London, 17 March 2016 -- Moody's Investors Service has today affirmed HSBC Holdings plc's
A1 long-term senior unsecured debt rating and changed the outlook
to negative from stable. Moody's has also affirmed the a1
adjusted Baseline Credit Assessment (BCA) and the Aa2 long-term
deposit and senior unsecured debt ratings for its main European operating
entity, HSBC Bank plc (HSBC Bank), with a stable outlook.
In addition, Moody's has affirmed HSBC France's (HSBCF)
a2 adjusted BCA, its A1 long-term deposit rating and its
A2 long-term senior unsecured debt rating and changed the outlook
to negative from stable. The Prime-1 short-term ratings
for HSBC Holdings, HSBC Bank and HSBC France, as well as their
other long-term ratings were affirmed at the current levels.
"Today's rating action reflects Moody's re-assessment
of the group's intrinsic financial strength due to deteriorating
operating conditions in Hong Kong (Aa1 Negative), one of the group's
key markets. This reflects Moody's view that Hong Kong's
increasing economic and financial linkages with China (Aa3 Negative) give
rise to potential spillovers and ultimately weaker economic growth"
says Mr Andrea Usai, a Vice President Senior Credit Officer at Moody's.
This has led to the affirmation of the ratings for the Hongkong and Shanghai
Banking Corporation Ltd (HBAP, LT deposits Aa2 Negative, LT
senior unsecured Aa2 Negative; BCA aa3) and a change in its ratings
outlook to negative from stable. Please see Moody's separate
press release on HBAP https://www.moodys.com/research/--PR_345777.
For HSBC Bank, this negative pressure is being offset by an increasing
stock of bail-inable liabilities, reducing risks for its
creditors.
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
WEAKENING OPERATING CONDITIONS IN HONG KONG WEIGH ON HSBC HOLDINGS'
INTRINSIC FINANCIAL STRENGTH REDUCING AFFILIATE SUPPORT ASSUMPTIONS
In a separate rating action, Moody's has today changed the
outlook to negative from stable on the ratings for HBAP, which is
the group's main operating entity in the Asia-Pacific region.
This reflects a deterioration of the bank's operating conditions
in Hong Kong, which is its main market.
Moody's currently measures HSBC Holdings' a1 intrinsic financial
strength using the weighted-average of the baseline credit assessments
(BCAs) of its two main operating entities, HSBC Bank and HBAP.
This approach is consistent with the way capital is managed across the
HSBC group, whereby subsidiaries normally pay surplus capital to
the holding company in the form of a dividend, which is subsequently
down-streamed to those entities requiring additional capital.
HBAP represented around 37% of the group's total assets at
end-2015 (33% at end-2014) and accounted for 84%
of pre-tax profits in 2015 (78% in 2014). In addition,
HBAP pays a regular dividend to HSBC Holdings. As a result of its
re-assessment of the operating conditions in Hong Kong, Moody's
considers that HSBC Holdings' financial strength is weakening and
that its ability to provide support to its subsidiaries is reducing.
To reflect this, Moody's has affirmed the ratings for HSBC
Holdings and changed its outlook to negative from stable.
GROWING STOCK OF BAIL-INABLE LIABILITIES OFFSETS NEGATIVE RATING
PRESSURE FOR HSBC BANK, AS REFLECTED IN THE AFFIRMATION OF ITS RATINGS
WITH A STABLE OUTLOOK
Moody's applies its advanced Loss Given Failure (LGF) analysis to
HSBC Holdings and HSBC Bank because both of these entities are domiciled
in the UK, which it considers as an operational resolution regime,
following the implementation of the EU Bank Recovery and Resolution Directive
(BRRD).
Under Moody's assumptions, both HSBC Bank's depositors and
senior unsecured creditors are likely to face very low loss-given-failure,
as evidenced by its Preliminary Rating Assessment (PRA) for HSBC Bank's
deposits and senior unsecured debt of Aa2, two notches above its
a1 adjusted BCA.
HSBC's management has recently announced its plan to raise $60-$80
billion of loss-absorbing capital by 2018, to comply with
the minimum requirement for own funds and eligible liabilities (MREL).
It has also indicated that such issuance will take place at the level
of HSBC Holdings, pending finalisation of total-loss absorbing
capital (TLAC) requirements in other jurisdictions in which it operates.
Moody's LGF sensitivity analysis indicates that the planned incremental
debt issuance over the rating period creates upwards ratings pressure
that could result in the attribution of an additional LGF notch for HSBC
Bank's long-term deposit and senior unsecured debt ratings,
over the next 9-12 months. Moody's believes that this
positive LGF rating pressure offsets the impact on HSBC Bank's ratings
from the weakening intrinsic financial strength of the group. As
a result, Moody's has affirmed HSBC Bank's a1 adjusted
BCA, its Aa2 long-term deposit and senior unsecured debt
ratings, and maintained a stable ratings outlook.
In the case of HSBC Holdings' ratings, however, Moody's
considers that the positive LGF pressure will not materialise over the
next 12 months.
AFFIRMATION OF HSBC FRANCE'S RATINGS AND CHANGE IN OUTLOOK TO NEGATIVE
FROM STABLE
Moody's has affirmed the a2 adjusted BCA, the A1 long-term
bank deposit rating, the A2 long-term senior unsecured debt
rating on HSBCF and changed its ratings outlook to negative from stable.
The outlook change is due to the reduction of affiliate support assumptions,
as a result of the weakening of the HSBC Holdings' intrinsic financial
strength. HSBCF's (P)A3 subordinated programme rating and
its Prime-1 short term ratings were affirmed at the current levels.
