New York, September 28, 2017 -- Moody's Investors Service affirmed the ratings of HSBC USA Inc.
and HSBC Bank USA Inc., N.A. Following the
affirmations, Moody's changed the rating outlook on HSBC USA,
Inc. and HSBC Bank USA, N.A. (collectively
referred to as "HSBC USA") to stable from negative. This rating
action follows the downgrade of the parent bank of HSBC USA, HSBC
Holdings plc on 27 September 2017.
Moody's also affirmed the ratings of HSBC Finance Corporation (HFC),
including its Baa1 senior unsecured rating. The outlook was changed
to stable from negative.
A complete list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
HSBC USA
HSBC USA's ratings incorporate Moody's assumption of a very
high probability of support from its ultimate parent, HSBC Holdings
plc, to reflect HSBC USA's role as a strategically vital subsidiary
in the parent's global franchise. The rating action on HSBC
USA's parent, HSBC Holdings plc, included the assignment
of an a2 notional group baseline credit assessment (BCA), which
is lower than the previous a1 intrinsic financial strength assessment.
The parent's reduced BCA indicates a moderately lower ability to
provide support to its subsidiary HSBC USA. However, Moody's
believes that HSBC Holdings plc's willingness to provide support
to HSBC USA remains very high, as demonstrated in the form of periodic
capital contributions over many decades; hence the affirmation of
HSBC USA's ratings. Consequently, we continue to incorporate
three notches of uplift to HSBC USA's adjusted BCA.
The affirmation of HSBC USA's standalone BCA is driven by its continued
strong liquidity positions and improvement in its capital ratios.
The liquidity profile is supported by a good deposit market position in
the New York metropolitan area and comparatively large holdings of liquid
assets. HSBC USA's strong and improved capital ratios reflect
shrinkage of the balance sheet and reduced risk-weighted assets.
The affirmation also incorporates the company's ongoing profitability
challenges reflecting, in part, numerous unsuccessful attempts
to develop a profitable, stable US franchise. HSBC USA has
a very liquid but low-yielding asset base that results in a depressed
net interest margin. This weakness is exacerbated by the company's
high cost structure, which continues to be negatively affected by
costs to resolve risk management and control failures. These factors
have pressured HSBC USA's profitability for some time. Because
the profitability challenges are structural, Moody's expects
the company's profitability to remain below-average for some time.
The stable outlook reflects Moody's stable view of the group's
BCA and Moody's affirmation of HSBC USA's BCA, which
incorporates Moody's views that HSBC USA's strong capital
and liquidity positions will continue to be credit strengths, while
profitability will continue to be weak.
HFC
Moody's affirmation of HFC's ratings is based on the company's
progress in selling assets and repaying debt, which has reduced
liquidity risks and the potential need for parental support. On
a 30 June 2017 pro forma basis, reflecting pending debt tenders
and repayments, HFC has about $2 billion of debt, liquid
assets of $3 billion, and assets held for sale of $1.3
billion. HSBC Holdings continues to publicly state that it will
provide all necessary funding support to HFC and that it has integrated
HFC's required funding into HSBC North America's overall funding plans.
WHAT COULD MOVE THE RATINGS UP/DOWN
HSBC USA's standalone BCA and supported ratings could be upgraded if the
company were to significantly improve its profitability without compromising
its good asset quality, capital or liquidity metrics. However,
we do not expect significant improvement in the next two years.
HSBC USA's supported ratings could be downgraded for any of the following
reasons: 1) a lowering of its parent's (HSBC Holdings plc) BCA;
2) a reduction in our expectation of parental support for HSBC USA;
and/or 3) a downgrade of HSBC USA's standalone BCA. The biggest
risk to the standalone BCA is the failure to address past regulatory issues,
as well as any new internal control issues. Downward BCA pressure
could also arise from lack of sustainable improvement in profitability
or deterioration in commercial asset risk as a result of the rapid loan
growth in prior years.
HFC's supported ratings could be upgraded if HSBC Holdings plc provides
an explicit guarantee to HFC's obligations.
HFC's supported ratings could be downgraded if HSBC Holdings plc's
intrinsic financial strength is downgraded or if Moody's assesses a lower
probability of affiliate support for HFC.
The principal methodology used in rating HSBC USA Inc., HSBC
Bank USA, N.A., and Republic New York Corporation
was Banks published in September 2017. The principal methodology
used in rating HSBC Finance Corporation and Household Finance Corporation
was Finance Companies published in December 2016. Please see the
Rating Methodologies page on www.moodys.com for a copy of
these methodologies.
LIST OF AFFECTED RATINGS
Issuer: HSBC USA Inc.
....Senior Unsecured Regular Bond/Debenture,
Affirmed at A2, Stable
....Subordinated Regular Bond/Debenture,
Affirmed at A3
....Senior Unsecured Shelf, Affirmed
at (P)A2
....Senior Unsecured Medium-Term Note
Program, Affirmed at (P)A2
....Subordinated Shelf, Affirmed at
(P)A3
....Preferred Shelf, Affirmed at (P)Baa1
....Preferred Shelf Non-Cumulative,
Affirmed at (P)Baa2
....Commercial Paper, Affirmed at Prime-1
....Outlook, Changed to Stable from
Negative
Issuer: HSBC Bank USA, N.A.
....Baseline Credit Assessment, Affirmed
at baa2
....Adjusted Baseline Credit Assessment,
Affirmed at a2
....Long-Term Counterparty Risk Assessment,
Affirmed at A1(cr)
....Long-Term Bank Deposit Rating,
Affirmed at Aa2, Stable
....Long-Term Issuer Rating,
Affirmed at Aa3, Stable
....Senior Unsecured Regular Bond/Debenture,
Affirmed at Aa3, Stable
....Subordinated Regular Bond/Debenture,
Affirmed at A1
....Senior Unsecured Bank Note Program,
Affirmed at (P)Aa3
....Subordinated Bank Note Program,
Affirmed at (P)A1
....Short-Term Counterparty Risk Assessment,
Affirmed at Prime-1(cr)
....Short-Term Bank Deposit Rating,
Affirmed at Prime-1
....Short-Term Bank Note Program,
Affirmed at (P)Prime-1
....Outlook, Changed to Stable from
Negative
Issuer: Republic New York Corporation
...Subordinated Regular Bond/Debenture, Affirmed
at A3
Issuer: HSBC Finance Corporation
....Long-Term Issuer Rating,
Affirmed at Baa1, Stable
....Short-Term Issuer Rating,
Affirmed at Prime-2
....Short-Term Medium-Term Note
Program, Affirmed at (P)Prime-2
....Senior Unsecured Regular Bond/Debenture,
Affirmed at Baa1, Stable
....Senior Unsecured Medium-Term Note
Program, Affirmed at (P)Baa1
....Senior Subordinated Regular Bond/Debenture,
Affirmed at Baa2, Stable
....Outlook, Changed to Stable from
Negative
Issuer: Household Finance Corporation
....Senior Unsecured Regular Bond/Debenture,
Affirmed at Baa1, 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 sseries
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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The person who approved HSBC USA Inc., HSBC Bank USA,
N.A., and Republic New York Corporation credit ratings
is M. Celina Vansetti-Hutchins, MD - Banking,
Financial Institutions Group. The person who approved HSBC Finance
Corporation and Household Finance Corporation credit ratings is Ana Arsov,
MD - Financial Institutions, Financial Institutions Group.
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.
Megan Snyder
Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
