S&P downgrades HSBC outlook to negative

Business | Avery Chen 14 Nov 2019

S&P Global Ratings 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 a backtrack on its target for return on tangible equity of more than 11 percent in 2020 while its new management team indicated it planned to rebalance capital away from low-return businesses and adjust its cost base.

S&P believes HSBC's statutory earnings trajectory will likely falter in the coming quarters, leading 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 said the rating actions won't affect 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 government support.

"We note that operating performance in both Hong Kong and the United Kindom - HSBC's two largest markets-has remained resilient, despite heightened political unrest in Hong Kong and political uncertainty in the UK in recent months," S&P said.

S&P also revised outlooks for select HSBC group's core subsidiaries 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 Bank Canada, and HSBC Securities (USA). It also revised the outlook on U.S. bank holding company, HSBC USA, to negative and affirmed the "A/A-1" ratings.

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