Fitch Affirms HSBC USA at 'AA-' and HSBC Finance at 'A+'; Outlook Remains Stable

  Fitch Affirms HSBC USA at 'AA-' and HSBC Finance at 'A+'; Outlook Remains
  Stable

Business Wire

NEW YORK -- March 26, 2014

Fitch Ratings has affirmed HSBC USA Inc.'s (HUSI) and subsidiary, HSBC Bank
USA's (HBUS), Issuer Default Ratings (IDR) and Viability Ratings (VR) at 'AA-'
and 'a-', respectively. HSBC Finance Corp.'s (HBIO) IDR was affirmed at 'A+'.
Fitch does not maintain a VR on HBIO, as it does not view the company as a
stand-alone entity.

HUSI's, HBUS's and HBIO's IDRs were affirmed in conjunction with the
affirmation of its parent company, HSBC Holdings plc (HSBC). For additional
information, please see the press release 'Fitch Affirms HSBC Holdings, HSBC
Bank, and HK Subsidiaries at 'AA-'; Outlook Stable', dated March 26, 2014. A
complete list of rating actions follows at the end of this release.

Today's rating actions assume that HSBC North America Holdings Inc. (HNAH)
will perform adequately under the CCAR stress test, though Fitch has no
visibility into any potential qualitative rejections for HNAH, or any of the
other 29 banks subject to regulatory stress testing. Although a qualitative
rejection of a capital plan request under CCAR would be viewed negatively, it
is not expected to have any rating implications for HUSI.

KEY RATING DRIVERS - IDRS

As wholly owned subsidiaries of HSBC, HUSI's and HBIO's long- and short-term
IDRs are linked to those of their parent company. As per Fitch's rating
criteria, the difference in notching reflects Fitch's view of varying levels
of operational importance and expected support. HUSI's IDR is equalized with
HSBC at 'AA-', reflecting its core operations to the HSBC Group. HBIO's IDR is
notched once below HSBC at 'A+', reflecting Fitch's view that HSBC would
continue to provide support for reputational considerations, even though HBIO
is in run-off. As supported entities, HUSI's and HBIO's IDRs will move in
tandem with HSBC.

RATING SENSITIVITIES - IDRS

As previously mentioned, HUSI's and HBIO's IDRs are linked to those of their
parent. As such, their IDRs will likely be affected by any changes to the
ratings of HSBC itself. In addition, although not anticipated, any changes to
their strategic importance as indicated for example through ownership, level
of integration or their role in the group would also prompt a review of the
ratings.

KEY RATING DRIVERS - VRS

The affirmation of HUSI's VR reflects its franchise strength, strong
risk-adjusted capital levels and robust liquidity. As a result of its
affiliation with the HSBC group, Fitch considers HUSI to have strong brand
recognition in the niche market of internationally minded retail and
commercial clients. Fitch also views HUSI's renewed focus on this core-market
positively as the company has continued to effectively reduce exposure to
non-key markets.

Fitch notes that HUSI has one of the strongest liquidity profiles among
Fitch's large regional peer group. Loans-to-deposits have remained just above
60% since 2011, while peers average mid-80%. HUSI's investment portfolio
totals 40% of total assets at end-2013 with the vast majority of investments
in low risk securities such as treasuries, government agencies, and agency
mortgage backed securities. Cash and equivalents also represent a higher
portion of assets than peers at 12% of total assets at end-2013, further
bolstering the bank's liquidity profile.

Fitch considers HUSI's capital levels to be strong with risk-based capital
metrics well above peers, benefiting from the bank's high securities holdings
leading to low total risk weighted assets. The bank has also maintained a
healthy Fitch Core Capital Ratio of 11%, despite increased legal expenses and
accelerated credit costs related to its balance sheet de-risking over the past
several quarters. Although HUSI has a lower tangible common equity ratio than
similarly rated peers, Fitch views HUSI's current level as sufficient given
the bank's relatively low risk profile and containment of legacy asset quality
issues.

Asset quality has continued to improve since last review with nonperforming
assets totalling 3.33% of loans and other real estate owned (OREO) for the
fourth quarter of 2013 (4Q'13), down from 4.08% at 4Q'12. HUSI's legacy
residential portfolio continues to drag on the overall loan portfolio with
almost 80% of nonaccrual loans in 1-4 family residential loans.

These strengths are counterbalanced by the company's weak earnings profile
relative to large regional U.S. banking peers. HUSI's preference for liquidity
and aversion to risk continue to negatively impact the company's earnings
profile. HUSI's net interest margin is lower than similarly rated peers.
Moreover, earnings continue to be challenged by non-recurring regulatory and
compliance costs. Fitch's current ratings incorporate continued earnings
pressure from its higher concentration of low yielding assets and elevated
operational and litigation expenses.

