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HSBC Bank USA, N.A. Trade and Supply Chain

HSBC Bank USA, N.A. Trade and Supply Chain. International Payment Methods. Prepared For: Global Supply Chain Management Conference. HSBC OVERVIEW. Europe Offices. Asia-Pacific Offices. Americas Offices. Middle East/Africa Offices. Armenia 10 Austria 1 Belgium 2 Channel Islands 35

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HSBC Bank USA, N.A. Trade and Supply Chain

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  1. HSBC Bank USA, N.A. Trade and Supply Chain International Payment Methods Prepared For: Global Supply Chain Management Conference

  2. HSBC OVERVIEW

  3. Europe Offices Asia-Pacific Offices Americas Offices Middle East/Africa Offices Armenia 10 Austria 1 Belgium 2 Channel Islands 35 Cyprus 1 Czech Republic 3 France 440 Georgia 1 Germany 13 Greece 27 Hungary 11 Ireland 14 Isle of Man 8 Italy 3 Luxembourg 4 Malta 54 Monaco 2 Netherlands 1 Poland 17 Russia 6 Slovakia 4 Spain 4 Sweden 3 Switzerland 18 Turkey 304 United Kingdom 1,654 Australia 34 Bangladesh 9 Brunei Darussalam 12 China 124 Hong Kong SpecialAdministrative Region 334 India 72 Indonesia 90 Japan 10 Kazakhstan 2 Korea, Republic of 15 Macau SpecialAdministrative Region 6 Malaysia 48 Maldives 1 New Zealand 10 Pakistan 9 Philippines 26 Singapore 26 Sri Lanka 15 Taiwan 55 Thailand 1 Vietnam 4 Argentina 247 Bahamas 8 Bermuda 15 Brazil 1,673 British Virgin Islands 3 Canada 299 Cayman Islands 13 Chile 2 Colombia 33 Costa Rica 40 El Salvador 84 Honduras 86 Mexico 1,625 Nicaragua 3 Panama 83 Paraguay 6 Peru 11 United Statesof America 1,627 Uruguay 5 Venezuela 1 Algeria 2 Bahrain 6 Egypt 55 Iran 1 Iraq 13 Israel 3 Jordan 3 Kuwait 1 Lebanon 6 Libya 2 Mauritius 12 Oman 6 PalestinianAutonomous Area 1 Qatar 7 Saudi Arabia 86 South Africa 5United Arab Emirates 18 Services are provided by about 9,500 offices in 85 countries and territories Associated companies are included in the network of offices As of August 4, 2008 HSBC Group – Global Network • Global Network supporting our clients and their suppliers • Largest Asian Branch Network • Local Decision Making • Trade legacy dating back to 1865 • Local Customer and Marketing support

  4. HSBC GroupStrength in North America – full coverage in all three markets Canada • Largest foreign bank in Canada (7th of all) • 299 offices with over 6,000 employees • Fully integrated corporate, investment banking, and global markets platform United States • One of the largest financial institution in the US with 53,000 employees • Fully integrated corporate, investment banking, and global markets platform • > 400 bank branches & > 1,300 Consumer branches in 48 states Canada USA Mexico • 3rd Largest bank in Mexico 1,625 bank branches, 4500 ATMs. • Full range of services Mexico Other North America • 15 branches in Bermuda, 8 in the Bahamas, 3 in BVI, and 13 in the Cayman Islands 4 |

  5. HSBC GroupStrength in South and Central America – full coverage in key economies Central America. Mexico • El Salvador: 84 offices / branches • Honduras: 86 offices / branches • Costa Rica: 40 offices / branches • Nicaragua: 3 office / branch • Panama: 83 offices / branches Honduras El Salvador Nicaragua Venezuela Costa Rica Brazil Panama • 4th largest branch network with 1,673 branches / 5,000 ATMS, with Banistmo + 1,690 branches • Assets of USD 10Bn and largest consumer finance company with 14M customers Columbia Peru Argentina Brazil • 6th largest bank, 247 offices and branches and largest insurance company Paraguay Remaining South America • Peru: 11 offices / branches • Chile: 2 offices / branches • Uruguay: 5 offices / branches • Columbia: 33 offices / branches • Venezuela: 1 office / branch Chile Uruguay Argentina 5 |