Moody's notes that unlike for HSBC Bank, HSBCF's creditors
do not benefit from higher protection from the increasing stock of bail-inable
liabilities being issued by HSBC Holdings. This is because HSBCF
is likely to be resolved separately from HSBC Bank, in the case
of failure. Under the current assumptions, HSBCF's
deposits are likely to face low loss-given-failure,
as indicated by a one-notch LGF uplift relative to the bank's
adjusted BCA of a2. The bank's senior unsecured debt creditors
face a moderate loss-given failure, resulting in no LGF uplift.
WHAT COULD MOVE THE RATINGS UP/DOWN
A strengthening of HSBC Holdings' intrinsic financial strength is
unlikely over the next 12-18 months, as evidenced by the
negative ratings outlook for HBAP, one of its key components.
HSBC Holdings' long-term senior unsecured debt rating could
be upgraded, other factors being equal, if the group substantially
increases the volume of loss-absorbing capital beyond Moody's
expectation, creating greater protection to its creditors.
HSBC Holdings' long-term ratings could be downgraded if the
financial strength of its main operating entities HSBC Bank and HBAP were
to reduce further; for example, due to further weakening in
the respective operating environments. A rating downgrade could
also materialise as a result of a sizeable reduction in the outstanding
bail-inable liabilities, which would result in a lower LGF
uplift, signalling lower protection for its creditors, which
Moody's considers unlikely.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
LIST OF AFFECTED RATINGS
Affirmations:
..Issuer: HSBC Bank plc
.... LT Issuer Rating, Affirmed Aa2
Stable
.... LT Bank Deposits (Foreign Currency and
Local Currency), Affirmed Aa2 Stable
.... ST Bank Deposits (Foreign Currency and
Local Currency), Affirmed P-1
.... Senior Unsecured Regular Bond/Debenture,
Affirmed Aa2 Stable
.... Senior Unsecured Regular Bond/Debenture,
Affirmed (P)Aa2 Stable
.... Senior Unsecured MTN, Affirmed
(P)Aa2
.... Subordinate Regular Bond/Debenture,
Affirmed A2
.... Junior Subordinated Regular Bond/Debenture,
Affirmed A3 (hyb)
.... Junior Subordinate MTN, Affirmed
(P)A3
.... Other Short Term, Affirmed (P)P-1
.... Commercial Paper, Affirmed P-1
.... Adjusted Baseline Credit Assessment,
Affirmed a1
.... Counterparty Risk Assessment, Affirmed
Aa1(cr)
.... Counterparty Risk Assessment, Affirmed
P-1(cr)
..Issuer: HSBC Bank Plc Sydney Branch
.... LT Bank Deposits (Foreign Currency and
Local Currency), Affirmed Aa2 Stable
.... ST Bank Deposits (Foreign Currency and
Local Currency), Affirmed P-1
.... Counterparty Risk Assessment, Affirmed
Aa1(cr)
.... Counterparty Risk Assessment, Affirmed
P-1(cr)
..Issuer: HSBC France
.... LT Bank Deposits (Foreign Currency and
Local Currency), Affirmed A1 Negative From Stable
.... ST Bank Deposits (Foreign Currency and
Local Currency), Affirmed P-1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2 Negative From Stable
....Subordinate MTN, Affirmed (P)A3
....Senior Unsecured MTN, Affirmed (P)A2
....Other Short Term, Affirmed (P)P-1
....ST Deposit Note/CD Program, Affirmed
P-1
.... Adjusted Baseline Credit Assessment,
Affirmed a2
.... Counterparty Risk Assessment, Affirmed
Aa2(cr)
.... Counterparty Risk Assessment, Affirmed
P-1(cr)
..Issuer: HSBC Holdings plc
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1 Negative From Stable
....Subordinate Regular Bond/Debenture,
Affirmed A2
....Subordinate MTN, Affirmed (P)A2
....Senior Unsecured MTN, Affirmed (P)A1
....Other Short Term, Affirmed (P)P-1
....Junior Subordinate MTN, Affirmed
(P)Baa1
....Subordinate Shelf, Affirmed (P)A2
....Senior Unsec. Shelf, Affirmed
(P)A1
....Pref. shelf Non-cumulative,
Affirmed (P)Baa3
....Pref. Stock Non-cumulative,
Affirmed Baa3 (hyb)
....Pref. Stock Non-cumulative,
Affirmed Baa1 (hyb)
..Issuer: HSBC Bank Capital Funding (Sterling 1) LP
....BACKED Pref. Stock Non-cumulative,
Affirmed Baa1 (hyb)
..Issuer: HSBC Bank Capital Funding (Sterling 2) L.P.
....BACKED Pref. Stock Non-cumulative,
Affirmed Baa1 (hyb)
..Issuer: HSBC Capital Funding (Dollar 1) L.P.
....BACKED Pref. Stock Non-cumulative,
Affirmed Baa1 (hyb)
..Issuer: HSBC Capital Funding (Euro 3) L.P.
....BACKED Pref. Stock Non-cumulative,
Affirmed Baa1 (hyb)
Outlook Actions:
..Issuer: HSBC Bank plc
....Outlook, Remains Stable
..Issuer: HSBC Bank Plc Sydney Branch
....Outlook, Remains Stable
..Issuer: HSBC France
....Outlook, Changed To Negative From
Stable
..Issuer: HSBC Holdings plc
....Outlook, Changed To Negative From
Stable
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Andrea Usai
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms HSBC Holdings' A1 long-term ratings; changes outlook to negative from stable
