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  ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.  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 Committee Chairperson Gordon Scott, +44 20 3530 1075 Managing Director or Media Relations Brian Bertsch, New York, +1-212-908-0549 brian.bertsch@fitchratings.com  
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