the Issuer has irrevocably switched the Fixed Coupon to a Floating Coupon. Therefore, the redemption at maturity will be as follows: Total coupon payout = 5.1875% Total redemption proceeds = 100% of Principal + Coupon Payment = USD 150, 000 (Principal) + USD 7,781.25 (Coupon) = USD 157,781.25 over 2 years. The Noteholder s simple annualized return is then 2.59375% p.a. on the initial investment. Page 4 of 15
Scenario 3: Switch to Floating Coupon (decreasing rate environment) Quarter Fixed Coupon Switch to Floating Coupon Reference Rate fixing Floating Coupon (Reference Rate + 0.50%) p.a. Coupon payout 1 2.50% p.a. NA NA NA 0.6250% 2 2.50% p.a. NA NA NA 0.6250% 3 NA Yes 1.50 (1.50% + 0.5%) 2.00% p.a. 0.5000% 4 NA Yes 1.25 (1.25% + 0.5%) 1.75% p.a. 0.4375% 5 NA Yes 1.20 (1.20% + 0.5%) 1.70% p.a. 0.4250% Yes 0.95 (0.95% + 0.5%) 0.3625% 6 NA 1.45% p.a. Yes 0.70 (0.70% + 0.5%) 0.3000% 7 NA 1.20% p.a. 8 NA Yes 0.45 (0.45% + 0.5%) 0.95% p.a. 0.2375% Total coupon payout 3.5125% In this scenario, the Noteholder receives a Fixed Coupon of 2.50% p.a. for the first 2 quarters. Starting from the 3 rd quarter and quarterly thereafter, the Issuer has irrevocably switched the Fixed Coupon to a Floating Coupon. Therefore, the redemption at maturity will be as follows: Total coupon payout = 3.5125% Total redemption proceeds = 100% of Principal + Coupon Payment = USD 150, 000 (Principal) + USD 5,268.75 (Coupon) = USD 155,268.75 over 2 years. The Noteholder s simple annualized return is then 1.75625% p.a. on the initial investment. Page 5 of 15
Scenario 4: Switch to Floating Coupon (worst case scenario) In this scenario, the Noteholder receives a Fixed Coupon of 2.50% p.a. for the first 2 quarters. Starting from the 3 rd quarter and quarterly thereafter, the Issuer has irrevocably switched the Fixed Coupon to a Floating Coupon. In the event that the Reference Rate is negative and totally erodes the additional spread throughout the tenor of this Note (after the switch to a Floating Coupon), the Noteholder s Floating Coupon is floored at 0%. Therefore, the redemption at maturity will be as follows: Total coupon payout = 1.25% Total redemption proceeds = 100% of Principal + Coupon Payment = USD 150, 000 (Principal) + USD 1,875.00 (Coupon) = USD 151,875.00 over 2 years. The Noteholder s simple annualized return is then 0.625 % p.a. on the initial investment. Scenario Analysis Disclaimer The above scenarios provide Investors with illustrations of potential payout calculations under different scenarios. They do not reflect a complete analysis of all potential gain and loss scenarios that may arise in respect of any actual investment. Figures used in the scenarios are for illustrative purposes only. Noteholders should not project the future performance of the Reference Rate based on these illustrations. In addition, upon the occurrence of certain events as specified in the Final Terms governing this Note, the Calculation Agent has the sole discretion to make certain adjustment. Accordingly, no representation or warranty is made by the Issuer and Distributor that any scenario described above can be duplicated under real investment conditions. Actual results may vary from the results shown above, and variations may be material. Page 6 of 15
Issue Issuer Status Indicative Term Sheet for HSBC France 2Y Fixed-Floating Switchable Note (USD) An issue of HSBC France 2Y Fixed-Floating Switchable Note (USD) HSBC France (Notes Programme) Senior, unsecured Issuer Ratings The long term senior debt ratings of the issuer are AA (S&P)/Aa3 (Moody s), as at 9 Mar 2009 Protection Note Distributor Form of security Documentation Currency Minimum Subscription Size 100% Principal Protection at Maturity The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch ( HSBC ) Notes as defined in the Base Prospectus The Issuer s Euro Medium Term Programme (Base Prospectus) USD Denomination USD 10, 000 Trade Date 31 Mar 2009 Issue Date 21April 2009 Maturity Date 21 April 2011 Issue Price Fixed Coupon Rate Issuer Switch Option USD 150,000 (Minimum Subscription Size may be lower for an Accredited Investor) 100% of Denomination Quarter 1: 2.50% p.a. Quarter 2: 2.50% p.a. Thereafter for every subsequent quarters: 2.50% p.a. subject to Issuer Switch Option On each Switchable date, the Issuer has the right to switch irrevocably from paying a Fixed Coupon to (Reference Rate + 0.50%*) p.a. until the Maturity Date, with 10 Business Days notice prior to the respective Switchable Date on which the switch occurs.. The floating coupon is floored at 0%. * To be determined by the Issuer in good faith on Trade Date. Switchable Dates Quarterly, commencing on [ ] October 2009 Coupon Payment Date Quarterly, commencing on [ ] July 2009 then on October, January, April and July each year to and including the Maturity Date. Reference Rate 3 month USD-LIBOR-BBA Whereby "USD-LIBOR-BBA" means that the rate for a Reset Date will be the rate for deposits in U.S. Dollars for a period of the Designated Maturity (in this case, 3 months) which appears on the Reuters Page LIBOR01 as of 11:00am, London time, on the Reset Date of the Accrual Period. If such rate does not appear on the Reuters Page LIBOR01, the rate for that Reset Date will be determined as if the parties had specified "USD-LIBOR-Reference Banks" as the applicable Reference Rate. Accrual Period Interest Period Reset Date Day Basis Business Day Convention Business Days Listing Form of the Notes In case of a weekend or holiday, the fixing of the previous business day shall prevail. Each period beginning on the first day (included) of the Interest Period to the last day (excluded) of the Interest Period. From the last Coupon Payment Date to the next Coupon Payment Date. Two Business Days prior to the start of the relevant Accrual Period 30/360 Unadjusted Modified Following, unless specifically stated otherwise London, New York None Dematerialised Notes, bearer form (au porteur) Page 7 of 15
