MONTERREY, Mexico & NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded the Issuer Default Ratings (IDRs) of the Mexican bank HSBC Mexico, following the recent upgrade of Mexico's sovereign ratings. A full list of rating actions is at the end of this rating action commentary.
Rating Drivers
HSBC Mexico's IDRs are driven by the potential support of its parent, HSBC Holdings plc (rated 'AA-' with a Stable Outlook by Fitch), if needed. HSBC Mexico's local currency IDR has been upgraded to 'A+' from 'A'. This rating remains two notches above the recently upgraded local currency sovereign IDR of 'A-'. The rating is also consistent with Fitch's perception that HSBC Mexico is a strategically important subsidiary of HSBC Holdings; therefore, it is one notch below the parent's rating. In turn, the foreign currency IDR was upgraded to 'A' in line with the upgrade of Mexico's country ceiling to this level.
In Fitch's opinion, Mexico is a priority growth market for HSBC Holdings, and HSBC Mexico is a strategically important subsidiary, which explains why the upgraded 'A+' local currency IDR of the latter is the highest among the Mexican banks rated by Fitch in Mexico. Its foreign currency IDR at 'A' is capped by Mexico's country ceiling. The Stable Outlook on the IDRs reflects the cushion arising from the relatively high rating of its parent.
HSBC Mexico's national-scale ratings were affirmed at 'AAA(mex)' and 'F1+(mex)', since its IDRs are above those of the sovereign, and national scale ratings are relative rankings of creditworthiness within a certain jurisdiction.
The ratings of HSBC Mexico's subordinated debt reflect Fitch's opinion that support from HSBC Holdings, if needed, would extend to any outstanding debt in the local market, in order to prevent any negative effects on its reputational risk and overall funding costs. Coupled with the relatively high IDR of HSBC Holdings, the subordinated debt rating is equal to that of HSBC Mexico's senior unsecured debt.
Rating Sensitivities
There is limited upside potential in HSBC Mexico's local currency IDR, since this is already one notch below HSBC Holdings' IDR. This could only be upgraded by the confluence of upgrades in both the parent and the sovereign ratings. Similarly, the foreign currency IDR could only be upgraded in the event of a similar action in Mexico's country ceiling.
Conversely, any downgrade in HSBC Holding's IDRs or in Mexico's sovereign ratings could negatively affect HSBC Mexico's IDRs. These ratings could also be affected if Fitch eventually perceives a diminished strategic importance of HSBC Mexico to HSBC Holdings.
HSBC Mexico's national scale ratings could only be negatively affected by a multi-notch downgrade of HSBC Holding's IDRs, or a change in the propensity of the latter to support its Mexican subsidiaries.
Given Fitch's criteria for rating bank hybrids and the non-performance risk of these securities, the subordinated debt rating could be affected by a downgrade of HSBC Holdings' viability rating, even before such downgrade could affect the national scale issuer and senior unsecured debt ratings, and/or the IDRs of HSBC Mexico.
The following ratings have been upgraded:
HSBC Mexico, SA:
-- Long-term IDR to 'A' from 'A-';
-- Long-term local currency IDR to 'A+' from 'A'.
The following ratings have been affirmed:
HSBC Mexico, SA:
-- Short-term IDR at 'F1';
-- Short-term local currency IDR at 'F1';
-- Support rating at '1';
-- Long-term national-scale rating at 'AAA(mex)';
-- Short-term national-scale rating at 'F1+(mex)';
-- Long-term national-scale rating for local senior unsecured debt issues at 'AAA(mex)';
-- Long-term national-scale rating for local subordinated debt issues at 'AAA(mex)'.
The Rating Outlook is Stable.
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
-- Global Financial Institutions Rating Criteria (Aug. 15, 2012);
-- Rating Financial Institutions Above the Sovereign (Dec. 12, 2012);
-- Rating FI Subsidiaries and Holding Companies (Aug. 10, 2012);
-- National Ratings Criteria (Jan. 19, 2011).
Applicable Criteria and Related Research
Rating Financial Institutions Above the Sovereign
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696373
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=791024
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.