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Moody's downgrades HSBC unit

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Moody's downgrades HSBC unit

Moody's on May 30 downgraded HSBC Bank Plc's baseline credit assessment to "baa2" from "baa1" and its adjusted baseline credit assessment to "a3" from "a2," concluding a review for downgrade initiated Feb. 22.

At the same time, the rating agency confirmed the HSBC Holdings PLC unit's Aa3 long-term issuer, bank deposit and senior unsecured debt ratings and changed the outlook to stable from rating under review, and confirmed its Aa2(cr) long-term counterparty risk assessment as well. Moody's also affirmed HSBC Bank plc's P-1 short-term bank deposit rating and its P-1(cr) short-term counterparty risk assessment.

HSBC will transfer its U.K. retail, commercial and private banking operations to HSBC Bank UK, a newly created ring-fenced bank, from HSBC Bank PLC. The move is part of U.K. rules requiring lenders to separate their retail and investment businesses, which will make HSBC Bank PLC the group's non-ring-fenced bank.

Moody's said the downgrade reflects the agency's view that HSBC Bank PLC's future state as the group's U.K. non-ring-fenced bank will further increase the unit's reliance on riskier and more volatile wholesale and capital markets activities, as well as its dependence on more confidence-sensitive debt and deposit funding, which Moody's sees as credit negative.

HSBC's ring-fencing plan reached a key legal requirement after the U.K. High Court of Justice approved the transfer of assets between HSBC Bank UK and HSBC Bank PLC on May 22, Moody's noted.