Calculation Agent Governing Law Secondary market Early Redemption by Noteholder Prior to Maturity Date HSBC France French The Issuer and the Dealer may, but shall not be required to, make a market for the Notes. Any bid or offer price for the Notes shall be determined by the Issuer or the Dealer (as the case may be) in its sole discretion. There is no assurance as to the development or liquidity of any trading market for the Notes. See Risk Factors in the Issuer s Programme for the Issuance of Notes & Warrants for further details. Starting from [15] May 2009, Noteholders may sell their Notes but they shall not be entitled to withdraw all or part of their investment without the Issuer s prior consent (which, if granted, may be subject to such conditions and terms as the Issuer may require). Such conditions to include (without limitation) the date and time of redemption of the Notes which shall occur on a Business Day as determined by the Issuer after written request for early redemption is received from the Noteholder. Without prejudice to the foregoing, the Issuer reserves the right to determine conclusively acting in good faith the amount of deduction to be made to the principal amount of the Notes for breakage costs. Such breakage costs shall include the costs, expenses, liabilities or losses incurred or suffered by the Issuer as a consequence of breaking its hedge, or funding arising directly or indirectly from the Noteholder s written request for early withdrawal. Such request for early withdrawal shall only be given by the Noteholder on the 15 th (or the next business day if the 15 th is not a business day) or last Business Day of each calendar month or such other day as the Issuer or Note Distributor may determine. The Noteholder s attention is drawn to the fact that the total amount repaid on early redemption of the Notes at the Noteholder's request may be less than the principal amount of the Noteholder s Notes. Taxation Applicable Definitions Selling Restrictions Payments of interest and other revenues in respect of Notes constituting obligations or debt instruments (titres de créances) assimilated thereto for French tax purposes benefit from the exemption from deduction of tax at source provided by Article 131 quater of the French Code général des impôts. The tax regime applicable to Notes which do not constitute obligations or debt instruments (titres de créances) assimilated thereto for French tax purposes will be set out in the relevant Final Terms. Terms not specifically defined herein shall have meanings to be further defined in the final terms prepared by the Issuer for these Notes ( Final Terms ). United States of America TEFRA D Rule Regulation S Notes may not be sold or offered within the United States of America or to or for the benefit of U.S. Persons (as defined in Regulation S). European Economic Area This Term Sheet is addressed solely to (i) persons outside the European Economic Area and/or (ii) Qualified Investors (as defined in the Prospectus Directive) (all such persons in (i) and (ii) together being referred to as relevant persons ). By being in receipt of this Term Sheet you acknowledge, represent and agree that (i) you will not distribute, forward, copy, reproduce or otherwise pass on this Term Sheet to any person who is not a relevant person, (ii) you are aware of and understand the requirements of the Prospectus Directive including any relevant implementing measures in each Member State of the European Economic Area in which the Prospectus Directive has been implemented and (iii) you will comply with the provisions of the Important Notice section below: IMPORTANT NOTICE European Economic Area Prospectus Directive In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), you represent and agree that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) you have not made and will not make an offer of the Notes to the public in that Relevant Member State except that you may, with effect from and including the Relevant Implementation Date, make an offer of the Notes to the public in that Page 8 of 15
