Ratings agency S&P Global Ratings said it lowered its outlook on HSBC (0005) to negative, while affirming its "A" long-term and "A-1" short-term issuer credit ratings on the banking group.
The negative outlook came after HSBC last month announced it will abandon a target for return on tangible equity of more than 11 percent in 2020, while its new management team has indicated to rebalance capital away from low-return businesses and adjust the cost base accordingly.
S&P believes HSBC's statutory earnings trajectory will likely falter in the coming quarters, which leads the company to question the diversification and business stability benefits of HSBC's business model.
"Although we see the restructuring as a necessary and proactive step, it is a manifestation of the challenges facing the group and it could weaken our view of HSBC relative to other highly rated global peers," it said.
S&P, meanwhile, said the rating actions do not affect the ratings on HSBC's Asian resolution hub, of which the key rated entity is The Hongkong and Shanghai Banking Corporation, given its strong credit characteristics and the potential for extraordinary government support from Hong Kong.
"We note that operating performance in both Hong Kong and the U.K.– HSBC's two largest markets --has remained resilient, despite heightened political unrest in Hong Kong and political uncertainty in the U.K. in recent months," S&P said.
S&P also revised its outlook on certain core subsidiaries of the HSBC group to negative but affirmed "AA-" long-term and "A-1+" short-term issuer credit ratings on these entities, including HSBC Bank, HSBC UK Bank, HSBC France, HSBC Bank Canada, HSBC Bank USA, and HSBC Securities (USA) Inc.
It also revised the outlook on U.S. bank holding company, HSBC USA, to negative and affirmed the "A/A-1" ratings.