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Rating Action:

Moody's affirms ratings of HSBC's US subsidiaries, changes outlook to negative from stable

17 Mar 2016

New York, March 17, 2016 -- Moody's Investors Service affirmed its long- and short-term supported debt and deposit ratings on HSBC Holdings plc's (A1 senior) US subsidiaries. Those subsidiaries include HSBC USA Inc. (A2 senior) and its lead bank HSBC Bank USA, N.A. (Aa2 deposits), and HSBC Finance Corporation (HFC; Baa1 senior). Moody's also affirmed HSBC Bank USA, N.A.'s baa2 standalone baseline credit assessment (BCA), the a2 adjusted BCA, and the A1(cr)/Prime-1(cr) long- and short-term Counterparty Risk Assessment.

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") and HFC to negative from stable.

RATINGS RATIONALE

Moody's said the negative outlook on the US subsidiaries' supported ratings is in response to the change in outlook to negative from stable on HSBC Holdings (see separate press release dated 17 March 2016). The outlook change on HSBC Holdings signifies a weakening in its a1 intrinsic financial strength due to deteriorating operating conditions in Hong Kong (Aa1 negative), one of the group's key markets. As a result, Moody's believes that HSBC Holdings' ability to provide support to its affiliates is diminishing. However, Moody's believes that HSBC Holdings' willingness to provide support to its US affiliates remains very high.

HSBC USA

Moody's support assumption for HSBC USA is based on its key role in the delivery of products and services to the HSBC group's global clients, as well as the parent's demonstrated willingness to support HSBC USA over many decades in the form of periodic capital contributions. This support assumption currently results in three notches of uplift to HSBC USA's long-term ratings.

Moody's added that the negative outlook on HSBC USA's supported ratings also incorporates downward pressure on the bank's baa2 standalone BCA because of ongoing weak profitability. 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 previous risk management and control failures. In 2016, we expect HSBC USA's profitability to be constrained by continued low short-term interest rates, elevated energy-related loan-loss provisions, and weak/volatile revenues from the bank's comparatively large capital markets business. Because many of HSBC USA's profitability challenges are structural, Moody's expects the company's profitability to remain well below its peers' for an extended period.

Despite these profitability challenges, Moody's affirmed HSBC USA's supported ratings because of the company's sound asset risk, capital and liquidity.

HFC

Moody's support assumption for HFC reflects the support that HSBC Holdings has provided HFC since its acquisition of Household International in 2003, including capital and liquidity infusions as well as funding support in the form of affiliated borrowings. At year-end 2015, borrowings from affiliates were $5.9 billion, constituting 38% of HFC's debt funding, and additional funding support from HFC's affiliates will likely be necessary to accommodate timing differences as HFC manages its portfolio collections and maturing liabilities over the next several years. 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.

Moody's affirmed HFC's ratings based on expectations that HSBC Holdings' support of HFC will continue uninterrupted, notwithstanding performance pressures in HSBC Holdings' Hong Kong operations. HFC's asset quality performance has improved and leverage has declined, but the firm remains highly reliant on its ultimate parent for funding and liquidity.

WHAT COULD CHANGE THE RATINGS UP/DOWN

HSBC USA's supported ratings could be upgraded if the company can significantly improve its profitability without sacrificing its good asset quality, capital or liquidity metrics. However, Moody's does not expect significant improvement in the next two years.

HSBC USA's supported ratings could be downgraded for of any of the following reasons: 1) a lowering of HSBC Holdings' 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 standalone BCA. Moody's noted that the biggest risk to the standalone BCA is a lack of sustainable improvement in profitability or deterioration in commercial asset risk as a result rapid loan growth in recent years.

HFC's supported ratings could be upgraded if HSBC Holdings provides an explicit guarantee of HFC's obligations.

HFC's supported ratings could be downgraded if HSBC Holdings' intrinsic financial strength is downgraded or if Moody's perceives a reduction in affiliate support for HFC.

The following assessments and ratings have been affirmed:

Issuer: HSBC USA Inc.

....Senior Unsecured Regular Bond/Debenture, A2

....Subordinate Regular Bond/Debenture, A3

....Preferred Stock Non-cumulative, Baa2 (hyb)

....Senior Unsecured Medium-Term Note Program, (P)A2

....Senior Unsecured Shelf, (P)A2

....Subordinate Shelf, (P)A3

....Preferred Shelf, (P)Baa1

....Preferred Shelf Non-cumulative, (P)Baa2

....Commercial Paper, P-1

....Outlook, Changed To Negative From Stable

Issuer: HSBC Bank USA, N.A.

.... Baseline Credit Assessment, baa2

.... Adjusted Baseline Credit Assessment, a2

....Long Term Bank Deposit Rating, Aa2

....Short Term Bank Deposit Rating, P-1

....Long Term Issuer Rating, Aa3

....Senior Unsecured Regular Bond/Debenture, Aa3

....Subordinate Regular Bond/Debenture, A1

....Senior Unsecured Bank Note Program, (P)Aa3

....Subordinate Bank Note Program (P)A1

....Short Term Bank Note Program, (P)P-1

....Long Term Counterparty Risk Assessment, A1(cr)

....Short Term Counterparty Risk Assessment, P-1(cr)

....Outlook, Changed To Negative From Stable

Issuer: Republic New York Corporation

...Subordinate Regular Bond/Debenture, A3

Issuer: HSBC Finance Corporation

....Long Term Issuer Rating, Baa1

....Short Term Issuer Rating, P-2

....Senior Unsecured Regular Bond/Debenture, Baa1

....Senior Subordinated Regular Bond/Debenture, Baa2

....Pref.Stock Non-cumulative, Baa3 (hyb)

....Senior Unsecured Medium-Term Note Program, (P)Baa1

....Short Term Medium-Term Note Program, (P)P-2

....Outlook, Changed To Negative From Stable

Issuer: Household Finance Corporation

....BACKED Senior Unsecured Regular Bond/Debenture, Baa1

....Preferred Stock, Baa3 (hyb)

The principal methodology used in rating HSBC USA Inc., HSBC Bank USA, N.A., and Republic New York Corporation was Banks published in January 2016. The principal methodology used in rating HSBC Finance Corporation and Household Finance Corporation was Finance Companies published in October 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

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.

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 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.

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 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 ratings of HSBC's US subsidiaries, changes outlook to negative from stable
No Related Data.
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