Fitch Affirms HSBC USA Inc's L-T IDR to 'AA'; Ratings Outlook Negative

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has affirmed HSBC USA Inc's (HUSI) Long-term Issuer Default Ratings (IDR) of 'AA' and Viability Rating (VR) of 'a-'. The Ratings Outlook has been revised to Negative in conjunction with the Outlook revision of HSBC Holdings plc (HSBC) (please see release 'Fitch Affirms HSBC at 'AA'; Outlook Revised To Negative'; March 1, 2012). The affirmation of HUSI's IDRs primarily reflects its ownership by and strategic importance to HSBC. With that, HUSI's IDR's would move in tandem with those of HSBC. A complete list of ratings follows at the end of this release.

The affirmation of HUSI's VR reflects its more focused business model as it executes on strategic initiatives, solid capital levels and robust liquidity. It also reflects modest improvements in asset quality. These rating strengths are tempered by HUSI comparatively weak operating performance in 2011 offset by some unfavorable factors, such as a continued drag in HUSI's residential loan portfolio and operational deficiencies noted as part of regulatory reviews. Fitch believes HUSI management is proactive in addressing the noted weaknesses through various loan modification programs and elevated resource allocation towards operations.

HUSI initiated a change in strategic direction during FY 2011, with an increased focus on boosting international connectivity in key U.S. markets, a renewed focus on cost-cutting initiatives, and managed divestitures from select markets. The primary purpose of the strategic change is to better align HUSI with the global HSBC brand name. Although execution of the strategy is ongoing, Fitch believes these changes will allow HUSI to focus more clearly on its core customer base of US-based international corporate and private clients, while transforming its U.S. operations into a leaner bank. While the sale of its Cards business to Capital One and upstate New York branch network to First Niagara Bank is pending completion, Fitch expects that these remain on track.

HUSI has been able to grow its balance sheet, particularly its commercial loan portfolio. Additionally, the commercial loan portfolio has also noted overall improvement in asset quality, as key credit metrics, such as delinquency and net charge-off ratios continue to improve. Excluding the planned dispositions, HUSI's balance sheet grew 17% since YE2010.

HUSI's balance sheet continues to be highly liquid, with cash (including deposits with banks), investment portfolio and loan portfolio, accounting for almost 60% of the balance sheet. HUSI management continues to maintain strong capital levels. The Tier 1 Capital ratio, which stood at 12.40% at September 30, 2011, is comparatively high while Fitch Core Capital (FCC) was 11.61% for the noted time period and 13.3% on a pro-forma basis.

Additionally, Fitch has applied its updated global criteria with regards to rating bank regulatory capital (subordinated and hybrid debt) which has resulted in the downgrades and removal from Rating Watch Negative of HUSI preferred stock instruments. In applying the criteria, Fitch has notched these instruments from HUSI IDR, as support for from HSBC is presumed.

Fitch affirms and downgrades the following ratings as indicated:

HSBC USA Inc.

--Long-term IDR at `AA'; Negative Outlook

--Short-term IDR at `F1+';

--Viability Rating at 'a-'

--Support Rating at '1';

--Commercial Paper at 'F1+'

--Preferred Stock downgraded to 'A-' from 'A+' and removed from Rating Watch Negative;

--Senior Debt at 'AA'

--Subordinated Debt at 'AA-'

--Short Term debt guaranteed by FDIC under TLGP at 'F1+'.

HSBC Bank USA, National Association.

--Long-term IDR at `AA';

--Short-term IDR at `F1+';

--Viability Rating at 'a-'

--Support Rating at '1';

--Long-term Deposits at 'AA+'

--Market Lined Deposits at 'AA+emr'

--Senior Debt at 'AA'

--Short-term Deposits at 'F1+'

--Subordinated Debt at 'AA-'.

Republic New York Corporation

--Subordinated Debt at 'AA-'.

Republic New York Capital I

--Preferred Stock downgraded to 'A-' from 'A+' and removed from Rating Watch Negative.

HSBC Americas Capital Trust I

--Preferred Stock downgraded to 'A-' from 'A+' and removed from Rating Watch Negative.

HSBC Americas Capital Trust II

--Preferred Stock downgraded to 'A-' from 'A+' and removed from Rating Watch Negative.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);

--'Fitch Core Capital: The Primary Measure of Bank Capitalisation' (Jan. 19, 2012);

--'Rating Bank Regulatory Capital Securities' (Dec. 15, 2011).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

Fitch Core Capital: The Primary Measure of Bank Capitalisation

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=650111

Rating Bank Regulatory Capital and Similar Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656371

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