Action follows review for downgrade on HSBC Holdings Plc's A2 senior unsecured debt rating and a2 notional BCA
New York, March 09, 2021 -- Moody's Investors Service, ("Moody's") today
placed on review for downgrade all of the ratings of HSBC USA Inc.
(HSBC USA, A2 senior unsecured, Prime-1 commercial
paper) and the long-term ratings of its bank subsidiary,
HSBC Bank USA, N.A. (HSBC Bank USA, Aa2 deposits,
Aa3 senior unsecured). The a2 Adjusted Baseline Credit Assessment
(BCA) and the Aa3(cr) Counterparty Risk Assessment of HSBC Bank USA were
also placed on review, while the baa2 standalone BCA and the Prime-1
short-term ratings and assessments of HSBC Bank USA were affirmed.
The rating action follows Moody's announcement on 8 March 2021 that
it has placed on review for downgrade the A2 senior unsecured debt rating
and the a2 notional BCA of HSBC USA's ultimate parent, HSBC
Holdings plc (HSBC Holdings), reflecting its weaker profitability
compared with other banks with the same BCA, and the challenges
that the group faces to improve its profitability. In February
2021 HSBC Holdings published a strategic update which also included the
group's announcement that it is exploring both organic and inorganic
options in considering an exit from US retail banking.
A complete list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
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. Given
the relatively small size of the US retail banking franchise, which
Moody's estimates includes at most roughly $25 billion in
deposits, the rating agency does not expect the exit will have much
impact on the bank's strong liquidity position. And given
the loss-making nature of that business, Moody's expects
that the exit could potentially lead to modest improvements in HSBC USA's
profitability over the medium term. Furthermore, the rating
agency noted that despite its plans to exit the US retail business,
management has indicated no legal entity is expected to be sold as a part
of that exit, which should limit the potential adverse impact of
the exit for HSBC USA's creditors. Moody's noted that
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.
HSBC USA's and HSBC Bank USA's ratings currently benefit from three
notches of uplift due to affiliate support, which lifts the adjusted
BCA at HSBC Bank USA to a2 from a standalone BCA of baa2. This
reflects Moody's view that 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.
In addition, 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 the US capital markets, Moody's considers
HSBC Bank USA to be a strategically vital part of the parent's global
franchise. The rating agency does not expect this to change following
HSBC's exit from US retail banking, and notes that group management
has indicated that the US international corporate business and wealth
management platform remain a key focus for the group.
Although Moody's expects the willingness of HSBC Holdings to support
HSBC USA will remain very high, a lowering of HSBC Holding's
notional BCA of a2 would indicate a lower capacity to support HSBC Bank
USA in case of need. This would likely lead to a downgrade of HSBC
Bank USA's adjusted BCA and a corresponding downgrade of all the
long-term ratings of HSBC Bank USA and HSBC USA Inc. The
review for downgrade will therefore consider the potentially negative
implications for creditors of HSBC USA and HSBC Bank USA were the notional
BCA of HSBC Holdings to be downgraded.
The review will also consider whether a sale of the US retail business
could lead to a change in the long-term debt levels at HSBC USA
or HSBC North America Holdings Inc. While the debt levels at HSBC
USA and HSBC Bank USA have declined over the past year as deposits have
increased, the debt levels at its parent US intermediate holding
company, HSBC North America Holdings Inc., have remained
unchanged. To the extent that the debt levels at either entity
decline, it could potentially reduce the amount of uplift currently
incorporated into the ratings of HSBC USA and HSBC Bank USA under Moody's
advanced Loss Given Failure (LGF) analysis.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings of HSBC USA and 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
notional BCA of HSBC Holdings plc is confirmed at a2.
The ratings of HSBC USA and HSBC Bank USA could be downgraded for any
of the following reasons: 1) a lowering of the BCA of HSBC Holdings
plc, 2) a reduction in our expectation of parental support from
HSBC Holdings; 3) a reduction in the amount of subordinated or holding
company debt outstanding that would be available to absorb losses in the
event of failure, unless accompanied by a commensurate reduction
in tangible banking assets, and/or 4) 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 or an increased reliance on marketing
funding.
LIST OF AFFECTED RATINGS
On Review for Downgrade:
..Issuer: HSBC USA Inc.
....Commercial Paper, Placed on Review
for Downgrade, currently P-1
....Senior Unsecured Medium-Term Note
Program, Placed on Review for Downgrade, currently (P)A2
....Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently A2, Rating Under
Review from Negative
....Pref. Shelf, Placed on Review
for Downgrade, currently (P)Baa1
....Pref. Shelf Non-cumulative,
Placed on Review for Downgrade, currently (P)Baa2
....Senior Unsecured Shelf, Placed on
Review for Downgrade, currently (P)A2
....Subordinate Shelf, Placed on Review
for Downgrade, currently (P)A3
..Issuer: HSBC Bank USA, N.A.
....Adjusted Baseline Credit Assessment,
Placed on Review for Downgrade, currently a2
....Senior Unsecured Bank Note Program,
Placed on Review for Downgrade, currently (P)Aa3
....Subordinate Bank Note Program, Placed
on Review for Downgrade, currently (P)A1
....LT Counterparty Risk Assessment,
Placed on Review for Downgrade, currently Aa3(cr)
....LT Counterparty Risk Rating (Local Currency),
Placed on Review for Downgrade, currently Aa3
....LT Counterparty Risk Rating (Foreign Currency),
Placed on Review for Downgrade, currently Aa3
....LT Issuer Rating, Placed on Review
for Downgrade, currently Aa3, Rating Under Review from Negative
....Senior Unsecured Regular Bond/Debenture,
Placed on Review for Downgrade, currently Aa3, Rating Under
Review from Negative
....Subordinate Regular Bond/Debenture,
Placed on Review for Downgrade, currently A1
....LT Bank Deposits, Placed on Review
for Downgrade, currently Aa2, Rating Under Review from Negative
..Issuer: Republic New York Corporation
....Backed Subordinate Regular Bond/Debenture,
Placed on Review for Downgrade, currently A3
Affirmations:
..Issuer: HSBC Bank USA, N.A.
....Baseline Credit Assessment, Affirmed
baa2
....ST Bank Note Program, Affirmed (P)P-1
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
....ST Counterparty Risk Rating (Local Currency),
Affirmed P-1
....ST Counterparty Risk Rating (Foreign Currency),
Affirmed P-1
....ST Bank Deposits, Affirmed P-1
Outlook Actions:
..Issuer: HSBC USA Inc.
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: HSBC Bank USA, N.A.
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Republic New York Corporation
....Outlook, Changed To Rating Under
Review From No Outlook
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
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
