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