  6. HSBC GroupStrength in Europe – full coverage in key economies Strength in all three of Europe’s major economies—leader in the UK & France Number of offices/ branches Armenia 10 Austria 1 Belgium 2 Channel Islands 35 Cyprus 1 Czech Rep. 3 France 440 Germany 13 Georgia 1 Greece 27 Hungary 11 Ireland 14 Isle of Man 8 Italy 3 Luxembourg 4 Malta 54 Monaco 2 Netherlands 1 Poland 17 Russia 6 Slovakia 4 Spain 4 Sweden 3 Switzerland 18 Turkey 304 United Kingdom 1,654 6 |

  7. HSBC GroupStrength in Asia – unparalleled coverage and capabilities Strength in all Asian Economies – leader in HK and leading foreign bank in China and India Number of offices/ branches Australia 34 Bangladesh 9 Brunei Darussalam 12 China 124 Hong Kong SAR 334 India 72 Indonesia 90 Japan 10 Kazakhstan 2 Korea, Republic of 15 Macau SAR 6 Malaysia 48 Maldives 1 New Zealand 10 Pakistan 9 Philippines 26 Singapore 26 Sri Lanka 15 Taiwan 55 Thailand 1 Vietnam 4 7 |

  8. Turkey Lebanon Jordan Iran Iraq Israel Kuwait Egypt Bahrain Qatar Saudi Arabia UAE Oman HSBC GroupStrength in the Middle East– growth through acquisition True Local Presence • HSBC has experience dealing with the Middle East since 1889. Since then, our correspondent and subsidiary network have expanded extensively. • HSBC Amanah trade products support the increasing demand for Islamic banking; tailored to the needs of customers who conduct operations according to Shariah principles Acquistions Strengthen HSBC’s Offering • A 40% stake in Saudi British Bank • A 46.5% stake in British Arab Commercial Bank (BACB) • HSBC-Bank Egypt merger (94.5% HSBC Stake) • A 70% purchase of Dar Es Salaam Investment Bank in Iraq Long-Standing Correspondent Relationships • Correspondent relationships with over 150 local and international banks 8 |

  9. MAJOR RISKS

  10. Major Risks • Political Risk • War, civil disturbance, or revolution • Expropriation • Inconvertibility of local currency into dollars or other hard currency. (Transfer Risk) • Commercial Risk/Business Risk • Disputes between buyer and seller. • Controlling title to goods pending payment. • Customer illiquidity or insolvency • Inability to finance company “investment” in export accounts receivable • Control of quality of goods. • Working capital tied up • Increasing reliance on bank debt. • Documentary Risk • Interest Rate Risk • Foreign Exchange Risk

  11. Trade and Supply Chain & HSBC • Banks major role in International Trade is to assist clients in • Mitigating risk • Effecting Payment • Providing a level of trust and integrity to the transaction between two parties that are frequently not well known to each other • In any trade arrangement, a conflict of wants exists between: • Supplier • Wants payment for the goods • Wants payment prior to shipment of the goods • Buyer • Wants to receive the correct goods • Wants goods at the right time • May want credit terms • Trade and Supply Chain assists in bridging the gap between these conflicting wants

  12. METHODS OF PAYMENT

  13. Payment Methods • The choice of payment is determined by: • Buyer’s Credit Standing • Supplier’s Financial Condition • Competition for the Sale • Industry Practice • Amount of the Transaction • Regulatory Environment • Primary Payment Methods: • Payment in Advance • Open Account • Documentary Collections • Documentary Letter of Credit

