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Rating Action:

Moody's puts HSBC Bank's ratings on review for downgrade

22 Feb 2018

London, 22 February 2018 -- Moody's Investors Service, (Moody's) today placed the long-term ratings, the baseline credit assessment (BCA) and the long-term counterparty risk assessment (CRA) of HSBC Bank plc (HSBC Bank) on review for downgrade. The review for downgrade reflects Moody's view of the likely impact on the bank of the UK's so-called ring-fencing legislation.

The bank's short-term CRA, the short-term deposits and the short-term senior unsecured debt ratings were affirmed.

"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," said Alessandro Roccati, a Senior Vice President at Moody's. "As a result, HSBC Bank will become the non ring-fenced bank, further increasing its dependence on wholesale debt and deposit funding and its reliance on riskier wholesale and capital markets activities."

Moody's expects to conclude its review by April 2018 ahead of the legal separation of the bank into two legal entities later in the year, and prior to the legislation's implementation on 1 January 2019.

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 (unrated), 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. Both HSBC Bank and HSBC Bank UK are expected to operate under a UK intermediate holding company.

Under ring-fencing, HSBC Bank will likely have a weaker credit profile than it currently does, 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 (LT senior debt rating Aa3).

During the review period, Moody's will assess the prospective standalone credit profile of the proposed non ring-fenced bank, the potential for intra-group support, the expected loss for each instrument class under its advanced LGF analysis, as well as the likelihood of government support.

WHAT COULD MOVE THE RATINGS UP/DOWN

The ratings of HSBC Bank would be downgraded if, as expected, HSBC group's reorganization results in a concentration of capital markets activities and other wholesale activities within this entity. A downgrade of HSBC Bank's long-term deposits and senior unsecured debt ratings due to fundamental credit pressures could be mitigated, amongst others, by the following factors: 1) a higher-than-expected stock of more junior bail-in-able liabilities that would provide greater protection for the bank's junior depositors and senior unsecured creditors (2) a higher assumption of affiliate support than is presently incorporated and (3) an assumption of moderate government support translating into a one notch uplift (from the current no uplift, due to the proximity of these ratings to the United Kingdom Sovereign rating of Aa2).

An upgrade of HSBC Bank's ratings is unlikely, given that this entity is currently under review for downgrade. However, an upgrade of HSBC Bank's long-term deposit and senior unsecured debt ratings could occur if there were material reductions in its tangible banking assets, or further increases in the volume of loss-absorbing capital providing further protection to its creditors.

LIST OF AFFECTED RATINGS

Issuer: HSBC Bank plc

Placed On Review for Downgrade:

....LT Issuer Rating, currently Aa3, Outlook changed To Rating Under Review From Negative

....LT Bank Deposits, currently Aa3, Outlook changed To Rating Under Review From Negative

....Senior Unsecured Regular Bond/Debenture, currently Aa3, Outlook changed To Rating Under Review From Negative

....Subordinate, currently A3

....Junior Subordinate, currently Baa1 (hyb)

....Senior Unsecured MTN Program, currently (P)Aa3

....Junior Subordinate MTN Program, currently (P)Baa1

....Baseline Credit Assessment, currently baa1

....Adjusted Baseline Credit Assessment, currently a2

....LT Counterparty Risk Assessment, currently Aa2(cr)

Affirmations:

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

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

....Commercial Paper, Affirmed P-1

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

Outlook Actions:

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

Issuer: HSBC Bank Plc Sydney Branch

Placed On Review for Downgrade:

....LT Bank Deposits, currently Aa3, Outlook changed To Rating Under Review From Negative

....LT Counterparty Risk Assessment, currently Aa2(cr)

Affirmations:

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

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

Outlook Actions:

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

Issuer: HSBC Bank Capital Funding (Sterling 1) LP

Placed On Review for Downgrade:

....BACKED Pref. Stock Non-cumulative, currently Baa2 (hyb)

Outlook Actions:

....Outlook, changed To Rating Under Review from No outlook

Issuer: HSBC Bank Capital Funding (Sterling 2) L.P.

Placed On Review for Downgrade:

....BACKED Pref. Stock Non-cumulative, currently Baa2 (hyb)

Outlook Actions:

....Outlook, changed To Rating Under Review from No outlook

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in September 2017. 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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