DBRS Confirms HSBC Bank Canada at AA (low), Trends Stable

DBRS Limited (DBRS) has today confirmed all the ratings of HSBC Bank Canada (HSBC or the Bank) and related entities, including the Bank’s Long-Term Deposits and Senior Debt at AA (low) and the Short-Term Instruments at R-1 (middle). All rating trends remain Stable.

Under DBRS’s global bank rating methodology, HSBC has been assigned a support assessment of SA1, reflecting an expectation of timely support from its ultimate parent, HSBC Holdings plc (the Parent), on which the Bank’s ratings are largely based. DBRS has rated the Parent’s Issuer Rating – Long-Term and Issuer Rating – Short-Term at AA and R-1 (middle), respectively, both with Stable trends.

A small and steadily declining subset of legacy HSBC Bank Canada deposits carry a full and unconditional guarantee from the Parent and have consequently been rated equal to the Parent. Since the outstanding guaranteed balance has declined to a minimal amount of retail deposits and no new deposits made since June 30, 2005, benefit from the explicit parental guarantee, DBRS has today discontinued this one rating after first confirming it.

With Canada being a priority market for the HSBC Group, HSBC Bank Canada benefits from the strength of the Parent and the international capabilities and relationships of one of the largest banking groups in the world. HSBC has good intrinsic strengths, including its low cost-to-income ratio and superior customer service model, somewhat offset by geographic and industry concentrations, its historically higher interest-rate risk tolerance and scale challenges in its retail banking and wealth management businesses.

The Bank continues to execute on its strategy of growing its Commercial Banking and its Global Banking and Markets segments. At the same time, HSBC has made strides to increase presence with credit cards, mortgages and wealth products, particularly with its globally affluent customers. Earnings have continued to be good, with ROE in the mid-teens and risk metrics strong, although somewhat lumpy due to the proportions of commercial and wholesale lending.

Notable business changes over the past couple of years are largely complete, allowing the Bank to concentrate on its strategy, although implementing HSBC Group-wide improvements in compliance and risk controls may continue to occupy management attention. The run-off of the consumer finance portfolio is proceeding as planned, as is the repositioning of business banking towards clients with multi-product opportunities and lower compliance risk.

Note:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations; Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities; Criteria: Support Assessments for Banks and Banking Organisations; and DBRS Criteria: Guarantees and Other Forms of Explicit Support, which can be found on the DBRS website under Methodologies.