New York, August 18, 2021 -- Moody's Investors Service (Moody's) today upgraded the senior debt ratings
of HSBC USA Inc. (HSBC USA, senior unsecured to A1 from A2),
and HSBC USA's provisional subordinated and preferred stock ratings
and the subordinated debt rating of HSBC USA Inc.'s bank
subsidiary, HSBC Bank USA, N.A. (subordinated
to Aa3 from A1). The ratings were placed on review for possible
upgrade on 12 July 2021. At the same time the rating agency has
affirmed the baa2 baseline credit assessment (BCA) and a3 adjusted BCA
for HSBC Bank USA, N.A. All other ratings of HSBC
USA and HSBC Bank USA are unaffected by this action. The outlook
is stable.
A complete list of affected ratings and assessments 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 bank's strong liquidity position and sound capitalization which help
offset ongoing profitability challenges. The HSBC group (HSBC Holdings
plc, A3 stable, a3 notional BCA) is in the midst of a strategic
repositioning of its US operations, intended to boost its profitability
and reduce its capital intensity. However, the costs to achieve
this restructuring are substantial, and the bank has more than doubled
its estimate of these costs since the strategy was first announced in
early 2020. Management expects the repositioning to reduce the
capital markets activities at HSBC USA and the bank's reliance on
market funding. The plan is intended to allow for the repatriation
of a significant amount of capital to the group over the next several
years, but the rating agency noted that 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.
The affirmation of the a3 adjusted BCA reflects Moody's view that
there is a very high probability that HSBC Holdings plc would provide
support to HSBC Bank USA in case of need. 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 capital markets,
Moody's considers HSBC Bank USA, as the sole US banking operation
of the HSBC group, to be a strategically vital part of the parent's
global franchise. This reflects support has been demonstrated in
the form of periodic capital contributions over many decades.
The upgrades of the long-term ratings of HSBC USA Inc. and
the subordinated debt ratings of HSBC Bank USA reflect the outcome of
Moody's advanced loss given failure (LGF) analysis following the
placement of those ratings on review for upgrade on 12 July 2021.
Moody's expects that HSBC Bank USA, N.A. and
HSBC USA Inc. will be resolved in a unified manner alongside their
immediate parent, HSBC's US intermediate holding company (IHC)
HSBC North America Holdings Inc. (HNAH), and their ultimate
parent HSBC Holdings.. To reflect this, the rating
agency's advanced LGF analysis includes the instruments issued directly
or indirectly by HNAH to HSBC Holdings plc to comply with regulatory requirements
for internal loss absorbing capacity (ILAC) as well as including all tangible
banking assets under HNAH within HSBC USA's resolution perimeter.
Moody's also uses a firmwide loss rate assumption for HSBC USA of
8%, reflecting the rating agency's view that a group-wide
resolution coordinated in a unified manner would also result in a more
orderly going-concern resolution for HSBC USA.
Moody's expects that over the next few years, HSBC USA's
exit from the mass market retail business and the completion of the group's
strategic repositioning of its US operations will result in a modest reduction
in HNAH's tangible banking assets. However, this is
unlikely to result in any reduction in the amount of ILAC debt outstanding
at HNAH given the Federal Reserve's IHC TLAC requirements and the
firm's announced intention to repatriate a significant amount of
excess capital to HSBC Holdings plc, subject to regulatory approval.
Based on this consideration, the rating agency's advanced
LGF analysis indicates that the outstanding volume of internal loss absorbing
capacity issued by HNAH indirectly to HSBC Holdings plc will be sufficient
to warrant a one notch upgrade for the ratings on the more junior instruments
at HSBC USA Inc. and HSBC Bank USA., reflecting a
likely lower severity of loss for those instruments in the event of the
bank's failure.
Moody's said the rating outlook for HSBC USA and HSBC Bank USA is
stable, reflecting the stable outlook for HSBC Holdings plc as well
as the offsetting considerations that while HSBC USA's strategic
repositioning could be credit positive if executed successfully,
the firm also faces sizeable near-term costs to achieve.
In addition, the associated execution risks are significant and
if not executed successfully, the repositioning could lead to a
loss of customers and continued profitability pressures.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings of HSBC USA Inc. and HSBC Bank USA could be upgraded
following an upgrade of the BCA of HSBC Holdings plc. While the
BCA of HSBC Bank USA could be upgraded if HSBC USA's profitability
were to significantly improve without compromising the bank's good
asset quality, capitalization or liquidity, this might not
lead to an upgrade of the ratings unless also accompanied by an upgrade
of HSBC Holdings plc.
The ratings of HSBC USA Inc. and HSBC Bank USA could be downgraded
following 1) a downgrade of the notional BCA of HSBC Holdings plc or a
reduction in Moody's assessment of affiliate support from HSBC Holdings,
2) a reduction in the volume of ILAC outstanding or an increase in tangible
banking assets at HNAH, reducing the loss absorbing capacity of
those instruments and increasing the likely severity of loss on HSBC USA's
rated debt obligations in the event of a failure, or 3) a downgrade
of HSBC Bank USA's BCA. The BCA could be downgraded due to a reduction
in the bank's capitalization or liquidity absent an offsetting sustainable
improvement in profitability and asset risk.
Upgrades:
..Issuer: HSBC Bank USA, N.A.
....Subordinate Bank Note Program (Local Currency),
Upgraded to (P)Aa3 from (P)A1
....Subordinate Regular Bond/Debenture (Local
Currency), Upgraded to Aa3 from A1
..Issuer: HSBC USA Inc.
....Senior Unsecured Shelf (Local Currency),
Upgraded to (P)A1 from (P)A2
....Subordinate Shelf (Local Currency),
Upgraded to (P)A2 from (P)A3
....Pref. Shelf (Local Currency),
Upgraded to (P)A3 from (P)Baa1
....Pref. shelf Non-cumulative
(Local Currency), Upgraded to (P)Baa1 from (P)Baa2
....Senior Unsecured MTN (Local Currency),
Upgraded to (P)A1 from (P)A2
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Upgraded to A1 from A2, Stable from Ratings
Under Review
..Issuer: Republic New York Corporation
....Subordinate Regular Bond/Debenture (Local
Currency), Upgraded to A2 from A3 (Assumed by HSBC USA Inc.)
Affirmations:
..Issuer: HSBC Bank USA, N.A.
.... Adjusted Baseline Credit Assessment,
Affirmed a3
.... Baseline Credit Assessment, Affirmed
baa2
Outlook Actions:
..Issuer: HSBC Bank USA, N.A.
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: HSBC USA Inc.
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Republic New York Corporation
....Outlook, Changed To No Outlook From
Rating Under Review
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.
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
Andrea Usai
Associate Managing Director
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
