Lead bank's baseline credit assessment lowered to baa2 from baa1
New York, December 18, 2014 -- Moody's Investors Service affirmed its long- and short-term
supported debt and deposit ratings on HSBC USA Inc. (A2 senior)
and its subsidiaries, including HSBC Bank USA, N.A.
(A1 deposits), with stable outlooks.
Moody's also affirmed HSBC Bank USA, N.A.'s
bank financial strength rating (BFSR) at C-, but lowered
its standalone baseline credit assessment (BCA) to baa2 from baa1.
The outlook for the BFSR is stable.
HSBC Bank USA, N.A. is the lead bank of HSBC USA Inc.
(collectively, HSBC USA), which is the intermediate holding
company that houses the US banking operations of HSBC Holdings plc (Aa3
negative).
RATINGS RATIONALE
The affirmation of the supported ratings, despite a lowered BCA,
reflects Moody's expectation of the very high probability that HSBC
USA will receive support from its ultimate parent, HSBC Holdings
plc, if needed. Moody's support assumption is based
on HSBC USA's key role in the delivery of products and services
to the HSBC group's global clients. In addition, the parent
has shown its willingness to support HSBC USA in recent years, in
the form of periodic capital contributions. The support assumption
results in a four-notch uplift to HSBC USA's long-term ratings.
Moody's lowered HSBC USA's BCA by one notch to baa2,
to reflect the company's ongoing profitability challenges,
which are a function of its asset mix and high cost structure.
Because the profitability challenges are structural, Moody's
expects the company's profitability to remain well below its peers'
for the next two years.
Following a number of large divestitures, including the sale of
the credit card business and of 195 upstate New York branches in 2012,
HSBC USA now has a very liquid but low-yielding asset base;
its net interest margin is very low (1.37% in third-quarter
2014), which weighs on the company's net interest income.
A decline in capital markets revenue in 2014 has also constrained profitability.
HSBC USA's weak profitability is accentuated by its high cost structure,
particularly in the retail banking segment, which continues to report
net losses. The company also has heightened expenses because of
previous risk management/control failures in the form of elevated remediation
expenses and costs to enhance and build out processes/infrastructure.
To improve its profitability, HSBC USA has recently focused on growing
its commercial lending business in key growth markets, with an international
focus. Although this strategy will lead to a higher-yielding
asset mix over time, Moody's is concerned about HSBC USA's
ability to grow this business at an above average pace while maintaining
its historically good commercial underwriting standards, particularly
in a highly competitive lending environment. In the first three
quarters of 2014, HSBC USA grew its business/corporate banking and
global banking loan portfolios by a sizeable 20% (annualized).
The stable outlook for HSBC USA's C- BFSR, which now maps
to a baa2 BCA, reflects the company's good asset quality and sound
capital and liquidity/funding. The stable outlook for HSBC USA's
supported ratings incorporates the stable outlook for both the BFSR and
the HSBC group's intrinsic financial strength of a1.
What Could Change the Rating - Up
The rating on HSBC USA could be upgraded if the company can improve its
profitability without sacrificing its good asset quality, capital
or liquidity/funding metrics. However, Moody's does
not expect significant improvement in the next two years.
What Could Change the Rating - Down
HSBC USA's supported ratings could be downgraded for of any of the
following reasons: 1) a lowering of the HSBC group's intrinsic financial
strength; 2) a reduction in Moody's expectation of parental
support for HSBC USA; and/or 3) a downgrade of HSBC USA's C-
BFSR. Moody's noted that the biggest risk to the BFSR is
potential deterioration in asset quality owing to continued rapid growth
in the commercial loan portfolio.
The principal methodology used in these ratings was Global Banks published
in July 2014. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Joseph Pucella
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms HSBC USA's A2 senior ratings, stable outlook