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Rating Action: Moody's reviews for downgrade the ratings of HSBC USA (A2 senior) and HSBC Bank USA (Aa2 deposits)Global Credit Research - 09 Mar 2021Action follows review for downgrade on HSBC Holdings Plc's A2 senior unsecured debt rating and a2 notional BCANew York, March 09, 2021 -- Moody's Investors Service, ("Moody's") today placed on review for downgrade all of the ratings of HSBC USA Inc. (HSBC USA, A2 senior unsecured, Prime-1 commercial paper) and the long-term ratings of its bank subsidiary, HSBC Bank USA, N.A. (HSBC Bank USA, Aa2 deposits, Aa3 senior unsecured). The a2 Adjusted Baseline Credit Assessment (BCA) and the Aa3(cr) Counterparty Risk Assessment of HSBC Bank USA were also placed on review, while the baa2 standalone BCA and the Prime-1 short-term ratings and assessments of HSBC Bank USA were affirmed.The rating action follows Moody's announcement on 8 March 2021 that it has placed on review for downgrade the A2 senior unsecured debt rating and the a2 notional BCA of HSBC USA's ultimate parent, HSBC Holdings plc (HSBC Holdings), reflecting its weaker profitability compared with other banks with the same BCA, and the challenges that the group faces to improve its profitability. In February 2021 HSBC Holdings published a strategic update which also included the group's announcement that it is exploring both organic and inorganic options in considering an exit from US retail banking.A complete list of affected ratings can be found at the end of this press release.RATINGS RATIONALEMoody's said the affirmation of HSBC Bank USA's baa2 standalone BCA reflects the US bank's strong liquidity position and sound capital ratios which help offset ongoing profitability challenges. Given the relatively small size of the US retail banking franchise, which Moody's estimates includes at most roughly $25 billion in deposits, the rating agency does not expect the exit will have much impact on the bank's strong liquidity position. And given the loss-making nature of that business, Moody's expects that the exit could potentially lead to modest improvements in HSBC USA's profitability over the medium term. Furthermore, the rating agency noted that despite its plans to exit the US retail business, management has indicated no legal entity is expected to be sold as a part of that exit, which should limit the potential adverse impact of the exit for HSBC USA's creditors. Moody's noted that although the group's strategic plan contemplates the repatriation of a significant amount of capital out of the US business over the next several years, this has been anticipated for some time, and this is unlikely to occur until the US banking regulators are satisfied with the progress HSBC has made in enhancing its controls and reducing the risk profile of its US operations.HSBC USA's and HSBC Bank USA's ratings currently benefit from three notches of uplift due to affiliate support, which lifts the adjusted BCA at HSBC Bank USA to a2 from a standalone BCA of baa2. This reflects Moody's view that there is a very high probability that HSBC Holdings would provide support to HSBC Bank USA in case of need. This support has been demonstrated in the form of periodic capital contributions over many decades.In addition, given the importance of US dollar clearing to HSBC's global transaction services business, as well as the size and importance of the US economy and the US capital markets, Moody's considers HSBC Bank USA to be a strategically vital part of the parent's global franchise. The rating agency does not expect this to change following HSBC's exit from US retail banking, and notes that group management has indicated that the US international corporate business and wealth management platform remain a key focus for the group.Although Moody's expects the willingness of HSBC Holdings to support HSBC USA will remain very high, a lowering of HSBC Holding's notional BCA of a2 would indicate a lower capacity to support HSBC Bank USA in case of need. This would likely lead to a downgrade of HSBC Bank USA's adjusted BCA and a corresponding downgrade of all the long-term ratings of HSBC Bank USA and HSBC USA Inc. The review for downgrade will therefore consider the potentially negative implications for creditors