  14. What is Trade Finance About? Risk Management

  15. Relying on Counterparty risk PAYMENT IN ADVANCE OPEN ACCOUNT

  16. Payment In Advance/ Open Account • Payment in Advance: • Buyer remits funds before the goods are shipped • Supplier ships after the funds are received • Buyer at risk: • Non-shipment by the seller • Quality of goods shipped • Exchange controls frustrating payment • Negative impact on cash flow • Open Account • Goods dispatched directly to Buyer • Buyer pays on receipt/ after a specified period • Supplier at risk: • Non-payment by Buyer • Exchange controls may frustrate payment • Negative impact on Supplier’s cash flow

  17. DOCUMENTARY COLLECTIONS

  18. What is Trade Finance About? Risk Management

  19. Documentary Collections • Definition • A payment mechanism initiated by the Exporter, using the services of a bank, to collect payment from the Importer • This is done by forwarding documents, most importantly title documents, through agreed banking channels • Types of Payment • D/P: Release of Documents against Payment- Documents are not released until payment is made by the Importer • D/A: Release of Documents against Acceptance- Documents released upon the promise of payment at a future date as evidenced by a draft drawn on and accepted by the Buyer

  20. 1. Sales Contract Importer (Drawee) Exporter (Drawer) 2. Goods Shipped 3. Documents Presented with Collection Order 5. Drawee notified of arrival of documents 8. Payment less charges 6. Drawee makes payment 7. Payment less charges Collecting Bank Remitting Bank 4. Documents sent to Collecting Bank Documentary Collections

  21. Documentary Collections- Risk Profile

  22. LETTERS OF CREDIT

  23. What is Trade Finance About? Risk Management

  24. Documentary Letters of Credit • Definition • A written undertaking by a bank • Given to the Supplier at the Buyer’s request • Promising to effect payment of a stated amount at a stated time • Against presentation of documents in compliance with the terms and conditions stated in the Credit • Types of Payment • Sight LC • Usance LC

  25. 1. Sales Contract 5. Goods Shipped Importer (Applicant) Exporter (Beneficiary) 2. LC Application 8. Payment / Documents Released 10. Payment to Beneficiary 6. Documents Presented 4. LC Advised 9. Payment by Issuing Bank Issuing Bank 7. Documents Presented to Issuing Bank 3. LC Issued Advising Bank Documentary Letters of Credit

  26. SELLER Benefits: 1) The exporter has the Issuing Bank’s undertaking to pay against compliant documents regardless of the financial capacity of the Buyer. 2) Ability to Confirm and/or Discount drafts. Key Risks: 1) A high percentage of presentations made under LCs are discrepant therefore making the payment obligation of the issuing entity null and void. 2) Depending on the country the goods are being shipped to, Country & Bank Risk can negate a major protective factor of LC’s. **Two key factors for discrepancies are poor documentation and late shipment/presentation. Letters of Credit- Risk Profile

  27. Documentary Letters of Credit • Remember- Banks deal in Documents, not goods! • Importer must still pay if exporter’s documents comply with letter of credit. • Governed by the following regulations: • Uniform Customs & Practice for documentary credits ICC No. 600 (2007 revision) • International Chamber of Commerce- Publication Number 600 (1JUL07)

  28. TERMINOLOGY

  29. Terminology • Applicant • Buyer/ Importer/ Account Party • Beneficiary • Seller/ Exporter/ Drawer • Issuing Bank • Importer’s bank • Guarantees payment against correct documents • Advising Bank • Correspondent Bank- close to seller, but not always seller’s bank • Confirming Bank • Located in beneficiary’s country • Adds “guarantee” of payment • Negotiating Bank • Correspondent Bank • Close to Seller • Often advising bank • Always the confirming bank (if any) • Sometimes the paying bank • Checks and processes documents

  30. Terminology • Paying Bank • May be the negotiating bank • May be the advising bank • May be the issuing bank • Accepting Bank • Usance Letter of credit • Drawee of draft

