New York, June 14, 2016 -- Moody's Investors Service has today downgraded HSBC Bank Brasil S.A.
-- Banco Múltiplo's (HSBC Brazil) long- and
short-term global local currency deposit ratings to Ba2/Not Prime
from Baa3/Prime-3, long-term foreign currency senior
unsecured debt rating to (P)Ba2 from (P)Ba1, and long-term
Brazilian national scale deposit rating to Aa1.br from Aaa.br.
Moody's also confirmed HSBC Brazil's baseline credit assessment
at ba2 and long-term foreign currency deposit rating at Ba3.
At the same time, Moody's affirmed the bank's Not Prime
short-term foreign currency deposit and debt rating , as
well as the BR-1 short-term Brazilian national scale deposit
rating. The adjusted BCA assigned to HSBC Brazil was lowered to
ba2, from baa3, as support from HSBC Holding (A1 Negative)
is no longer incorporated, following final regulatory approval to
complete the sale of its operations to Banco Bradesco S.A.
(Bradesco). The outlook assigned to HSBC Brazil is negative.
Moody's also affirmed all ratings and assessments assigned to Banco Bradesco
S.A., including the BCA of ba2, the long-term
global local currency deposit, the long-term foreign currency
deposit; and the long-term Brazilian national scale deposit
rating of Aa1.br. All short-term ratings assigned
to Bradesco were also affirmed. In addition, Moody's
affirmed all ratings assigned to Banco Bradesco S.A. Grand
Cayman Branch, including the debt ratings of Ba2 and Ba3 assigned
to foreign currency senior unsecured and subordinated debts, respectively.
As well as the counterparty risk assessments of Ba1(cr)/Not Prime(cr)
assigned to both Banco Bradesco and Banco Bradesco Cayman Branch.
These ratings remain on negative outlook.
This concludes the review of HSBC Brazil's ratings started on 5
August 2015, when the transaction was announced.
The following assessments and ratings of HSBC Brazil were confirmed:
Baseline credit assessment of ba2
Long-term foreign currency deposit rating of Ba3, with negative
outlook
The following ratings of HSBC Brazil were affirmed:
Short-term foreign currency deposit rating of Not Prime
Short-term foreign currency senior unsecured debt rating,
assigned to GMTN Program, of (P)Not Prime
Short-term Brazilian national scale deposit rating at BR-1
The following assessments and ratings of HSBC Brazil were downgraded:
Adjusted baseline credit assessment: to ba2, from baa3
Long-term local currency deposit rating: to Ba2, from
Baa3, negative outlook
Short-term local currency deposit rating: to Not Prime,
from Prime-3
Long-term foreign currency senior unsecured debt rating,
assigned to GMTN Program: to (P)Ba2, from (P)Ba1
Long-term Brazilian national scale deposit rating: to Aa1.br,
from Aaa.br
Long-term counterparty risk assessment: to Ba1(cr),
from Baa2(cr)
Short-term counterparty risk assessment: to Not Prime(cr)
of Prime-2(cr)
The following ratings and assessments assigned to Banco Bradesco S.A.
were affirmed:
Baseline credit assessment of ba2
Adjusted credit assessment of ba2
Long-term local currency deposit rating of Ba2, with negative
outlook
Short-term local currency deposit rating of Not Prime
Long-term foreign currency deposit rating of Ba3, with negative
outlook
Short-term foreign currency deposit rating of Not Prime
Long-term foreign currency senior unsecured MTN rating of (P)Ba2
Long-term Brazilian national scale deposit ratings of Aa1.br
Short-term Brazilian national scale deposit ratings of BR-1
Long-term counterparty risk assessment of Ba1(cr)
Short-term counterparty risk assessment of Not Prime(cr)
The following ratings and assessments assigned to Banco Bradesco S.A.
Grand Cayman Branch were affirmed:
Long-term foreign currency senior unsecured MTN rating of (P)Ba2
Long-term foreign currency senior unsecured debt rating of Ba2,
with negative outlook
Foreign currency subordinated unsecured debt rating of Ba3
Long-term counterparty risk assessment of Ba1(cr)
Short-term counterparty risk assessment of Not Prime(cr)
RATINGS RATIONALE
HSBC BRAZIL
The conclusion of the review and the multi-notch downgrade of HSBC
Brazil's supported ratings follows final regulators' approval
of Bradesco's acquisition of HSBC's operations in Brazil on
June 8th 2016. Consequently, HSBC Brazil will no longer benefit
from support from its previous parent, HSBC Holdings (A1 negative).
