DBRS Places HSBC USA, Inc. and HSBC Bank USA, NA Under Review with Negative Implications; Sr. at AA

DBRS, Inc. (DBRS) has today placed the ratings of HSBC USA Inc. (HUSI or the Company) and its banking subsidiary HSBC Bank USA, National Association (HBUS), including the Company’s Issuer & Senior Debt rating of AA, Under Review with Negative Implications. The ratings action follows DBRS’s placement of its ratings for HSBC Holdings plc (HSBC or the Group – rated AA (high)), HUSI’s and HBUS’s ultimate parent, Under Review with Negative Implications. Separately, DBRS has withdrawn its ratings on HUSI’s FDIC-guaranteed debt as this debt has been repaid.

The placement of HSBC’s ratings Under Review was driven by the combination of more detailed revelations of the Group’s historic missteps in relation to certain regulatory and legal issues, as well as the changed environment that poses greater challenges to HSBC’s franchise and credit fundamentals. Given HUSI’s position in HSBC’s global franchise, DBRS has assigned an SA1 designation to the Company, which implies strong and predictable support from the parent. As a supported rating with a SA1 designation, HUSI’s rating will move in tandem with HSBC’s rating.

The review will focus on HSBC Holdings plc’s prospects for ensuring that it delivers on improved controls to prevent future missteps. The review will also consider the evolving LIBOR/EURIBOR investigations and the more negative environment for large banking organizations. Among the consequences, HSBC’s organization and credit fundamentals could be impacted through increased compliance costs, added fees, limits on pay, increased capital requirements and ring-fencing that could disrupt the efficient operation of a global universal bank.

DBRS recognizes that HSBC has taken important steps to rectify these deficiencies with new leadership appointed in 2011 and the implementation of a more cohesive operating model including consistent global standards. Nevertheless, these changes take time to permeate an organization as large as HSBC that was previously run in a much more decentralized manner. Given the Group’s franchise that successfully reaches into many countries around the world, these changes are critical to ensure that risk is appropriately managed and proper controls are consistently applied across the Group’s extensive operations. At current ratings levels, DBRS’s tolerance for further problems is limited.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations. Other methodologies used include the DBRS Criteria – Intrinsic and Support Assessments. Both can be found on the DBRS website under Methodologies.

The sources of information used for this rating include company documents, DBRS’s ratings for HSBC Holdings plc, and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: Michael Schaller
Rating Committee Chair: Alan G. Reid
Initial Rating Date: October 11, 2005
Most Recent Rating Update: January 28, 2011

For additional information on this rating, please refer to the linking document under Related Research.