TEXT-Fitch downgrades HSBC France to 'AA-'

Mon Dec 10, 2012 11:46am EST

Dec 10 - Fitch Ratings has downgraded HSBC France's (HSBC FR) Long-term
Issuer Default Rating (IDR) to 'AA-'. The bank's Viability Rating (VR) has been
removed from Rating Watch Negative (RWN) and downgraded to 'bbb+'. The Outlook
for the Long-term IDR is Stable. A full list of rating actions is at the end of
this comment.

RATING ACTION RATIONALE

The downgrade of the Long-term IDR reflects the downgrade to 'AA-' of its
100%-shareholder, HSBC Bank plc. HSBC FR's IDRs are equalised with those of HSBC
Bank plc, which is in turn owned by HSBC Holdings plc (HSBC), also rated 'AA-'.
HSBC FR's IDRs and Support Rating reflect Fitch's view that there would be an
extremely high probability that HSBC would support HSBC FR, through HSBC Bank
plc, if required.

The downgrade of the VR reflects Fitch's concerns about the weight of the global
banking and markets business in the earnings mix, the sensitivity of the bank's
undiversified capital markets businesses to the on-going eurozone crisis and
some concentrated exposure to large corporates.

These weaknesses add vulnerability to HSBC FR's earnings and are only partially
offset by the bank's capitalisation and liquidity. However, the agency
understands that these weaknesses also reflect HSBC FR's business model that is
part of the group's global strategy. In addition, the agency's view that the
creditworthiness of the group as a whole, including HSBC FR with its role for
HSBC in the euro area, is weaker, as reflected by the downgrade of HSBC's
Long-term IDR (see "Fitch Downgrades HSBC to 'AA-'; Outlook Stable" dated 07
December 2012 at www.fitchratings.com).


RATING DRIVERS AND SENSITIVITIES - IDRs and SUPPORT RATING
Fitch's views HSBC FR as core to the group's international banking strategy in
light of which default of HSBC FR would have huge reputational issues for HSBC.

HSBC FR is fully integrated in the group's risk management, strategic direction,
business model, funding and liquidity policies. HSBC's European trading and
market-making platform in euro-denominated sovereign bonds, as well as
euro-denominated interest rate derivatives are centrally booked and managed in
HSBC FR. The French bank is also the group's banking platform for large French
corporate clients and has a meaningful retail presence. IT systems, controls and
procedures are fully integrated with those of the group.

HSBC FR's IDRs would be expected to move in line with those of HSBC. HSBC FR's
Long-Term IDR could be notched down if Fitch considered that its core importance
to the group is likely to diminish, tighter national regulations led to weaker
integration or capital and liquidity across the group became less fungible.

RATING DRIVERS AND SENSITIVITIES - VR
HSBC FR's VR reflects its ample liquidity, diversified funding base, solid
capital ratios and good asset quality. It also takes into account the bank's
modest and very volatile operating profitability and the high concentration in
its corporate loan portfolio. The bank's VR would be sensitive to any weakening
of its solid capitalisation and liquidity. HSBC FR's VR would benefit if
significant and lasting improvements in the profitability of HSBC FR's retail
business led to less reliance on volatile capital markets revenues, and if
concentration in the loan book decreased, which Fitch views as unlikely to
happen in the near term.

In this context, HSBC FR's profitability is very sensitive to developments in
euro financial markets. The bank has started to address the weak profitability
in its retail banking division by implementing a strict cost-control and
sustainable savings plan. However, Fitch believes that the ultimate success of
this plan is uncertain.

The rating actions are as follows:

HSBC FR
Long-Term IDR: Downgraded to 'AA-' from 'AA', Outlook Stable
Short-Term IDR: Affirmed at 'F1+'
Viability Rating: Downgraded to 'bbb+' from 'a', removed from RWN
Support Rating: Affirmed at '1'
Senior Unsecured Notes: Downgraded to 'AA-' from 'AA'
Commercial paper: Affirmed at 'F1+'


Additional information is available on 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.

Thierry Moulonguet, independent director of Fitch Inc. and Fitch Ratings Ltd.
and a member of its board, is also a member of the board of HSBC FR. Mr.
Moulonguet does not participate in any Fitch rating committees, including that
of HSBC FR.

Applicable criteria, 'Global Financial Institutions Criteria', dated 15 August
2012, are available at www.fitchratings.com.

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
HSBC Holdings plc
HSBC Bank plc