  31. Incoterms • Group E EXW Ex Work Departure • Group F FCA Free Carrier Main Carriage FAS Free Alongside Ship Unpaid FOB Free on Board • Group C CFR Cost and Freight Main Carriage CIF Cost, Insurance and Freight Paid CPT Carriage Paid To CIP Carriage and Insurance Paid To • Group D DAF Delivered at Frontier Arrival DES Delivered Ex Ship DEQ Delivered Ex Quay DDU Delivered Duty Unpaid DDP Delivered Duty Paid

  32. Incoterms • Any Mode of Transport EXW Ex Work (…named place) Including Multimodal FCA Free Carrier (…named place) CPT Carriage Paid To (…named place of dest.) CIP Carriage and Insurance Paid To (named place of dest.) DAF Delivered at Frontier (…named place) DDU Delivered Duty Unpaid (…named place of dest.) DDP Delivered Duty Paid (…named place of dest.) • Air Transport FCA Free Carrier (…named place) • Rail Transport FCA Free Carrier (…named place) • Sea and Inland FAS Free Alongside Ship(…named port of dest.) • Waterway Transport FOB Free on Board (..named port of dest.) CFR Cost of Freight …named port of dest.) CIF Cost, Insurance and Freight (…named port of dest.) DES Delivered Ex Ship (…named port of dest.) DEQ Delivered Ex Quay (…named port of dest.)

  33. Export Letter of Credit- Key Requests • Request: • Irrevocable (confirmed) letter of credit • Advise to: • Full address of bank’s foreign trade department • Negotiation: • Freely negotiable • Reimbursement: • Must be on a bank in the USA and authority must be given to HSBC Bank to claim reimbursement by CABLE or debit account • Charges: • All banking charges in the USA are for account of the buyer/seller. • All banking charges outside the USA are for account of the buyer/seller. • In case of time draft, any discount and acceptance charges are for the account of buyer/seller. • Domestic LC: • Ask the applicant to request their issuing bank to send letter with authorized signatures to negotiating bank. • Other considerations: • Confirmation, latest shipment date, expiration date/ what counter, partial shipment, inspection certificate, boycott clause

  34. Common Discrepancies • Credit expired • Late presentation of documents • Late shipment • Short shipment • Credit amount exceeded • Shipment from/to incorrect ports • Presentation of incorrect insurance • Insurance coverage not in credit currency • Under-insured • Inconsistent documents • Description of goods differ on credit and invoice • Draft and invoice amounts differ • Consequences: • Confirmation, if any, is voided • Guarantee to pay by issuing bank is voided • Result: lost protection of the letter of credit

  35. Importers- Key Points • On the application: • Beneficiary section: telephone number of exporter • Control the shipment with latest shipment & presentation date • Terms of sale • Inspection Certificate • Bank charges, specify for whose account • REMEMBER- BANKS ONLY DEAL WITH DOCUMENTS! IMPORTERS MUST PAY IF EXPORTER’S DOCUMENTS COMPLY WITH THE LC.

  36. BEYOND THE BASICS

  37. Trade Cycle ExporterImporter

  38. Confirmed Letter of Credit • When a bank, other than the Issuing Bank, adds its undertaking to pay under the Letter of Credit • Usually the exporter’s own bank is the Confirming Bank • Why is a Confirmation necessary? • Beneficiary doubts the Issuing Bank’s ability to pay (e.g. bank risk, country risk, or exchange controls) • Beneficiary needs payment on presentation of documents • Beneficiary wants “without recourse” financing

  39. 1. Sales Contract 5. Goods Shipped Importer (Applicant) Exporter (Beneficiary) 2. LC Application 8. Payment / Documents Released 10. Payment to Beneficiary 6. Documents Presented 4. LC Advised 9. Payment by Issuing Bank Issuing Bank 7. Documents Presented to Issuing Bank 3. LC Issued Advising/ Confirming Bank Confirmed Documentary Letters of Credit

