Moody’s downgraded the bank financial strength rating of HSBC Bank, the group’s European operations, to C+ from B and its debt and deposit ratings to Aa2 from Aa1; the outlook on these ratings is now also negative.
The ratings agency says the downgrade and the negative outlook reflects the bank’s modest capital ratios, risks from large corporate and ABS exposures, and pressures on profits across HSBC’s European banking franchise.
It considers the UK residential mortgage books and personal lending to be conservatively positioned relative to its peers, but expects higher provisions on the corporate loan books and further potential writedowns from Global Banking and Markets to reduce profitability through the recession.
It also downgraded the outlook on the global HSBC Holdings. Although the rating agency still considers HSBC Holdings to be one of the more resilient global banks, ongoing pressure from the group’s US exposures have left it weakened. Moody’s says it is clear that the closure of the US branch network and future delinquencies will continue to absorb capital for another two to three years.