DBRS Confirms HSBC Finance Corporation’s Senior Unsecured Debt at A (low), Trend Stable

DBRS, Inc. (DBRS) has today confirmed the Senior Debt ratings of HSBC Finance Corporation (HSBC Finance) at A (low). The trend on the rating is Stable. Furthermore, the ratings have been removed from Under Review with Negative Implications, where they were placed on May 20, 2015. Today’s rating action follows DBRS’s downgrade of the ratings of HSBC Holdings plc (HSBC or the Group), HSBC Finance’s ultimate parent to AA (low) from AA.

Today’s rating actions are driven by DBRS, Inc. and DBRS Ratings Limited, collectively DBRS, having downgraded the senior debt and deposit ratings of a number of banking groups in Europe, including HSBC Holdings plc, that had previously benefited from some uplift for systemic support. These rating actions conclude the review that was initiated on May 20, 2015 and reflect DBRS’s view that developments in European regulation and legislation mean that there is less certainty about the likelihood of timely systemic support.

The Stable trend reflects that of the Group and that the continuing gradual recovery in the U.S. housing market will continue to benefit HSBC Finance as it seeks to accelerate the wind down of its legacy mortgage portfolio through the sales of mortgages.

The ratings of HSBC Finance reflect the ownership structure and the continuing operational and financial support provided by the Company’s ultimate parent HSBC. With today’s rating action DBRS has narrowed the notching between HSBC and HSBC Finance recognizing the substantial progress made to date in running down the troubled legacy mortgage portfolio, and the reduced overall burden to HSBC that HSBC Finance represents. Importantly, HSBC Group continues to publicly state that it has the capacity and willingness to provide all necessary support to the Company as it runs-off its real estate secured receivables portfolio and repays its debt as it matures. The benefits of the positioning within the HSBC family allows for significant uplift to the final ratings of HSBC Finance. Yet, the ratings are placed below those of the parent, reflecting the absence of an explicit guarantee of HSBC Finance’s obligations by HSBC, as well as DBRS’s view that HSBC Finance is non-core to Group with the business in run-off mode. As a result of DBRS’s view that Group would support the Company, if needed, DBRS continues to assign an SA1 designation to HSBC Finance. As a supported rating with a SA1 designation the ratings of HSBC Finance will likely move in tandem with HSBC Holdings rating.

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

The principal applicable methodology is the Global Methodology for Rating Finance Companies (October 2014). Other applicable methodologies include the Global Methodology for Rating Banks and Banking Organisations (June 2015) and DBRS Criteria – Support Assessments for Banks and Banking Organisations (March 2015). These can be found at: http://www.dbrs.com/about/methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: David Laterza
Rating Committee Chair: Roger Lister
Initial Rating Date: 16 May 2001
Most Recent Rating Update: 20 May 2015

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