No change in senior debt ratings or the intrinsic strength of the institutions. Rating actions reflect Moody's reassessment of the support environment for junior securities
London, 09 April 2009 -- Moody's Investors Service has today downgraded the subordinated and hybrid
debt instruments issued by Barclays and HSBC.
The subordinated or hybrid instruments of the following banks have been
affected by this action:
• Barclays Bank: Subordinated debt rating downgraded to Baa1
from A1, and hybrid debt to Baa2 from A2; negative outlook
• HSBC Bank: Subordinated debt rating downgraded to A2 from
Aa3, and hybrid debt to A3 from A1; negative outlook
• HSBC Holdings: Subordinated debt rating downgraded to A1
from Aa3, and hybrid debt to A2 from A1; negative outlook
The rating action follows the downgrades of the subordinated and hybrid
debt of RBS and Lloyds on 3rd April 2009. These actions have been
prompted by the rating agency's concern that systemic support may
not be extended to these instruments in the case of financial distress.
The 2009 Banking Act explicitly provides a broad remit to allow the restructuring
of financial institutions with losses to subordinated and hybrid debt
holders, and this has increasingly been the practice in the recent
restructuring of a number of financial institutions in the UK.
Therefore, it is Moody's opinion that the ratings of subordinated
and hybrid instruments should be closely aligned to the bank's BFSR,
which in the case of Barclays is C (mapping to a baseline credit assessment
- BCA - of A3) and in the case of HSBC Bank pls is C+
(BCA - A2), and no longer benefit from the support that is
expected for senior creditors and depositors of these two large,
systemically important institutions.
In its Special Comment entitled "Moody's Assesses Bank Hybrid Securities
in the Context of the Current Credit Crisis", dated December 2008,
Moody's began a dialogue with market participants regarding a potential
change to its bank hybrid notching practices. The proposal explored
the possibility of removing systemic support from bank hybrid ratings
and considered wider notching based on the hybrid's risk characteristics.
This process continues for banks generally, but as Moody's noted
in its Special Comment, subordinated and hybrid ratings will be
adjusted as appropriate should circumstances warrant as is the case for
the subordinated and hybrid debt of these two banking groups.
Moody's current ratings on banks' subordinated and hybrid securities generally
reflect the assumption that if a government extends financial support
to a bank in difficulty, that support would also benefit subordinated
and hybrid investors. Moody's has observed that UK systemic support
to banks has recently been limited to senior debt and deposits only.
In the restructuring of the Dunfermline and Bradford & Bingley none
of the subordinated or hybrid debt instruments benefit from government
support measures, resulting in possible losses to investors;
furthermore, the 2009 Banking Act has specifically provided a legal
framework that enables such differentiating measures. Moody's
therefore believes that the risk to such instruments of HSBC and Barclays
is more closely aligned to the banks' other unsupported obligations,
as indicated by the Bank Financial Strength Rating ("BFSR")
which maps into the alphanumerical Baseline Credit Assessment ("BCA").
Until now, Moody's has notched the ratings of these banks' subordinated
and hybrid debt from the supported senior debt rating by one and two notches,
respectively. Due to the reduced certainty of further systemic
support for these instruments, the anchor for subordinated and hybrid
debt ratings issued by these institutions will be the BCA which maps from
the intrinsic strength of the bank as indicated by our published BFSR.
Notwithstanding, in its rating of these subordinated and hybrid
debt instruments Moody's continues to include the benefit of parental
support for HSBC Bank plc. The actual notching for subordinated
and hybrid debt relative to the anchor will remain unchanged reflecting
the characteristics of the instruments, i.e. their
relative subordination vis-a-vis each other in case of bankruptcy.