of HSBC USA and HSBC Bank USA were the notional BCA of HSBC Holdings to be downgraded.The review will also consider whether a sale of the US retail business could lead to a change in the long-term debt levels at HSBC USA or HSBC North America Holdings Inc. While the debt levels at HSBC USA and HSBC Bank USA have declined over the past year as deposits have increased, the debt levels at its parent US intermediate holding company, HSBC North America Holdings Inc., have remained unchanged. To the extent that the debt levels at either entity decline, it could potentially reduce the amount of uplift currently incorporated into the ratings of HSBC USA and HSBC Bank USA under Moody's advanced Loss Given Failure (LGF) analysis.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings of HSBC USA and HSBC Bank USA are currently on review for downgrade; an upgrade of the ratings is therefore unlikely. The ratings could be confirmed at the conclusion of the review if the notional BCA of HSBC Holdings plc is confirmed at a2.The ratings of HSBC USA and HSBC Bank USA could be downgraded for any of the following reasons: 1) a lowering of the BCA of HSBC Holdings plc, 2) a reduction in our expectation of parental support from HSBC Holdings; 3) a reduction in the amount of subordinated or holding company debt outstanding that would be available to absorb losses in the event of failure, unless accompanied by a commensurate reduction in tangible banking assets, and/or 4) a downgrade of HSBC Bank USA's BCA. The biggest risk to the BCA would be from a reduction in the bank's capital or liquidity ratios or an increased reliance on marketing funding. LIST OF AFFECTED RATINGS On Review for Downgrade: ..Issuer: HSBC USA Inc. ....Commercial Paper, Placed on Review for Downgrade, currently P-1....Senior Unsecured Medium-Term Note Program, Placed on Review for Downgrade, currently (P)A2....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently A2, Rating Under Review from Negative....Pref. Shelf, Placed on Review for Downgrade, currently (P)Baa1....Pref. Shelf Non-cumulative, Placed on Review for Downgrade, currently (P)Baa2....Senior Unsecured Shelf, Placed on Review for Downgrade, currently (P)A2....Subordinate Shelf, Placed on Review for Downgrade, currently (P)A3..Issuer: HSBC Bank USA, N.A.....Adjusted Baseline Credit Assessment, Placed on Review for Downgrade, currently a2....Senior Unsecured Bank Note Program, Placed on Review for Downgrade, currently (P)Aa3....Subordinate Bank Note Program, Placed on Review for Downgrade, currently (P)A1....LT Counterparty Risk Assessment, Placed on Review for Downgrade, currently Aa3(cr)....LT Counterparty Risk Rating (Local Currency), Placed on Review for Downgrade, currently Aa3....LT Counterparty Risk Rating (Foreign Currency), Placed on Review for Downgrade, currently Aa3....LT Issuer Rating, Placed on Review for Downgrade, currently Aa3, Rating Under Review from Negative....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Aa3, Rating Under Review from Negative....Subordinate Regular Bond/Debenture, Placed on Review for Downgrade, currently A1....LT Bank Deposits, Placed on Review for Downgrade, currently Aa2, Rating Under Review from Negative..Issuer: Republic New York Corporation....Backed Subordinate Regular Bond/Debenture, Placed on Review for Downgrade, currently A3Affirmations:..Issuer: HSBC Bank USA, N.A.....Baseline Credit Assessment, Affirmed baa2....ST Bank Note Program, Affirmed (P)P-1....ST Counterparty Risk Assessment, Affirmed P-1(cr)....ST Counterparty Risk Rating (Local Currency), Affirmed P-1....ST Counterparty Risk Rating (Foreign Currency), Affirmed P-1....ST Bank Deposits, Affirmed P-1Outlook Actions:..Issuer: HSBC USA Inc.....Outlook, Changed To Rating Under Review From Negative..Issuer: HSBC Bank USA, N.A.....Outlook, Changed To Rating Under Review From Negative..Issuer: Republic New York Corporation....Outlook, Changed To Rating Under Review From No OutlookThe 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 DISCLOSURESFor 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.Please 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. David Fanger Senior Vice President Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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