- Oops!Something went wrong.Please try again later.
Rating Action: Moody's affirms HSBC Bank Canada's A3 long-term deposit and issuer ratings following review for downgrade of HSBC Holdings plc; outlook remains stableGlobal Credit Research - 09 Mar 2021 Toronto, March 09, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the A3 long-term issuer and deposit ratings and the baa2 Baseline Credit Assessment (BCA) of HSBC Bank Canada (HBC). Moody's has also affirmed the a3 adjusted BCA; the local and foreign currency long- and short-term Counterparty Risk Ratings (CRR) of A2 and Prime-1, respectively; the long- and short-term Counterparty Risk Assessments (CRA) of A2(cr) and Prime-1(cr) respectively; as well as local and foreign currency short-term deposit ratings at Prime-2. Today's rating action follows the rating action on HSBC Bank Canada's affiliate support provider, HSBC Holdings plc (HSBCH, senior unsecured at A2, under review for downgrade), on 8 March 2021 (https://www.moodys.com/research/Moodys-places-HSBC-Holdings-A2-senior-unsecured-debt-ratings-on--PR_441600), which placed ratings on review for downgrade. The ratings outlook for HBC remains stable, reflecting Moody's unchanged assessment of the ability and willingness of extraordinary support from HSBCH, as currently incorporated in two notches of uplift in the adjusted BCA. It also reflects the rating agency's view that the uncertainty surrounding the coronavirus pandemic is offset by from the bank's credit fundamentals as expressed in its baa2 BCA. RATINGS RATIONALE Moody's said that HBC's baa2 BCA and its ratings reflect the benefits to its creditors from the bank's national retail lending and branch franchise, and broadly diversified wholesale loan book. Moody's believes HBC's loan performance has benefited from government stimulus during the coronavirus outbreak and the bank's proactive steps in recent years to reduce its risk profile. HBC's consumer lending portfolio has also been supported by stronger real estate underwriting because of effective policy initiatives on the part of national and provincial governments over the past several years. HBC's reduction of its oil and gas risk exposures is also credit positive to the assessment of its asset quality. HBC's credit strengths are partly offset by the challenges arising from its concentration in commercial real estate as compared to its capital base, which, based on the latest available data from HBC, was 1.5 times HBC's Common Equity Tier 1 (CET1) capital as of 31 December 2020. In addition, HBC's profitability has been typically lower than its large Canadian peers and not been a credit strength. The bank's capitalization increased during 2020 with a CET1 ratio of 13.7% at 31 December 2020 versus 11.3% at 31 December 2019, resulting in greater capacity to absorb unexpected losses. This increase was largely because of a CAD500 million capital injection from HSBCH, as noted in the bank's first quarter financial data . Moody's believes the bank's recent capital accumulation has been a temporary prudent effort to build buffers for unexpected loss during the coronavirus pandemic rather than a permanent increase and that capital levels will return to a level closer to that of the beginning of 2020 after economic recovery takes hold. HBC's ratings incorporate Moody's assumption of a very high probability of support from HSBCH, reflecting its role as a strategically important subsidiary for the parent's global franchise. This assessment currently results in two notch uplift of affiliate support, which is reflected in HBC's a3 adjusted BCA from its baa2 BCA. In the event of a deterioration in HSBCH's credit strength, as reflected in its BCA, affiliate support uplift, and therefore HBC's adjusted BCA, could fall. However, Moody's does not expect a downgrade in the BCA of HSBCH to result in a change in the level of affiliate support under the rating agency's current support assumptions and the BCA levels of both HBC and HSBCH. As noted, this is reflected in the stable outlook in HBC's ratings. Moody's considers HBC as a deposit-taking institution not subject to an Operational Resolution Regime. As such, Moody's believes its senior operating obligations and other contractual commitments are not likely to default at the same time in a bank failure and will more likely be preserved to minimize banking system contagion, minimize losses, and avoid disruption of critical functions. For this reason, Moody's positions the CRR one notch above the adjusted BCA and above the senior unsecured deposit ratings, reflecting its view that the bank's probability of default is lower than the probability of failure. The stable outlook also reflects Moody's expectation that HBC will maintain capital levels at pre-pandemic levels and asset quality will not weaken beyond the rating agency's expectations over the next 12-18 months.The following actions were taken:Affirmation:Issuer: HSBC Bank Canada. Baseline Credit Assessment at baa2. Adjusted Baseline Credit Assessment at a3. Local currency Issuer rating of A3, outlook stable.. Local currency and foreign currency Long-term deposit rating of A3, outlook stable.. Local currency and foreign currency short-term deposit rating of Prime-2.. Long-term Counterparty Risk Assessment of A2(cr).. Short-term Counterparty Risk Assessment of Prime-1(cr).. Local currency and foreign currency Long-term Counterparty Risk Rating of A2.. Local currency and foreign currency Short-term Counterparty Risk Rating of Prime-1. Outlook actions: Outlook, remains Stable FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS HBC's BCA could be upgraded if: (1) Moody's were to assess lower concentration risks in energy and commercial real estate, and/or (2) the bank maintains elevated levels of capital for a prolonged period, providing greater protection to its creditors. Further diversification of its banking franchise that results in a higher level of profitability and reduced earnings volatility will also be positive for the BCA. However, an upgrade of the BCA is unlikely to result in a higher adjusted BCA and ratings because HBC's adjusted BCA is driven by the financial strength of its parent, as expressed by HSBCH's a2 BCA, under Moody's Joint-Default Analysis. A higher adjusted BCA and ratings could result from an improvement in HSBCH's credit profile or if Moody's were to increase its affiliate support assumptions. HBC's BCA could be downgraded if either its credit quality or capital deteriorate and/or profitability declines materially. As noted, HBC's adjusted BCA is driven by the financial strength of its parent under Moody's Joint-Default Analysis. In the event of both a downgrade of HSBCH's BCA as well as HBC's BCA, HBC's ratings would likely fall under Moody's current affiliate support assumptions. The stable outlook for HBC indicates that its ratings would remain unchanged following a one-notch downgrade of HSBCH's ratings, which are currently on review for downgrade. However, a weakening of Moody's affiliate support assumptions could also result in a rating downgrade for HBC. HSBC Bank Canada is the Canadian subsidiary of HSBC Holdings plc and is based in Vancouver, British Columbia, Canada with assets of CAD117 billion as at 31 December 2020. The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. REGULATORY DISCLOSURES For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004. For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406. The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com. The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com. REFERENCES/CITATIONS Company interim report 31 December 2020 Company interim report 31 March 2020Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Jason Mercer Vice President - Senior Analyst Financial Institutions Group Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 M. Celina Vansetti-Hutchins MD - Banking Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.