Relevant Member State: (a) in (or in Germany, where the offer starts within) the period beginning on the date of publication of a prospectus in relation to those Notes which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive and ending on the date which is 12 months after the date of such publication; (b) at any time to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; (c) at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; or (d) only in minimum amounts of at least 50,000 (or equivalent) considerations per investor (such that the minimum amount payable by the investor pursuant to each separate offer made to him, is at least 50,000 (or equivalent). For the purposes of this provision, the expression an offer of Notes to the public in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. You further represent and agree that, with effect from and including the Relevant Implementation Date, you are not making any offer of the Notes to the public in a Relevant Member State in reliance on the exemption set out in Art 3.2 (b) of the Prospectus Directive (namely, the offer of securities addressed to fewer than 100 natural or legal persons per Member State, other than qualified investors exemption). Any re-offer or re-sale, by an initial purchaser or financial intermediary, of Notes in relation to which a prospectus has not been approved by the competent authority in a Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, will be unlawful unless made (i) pursuant to one of the exemptions set out in Article 3.2 of the Prospectus Directive or (ii) in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. Switzerland The product is not a collective investment scheme as per the Federal Act on Collective Investment Schemes (CISA) and is not subject to approval or supervision by the Swiss Federal Banking Commission The prospectus requirement under art. 1156 of the Swiss Code of Obligations is not applicable (art. 5 para. 4 CISA). Singapore This Indicative Term Sheet has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (the Securities and Futures Act). Accordingly, the Notes may not be offered or sold or made the subject of an invitation for subscription or purchase nor may this Indicative Term Sheet or any other document or material in connection with the offer or sale or invitation for subscription or purchase of any Notes be circulated or distributed, whether directly or indirectly, to any person in Singapore other than (a) to an institutional investor pursuant to Section 274 of the Securities and Futures Act, (b) to a relevant person, or any person pursuant to Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions specified in Section 275 of the Securities and Futures Act, or (c) pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act. Page 9 of 15
Each of the following relevant persons specified in Section 275 of the Securities and Futures Act which has subscribed or purchased Notes, namely a person who is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, should note that shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the notes under Section 275 of the Securities and Futures Act except: (i) to an institutional investor under Section 274 of the Securities and Futures Act or to a relevant person, or any person pursuant to Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act; (ii) where no consideration is given for the transfer; or (iii) by operation of law. Please refer to the Base Prospectus for complete selling restrictions. The indicative terms set out here in represents only a summary of the terms and conditions of the Notes, which will be issued under the Programme for the Issuance of Notes and Warrants of the Issuer. The full terms and conditions which will be the only legally binding terms will be contained in the base prospectus dated 21 October 2008 (as amended, modified and supplemented by the supplementary base prospectus dated 29 April 2008, 5 September 2008 and 11 September 2008.), together the Base Prospectus. This Indicative Term Sheet must be read in conjunction with the Base Prospectus. To the extent, if there is any inconsistency between this Indicative Term Sheet and the Base Prospectus, the Base Prospectus shall prevail. Page 10 of 15
Reference Rate Any historical prices which appear below are not necessarily indicative of future prices. Although the information is obtained from sources which are considered reliable, it is not represented that it is accurate or complete. 5Y Historical Chart 7.00% 6.00% 5.00% 3 month USD-LIBOR-BBA 4.00% 3.00% 2.00% 1.00% 0.00% 2/9/2004 8/9/2004 2/9/2005 8/9/2005 2/9/2006 8/9/2006 2/9/2007 8/9/2007 2/9/2008 8/9/2008 2/9/2009 Source: Bloomberg, as of 9 March, 2009 The performance of the Reference Rate shown above is based on information obtained from various third party sources (including Bloomberg). The Issuer, the Distributor and their respective affiliates do not take any responsibility for, nor make any express or implied warranties or any representation as to the accuracy or the completeness of this information and have not separately verified such information. All performances are calculated in local currencies. The value of the Reference Rate can go down as well as up. Past performance is not indicative of future performance. Page 11 of 15
