PrefBlog

DBRS has announced that it:

has today downgraded all the ratings of HSBC Bank Canada following the downgrade of the ratings of HSBC Holdings plc (the Parent; see DBRS’s HSBC Holdings plc press release dated February 8, 2013). The outlook on all ratings is Stable. The ratings have been removed from Under Review with Negative Implications, where they were placed on July 20, 2012.

DBRS ratings of HSBC Bank Canada, including the Long-Term Deposits and Senior Debt (no guarantee) rated AA (low) and Subordinated Debt (no guarantee) at A (high), are based largely on the relationship HSBC Bank Canada has with the Parent, which is one of the largest global banking groups. DBRS’s Issuer Rating – Long-Term of the Parent is AA with a Stable trend.

Under DBRS’s global bank rating methodology, DBRS has assigned HSBC Bank Canada a support assessment of SA1, reflecting a strong expectation of timely support from the Parent.

Given the strategic nature of the relationship between HSBC and the Parent, but lack of an explicit guarantee, the non-guaranteed long-term deposits and senior debt rating of HSBC has been assigned a rating that is one notch lower than HSBC Holdings plc.

The press release on HSBC Holdings states:

The downgrade takes into account HSBC’s recent fines and customer redress costs (including anti money laundering in the US and Payment Protection Insurance (PPI) in the UK), which demonstrate a weaker operational risk profile than is commensurate with the prior rating level. Moreover, DBRS expects the process for HSBC to raise compliance standards across the Group to be a lengthy and costly process. DBRS notes that HSBC already made major organisational changes to its structure in 2011, whereby control has been more centralised within the global businesses and functions rather than spread across multiple geographies, and that these changes should underpin the ongoing reforms. However, in DBRS’s view it is a significant challenge to successfully reform procedures and strengthen controls in large, complex banking organisations, such as HSBC.
…
…the Group has increased its spending on anti-money laundering, remedial measures, and an overhaul of controls and procedures, and intends to bring all controls globally to its highest global standard. DBRS considers that it is difficult to assess the full cost and revenue impact of meeting these higher standards, but expects it to be a drag on profitability.

Hurray! They’re going to spend more on anti-money laundering! It reminds me of John Allison’s remark:

And then there was the Patriot Act, which was supposed to catch terrorists. I’ve talked to many people in government and they all do this dancing act, but the fact is there has never been a single terrorist caught and convicted because of the Patriot Act. The Act cost the banking industry more than $5 billion annually, and I would argue that no one is going to be caught. If you are dumb enough to get caught under the Patriot Act, you are going to get caught anyway. The only significant conviction of the Patriot Act was Eliot Spitzer, the governor of New York, who was convicted of soliciting prostitutes under a law designed to catch terrorists.

The DBRS announcement in July that HSB was on Review-Negative was reported on PrefBlog.

HSBC Bank Canada is the issuer of HSB.PR.C, HSB.PR.D (both DeemedRetractibles) and HSB.PR.E (FixedReset). All are tracked by HIMIPref™ and assigned to the indicated subindices. All are now rated Pfd-2.

This entry was posted on Friday, February 8th, 2013 at 7:27 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.