Moody's Warns About HSBC Mexico, Eyes Credit Cards

Moody's Investor Service said it placed the ratings of HSBC's Mexican unit under review, warning that its credit card portfolio could lead to higher-than-expected losses.

Sharon Lorimer

Moody's said it could downgrade HSBC Mexico's bank financial strength rating, currently "C," considered adequate, along with other local debt and deposit ratings.

Banks rated "D," the category of ratings below "C," "display modest intrinsic financial strength, potentially requiring some outside support at times," according to Moody's ratings methodology.

"The bank may be more challenged to manage through the current difficult credit environment due to its less robust capitalization and profitability compared to that of similarly rated peers," Moody's said in a statement.

Nonperforming loans accounted for almost 17 percent of HSBC Mexico's total credit card debt as of May, according to the country's bank regulator.

That compares to an average of 13 percent in the Mexican banking industry, which is dominated by Citigroup and Spain's BBVA.

"HSBC Mexico's balance sheet may be exposed to a higher level of stress because management is still dealing with the sharp deterioration in the bank's credit card portfolio," Moody's said.

Current DateTime: 04:46:01 30 Jul 2009
LinksList Documentid: 31665206

• 1. Greenspan's Cheap Money
• 2. The Great Housing Boom
• 3. Subprime Explosion
• 4. Inflating The Bubble
• 5. Warning Signs
• 6. Housing Market Decline
• 7. Banks Go Into Panic Mode
• 8. Financial Collapse
• 9. Global Recession
• 10. Massive Government Action

The Mexico City-based unit of HSBC , Europe's top bank, let its
capital adequacy ratio slip to 11.93 percent in April from 12.39 percent in the prior month, according to the regulator.

Capital adequacy ratios illustrate banks' capital relative to their risk-weighted assets and show how prepared they are to weather losses.

Mexico forces banks with capital adequacy ratios under 10 percent to come up with plans to bump up their capitalization.

Still, investors appear unfazed as the bank sold $300 million in subordinated debt on the Mexican market on Wednesday.

The 10-year debt was the first issue of its kind in U.S. dollars on the local market and was given the top triple-A rating by Fitch Ratings and Moody's, HSBC said in a statement.

Mexico's banks did not focus on subprime lending and have avoided many problems plaguing financial groups in the United States and Europe.

Lending to consumers and businesses in Mexico expanded at explosive rates of around 50 percent a year in 2005 and 2006 as banks tended to a market starved of financial services after a crisis in the mid-1990s brought the industry to its knees.

But in recent years, banks have become more cautious about handing out new credit cards and consumer loans, sectors increasingly affected by nonperforming loans.

Copyright 2009 Reuters. Click for restrictions.