MOODY'S REVIEWS FOR POSSIBLE UPGRADE THE RATINGS OF HSBC HOLDINGS (A2 SUBORDINATED), HSBC AMERICAS INC (A2) AND HSBC BANK USA (A1); CONFIRMS REPUBLIC NEW YORK CORPORATION (A1), REPUBLIC NATIONAL BANK OF NEW YORK (Aa3), SAFRA REPUBLIC HOLDINGS (A2 SUBORDIN
Moody's Investors Service has placed under review for possible upgrade the A2 subordinated debt rating of HSBC Holdings plc and the A2 senior debt rating of HSBC Americas Inc. (HAI) as well as the rating on HSBC Bank USA (at A1 for deposits). HAI is a wholly-owned subsidiary of HSBC Holdings. At the same time, Moody's has confirmed the A1 senior debt ratings of Republic New York Corporation (RNB) and the Aa3 deposit rating of Republic National Bank of New York . Moody's also confirmed the A2 subordinated debt rating of Safra Republic Holdings S.A. (SRH) and the Aa3 deposit rating of Republic National Bank of New York (Suisse). These actions followed the recent announcement that HSBC Holdings plans to acquire RNB and SRH. All Prime-1 short-term ratings are hereby confirmed.
Moody's said that HSBC Holdings appears to have made significant progress in establishing strong and diversified franchises and income streams, and that the review for possible upgrade will consider the depth and sustainability of these. According to the rating agency the proposed acquisitions would increase the HSBC group's proportion of earnings from OECD countries. Moody's added that it considers the risk of operations in Hong Kong appears to have been contained, and that the group's subsidiaries in the SAR have managed to perform quite well under adverse conditions, while Midland Bank in the UK continues to generate a strong and sustainable source of earnings. Although the substantial element of goodwill generated by the acquisitions would reduce capital adequacy ratios, Moody's said that HSBC's strong earnings capability should allow these to be restored in the near future to the levels envisaged by the group's policy to maintain strong capital ratios, which remains unchanged.
The ratings of HAI reflect improved fundamental performance, most notably in asset quality, overhead management, and core profitability. HAI has grown substantially over the past several years through acquisitions and the integration of the US operations of its affiliates. A legal merger with RNB, if implemented, would strengthen HAI's core banking franchise and diversify its earnings base. HAI also benefits from its ownership by HSBC Holdings.
According to Moody's, RNB's current ratings reflect the company's solid positions in a number of businesses, including private banking, bank notes, precious metals, and factoring -- lines that have produced a fairly stable stream of earnings. As a minority shareholder in SRH, RNB also benefits from the strong profits generated by SRH's European private banking business -- operations that have shown impressive growth during the last several years. SRH and its subsidiary banks are largely deposit-driven and, consequently, produce thin net interest margins. However, the service-oriented nature of private banking provides good fee income. SRH's assets, moreover, tend to be liquid and of high quality.
Moody's review of the HSBC group's US subsidiaries will primarily focus on the organizational structure of the many legal entities within the HSBC Holdings family. The analysis will also incorporate the likely cost savings, potential for revenue enhancements, capital strength, and the degree of liquidity within the companies' balance sheets.
The following ratings are under review for possible upgrade:
HSBC Holdings plc - subordinated debt at A2
HSBC Americas, Inc. -- senior debt, at A2; subordinated debt, at A3; preferred stock, at "a2".
HSBC Bank USA -- long-term deposits, at A1; the issuer rating at A1; and financial strength, at C+.
HSBC Americas Capital Trust I -- preferred stock, at "a2".
The following ratings have been confirmed:
Republic New York Corporation - senior debt, at A1; subordinated debt, at A2; perpetual subordinated putable capital notes, at A3; preferred stock, at "a1"; and the issuer rating, at A1.
Republic National Bank of New York - senior debt, at Aa3; long-term deposits, at Aa3; and bank financial strength, at B.
Republic National Bank of New York Cayman Branch -- Brazil-linked certificates of deposit, at Caa1 and Not Prime.
Republic Mase Australia Limited - guaranteed senior notes, at Aa3.
Republic New York Capital I and II -- preferred stock, "a1".
Safra Republic Holdings S.A. -subordinated debt, at A2; and Preferred stock, at "a1".
Republic National Bank of New York (Suisse) S.A. -- ratings of the bank for long-term deposits, at Aa3; and bank financial strength, at B.
HSBC Holdings plc, based in London, United Kingdom, had assets of $483 billion at the end of 1998. HSBC Americas, Inc., based in Buffalo, NY, had assets of $34 billion at the end of 1998. Republic New York, based in New York City, had assets of approximately US$ 50 billion at year-end 1998. Safra Republic Holdings S.A., based in Luxembourg, had assets of approximately US$ 21 billion at year-end 1998.
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