Risk Disclosures Structured product transactions are complex and an investment in a structured product may involve a high risk of loss of your initial investment. Prior to entering into a transaction, you should ensure that you understand the nature of all of the risks associated with the investment in order to determine whether the investment is suitable for you in light of your experience, objectives, financial position and other relevant circumstances. You should consult your legal, regulatory, tax, financial and/or accounting advisors to the extent you consider it necessary in making your own investment decision. This Term Sheet is indicative, thus all terms and conditions may be subject to change. Market Risk Structured Notes can be volatile instruments and may be subject to considerable fluctuations in value and other risks inherent in investing in securities and/or derivatives. The value of a Note may fall as rapidly as it may rise due to numerous factors, including, but not limited to, systemic risks, variations in the frequency and magnitude of changes in interest rates, inflation outlook and the price/level of any underlying reference to which the Notes relate (e.g. securities, commodities, funds, rates and/or Indices). The value of the Notes may increase or decrease throughout their tenor. Return Risk Structured Notes have an investment element and returns may vary. Potential return on the Notes may be less than returns on a non-structured fixed coupon bond or a direct investment in the underlying assets or other investments. The coupon for this Note can be only 0.625% p.a. at maturity, in the event that the Reference Rate is negative and totally erodes the additional spread after the switch to Floating Coupon from the third quarter till maturity. Also, the redemption amount at maturity of the Notes is subject to the performance of the Underlying or Reference Rate. There is no guarantee that the Notes will produce yields in excess of those available on other investments. There can be no assurance that the Notes will return at maturity more than the amount initially invested, in which case, Noteholders would have foregone any potential return that may have been earned on a direct investment in the underlying assets, commodities, interest rates, fixed income investment of similar amount and tenor. Credit Risk Prospective Noteholders should be aware that receipt of any sums due at maturity by a Noteholder is subject to the credit risk of the Issuer. Noteholders assume the risk that the Issuer will not be able to satisfy their obligations under the Notes. Except where specifically provided otherwise, the Notes will constitute general and unsecured contractual obligations of the Issuer and such obligations will rank equally with all other unsecured contractual obligations of the Issuer. The Notes will also rank pari passu with subsequent unsecured obligations of the Issuer. In the case of an insolvency of the Issuer, preferred liabilities of the Issuer will have priority over unsecured obligations such as these Notes. Any stated credit rating of the Issuer reflects the independent opinion of the referenced Rating Agency as to the creditworthiness of the rated entity but is not a guarantee of credit quality of the Issuer. Any downgrading of the credit ratings of the Issuer or its parent or affiliates, by any rating agency could result in a reduction in the value of the Notes. In the event that bankruptcy proceedings or composition, scheme of arrangement or similar proceedings to avert bankruptcy are instituted by or against the Issuer, the payment of sums due on the Notes may be substantially reduced or delayed. Liquidity Risk Noteholders may not be able to liquidate or sell some or all of the Notes as and when they require or at an amount equal to or more than the principal. There is currently no active or liquid secondary trading market for these Notes and they are not traded on any regulated markets or listed on any exchange. There can be no assurance that anyone intends to make a market in the Notes, or that if anyone does so, that they will continue to do so, or that a market-maker in the Notes (if any) will offer an amount equal to or greater than the principal of the Notes, or that if a market-maker does offer a price for the Notes which is equal to or greater than the principal, that it will continue to do so. There can be no assurance that any Noteholder will be able to obtain a firm bid price for the Notes for an amount at which they wish to sell. Therefore, these Notes may not be marketable and as such may not be able to be liquidated or sold before maturity, or if liquidated/sold, may only realise an amount that is at a significant discount to the principal paid by the Noteholder. Liquidity on these investments is relatively less than similar grade non-structured fixed coupon bonds. Mark to market valuations on the Note may not be available or provided to Noteholders on any regular basis prior to the Note s maturity. Any such valuations provided would be indicative only and not binding on the Issuer or the Distributor. In addition, Noteholders cannot transfer their units in this Note to anyone apart from the Issuer. This may further limit the liquidity of the Notes. Early Redemption by the Noteholder Risk Subject to the existence of normal market condition as determined by the Issuer, a Noteholder may redeem the Note prior to its maturity. However, Noteholders should note that the Issuer will deduct any early redemption costs from the principal payable Page 12 of 15
