MOODY'S RAISES RATINGS OF HSBC HOLDINGS PLC (SUBORDINATED TO A2) AND OF ITS SUBSIDIARIES MIDLAND BANK (SENIOR TO Aa2), HSBC AMERICAS INC (SENIOR TO A2), AND MARINE MIDLAND BANK (SENIOR TO A1)
London, 08-26-97 -- Moody's Investors Service raised to A2 from A3 the subordinated debt rating of HSBC Holdings plc (HSBC). Moody's also raised the long-term deposit and senior debt ratings of Midland Bank plc (Midland), a subsidiary of HSBC, to Aa2 from Aa3, the subordinated debt rating to Aa3 from A1, and the bank financial strength rating to B+ from B. Finally, Moody's raised the credit ratings of HSBC Americas, Inc. (HAI), also a subsidiary of HSBC, to A2/Prime-1 for debt, from A3/Prime-2, and of its bank subsidiary, Marine Midland Bank, to A1/Prime-1 for deposits, from A3/Prime-2. Marine Midland's bank financial strength rating was confirmed at C+. The ratings of the Hongkong and Shanghai Banking Corporation (HongkongBank) and its subsidiaries were also confirmed (senior at A3). The outlook for the group's ratings is now stable, Moody's added.
Moody's said that these rating actions reflect the continued improvement in the fundamental performance of the HSBC group, and of its UK and US businesses in particular, as well as the developing geographical breadth of its operations. The ratings also take account of the uncertainties surrounding the outlook for HSBC's core banking franchise in Hong Kong, which remains the group's single largest contributor to earnings.
HSBC is the ultimate holding company of one of the world's largest banking and financial services groups. A large proportion of the group's earnings is generated in Hong Kong and the Asia Pacific region through its ownership of HongkongBank, and where the group is committed to maintaining a significant presence. Following the recent transition of Hong Kong to Chinese sovereignty, Moody's believes that there remain uncertainties as to how the operating environment for banks there will change over the next few years, as well as to the longer-term sustainability of HongkongBank's dominant position in the Hong Kong market. HongKongBank's A3/Prime-1 ratings reflect these factors. Also, in view of the sharp appreciation in Hong Kong asset prices, the Hong Kong banks would be exposed should there be a sharp correction. However, Moody's said that the impact of such an event on HSBC should be tempered by prudent management and sound liquidity, capitalisation and underwriting indicators. Moody's anticipates that group management's emphasis on commercial banking, its relatively conservative acquisition strategy, and the close control exerted over HSBC's many subsidiaries should help to limit undue earnings volatility.
In addition, Moody's noted that the significant improvement in the earnings capacity of Midland, HAI, and other subsidiaries had increased their relative contributions to group earnings. The rating agency added that HSBC's recent initiatives and investments in North and South America should provide additional revenue sources in the medium-term.
There has been a significant and sustainable improvement in Midland's competitive position since its acquisition by HSBC in 1992, Moody's said. During this time, the bank's structure and range of operations have been simplified and the emphasis placed upon restoring its important domestic banking franchise. The arrival of new senior management, as well as the opportunities and resources provided through membership of a large international banking group, have revitalised Midland. The re-engineering of Midland's 1,700-strong UK branch network is now largely complete, and the bank's improved competitiveness has been increasingly reflected in its recovering market shares and good profitability. Moody's added that Midland's enhanced earnings capacity and moderate risk profile should leave it well-positioned to cope with a subsequent cyclical downturn, and to take advantage of opportunities in the competitive United Kingdom financial services markets.
Moody's said that the upgrade of HAI's credit ratings reflected the continued improvement in its fundamental performance, most notably in asset quality, overhead management, and core profitability. HAI also benefits from its ownership by HSBC Holdings, through favorable intercompany pricing and potential capital support.
Primarily through acquisitions, HAI has grown substantially over the past several years. Its first-quarter 1997 transaction -- the cash purchase of a Rochester thrift -- significantly strengthened its regional (upstate New York) franchise. Moreover, the acquisition should have a positive effect on HAI's already impressive overhead ratios. On the other hand, the merger caused a decline in capital ratios and an increase in double leverage. Moody's added that although loan quality has improved, HAI's ratios remain somewhat below peer averages.
The following ratings were raised:
HSBC Holdings Plc -- the subordinated debt rating to A2, from A3.
HSBC Finance Nederland B.V. -- the guaranteed subordinated debt rating to A2, from A3.
Midland Bank Plc -- the bank deposit and senior long-term debt ratings to Aa2, from Aa3; the subordinated debt rating to Aa3, from A1; the bank financial strength rating to B+, from B; and the preferred stock rating to "a1" from "a2".
Midland American Capital Corp -- long-term debt, guaranteed on a subordinated basis, to Aa3 from A1.
Midland International Financial Services B.V. -- long-term debt, guaranteed on a subordinated basis, to Aa3 from A1.
HSBC Americas, Inc. -- medium-term note program, senior from A3 to A2; subordinated debt, from Baa1 to A3; preferred stock, from "a3" to "a2"; and the company's rating for commercial paper from Prime-2 to Prime-1.
Marine Midland Bank -- ratings of the bank for long-term deposits and other senior and counterparty obligations, from A3 to A1; and the rating of the bank for short-term deposits and other senior obligations, from Prime-2 to Prime-1; and subordinated debt, from Baa1 to A2. The BFSR, at C+ was confirmed.
HSBC Americas Capital Trust I -- preferred stock from "a3" to "a2".
The following ratings were confirmed:
Banco Bamerindus do Brasil SA -- the B1 senior long-term debt rating.
HSBC Bamerindus -- the B2/Not-Prime bank deposit ratings, the B1 senior long-term debt rating, and the E+ bank financial strength rating.
Hongkong and Shanghai Banking Corp. Ltd -- the A3/Prime-1 bank deposit ratings, the B bank financial strength rating; the A2 domestic currency senior debt rating; the A3 domestic currency subordinated debt rating; the Baa1 foreign currency subordinated debt rating.
Hong Kong Bank of Australia -- guaranteed long-term debt at A3.
Hongkong Bank of Canada -- the guaranteed commercial paper rating at Prime-1.
HSBC Holdings plc, headquartered in London, is the ultimate holding company of the HSBC group, which had consolidated total assets of approximately œ 275 billion (US$ 458 billion) at June 30, 1997. Midland Bank plc, also headquartered in London, had total assets of approximately œ 106 billion (US$ 176 billion) at June 30, 1997. HSBC Americas, Inc., headquartered in Buffalo, New York, had total assets of approximately $33 billion at June 30, 1997. The HongkongBank Group, headquartered in Hong Kong, had total assets of approximately HK$1,432 billion (US$ 186 billion ) at June 30, 1997.
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