New York, December 18, 2019 -- Moody's Investors Service ("Moody's) today affirmed
the ratings of HSBC USA Inc. (HSBC USA, senior unsecured
at A2) and the ratings and assessments of its bank subsidiary, HSBC
Bank USA, N.A. (HSBC Bank USA, deposits at Aa2,
baseline credit assessment (BCA) at baa2, adjusted BCA at a2).
At the same time, the rating outlooks for HSBC USA and HSBC Bank
USA were changed to negative from stable.
The rating action follows Moody's affirmation of the ratings of
the ultimate parent of HSBC USA, HSBC Holdings plc (senior unsecured
at A2, BCA at a2) on 18 December 2019, which was accompanied
by a change in the rating outlook for HSBC Holdings to negative from stable.
A complete list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
The rating affirmation is based on HSBC USA's strong liquidity position
and capital ratios, offset by ongoing profitability challenges.
The liquidity profile is supported by a large volume of corporate and
institutional deposits tied to HSBC's global corporate and commercial
banking business, a smaller retail and private banking deposit base,
and comparatively large holdings of liquid assets. The sound capital
ratios reflect the bank's conservative capital management policies.
HSBC USA has a very liquid but low-yielding asset base and a higher
cost deposit base than at many US banks, resulting in a depressed
net interest margin. This weakness is exacerbated by a high cost
structure stemming in part from remediation initiatives taken to improve
compliance and controls.
In response to profit challenges in the US and elsewhere, management
at HSBC Holdings announced in October 2019 that they plan to materially
reposition the US business and that this could lead to significant restructuring
charges at end-2019 and beyond. While further details will
not be disclosed until February 2020, Moody's expects little
or no profitability at HSBC USA over the next year or two given HSBC USA's
structural profitability challenges and likely restructuring costs.
Moody's said that corporate governance is highly relevant for HSBC
USA, as it is for all banks. The risk management and control
failures at HSBC USA earlier in this decade which resulted in a number
of regulatory restrictions, penalties, and fines are governance
considerations which have constrained the bank's BCA of baa2.
However, Moody's believes the significant investments and
remediation efforts HSBC USA has undertaken to address these matters have
strengthened the bank's risk management and control framework and
should reduce the risk of future missteps that could further impair the
firm's credit profile. Nonetheless, any significant
missteps could lead to further restrictions on the US business and would
result in negative rating pressure. The rating agency noted that
HSBC Bank USA's BCA incorporates a one-notch downward adjustment
to reflect the credit risk associated with the opacity and complexity
of HSBC's US capital markets activities as well as the execution
risk associated with the planned material repositioning of the US business,
which will increase management and governance challenges over the next
few years.
HSBC USA's credit profile benefits in Moody's view from a
very high probability of support from its ultimate parent, HSBC
Holdings plc. This assumption is based on HSBC USA's role as a
strategically vital subsidiary in the parent's global franchise.
This support has been demonstrated in the form of periodic capital contributions
over many decades. Consequently, HSBC USA's ratings benefit
from three notches of uplift due to affiliate support, which lifts
the adjusted baseline credit assessment (BCA) at HSBC Bank USA to a2 from
a standalone BCA of baa2.
The outlook change to negative reflects the negative outlook for HSBC
Holdings as well as the execution risk and potential negative credit implications
for HSBC USA of a material repositioning of HSBC's US operations.
Even while Moody's believes that HSBC Holdings' willingness to provide
support to HSBC USA remains very high, were the BCA of HSBC Holdings
to be downgraded, this would imply a lower ability to provide support
to its subsidiary HSBC USA and would likely result in fewer notches of
uplift due to affiliate support for the BCA and ratings of HSBC USA.
WHAT COULD CHANGE THE RATING UP/DOWN
The ratings of HSBC USA and HSBC Bank USA could be upgraded if there were
an upgrade of the BCA of HSBC Holdings plc; however, given
the negative outlook for HSBC Holdings we do not think that is likely
at present. While the BCA of HSBC Bank USA could be upgraded if
profitability were to significantly improve without compromising the bank's
good asset quality, capital or liquidity metrics, this might
not lead to an upgrade of the ratings unless also accompanied by an upgrade
of HSBC Holdings plc.
The ratings of HSBC USA and HSBC Bank USA could be downgraded for any
of the following reasons: 1) a lowering of the BCA of HSBC Holdings
plc, 2) a reduction in our expectation of parental support from
HSBC Holdings; 3) a reduction in the amount of subordinated or holding
company debt outstanding that would be available to absorb losses in the
event of failure, unless accompanied by a commensurate reduction
in tangible banking assets, and/or 4) a downgrade of HSBC Bank USA's
BCA. The biggest risk to the BCA would be from a reduction in the
bank's capital or liquidity ratios, a deterioration in loan
credit quality, or the emergence of any new internal control issues.
LIST OF AFFECTED RATINGS
Issuer: HSBC USA Inc.
....Senior Unsecured Regular Bond/Debenture,
Affirmed at A2, Negative from 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 Negative from
Stable
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 Aa3(cr)
....Long-Term Counterparty Risk Rating,
Affirmed at Aa3
....Long-Term Bank Deposit Rating,
Affirmed at Aa2, Negative from Stable
....Long-Term Issuer Rating,
Affirmed at Aa3, Negative from Stable
....Senior Unsecured Regular Bond/Debenture,
Affirmed at Aa3, Negative from 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 Counterparty Risk Rating,
Affirmed at Prime-1
....Short-Term Bank Deposit Rating,
Affirmed at Prime-1
....Short-Term Bank Note Program,
Affirmed at (P)Prime-1
....Outlook, Changed to Negative from
Stable
Issuer: Republic New York Corporation
...Subordinated Regular Bond/Debenture, Affirmed
at A3
The principal methodology used in these ratings was Banks Methodology
published in November 2019. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
David Fanger
Senior Vice President
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
Ana Arsov
MD - Financial Institutions
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