RATING SENSITIVITIES - VRS

HUSI's ratings are sensitive to the bank's ability to maintain its relatively
conservative levels of capital and liquidity. Aggressive commercial loan
growth or asset quality deterioration may result in a negative credit action.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

Fitch considers HUSI to be a core operating entity of the HSBC Group, and as
such, considers institutional support from its ultimate parent to be extremely
high. In determining HUSI's importance, Fitch viewed HUSI's strategic
initiatives to be in line with those of its parent, potential for disposal
from its parent to be extremely limited, and reputational risk to HSBC
resulting from default by HUSI to be high.

Despite the entity being in run-off, Fitch views HBIO as strategically
important to the HSBC and considers the probability of institutional support
to be high. This view is underpinned by the high level of reputation risk to
HSBC in the event default and precedent of support already established.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

As discussed, HUSI's and HBIO's Support Ratings reflect Fitch's views on the
probability of support from the parent company, HSBC. Therefore, any changes
to HUSI's or HBIO's strategic importance as indicated for example through
ownership, level of integration, or their role under HSBC would prompt a
review of the ratings

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and hybrid capital instruments issued by HUSI are notched
down from the IDR. The ratings of subordinated debt and hybrid securities are
typically sensitive to any change in the bank's VR. However, given the high
level of institutional support, issue ratings are notched from HUSI's IDR as
support from the parent is presumed.

Subordinated debt and hybrid capital instruments issued by HSBC Finance are
notched down from the IDR. Fitch does not maintain a VR on the unit as Fitch
does not view the company as a stand-alone entity.

HOLDING COMPANY RATING DRIVERS

HBUS is a wholly owned subsidiary of the bank holding company (BHC), HUSI.
HUSI's and HBUS's IDRs and VRs are equalized, reflecting the mandate in the
U.S. for BHC's to act as a source of strength for its bank subsidiaries.

Fitch has taken the following rating actions:

HSBC USA Inc.

--Long-term IDR affirmed at 'AA-'; Outlook Stable;

--Short-term IDR affirmed at 'F1+';

--Viability Rating affirmed at 'a-'.

--Support Rating affirmed at '1';

--Commercial paper affirmed at 'F1+'

--Preferred stock affirmed at 'BBB+';

--Senior debt affirmed at 'AA-';

--Subordinated debt affirmed at 'A+'.

HSBC Bank USA, National Association

--Long-term IDR affirmed at 'AA-'; Outlook Stable;

--Short-term IDR affirmed at 'F1+';

--Viability Rating affirmed at 'a-'.

--Support Rating affirmed at '1';

--Long-term deposits affirmed at 'AA';

--Market linked deposits affirmed 'AAemr';

--Senior debt affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Subordinated debt affirmed at 'A+'.

HSBC Capital Trust I

--Preferred stock affirmed at 'BBB+'.

HSBC Capital Trust II

--Preferred stock affirmed at 'BBB+'.

HSBC Capital Trust III

--Preferred stock affirmed at 'BBB+'.

HSBC Finance Corporation

--Long-term IDR affirmed at 'A+'; Outlook Stable;

--Short-term IDR affirmed at 'F1';

--Support Rating affirmed at '1';

--Commercial paper affirmed at 'F1';

--Senior debt affirmed at 'A+';

--Subordinated debt affirmed at 'A'.

Beneficial Corporation

--Senior debt affirmed at 'A+'.

HSBC Finance Capital Trust IX

--Preferred stock affirmed at 'BBB'.

HFC Bank Limited

--Long-term IDR affirmed at 'A+'; Outlook Stable

--Short-term IDR affirmed at 'F1'

--Support Rating affirmed at '1';

--Senior debt affirmed at 'A+';

--Senior debt E-medium-term notes affirmed at 'A+';

--Senior debt medium-term notes affirmed at 'A+'.

Fitch will hold a teleconference to discuss sovereign support for banks and
give an update on rating paths on Friday, March 28 at 15:00 GMT.

Callers must register in advance using the link below and are requested to
dial in early:

http://event.onlineseminarsolutions.com/r.htm?e=773507&s=1&k=E99B5BCE23C11883F75DA40C4B1FED21

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Jan. 31 2014);

--'Rating FI Subsidiaries and Holding Companies' (Jan. 31 2014);

--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 5,
2012);

--'Bank Support: Likely Rating Paths' (Sept. 11, 2013);

--'The Evolving Dynamics of Support for Banks' (Sept. 11, 2013).

Applicable Criteria and Related Research:

The Evolving Dynamics of Support for Banks

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715000

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

Bank Support: Likely Rating Paths

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715001

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825152

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Contact:

Fitch Ratings
Primary Analyst
Ryan Doyle, +1-212-908-0500
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Christopher Wolfe, +1-212-908-0771
Managing Director
or
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Managing Director
or
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