  40. Confirmed Letters of Credit (cont’d) • Used to mitigate issuing bank risk and country risk • Structure the letter of credit to ensure that documents are presented correctly against the letter of credit. • We typically work with our clients to secure a “sample” letter of credit from the foreign bank to review the terms before the letter of credit is issued. • Discounting of the drafts • If the Buyer is asking for extended terms, and is located in an area with high interest rates (ex.- Latin/South America), may have the opportunity to offer them 30/60/90/180 day terms (in select countries we may have an opportunity to offer even longer terms) • HSBC would discount the drafts using US interest rates- extremely attractive to the Buyer • In a program such as this, the Exporter would be offering its customers a low interest rate loan while reducing Exporter letter of credit costs. By getting HSBC involved early enough in the process, we may have a relationship with either the Buyer in country, or a correspondent relationship with the Buyer’s bank. In either case, we may have the opportunity to finance them directly. Commonly referred to as a Banker’s Acceptance, this form of finance is a time draft drawn on and accepted by the exporter. The bank’s acceptance of the draft is a formal acknowledgement of the bank’s unconditional promise to pay at its maturity.

  41. Direct Documentary Collections • Service that facilitates payment for international shipments utilizing both HSBC as the collecting bank and the Buyer’s bank as payment agents. Both banks act as intermediary collection agents. This is a low cost alternative to letters of credit. • Under a Documentary Collection, the drafts and documents are forwarded to the bank for processing. Under a Direct Collection documents are sent out directly by the Supplier or Supplier’s Freight Forwarder • Supplier is sent a receipt to then track the payment. • Used when there is a high level of trust and confidence between the Buyer and the Supplier. • Advantages to Exporter: • Enhances competitive position because collections are low cost and there is no credit exposure to buyer. • Banks monitor the collection and automatically send out periodic tracers. Goods don’t exchange hands until payment from buyer’s bank is received. • More secure than open account. Documents are controlled by agent banks until payment or the draft is accepted • Governed by internationally accepted rules and regulations. • Disadvantage to Exporter: • Less secure than a letter of credit or cash in advance terms • Documents are not reviewed for discrepancies.

  42. 1. Sales Contract Importer (Drawee) Exporter (Drawer) 2. Goods Shipped 4. Drawee notified of arrival of documents 7. Payment less charges 3. Documents Presented with Collection Order 5. Drawee makes payment Collecting Bank 6. Payment less charges Remitting Bank Direct Collections

  43. Direct/Documentary Collections with an AVAL • Exporter may require that its customer’s bank provide an “Aval” • The “Aval” is the act of subscribing one’s signature at the bottom of a promissory note or bill of exchange: this is an act of surety ship by the party signing, in favor of the party to whom the note or bill is given. • Advantages to the Exporter: • More secure because supported by the availability under the customer’s line of credit, at no additional cost to the Exporter. The cost to the customer is typically less than that of a letter of credit. • Disadvantage to the Exporter: • Less secure than cash or a letter of credit from a highly rated bank.

  44. Open Account-Enhanced By Export Insurance • Through our trade services team and our partnership with Euler Hermes, HSBC can help identify which of your customers in certain geographic regions qualify for open account terms secured by export insurance. At times this alternative can be a cost effective. • Advantage to the Exporter: • Ability to customize a program in which the country and level of coverage can be matched with your desired exposure levels. • Disadvantage to the Exporter: • The cost of insurance is borne by Exporter, and must be passed on to the customer through some form of price increase.

  45. Standby Letters of Credit • Any Letter of Credit, which represents an obligation to the beneficiary on the part of the issuer • to make payment on default by A/C party • to repay money borrowed by A/C party • to make payment on buyers indebtedness • Aim is NOT to draw against the Standby • Trade Uses: • Bid Bond • Performance Bond • Overseas Bank Guarantees • Trade Credit Support

  46. Shared Client • In situations where we have a mutual customer relationship, HSBC may be able to leverage its global presence, either in country or through an affiliate/partner bank. • In some cases we may be able to provide financing directly to the exporter’s customer, either on a recourse, partial recourse, or non-recourse basis. As in all of our alternatives, your trade finances representative would work directly with your organization in the coordination of these types of programs.