to the Noteholder. It is therefore possible that the Noteholder will not receive 100% of the principal back. These redemption costs may be substantial and so it is important Noteholders are prepared to hold this investment until maturity or early redemption by the Issuer (where applicable) or alternatively be prepared to incur these costs in the event of early redemption. Early Redemption by the Issuer Risk If the Note has to be terminated early for taxation reasons or the winding up of the Issuer, a similar result would occur as detailed in the Early Redemption by the Noteholder Risk section above. Both these events, however, the Issuer believes to be unlikely. Re-investment Risk Noteholders need to consider the ability to re-invest the principal investment amount plus the coupon (if paid) in other suitable products with similar returns and tenors, where the Notes have been early redeemed. Foreign Exchange Risk Noteholders investing in Notes denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may result in a loss of principal when converted to the Noteholder s local currency. Exchange controls imposed by the relevant authorities may also adversely affect the applicable exchange rate and result in the receipt of reduced principal. Interest Rate Risk Noteholders are exposed to the movement of interest rates whenever their Notes are redeemed, tendered or sold prior to maturity. From an economic perspective, the Notes typically comprise of a zero coupon bond and an option. Movements in interest rates will have an impact upon both the value of the zero coupon bond and the option. As interest rates move upwards, the value of the Notes generally fall. Moreover, the longer the tenor of the Notes, the more sensitive the Notes will be to interest rate changes. Settlement Risk Upon purchasing the Notes, the Noteholder assumes all settlement risks relating to Issuer failing to settle the Notes on the primary settlement date, and unless otherwise provided for. Sovereign Risk In the event the Note Issuer or any of the underlying referenced link/asset/security is issued by a sovereign or governmental entity or quasi-governmental entity, repayment of the Notes and applicable coupon/interest may be subject to sovereign risks. This includes the potential default by such sovereign, government/quasi government issuer or the occurrence of political or economic events resulting in governmental action such as declaration of a moratorium on debt repayment or negating repayment obligations of the sovereign issuer. If any such event were to occur, Noteholders may lose up to all of their initial investment in the Notes. Tax Risk Tax burden, if any, imposed by or arising from regulatory requirement changes, for any payable by the Issuer to the Note Dist ributor under the Notes or by Note Distributor to the Noteholder under these Notes will be borne by the Noteholder. Inflation Risk Noteholders will need to consider the effect that inflation may have on the real value of your investment at maturity (or early call) during the tenor of the Notes. Page 13 of 15
Investor Commitment & Acknowledgement When you invest in this Note, you will be required to make a series of confirmations and acknowledgements, including that you: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) have read and understood this document, including the risks of investing in the Notes as explained in the section Risk Disclosures ; understand that the Notes have a product risk level of 1 and are likely to be suitable for investors with a Cautious risk attitude; understand that this investment is likely to be suitable for you if you acknowledge and accept that potential return is not guaranteed. Noteholders should also understand that the investment does not guarantee to produce any return higher than any other investment products. understand that you should avoid excessive investment in a single type of investment, with regard to its total proportion of your overall portfolio, in order to guard against overexposure to any single investment; understand that neither the Issuer nor the Distributor is making, and has not made, any representation whatsoever as to the Underlying or the Reference Rate; and you confirm that you have not relied on the Issuer or the Distributor views or advice or those of HSBC Holdings plc or any of its subsidiaries in assessing the merits, risks and suitability of the Notes; confirm that you have sufficient liquid emergency funds to meet any unforeseen circumstances; confirm that you are prepared to invest for the entire investment tenor and are not relying on any early call/redemption/sell back feature; understand that this investment is likely to be suitable for Noteholders who have experience in investing in similar structures or other relevant instruments; understand that HSBC France as the calculation agent owes no duty or obligation to you to take any action other than to make determinations and exercise discretion in accordance with the terms