New York, March 09, 2009 -- Moody's Investors Service downgraded the long-term deposit and
debt ratings and the bank financial strength rating of HSBC USA,
Inc. and its subsidiaries. The senior unsecured rating of
HSBC USA, Inc. was lowered to A1. The bank financial
strength rating (BFSR) of HSBC Bank USA, N.A. was
downgraded to C from C+, and its long-term deposit and
senior unsecured ratings, to Aa3 from Aa2. In the same rating
action, Moody's affirmed the short-term deposit and
debt ratings of HSBC USA, Inc. and HSBC Bank USA, N.A.
at Prime-1. Following the downgrade, the outlook on
all ratings was changed to negative from stable. HSBC USA,
Inc. and HSBC Bank USA, N.A. are both indirect
subsidiaries of HSBC Holdings plc. HSBC USA, Inc.
and its subsidiaries, including HSBC Bank USA, N.A.,
are referred to collectively as 'HSBC USA' hereafter.
Moody's said that the downgrade of HSBC USA's ratings was
prompted by further, accelerated deterioration in HSBC USA's
asset quality and core earnings in the second half of 2008, and
the expectation that these metrics will remain pressured in 2009,
which could weaken HSBC USA's capital position.
Moody's noted that HSBC has made progressively larger provisions
for loan losses in each of the quarters of 2008, the majority of
which were driven by deterioration in the company's credit card
portfolios. The rating agency added that most of HSBC USA's
credit card receivables are originated by HSBC Finance Corporation,
the consumer finance arm of the HSBC group in the USA, and are purchased
by HSBC USA on an on-going basis. Moody's expects
HSBC USA's credit costs to remain elevated in 2009, not only
because of continued weakness in the credit card, residential mortgage
and home equity portfolios, but also because of increasing weakness
in the commercial and industrial and commercial real estate portfolios.
The rating agency added that HSBC USA's largest single-client
exposure metrics were weaker that those of similarly rated peers and that
its asset quality indicators have lagged the median ratios for the same
peer group for several quarters.
Moody's observed that HSBC USA's core profitability was adversely
impacted by losses incurred in the company's Global Banking and
Markets (GBM) business segment, particularly in the fourth quarter
of 2008. The majority of these losses were incurred in connection
with the GBM's structured credit product activities, Moody's
added. The rating agency noted that these losses were sufficiently
large to overwhelm other sources of non-interest income in 2008
and result in negative non-interest income of $785 million
for the year. For all of 2008, HSBC USA reported a consolidated
net loss of $1.8 billion.
Moody's said that despite the sizeable net loss, HSBC USA
was able to report stronger capital adequacy ratios as of the end of 2008
than it did for year-end 2007, because of a $3.6
billion capital injection from the ultimate parent company, HSBC
Holdings, plc. Not all the capital was down-streamed
to its subsidiaries, and this resulted in an improved holding company
double leverage ratio that was below Moody's threshold of concern.
Moody's also noted that liquidity continues to be ample at the bank
level, and that the holding company's liquidity position had
improved in the fourth quarter following the issuance of $2.7
billion of FDIC-guaranteed senior unsecured debt.
According to Moody's, continued weakening in the company's
asset quality indicators and profitability metrics beyond expectations,
or significant deterioration in the franchise value of its personal finance
services and commercial banking business lines could lead to negative
rating pressure on the BFSR. The negative outlook on the BFSR reflects
Moody's view of the challenges HSBC USA faces with regard to its
asset quality and core earnings in 2009.
Moody's incorporates an expectation of very high support from HSBC
Holdings plc (senior debt at Aa2, negative outlook) into the deposit
and debt ratings of HSBC USA in the event such support is needed.
This results in a three-notch lift being applied to what HSBC USA's
deposit and debt ratings would be on a stand-alone basis,
in the absence of such support. Moody's justifies the incorporation
of this level of support by HSBC Holdings plc's track record of
providing such support in the past. With the incorporation of support,
the negative outlook on HSBC Holdings plc carries through to the deposit
and debt ratings of HSBC USA.