Downgrades:
..Issuer: Barclays Bank PLC
....Junior Subordinated Regular Bond/Debenture,
Downgraded to a range of Baa2 to Baa1 from a range of A2 to A1
....Junior Subordinated Shelf, Downgraded
to (P)Baa1 from (P)A1
....Multiple Seniority Medium-Term
Note Program, Downgraded to Baa1 from A1
....Multiple Seniority Shelf, Downgraded
to a range of (P)Baa2 to (P)Baa1 from a range of (P)A2 to (P)A1
....Preference Stock Preference Stock,
Downgraded to Baa2 from A2
....Preference Stock Shelf, Downgraded
to (P)Baa2 from (P)A2
....Preferred Stock Preferred Stock,
Downgraded to Baa2 from A2
....Subordinate Regular Bond/Debenture,
Downgraded to Baa1 from A1
..Issuer: Barclays Capital (Cayman), Ltd.
....Multiple Seniority Medium-Term
Note Program, Downgraded to Baa1 from A1
..Issuer: Barclays North American Capital
....Subordinate Regular Bond/Debenture,
Downgraded to Baa1 from A1
..Issuer: Barclays Overseas Capital Corp. B.V.
....Multiple Seniority Medium-Term
Note Program, Downgraded to Baa1 from A1
..Issuer: Barclays Overseas Investment Company B.V.
....Junior Subordinated Regular Bond/Debenture,
Downgraded to Baa1 from A1
....Multiple Seniority Medium-Term
Note Program, Downgraded to Baa1 from A1
..Issuer: HSBC Bank Capital Funding (Sterling 1) LP
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Issuer: HSBC Bank Capital Funding (Sterling 2) L.P.
....Preferred Stock Preferred Stock,
Downgraded to A2 from Aa3
..Issuer: HSBC Bank plc
....Junior Subordinated Regular Bond/Debenture,
Downgraded to A2 from Aa3
....Multiple Seniority Medium-Term
Note Program, Downgraded to A2 from Aa3
....Multiple Seniority Shelf, Downgraded
to a range of (P)A3 to (P)A2 from a range of (P)A1 to (P)Aa3
....Preference Stock Preference Stock,
Downgraded to A3 from A1
....Preference Stock Shelf, Downgraded
to (P)A3 from (P)A1
....Subordinate Regular Bond/Debenture,
Downgraded to A2 from Aa3
..Issuer: HSBC CAPITAL FUNDING (EURO 2) L.P.
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Issuer: HSBC Capital Funding (Dollar 1) L.P.
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Issuer: HSBC Capital Funding (Dollar 2) L.P.
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Issuer: HSBC Capital Funding (Euro 1) L.P.
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Issuer: HSBC Capital Funding (Euro 3) L.P.
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Issuer: HSBC Capital Funding (Sterling 1) L.P.
....Preferred Stock Preferred Stock,
Downgraded to A3 from A1
..Issuer: HSBC Holdings plc
....Multiple Seniority Medium-Term
Note Program, Downgraded to A1 from Aa3
....Multiple Seniority Shelf, Downgraded
to a range of (P)A2 to (P)A1 from a range of (P)A1 to (P)Aa3
....Preference Stock Preference Stock,
Downgraded to A2 from A1
....Subordinate Regular Bond/Debenture,
Downgraded to A1 from Aa3
..Issuer: Midland International Financial Services
B.V.
....Multiple Seniority Medium-Term
Note Program, Downgraded to Aa2 from Aa1
..Issuer: Woolwich plc
....Subordinate Regular Bond/Debenture,
Downgraded to Baa1 from A1
The last rating actions on the above banks' subordinated and hybrid debt
ratings are:
• Barclays Bank, 1 February 2009, subordinated and hybrid
downgraded to A1/A2, stable outlook
• HSBC Bank, 9 March 2009, subordinated and hybrid downgraded
to Aa3/A1, negative outlook
• HSBC Holdings, 9 March 2009, rating outlook changed
to negative from stable
The principal methodologies used in rating the entities are "Bank Financial
Strength Ratings: Global Methodology" and "Guidelines for Rating
Bank Junior Securities", which can be found on www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating the issuers can also
be found in the Credit Policy & Methodologies directory.
All the banks are headquartered in the United Kingdom.
London
Johannes Wassenberg
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Ross Abercromby
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades subordinated and hybrid debt issued by Barclays and HSBC
