DBRS Confirms HSBC USA Inc. at AA, Revises Trend to Negative

DBRS has today confirmed the ratings of HSBC USA Inc. (HUSI or the Company) and its operating bank subsidiary, HSBC Bank USA, N.A. (HBUS), including HUSI’s Issuer & Senior Debt rating of AA. At the same time, DBRS has changed the trend on all ratings to Negative from Stable.

The trend change follows DBRS’s revision of the trend of HSBC Holdings plc (HSBC – rated AA (high) with a Negative trend), HUSI’s parent. Despite posting a profit, HSBC’s results were negatively impacted by a slowing global economy including losses from both HUSI and HSBC Finance in the United States. The Negative trend reflects DBRS’s concern that further economic weakening in HSBC’s markets will result in continued elevated credit costs, which will pressure earnings. Moreover, the Negative trend reflects DBRS’s expectation that the global economic slowdown may pressure HSBC’s revenue generation ability. While DBRS considers HSBC’s solid earnings power a fundamental strength and a significant factor underpinning the rating, the unprecedented weakness in the capital markets and the global recessionary environment may result in a weakening of HSBC’s sizeable pre-provisioning earnings generation ability and exacerbate earnings pressure. As a supported rating with an SA1 designation, which implies strong and predictable support from HSBC, HUSI’s ratings have moved in tandem with HSBC’s ratings.

HUSI reported a net loss of $1.7 billion in 2008 compared to modest net income of $138 million in 2007. Significantly higher trading losses and provisions for credit losses were primarily responsible for the decline in earnings. Within trading, derivatives losses of $2.4 billion more than offset solid performances in the foreign exchange, precious metals and emerging markets businesses. Meanwhile, the deteriorating housing and job markets in the U.S. led to incremental provisions for credit losses of $1.0 billion. DBRS notes that towards the end of the year, the weakness in the U.S. economy spread to other non-consumer related asset classes like commercial loans.

HSBC has indicated it remains committed to supporting HUSI. More importantly, HSBC continues to have the financial resources to provide any necessary financial support as demonstrated by several recent capital injections. Specifically, HUSI received three capital contributions totaling $3.6 billion in 2008 and has already received approximately $1.1 billion in 2009. These capital contributions were used to support ongoing operations and maintain adequate capital levels.

Headquartered in New York City, HSBC USA Inc. is a wholly-owned U.S. subsidiary of HSBC Holdings plc and reported $185.6 billion in assets at December 31, 2008.

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

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.