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Fitch downgrades HSBC on business stability, strategy concerns

Fitch Ratings on Dec. 5 lowered certain ratings of HSBC Holdings PLC and its subsidiaries, citing a downward revision by the agency of the British banking group's business model, strategic execution and earnings prospects.

The agency downgraded the long-term issuer default ratings of HSBC Holdings and units HSBC Bank PLC, HSBC UK Bank PLC and HSBC Latin America Holdings (UK) Ltd. to A+ from AA- and maintained them on Rating Watch Negative.

The long-term senior unsecured debt ratings of HSBC Holdings, HSBC Bank and HSBC UK Bank were also lowered to A+ from AA-. Additionally, the viability ratings of HSBC Holdings and HSBC Bank were downgraded to "a+" from "aa-" and to "a" from "a+", respectively, while that of HSBC UK Bank was affirmed at "a".

HSBC Bank's derivative counterparty rating was also lowered to A+(dcr) from AA-(dcr).

Fitch said the downgrades were driven by HSBC's reduced group and U.S. return targets, as well as expectations that HSBC will announce a material restructuring plan by February 2020 aimed at addressing persistent earnings weakness and capital inefficiency at its U.S. and European non-ring-fenced banking units.

HSBC's problems highlight weaknesses in the stability of its business model and the earnings capacity of its geographic footprint, the agency said, adding that a further shift of the group's business mix toward faster-growing Asian regions would likely lead to the allocation of a greater proportion of its balance sheet to jurisdictions with more volatile operating environments.

Meanwhile, Fitch said the Rating Watch Negative on HSBC's long-term issuer rating reflects ongoing uncertainty on the outcome of Brexit, as well as the potential assignment of a negative outlook in the event the U.K. exits the EU without a withdrawal deal, as the agency believes that outcome would cause substantial disruption to Britain, one of the group's core markets.

Concurrently, Fitch also affirmed the short-term issuer default ratings of HSBC Holdings, HSBC Bank and HSBC Bank UK at F1+, along with HSBC Holdings' support rating of 5 and support rating floor of No Floor. Also affirmed were the 1 support ratings of HSBC Latin America Holdings (UK), HSBC Bank and HSBC Bank UK.

The agency also downgraded the viability rating of HSBC's Hong Kong unit Hongkong & Shanghai Banking Corp. Ltd. to "a+" from "aa-", among other actions.