TEXT - Fitch affirms HSBC USA Inc viability rating

Mon Feb 4, 2013 3:54pm EST

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(The following statement was released by the rating agency)
    Feb 4 - Fitch Ratings has affirmed HSBC USA Inc's (HUSI) Viability Rating
(VR) at 'a-'. HUSI's 'AA-' long-term Issuer Default Rating (IDR) and Stable
Rating Outlook are unaffected by today's action. Fitch downgraded HUSI's IDR on
Dec. 7, 2012 in conjunction with the downgrade of HSBC Holdings (HSBC). For
additional information, please see the press release 'Fitch Downgrades HSBC USA
Inc.'s L-T IDR to 'AA-'; Outlook Revised to Stable', dated Dec. 7, 2012. A
complete list of rating actions follows at the end of this 
release.

SENSITIVITY/RATING DRIVERS - VRs and IDRs 

HUSI's VR reflects its franchise strength, strong risk-adjusted capital levels 
and robust liquidity. However, the ratings are constrained by the company's 
asset quality and weak earnings profile. 

As a result of its affiliation with the HSBC group, Fitch considers HUSI to have
strong brand recognition in the niche market of internationally minded retail 
and commercial clients. Fitch positively views HUSI's renewed focus on this key 
credit strength, as the company executes on strategic initiatives that have 
resulted in divestiture from its credit card business and non-key markets, with 
a greater emphasis on clients with needs for international connectivity. 

Fitch considers HUSI's capital levels to be strong. Although tangible capital 
levels have eroded over the last several quarters, reflecting reinvestments of 
sale proceeds into low risk securities, HUSI continues to maintain a Fitch Core 
Capital Ratio of almost 13%, as the company has been successful in de-risking 
its balance sheet over the last several quarters.

Fitch notes HUSI's balance sheet is flush with liquidity, with a low 
loan-to-deposit ratio and a fairly sizable low-risk investment portfolio. 
Loans-to-deposits averaged around 50%, while its agency concentrated investment 
portfolio made up a third of the asset base at 3Q12. Fitch considers HUSI's 
liquidity to be strong relative to mid-sized U.S. banks that average a 
loan-to-deposit ratio of 87%, with investment portfolios accounting for a fifth 
of the asset base. 

HUSI's risk averse and liquid balance sheet has had a clear impact on the 
company's earning profile, which Fitch views as weak relative to other mid-sized
U.S. banks. HUSI's NIM through 3Q12 was 1.31%, compared to 3.5% for the 
mid-sized U.S. bank peer group. Fitch believes HUSI's sub-par NIM, relative to 
other mid-sized U.S. banks, has potential for positive momentum as the company 
engages to capitalize its niche market, while growing its C&I loan book and 
replacing lost yield from its credit-card business divestiture.

Nonetheless, Fitch believes HUSI will record a relatively weak return on assets 
in the medium term due its NIM and elevated operational costs resulting from 
regulatory agreements. Fitch notes HUSI's YTD 3Q12 average efficiency ratio of 
89% (adjusted for one-time regulatory charges) would need significant 
improvements before the company can make a meaningful impact to its bottom line.
Fitch anticipates the company to reach a more normalized expense structure in 
2014-2015. 

Asset quality in HUSI's commercial loan portfolio, which accounts for 
approximately 70% of total loans, remains good with NPAs averaging at 2.5% and 
3Q12 YTD NCOs at 12bps. HUSI's residential portfolio, however, continues to be a
drag on the overall loan portfolio. Total consumer loan NPAs (including accruing
TDRs) at 3Q12 stood at 9.36%, with NCOs of 1.14%. Fitch also notes that loan 
loss reserve coverage appeared weak at 1.04%, compared to mid-sized U.S. banks 
average of almost 2.0%.

Fitch believes upward movement on HUSI's VR to be limited, and any significant 
deterioration in earnings and/or asset quality could put further pressure on 
HUSI's VR.

HUSI's IDRs are supported by its parent, primarily reflecting its core 
operations to the HSBC Group as noted in the Fitch press release 'Fitch 
Downgrades HSBC USA Inc.'s L-T IDR to 'AA-'; Outlook Revised to Stable', dated 
Dec. 7, 2012. As such, HUSI's IDRs will move in tandem with those of HSBC.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and hybrid capital instruments issued by HUSI are notched down
from the IDR. The ratings of subordinated debt and hybrid securities are 
typically sensitive to any change in the bank's VR. However, given the high 
level of institutional support, issue ratings are notched from HUSI's IDR as 
support from the parent is presumed.

HOLDING COMPANY SENSITIVITY/RATING DRIVERS

HUSI has a bank holding company (BHC) structure with the bank, HSBC Bank USA 
(HBUS), as the main subsidiary. HBUS is considered core to its parent holding 
company supporting equalized ratings between bank subsidiary and BHC. IDRs and 
VRs are equalized with those of its operating companies and banks reflecting 
HUSI's role as the bank holding company, which is mandated in the U.S. to act as
a source of strength for its bank subsidiaries. 

SUBSIDIARY & AFFILIATED COMPANY SENSITIVITY/RATING DRIVERS

HUSI and HBUS factor in a high probabilityof support from their respective 
parent institutions. Fitch considers support to be strong given the high level 
of integration, brand, management and financial and reputational incentives to 
avoid subsidiary defaults. 

Fitch has taken the following rating actions:

HSBC USA Inc.

HSBC Bank USA, National Association
--Viability Rating affirmed at 'a-'.

The following ratings are unaffected by today's action:

HSBC USA Inc.
--Long-term IDR 'AA-';
--Short-term IDR 'F1+';
--Support Rating '1';
--Commercial paper 'F1+'
--Preferred stock 'BBB+'; 
--Senior debt 'AA-';
--Subordinated debt 'A+'. 

HSBC Bank USA, National Association
--Long-term IDR 'AA-';
--Short-term IDR 'F1+';
--Support Rating '1';
--Long-term deposits 'AA';
--Market linked deposits 'AAemr';
--Senior debt 'AA-';
--Short-term deposits 'F1+';
--Subordinated debt 'A+'.

 (Caryn Trokie, New York Ratings Unit)
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