A downgrade of the ultimate parent company's ratings or a change
in our expectation of support from the ultimate parent company would result
in an immediate downgrade of HSBC USA's debt and deposit ratings.
Downgrades:
..Issuer: HSBC Americas Capital Trust I
....Preferred Stock Preferred Stock,
Downgraded to A2 from A1
..Issuer: HSBC Bank USA, N.A.
....Bank Financial Strength Rating,
Downgraded to C from C+
....Issuer Rating, Downgraded to Aa3
from Aa2
....OSO Senior Unsecured OSO Rating,
Downgraded to Aa3 from Aa2
....Multiple Seniority Bank Note Program,
Downgraded to a range of A1 to Aa3 from a range of Aa3 to Aa2
....Subordinate Regular Bond/Debenture,
Downgraded to A1 from Aa3
....Senior Unsecured Deposit Note/Takedown,
Downgraded to Aa3 from Aa2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa2
....Senior Unsecured Deposit Rating,
Downgraded to Aa3 from Aa2
..Issuer: HSBC USA Capital Trust V
....Preferred Stock Shelf, Downgraded
to (P)A2 from (P)A1
..Issuer: HSBC USA Capital Trust VI
....Preferred Stock Shelf, Downgraded
to (P)A2 from (P)A1
..Issuer: HSBC USA Inc.
....Multiple Seniority Shelf, Downgraded
to a range of (P)A3 to (P)A1 from a range of (P)A2 to (P)Aa3
....Preferred Stock Preferred Stock,
Downgraded to A3 from A2
....Senior Unsecured Medium-Term Note
Program, Downgraded to A1 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A1 from Aa3
..Issuer: Republic National Bank Of New York
....Senior Unsecured Bank Note Program,
Downgraded to Aa3 from Aa2
....Senior Unsecured Deposit Program,
Downgraded to Aa3 from Aa2
..Issuer: Republic New York Capital I
....Preferred Stock Preferred Stock,
Downgraded to A2 from A1
..Issuer: Republic New York Corporation
....Preferred Stock Preferred Stock,
Downgraded to A3 from A2
....Subordinate Regular Bond/Debenture,
Downgraded to A2 from A1
Outlook Actions:
..Issuer: HSBC Americas Capital Trust I
....Outlook, Changed To Negative From
Stable
..Issuer: HSBC Bank USA, N.A.
....Outlook, Changed To Negative From
Stable
..Issuer: HSBC USA Capital Trust V
....Outlook, Changed To Negative From
Stable
..Issuer: HSBC USA Capital Trust VI
....Outlook, Changed To Negative From
Stable
..Issuer: HSBC USA Inc.
....Outlook, Changed To Negative From
Stable
..Issuer: Republic National Bank Of New York
....Outlook, Changed To Negative From
Stable
..Issuer: Republic New York Capital I
....Outlook, Changed To Negative From
Stable
..Issuer: Republic New York Corporation
....Outlook, Changed To Negative From
Stable
The last rating action on HSBC USA was taken on June 27, 2008 when
its BFSR was downgraded to C+ from B-. The principal
methodologies used in rating this issuer are "Bank Financial Strength
Ratings: A Global Methodology" and "Incorporation of
Joint-Default Analysis into Moody's Bank Ratings: A
Refined Methodology", which can be found at www.moodys.com
in the Ratings Methodologies subdirectory of the Credit Policy & Methodologies
directory. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found in the Credit Policy
and Methodologies directory
HSBC USA, Inc. and HSBC Bank USA, N.A.
are both indirect subsidiaries of HSBC Holdings plc. Headquartered
in New York, New York, HSBC USA, Inc. reported
consolidated assets of $186 billion as of December 2008.
New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Michael L. Mascarenhas
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades HSBC USA, Inc. (Senior unsecured to A1)