  47. Import Core Trade Products • Strength in Traditional Trade products • Leveraging local foreign expertise to deliver superior service • Global reach – our importer’s suppliers are often our customers overseas Import Commercial Letter of Credit • Issuance and Document Examination services to the highest standards • Shipping Guarantees and Airway Release Bills- assist in the prompt release of merchandise when the actual goods arrive in advance of the Commercial Documents Documentary Collections • Documents Against Payment • Documents Against Acceptance • HSBCnet platform – Provides the ability to issue LCs electronically user friendly, flexible, provides a view into all trade transactions • Instant Advice- email notification of LC issuance, amendments, and payments Delivery Channel • Bankers Acceptances - A self-liquidating, fixed rate method of re-financing short term trade transactions; typically negotiable instrument • Global reach- our importer’s suppliers are often our customers overseas; also gives us the ability to give advice as we collaborate with overseas affiliates Other Frequently Requested Services

  48. Export Solutions • Strength in Traditional Trade products • Leveraging local foreign expertise to deliver competitive risk mitigation • Innovation and client collaboration; working together to deliver alternate and custom solutions Export Commercial Letter of Credit • Competitive pricing and risk mitigation structures • Advising, and Document handling services to the highest standards • Confirmation and Discounting services of foreign bank risk • Silent confirmation for sensitive markets and commercial situations Delivery Channels • Electronic LC Advising (Instant @dvice) • HSBCnet platform – integrated Global Transaction Banking platform Forfaiting and Project/Export Finance • Worldwide Forfait desk network with appetite for foreign corporate, government, and bank risk • Project and Export Finance for long term capital projects • Short term working capital programs with Exim Bank • HSBC has delegated authority for up to $5MM • Product must be at least 50% US content • Generally 1 year or less • Must be fully collateralized via monthly borrowing base EXIM Working Capital Guarantee Program Other Frequently Requested Services • Ability to discount bank avalised drafts in markets dominated by collections • Handling of Transferable Letters of Credit, Deferred Payments and Back-to-Back letters of Credit • Standby Letters of Credit – Bid and Performance Bonds

  49. APPENDIX

  50. Risk Mitigation And Export Solutions * * * * * * * This Notice Appears as a Matter of Record Only Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only Structured Open Account Solutions * * * * * * * This Notice Appears as a Matter of Record Only Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only Risk Mitigation And Export Solutions * * * * * * * This Notice Appears as a Matter of Record Only Risk Mitigation And Export Solutions * * * * * * * This Notice Appears as a Matter of Record Only Risk Mitigation And Export Solutions * * * * * * * This Notice Appears as a Matter of Record Only Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only Structured Open Account Solutions Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only Structured Open Account Solutions * * * * * * * This Notice Appears as a Matter of Record Only Commercial Letter of Credit Issuer Structured Open Account Solutions * * * * * * * This Notice Appears as a Matter of Record Only Structured Open AccountSolutions * * * * * * * This Notice Appears as a Matter of Record Only Structured Open Account Solutions * * * * * * * This Notice Appears as a Matter of Record Only Key Trade and Supply Chain Clients Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only Risk Mitigation And Export Solutions * * * * * * * This Notice Appears as a Matter of Record Only Risk Mitigation And Export Solutions * * * * * * * This Notice Appears as a Matter of Record Only Risk Mitigation And Export Solutions * * * * * * * This Notice Appears as a Matter of Record Only Risk Mitiation And Export Solutions * * * * * * * This Notice Appears as a Matter of Record Only Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only Commercial Letter of Credit Issuer * * * * * * * This Notice Appears as a Matter of Record Only 50 |

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