HSBC plans annual income opportunity CDs linked to basket of Morningstar Wide Moat stocks

By Marisa Wong

Madison, Wis., Oct. 4 - HSBC Bank USA, NA plans to price annual income opportunity certificates of deposit with auto cap due Oct. 30, 2017 linked to a basket of stocks, according to a term sheet.

The basket includes 12 common stocks that have received a Morningstar Economic Moat rating of "Wide" as of Sept. 28. The term sheet said there are two major requirements for the rating: the prospect of earning above-average returns on capital and some competitive edge that prevents these returns from eroding quickly.

The stocks are Abbott Laboratories, Avon Products, Inc., CME Group Inc., Eli Lilly & Co., Exelon Corp., Exxon Mobil Corp., General Electric Co., KLA-Tencor Corp., Northern Trust Corp., Paychex Inc., Vulcan Materials Co. and Western Union Co.

The CDs will pay a coupon in October of each year equal to the average of the basket stocks' performances, subject to a minimum of zero.

If a basket stock's return is zero or positive, its performance will be fixed at 7% to 10%. The exact auto cap rate will be set at pricing. If a basket stock's return is negative, its performance will be the greater of the stock return and negative 30%.

The CDs will be putable on Nov. 30, 2011, Nov. 30, 2012, Nov. 29, 2013, Nov. 28, 2014 and Nov. 30, 2015. Investors will receive the current market value of the CDs minus a redemption charge of 4% in year one, 3% in year two, 2% in year three and 1% in year four. There is no charge in year five.

The CDs (Cusip: 40431GFF1) will price Oct. 25 and settle Oct. 28.

HSBC Securities (USA) Inc. is the agent.

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