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Rating Action:

Moody's confirms HSBC Mexico's ratings; stable outlook

 The document has been translated in other languages

11 Sep 2015

Mexico, September 11, 2015 -- Moody's de México S.A. de C.V. today confirmed HSBC Mexico, S.A.'s A2/Prime-1 long- and short-term global local currency deposit ratings. At the same time, Moody's confirmed the bank's a2 adjusted baseline credit assessment (Adj. BCA) as well as the bank's senior and subordinated debt ratings. The bank's baa3 standalone BCA was not affected by today's actions. The bank's outlook is stable.

Moody's also confirmed the issuer ratings of HSBC Casa de Bolsa, S.A., with stable outlook.

These actions conclude the ratings review initiated on 5 June 2015.

A detailed list of ratings affected is provided below.

LIST OF RATINGS AFFECTED

-- HSBC Mexico, S.A.

The following ratings were confirmed:

Long-term global local currency deposit rating: Confirmed at A2, stable outlook

Short-term global local currency deposit rating: Confirmed at Prime-1

Long-term global local currency senior unsecured debt rating: Confirmed at A2, stable outlook

Long-term global local currency provisional (P) senior unsecured MTN debt program rating: Confirmed at (P)A2

Short-term global local currency provisional (P) senior unsecured MTN debt program rating: Confirmed at (P)Prime-1

Long-term global local currency subordinated debt rating: Confirmed at A3, stable outlook

Long-term global local currency provisional (P) subordinated MTN debt program rating: Confirmed at (P)A3

Long-term Mexican National Scale subordinated debt rating: Confirmed at Aaa.mx

Long-term Mexican National Scale subordinated MTN debt program rating: Confirmed at Aaa.mx

Long-term global local currency provisional (P) junior subordinated MTN debt program rating: Confirmed at (P)Baa1

Long-term Mexican National Scale junior subordinated MTN debt program rating: Confirmed at Aaa.mx

Adjusted baseline credit assessment: Confirmed at a2

Long-term counterparty risk assessment: Confirmed at A1(cr)

Short-term counterparty risk assessment: Confirmed at Prime-1(cr)

Standalone baseline credit assessment: baa3, not affected by today's rating action

Overall rating outlook: Stable

--- HSBC Casa de Bolsa, S.A. de C.V.

The following ratings were confirmed:

Long-term global local currency issuer rating: Confirmed at A2, stable outlook

Short-term global local currency issuer rating: Confirmed at Prime-1

Overall rating outlook: Stable

RATINGS RATIONALE

In confirming HSBC Mexico's ratings, Moody's took into account HSBC Holdings plc's (snr unsecured A1 stable) reaffirmation of its commitment to its Mexican subsidiary following a strategic review of its emerging market subsidiaries that were delivering sub-par risk-adjusted returns. In contrast with its decision to sell its banks in Brazil and Turkey, HSBC Holdings plc announced that it would retain its Mexican operation given HSBC Mexico's importance to its parent's North American strategy and its still significant market share, as well as its growth potential.

The decision to remain in Mexico came despite HSBC Mexico's underperformance in recent years as the bank tightened its risk controls and underwriting standards, and shed relationships with riskier customers in response to its 2012 settlement with the US Department of Justice over charges related to the bank's failure to maintain adequate controls to prevent money laundering. These changes ultimately led to a significant decline in profitability and market shares, especially in retail lending, which were reflected in Moody's decision to downgrade the bank's BCA to baa3 on 5 June 2015, in conjunction with the initiation of the review on its debt and deposit ratings.

Moody's Senior Credit Officer David Olivares noted that "together with its announcement that it would remain in Mexico, HSBC Holdings plc has laid out an ambitious turnaround plan for its Mexican subsidiary, including very aggressive goals for earnings growth to be achieved by 2017. Despite a slight recovery in the bank's financial performance in the first half of the year, these targets will be hard to achieve."

Nevertheless, Olivares added that in light of HSBC Holdings plc's renewed commitment to Mexico, "we continue to believe that there is a very high probability that parental support would be forthcoming if HSBC Mexico were to face severe financial stress". Consequently, HSBC Mexico's local currency deposit and senior unsecured debt ratings benefit from four notches of uplift from its baa3 BCA.

WHAT COULD CHANGE THE RATINGS UP OR DOWN

Even if HSBC Mexico successfully implements its turnaround plan and asset risk improves, the bank's senior debt and deposit ratings are unlikely to rise. While we would expect the bank to continue to benefit from very strong parental support, any improvement in the BCA would likely be offset by a decline in the number of notches of ratings uplift due to support. By contrast, the ratings could face downward pressure if recent improvements in profitability prove unsustainable and delinquencies do not decline from current elevated levels as expected, and/or if there are indications of a lower level of commitment from HSBC Holdings plc.

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com.mx for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

HSBC México is headquartered in Mexico City, Mexico and reported MXN596 billion in assets (source: Comisión Nacional Bancaria y de Valores), as of June 2015.

The period of time covered in the financial information used to determine HSBC Mexico's ratings is between 1 January 2011 and 30 June 2015 (source: Moody's, Issuer's financial statements, Comisión Nacional Bancaria y de Valores and Banco de México).

The sources and items of information used to determine the ratings include 2014 and 2015 interim financial statements (source: Moody's and Issuer's financial statements); year-end 2013 and 2014 audited financial statements (source: Moody's and Issuer's annual audited financial statements); information on market position (source: Comisión Nacional Bancaria y de Valores); regulatory capital information (source: Banco de México).

REGULATORY DISCLOSURES

Information sources used to prepare the ratings are the following: parties involved in the ratings, parties not involved in the ratings, public information and confidential and proprietary Moody's information.

The ratings have been disclosed to the rated entities prior to public dissemination.

A general listing of the sources of information used in the rating process, and the structure and voting process for the rating committees responsible for the assignment and monitoring of ratings can be found in the Disclosure tab in www.moodys.com.mx.

The date of the last Credit Rating Action was 05/06/2015.

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.mx.

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.

This Rating is subject to upgrade or downgrade based on future changes in the financial condition of the Issuer/Security, and said modifications will be made without Moody's de México S.A. de C.V accepting any liability as a result.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see our website www.moodys.com.mx for further information.

Please see www.moodys.com.mx for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

Please see the ratings tab on the issuer/entity page on www.moodys.com.mx for additional regulatory disclosures for each credit rating.

David Olivares Villagomez
VP - Senior Credit Officer
Financial Institutions Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

M. Celina Vansetti
MD - Banking
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's confirms HSBC Mexico's ratings; stable outlook
No Related Data.
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