September 28, 2017 / 8:42 PM / 3 months ago

Fitch Affirms HSBC at 'AA-'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG/LONDON, September 28 (Fitch) Fitch Ratings has affirmed HSBC Holdings plc's Long-Term Issuer Default Rating (IDR) at 'AA-' with a Stable Outlook and its Viability Rating at 'aa-'. A full list of rating actions is available at the end of this commentary. KEY RATING DRIVERS IDRS, VIABILITY RATING AND SENIOR DEBT Fitch rates HSBC - a non-operating holding company subject to consolidated supervision in the UK - based on the financial strength of its operating banks and on HSBC's ability to set strategy, redistribute resources and manage its international network. HSBC's strong franchise and solid funding and liquidity positions remain key rating drivers. HSBC has deep access to financial markets, while its major subsidiaries have stable deposits and ample high-quality securities. The ratings also reflect HSBC's low risk appetite, solid capitalisation and reliable earnings over economic cycles. The ratings are not notched down for holding company considerations. Fitch sees HSBC's global trade-finance network, strong retail franchises in the UK and Hong Kong as well as its leading position as a foreign bank in China as key strengths. Its company profile has a high influence on its IDRs and Viability Rating. We expect HSBC's competitive position and financial profile to continue benefiting from its high level of diversification and for the company's global client coverage and business collaboration to benefit the intrinsic strength of its subsidiaries. These strengths should help the company withstand economic and competitive headwinds. The exceptionally strong and stable funding and liquidity profiles of HSBC and its major banks are a secondary rating driver. Strong global capital market access provides flexibility to the holding company, which complements its ability to source funding and liquidity from solid subsidiary balance sheets. HSBC's strong access to retail deposits in its two home markets is supported by its capacity to issue securities in various markets. Centrally and locally held liquidity portfolios, mostly in the form of government bonds, compare well with those of peers and the group's wholesale funding is well managed. We expect HSBC to accelerate growth in a disciplined manner and believe the bank is well positioned to mitigate risks associated with its expanding China-related exposure by avoiding certain high-risk sectors and targeting different client segments from Chinese banks. Asset quality has improved, as indicated by a consolidated non-performing loan ratio of 1.7% at end-1H17 (2016: 2.1%). We expect HSBC to maintain the ratio close to the peer median of about 1.5%. We see its capitalisation as sound and its reliable ability to generate earnings, which it can allocate across subsidiaries, supports our capital assessment. The company's strong consolidated capital ratios suggest that it should be well positioned to meet potential increases in required capital due to regulatory or accounting (eg IFRS9) reasons. The need to issue loss absorbing debt and capital for regulatory purposes increases the pressure on HSBC to deploy its already abundant liquidity. The Stable Outlook reflects our expectation that HSBC will apply disciplined underwriting standards and maintain a high-level of diversification in its operations. Fitch expects HSBC's earnings to remain steady and strong as it completes its five-year restructuring programme by end-2017, from which it is about to emerge as a better capitalised and less risky bank. Fitch believes that HSBC will continue to manage its liquidity well. We expect HSBC's unconsolidated balance sheet to further expand as the holding company issues loss absorbing debt and capital to allocate to its subsidiary banks. The double leverage of HSBC and the group of holding companies does not negatively affect HSBC's ratings and Fitch considers holding company liquidity as being prudently managed. The senior debt is rated at the same level as HSBC's Long-Term IDR, as it constitutes its unsecured and unsubordinated obligations. SUPPORT RATING AND SUPPORT RATING FLOOR HSBC's Support Rating of '5' and Support Rating Floor of 'No Floor' reflect Fitch's view that UK sovereign support for a holding company is unlikely. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital securities issued by HSBC are notched down from its Viability Rating to reflect varying degrees of loss severity (up to two notches) and incremental non-performance risk (up to three notches). As such, Fitch applied one notch from the Viability Rating to HSBC's Tier 2 securities (for loss severity), four notches to certain legacy Tier 1 securities (two for loss severity and two for incremental non-performance risk) and five notches where HSBC has full discretion over coupon omission, including its Additional Tier 1 (AT1) securities (two for loss severity and three for incremental non-performance risk). RATING SENSITIVITIES IDRS, VIABILITY RATING AND SENIOR DEBT HSBC's Viability Rating and IDRs are sensitive to the financial performance of HSBC and its subsidiaries. Fitch could downgrade HSBC's ratings if its financial flexibility declines due to weaker capital market access or if HSBC was unable to effectively redistribute capital. Outsized growth in any one sector or country, an unexpected widespread credit event or subdued earning prospects could be negative for the ratings. Steadily increasing China risk could lead to a downgrade if the portfolio's size and composition became misaligned with HSBC's ability to manage the risks. Any damage to HSBC's reputation or restrictions on its ability to conduct businesses, which could be due to the US authorities' decision to revoke the bank's deferred prosecution agreement, would pressure its ratings. Fitch's assessment of the operating environment constrains an upgrade of HSBC's ratings. The ratings could be affected by a significant change in the operating environment, including a sharp slowdown in China and the UK. Fitch could notch HSBC's IDRs and Viability Rating down from its consolidated assessment if, for example, double leverage exceeds 120% over a prolonged period or if holding company liquidity or liquidity management become less prudent. The senior debt ratings will likely move in tandem with the Long-Term IDR. SUPPORT RATING AND SUPPORT RATING FLOOR Changes to HSBC's Support Rating and Support Rating Floor are not foreseen, as Fitch does not expect external support being made available to the group's top holding company. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The issue ratings are primarily sensitive to changes in HSBC's Viability Rating. HSBC's AT1 securities are also sensitive to a change in Fitch's assessment of their non-performance probability relative to the risk captured in HSBC's Viability Rating. This could arise due to a change in Fitch's assessment of HSBC's conservative approach to capital management, reducing HSBC's flexibility to service the securities, or an unexpected shift in regulatory buffer requirements, for example. Full list of rating action: HSBC Holdings plc Long-Term IDR affirmed at 'AA-'; Outlook Stable Short-Term IDR affirmed at 'F1+' Viability Rating affirmed at 'aa-' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No Floor' Senior unsecured long-term debt affirmed at 'AA-' Senior unsecured short-term debt affirmed at 'F1+' Subordinated debt affirmed at 'A+' Contingent convertible securities and preference shares affirmed at 'BBB' Other preference shares and capital securities affirmed at 'BBB+' Contact: Primary Analyst Sabine Bauer Senior Director +852 2263 9966 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road, Central Hong Kong Secondary Analyst Christian Scarafia Senior Director +44 20 3530 1012 Committee Chairperson James Longsdon Managing Director +44 20 3530 1076 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below