and conditions of the Notes; understand that you should refer to the Issuer s Base Prospectus (available after the Issue Date) and Final Terms, which are available upon request, for further details on the terms of the Notes and risks involved; understand that this document is not intended to provide and should not be relied upon for tax, legal or accounting advice, investment recommendations or credit worthiness or other evaluation of the Issuer. Prospective Noteholders should consult their tax, legal, accounting and/or other advisors for such purposes; understand that the minimum investment amount is USD150,000 (minimum investment amount may be lower for an Accredited Investor). Other Information Confirmation Advice and Coupon Payment Advice Upon confirmation of final terms, Confirmation Advice will be sent to the Noteholders 5 (five) Business Days after Issue Date and Coupon Payment Advice will be sent 3 (three) Business Days after payment is credited to Noteholders HSBC account. Cancellation In the event that the Issuer decides to cancel before launch, Noteholders account will be credited with the original investment amount (no additional interest paid) within 5 (five) Business Days from the Closing Date. Closing date and Cut-off Time 31 March 2009, 12:00pm (Singapore time) Non-acceptance HSBC reserves the right, in its sole discretion, on or before the issue date, to reject your application wholly or partially. Indicative Price Page 14 of 15
If Noteholders wish to obtain indicative price of the Notes, such Noteholders can contact the Issuer through its subsidiary office in Singapore. The indicative price of early redemption shall only be given to the investors two Business Days prior to the 15 th or last Business Day of each calendar month or such other day as the Issuer may determine. Enquiries/Complaints For any enquiries or complaints, please contact our 24-hour Customer Service Hotline at 1800-HSBC NOW (4722 669) Important Notes This Term Sheet contains indicative terms only. Please re-confirm the final terms with your relationship manager. This document is issued by HSBC Bank plc ( HSBC ). HSBC is authorised and regulated by the Financial Services Authority ( FSA ) and is a member of the HSBC Group of companies ( HSBC Group ). Any member of the HSBC Group, together with their directors, officers and employees may have traded for their own account as principal, or together with its officers, directors and employees may have a long or short position in any related instrument mentioned in this material. This term sheet contains indicative terms only. All materials contained here are for discussion purposes only. Final Terms are subject to further discussion, revision and negotiation. The information and opinions in this document, which is for private circulation, are derived from sources believed to be reliable, but its accuracy and sufficiency cannot be guaranteed. Investments can fluctuate in price or value and prices, values or income may fall against an investor s interests. Changes in rates of exchange and rates of interest may have an adverse effect on the value, price or income of these investments. You are solely responsible for making your own independent appraisal of and investigation into the products, investments and transactions referred to in this document and you should not rely on any information in this document as constituting investment advice. Neither HSBC nor any of its affiliates are responsible for providing you with legal, tax or other specialist advice and you should make your own arrangements in respect of this accordingly. Contingent liability transactions may result in the loss of all the amount originally invested or deposited, and may also require future payments to be made by the investor. This document is intended solely for professional clients and eligible counterparties (as defined in the rules of the FSA) and is not intended for the use of retail clients. No opinions are expressed as to the merits or suitability of a product. Investments may not be suitable for all requirements and if you have any doubts, seek advice from your investment adviser. All terms are subject to completion and amendment. This term sheet is a financial promotion within the scope of the rules of the FSA. In addition to the Declaration in the Enhanced Notes/Bonds Transaction Form, I/we confirm that I/we have read and accepted the terms and risks of HSBC France 2Y Fixed-Floating Switchable Note (USD). In addition to the Declaration in the Enhanced Notes/Bonds Transaction Form, I/we confirm that I/we have read and accepted the terms and risks of HSBC France 2Y Fixed-Floating Switchable Note (USD). In addition to the Declaration in the Enhanced Notes/Bonds Transaction Form, I/we confirm that I/we have read and accepted the terms and risks of HSBC France 2Y Fixed-Floating Switchable Note (USD) Signature Name: Date: Signature Name: Date: Signature Name: Date: For bank use only: Signature verified by: I declare that all 15 pages of this document have been provided to customer. RM's name & signature: I acknowledge receipt of all 15 pages of this document: Customer's name & signature: Page 15 of 15