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Rating Action:

Moody's confirms the long-term senior debt and deposit ratings of HSBC Bank plc, concluding review. Stable Outlook

30 May 2018

Moody's also downgrades the subordinated debt ratings of HSBC Bank plc

London, 30 May 2018 -- Moody's Investors Service (Moody's) today confirmed the long-term senior unsecured debt ratings at Aa3 (from Aa3, on review for downgrade) and the long-term deposit ratings at Aa3 (from Aa3, on review for downgrade) of HSBC Bank plc (HSBC Bank). At the same time, the agency downgraded the bank's dated subordinated debt to Baa1 (from A3 on review for downgrade) and the junior subordinated debt to Baa2(hyb) (from Baa1(hyb) on review for downgrade). Today's rating actions conclude the review initiated on the entity, on 22 February 2018.

The long term deposit and senior unsecured ratings of HSBC Bank carry stable outlooks.

The rating actions follow HSBC Bank's proposed reorganisation of its legal structure under the UK's "ring-fencing" legislation, intended to make economically vital banking services more resilient to financial shocks. On 22 May 2018, the High Court of Justice approved the intra-group transfer of assets between HSBC Bank plc and HSBC Bank UK plc (HSBC Bank UK; not rated), a key legal requirement.

"As a result of HSBC's approach to implementing ring-fencing, HSBC Bank will become the group's UK non ring-fenced bank, further increasing its reliance on riskier wholesale and capital markets activities and its dependence on more confidence sensitive debt and deposit funding, a credit negative," said Alessandro Roccati, a Senior Vice President at Moody's.

The Aa3 long-term senior unsecured debt and long-term deposit ratings of HSBC Bank incorporate a baa2 standalone BCA (downgraded from baa1) and a "very high" probability of support from the parent HSBC Holdings plc (Senior Unsecured A2 stable/ BCA a2), recognising HSBC Bank's importance for the group's global connectivity and its relative size within the group, resulting in an a3 adjusted BCA (previously a2, on review for downgrade). The senior unsecured debt and long-term deposit ratings also incorporate two notches of uplift resulting from Moody's advanced Loss Given Failure (LGF) analysis, and benefit from an assumption of a "moderate" level of support from the government of the United Kingdom (UK) (Aa2 stable) in case of need, equal to one notch of uplift.

A list of the affected and assigned ratings is provided at the end of this press release.

RATINGS RATIONALE

HSBC Bank is reorganising its legal structure as a result of the forthcoming requirement to separate its retail and business banking businesses from its other operations, under the UK's "ring-fencing" regulation, aimed at making economically vital banking services more resilient against financial shocks.

The group will transfer its UK retail, commercial banking (excluding most large corporate and financial institutions business) and private banking activities to HSBC Bank UK, a newly-created ring-fenced-bank, from HSBC Bank during 2018. HSBC Bank will become the non ring-fenced bank, further increasing its reliance on wholesale and capital markets activities, which Moody's views as riskier and more volatile, and its dependence on confidence-sensitive wholesale debt and deposit funding.

Under ring-fencing, Moody's expects HSBC Bank to have a weaker credit profile than currently, as it will become the group's principal entity for conducting capital markets activities. Moody's considers these activities to be typically riskier and more volatile than retail and commercial banking, and some other fee based activities such as cash management and payments services. HSBC Bank will retain its activities in France, through its subsidiary HSBC France (Senior Unsecured Aa3 stable/ LT bank deposits Aa3 stable; BCA baa3).

WHAT COULD MOVE THE RATINGS UP/DOWN

An upgrade of HSBC Bank's long-term deposits and senior unsecured debt ratings is unlikely: a one notch upgrade of the bank's BCA, an increase in the volume of debt or deposits, a higher stock of more junior bail-in-able liabilities, or a reduction in the tangible banking assets would not result in an upgrade of the bank's ratings, due to the loss of the current one notch of UK government support.

HSBC Bank's long-term deposits' and senior unsecured debt's ratings would be downgraded in any of the following cases: 1) a decrease in the volume of loss-absorbing capital providing lower protection to its creditors; 2) a lower stock of more junior bail-in-able liabilities that would provide smaller protection senior creditors; (3) a lower assumption of affiliate support than is presently incorporated; (4) an assumption of "low" government support; and (5) a multi-notch downgrade of the bank's BCA, deriving, amongst others, from a significant deterioration in the operating environment; a material increase in risk appetite or a large risk management failure, and/or a substantial deterioration in the liquidity or capital positions. A one notch downgrade of the bank's BCA would not result in a downgrade of its senior ratings, due to HSBC Holdings' parental support increasing by one notch.

LIST OF AFFECTED RATINGS

Issuer: HSBC Bank plc

Downgrades:

....Subordinate, Downgraded to Baa1 from A3

....Junior Subordinate, Downgraded to Baa2(hyb) from Baa1(hyb)

....Junior Subordinate MTN Program, Downgraded to (P)Baa2 from (P)Baa1

....Adjusted Baseline Credit Assessment, Downgraded to a3 from a2

....Baseline Credit Assessment, Downgraded to baa2 from baa1

Confirmations:

....LT Issuer Rating, Confirmed at Aa3, Outlook changed To Stable From Rating Under Review

....LT Bank Deposits, Confirmed at Aa3, Outlook changed To Stable From Rating Under Review

....Senior Unsecured Regular Bond/Debenture, Confirmed at Aa3, Outlook changed To Stable From Rating Under Review

....Senior Unsecured MTN Program, Confirmed at (P)Aa3

....LT Counterparty Risk Assessment, Confirmed at Aa2(cr)

Affirmations:

....ST Bank Deposits, Affirmed P-1

....Commercial Paper, Affirmed P-1

....Other Short Term Program, Affirmed (P)P-1

....ST Counterparty Risk Assessment, Affirmed P-1(cr)

Outlook Actions:

....Outlook, Changed To Stable From Rating Under Review

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in April 2018. 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 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 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.

Alessandro Roccati
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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 Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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