Action follows downgrade of parent HSBC Holdings Plc
New York, June 09, 2021 -- Moody's Investors Service, ("Moody's") today
downgraded the long-term deposit ratings of HSBC Bank USA,
N.A. ("HSBC Bank USA") to Aa3 from Aa2 and put
that rating on review for further downgrade. The rating agency
also lowered the bank's adjusted baseline credit assessment (BCA)
to a3 from a2, while it affirmed the baa2 standalone BCA and the
Prime-1 short-term deposit rating of HSBC Bank USA.
All other long-term ratings of HSBC Bank USA, including the
bank's Aa3 senior debt rating, as well as all ratings of the
bank's immediate parent HSBC USA Inc., including its
A2 senior debt rating, remain on review for downgrade.
The rating action follows Moody's announcement on 8 June 2021 that it
downgraded the senior unsecured ratings (to A3 from A2) and the notional
BCA (to a3 from a2) of HSBC Bank USA's ultimate parent, HSBC Holdings
plc (HSBC Holdings), reflecting the challenges the group will face
in restoring profitability to levels in line with its main peers in the
next 12-18 months.
A complete list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
HSBC Bank USA is the sole US banking operation of the HSBC group and,
as such, provides the entire group with access to the US payments
system. Given the importance of US dollar clearing to HSBC's global
transaction services business, as well as the size and importance
of the US economy and capital markets, Moody's considers HSBC Bank
USA to be a strategically vital part of the parent's global franchise.
In light of this, Moody's believes there is a very high probability
that HSBC Holdings would provide support to HSBC Bank USA in case of need.
This support has been demonstrated in the form of periodic capital contributions
over many decades.
On 26 May 2021, HSBC Holdings announced it will exit the US mass
market retail banking business. Given the relatively small size
of this business, Moody's does not expect that the exit will
lead to any change in the likelihood of support for HSBC USA from the
group. In announcing the retail exit, management reiterated
that the group's continued presence in the US is key to their international
network and an important contributor to their growth plans.
While Moody's expects the willingness of HSBC Holdings to support HSBC
USA will remain very high, the lowering of HSBC Holding's notional
BCA to a3 indicates a lower capacity to support HSBC Bank USA in case
of need. As a result, the rating agency has lowered HSBC
Bank USA's adjusted BCA to a3, in line with the notional BCA of
the group.
The reduced capacity of the group to provide support to HSBC Bank USA
in case of need is also the reason for the downgrade of HSBC Bank USA's
long-term deposit ratings to Aa3 from Aa2. Those ratings
already receive the maximum amount of uplift (+3 notches) permitted
under Moody's Banks rating methodology and as such, a one
notch downgrade of the adjusted BCA also results in a one notch downgrade
of the bank's long-term deposit ratings.
Moody's said the affirmation of HSBC Bank USA's baa2 standalone
BCA reflects the US bank's strong liquidity position and sound capital
ratios which help offset ongoing profitability challenges. Although
the group's strategic plan contemplates the repatriation of a significant
amount of capital out of the US business over the next several years,
this has been anticipated for some time, and this is unlikely to
occur until the US banking regulators are satisfied with the progress
HSBC has made in enhancing its controls and reducing the risk profile
of its US operations.
Given the relatively small size of the US mass market retail banking franchise,
Moody's does not expect the exit will have much impact on HSBC USA's
strong liquidity position. And given the loss-making nature
of that business, the exit could potentially lead to modest improvements
in HSBC USA's profitability after it is completed in 2022. The
bank will also rebrand approximately 20-25 of its retail branches
into international wealth centers to serve their Premier and Jade customers.
However, in addition to the sale of 90 branches, the exit
also involves the wind-down of between 35 and 40 additional branches
and the potential sale of $1 billion in loans, including
the bank's remaining retail credit card portfolio. Moody's
believes these additional elements of the exit are subject to execution
risk which could raise the pre-tax costs of the exit above the
$118 million the bank announced on 26 May.
The review for downgrade of the long-term deposit rating of HSBC
Bank USA will consider the impact which an exit from the US mass market
retail business could have on the levels of unsecured long-term
debt at the bank, its immediate parent HSBC USA Inc. or at
HSBC North America Holdings Inc. (HNAH), the group's
US intermediate holding company (IHC). Together with the downgrade
of the adjusted BCA, this also remains a rationale for the continuing
review of the other long-term ratings of HSBC Bank USA, as
well as all ratings of the bank's immediate parent HSBC USA Inc,
as noted in the rating agencies press release of 9 March 2021.
Moody's noted that while the debt levels at HSBC Bank USA and HSBC
USA Inc. have declined over the past year as deposits have increased,
the exit from the retail business could lead to an increase in debt levels
to replace the lost deposit funding, or alternatively could lead
to a decrease in debt levels at the IHC due to a reduction in its long-term
debt requirements under the Federal Reserve's total loss absorbing
capacity rules for IHCs.
To the extent that the unsecured debt levels at HSBC USA Inc. increase
as a proportion of assets, it could increase the amount of uplift
currently incorporated into the debt ratings of HSBC USA Inc. and
HSBC Bank USA under Moody's advanced Loss Given Failure (LGF) analysis,
offsetting the impact of the downgrade in the adjusted BCA. On
the other hand, were debt levels to remain at current levels or
decline further, it could lead to reduction in the amount of uplift
incorporated into the ratings and a downgrade of those ratings of potentially
one or two notches.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings of HSBC Bank USA are currently on review for downgrade;
an upgrade of the ratings is therefore unlikely. The ratings could
be confirmed at the conclusion of the review if the bank's strategic
review of its mass market retail business results in a sizeable reduction
in total assets without any reduction in subordinated or holding company
debt liabilities at HSBC USA Inc. or HNAH that would be available
to absorb losses in the event of failure.
The ratings of HSBC Bank USA could be downgraded if the conclusion of
the bank's strategic review of its mass market retail business results
little change to the bank's total assets unless there were an increase
the amount of subordinated or holding company debt outstanding that would
be available to absorb losses in the event of failure. The ratings
could also be downgraded if there is a further lowering of the BCA of
HSBC Holdings plc or a reduction in our expectation of parental support
from HSBC Holdings, or if there is 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 absent an offsetting sustainable improvement
in profitability and asset risk profile.
LIST OF AFFECTED RATINGS
Downgrades:
..Issuer: HSBC Bank USA, N.A.
.... Adjusted Baseline Credit Assessment,
Downgraded to a3 from a2
....LT Deposit Rating, Downgraded to
Aa3 from Aa2; Placed Under Review for further Downgrade
Affirmations:
..Issuer: HSBC Bank USA, N.A.
.... Baseline Credit Assessment, Affirmed
baa2
.... ST Deposit Rating, Affirmed P-1
The principal methodology used in these ratings was Banks Methodology
published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
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