While the franchise will benefit from support from Bradesco from now on,
given that its BCA is the same as Bradesco's, its debt and
deposit ratings will no longer receive any uplift. Consequently,
HSBC Brazil's debt and deposit ratings have been lowered to the
same level as its BCA.
In confirming HSBC Brazil's standalone BCA of ba2, we note
that the bank will continue to exist as a full subsidiary of Bradesco
with its current assets and liabilities subject to Bradesco's direct
control and risk management policies, until all assets and liabilities
are fully absorbed by Bradesco, which is expected to occurred during
the fourth quarter. The negative outlook on HSBC Brazil reflects
the negative outlook on Bradesco, which in turn reflects the negative
outlook on the Brazilian sovereign.
BANCO BRADESCO
The affirmation of Bradesco's ratings reflects the constraint on
the bank's BCA by Brazil's sovereign bond rating of Ba2.
Although the acquisition is expected to result in a significant decline
in Bradesco's capital position of more than 250 basis points under
Moody's metrics, due to the large amount of goodwill that
will be generated , the bank's BCA will nevertheless remain
constrained by Brazil's sovereign rating. The transaction
will also increase Bradesco's market share of deposits and assets,
closing the gap with Itau Unibanco S.A. (Ba2 negative,
ba2), the largest private bank in Brazil. According to Moody's
analyst Ceres Lisboa, "the acquisition will enhance Bradesco's
position in the highly competitive and fee-based business segment
oriented to high-income individuals. Bradesco will be able
to leverage from its wide banking and insurance platform to explore cross-selling
opportunities and support earnings growth".
Over the next 12 months, however, slower loan growth and rising
credit costs together with higher operating costs related to the acquisition
are expected to drive a continued decline in Bradesco's profitability
and efficiency. HSBC Brazil has reported negative bottom line results
in the last two years due in part to its very high operating expenses.
While Bradesco is expected to be able to realize significant cost savings,
cost and revenues synergies will take at least three years to fully achieve.
Nevertheless, Moody's expects earnings will remain sufficient
to allow Bradesco to restore its capital within six to eight quarters
given its long-track record of capital retention.
FACTORS THAT COULD LEAD TO A DOWNGRADE
As Bradesco's deposit and debt ratings are currently constrained
by Brazil's sovereign bond rating of Ba2, the bank's
ratings have a negative outlook in line with the negative outlook on the
sovereign rating. Consequently, the bank's ratings
will face downward pressure if the sovereign is downgraded.
Bradesco's BCA could be downgraded if the bank experiences a material
deterioration in recurring earnings generation triggered by unexpected
losses, or by a prolonged recession. Failure to achieve expected
cost and earnings synergies that limits the bank's ability to restore
its capital levels over the next 12 to 18 months would also put downward
pressure on the BCA. However, a downgrade of the bank's
BCA would not be likely to affect its debt and deposit ratings given the
high probability of government financial support should the bank face
financial stress.
Given the negative outlook and Brazil's deep ongoing economic recession,
upward pressure is unlikely in the near to medium term. However,
the outlook could stabilize if and when the government outlook stabilizes.
METHODOLOGIES & LAST RATING ACTION
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Ratings Methodologies page on www.moodys.com
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 May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_189530.
The last rating action on Banco Bradesco S.A. was on 11
May 2016, when Moody's repositioned the bank's long-term
Brazilian national scale rating at Aa1.br, in view of the
recalibration of the national rating scale methodology. All other
ratings remained unchanged.
The last rating action on HSBC Bank Brasil S.A. was on 11
May 2016, when Moody's repositioned the bank's long-term
Brazilian national scale rating at Aaa.br, in view of the
recalibration of the national rating scale methodology. At the
same time, Moody's placed on review for downgrade the Aaa.br
national scale rating, in line with the review for downgrade on
the bank's global scale deposit rating. All other ratings
remained unchanged.
Banco Bradesco is headquartered in São Paulo, Brazil.
The bank reported total consolidated assets of BRL1,024 billion
($288.9 billion) and equity of BRL93.3 billion ($26.33
billion) as of 31 March 2016.
HSBC Bank Brasil -- Banco Múltiplo S.A. is headquartered
in Curitiba, Brazil. The bank reported total consolidated
assets of BRL175 billion ($49.4 billion) and equity of BRL8.74
billion ($2.25 billion) as of 31 December 2015.
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.
Ceres Lisboa
Senior Vice President
Financial Institutions Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300
M. Celina Vansetti
MD - Banking
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 downgrades HSBC Brazil's supported ratings and affirms Bradesco's ratings; outlook remains negative
