OREANDA-NEWS. Fitch Ratings has affirmed HSBC Trinkaus & Burkhardt AG's (HSBC Trinkaus) Long-term Issuer Default Rating (IDR) at 'AA-' with a Stable Outlook. At the same time, it has affirmed HSBC Trinkaus's Viability Rating (VR) at 'a-'. A full list of rating actions is available at the end of this rating action commentary.

KEY RATING DRIVERS
IDRS AND SUPPORT RATINGS
HSBC Trinkaus's IDRs and senior debt ratings reflect Fitch's belief that, in case of need, it would be extremely likely that it would be supported by its ultimate parent HSBC Holdings (HSBC Holdings, AA-/Stable/F1+) through HSBC Bank (AA-/Stable/F1+).

HSBC Trinkaus's role within HSBC Group is to improve the group's coverage of internationally active German corporate (both large and Mittelstand) clients, among other things by offering additional HSBC financing and lending products. This will result in further significant increases in risk-weighted assets (RWA; which were up 35% in 2014) and will likely require additional capital support from HSBC Group in the medium term.

Given the competitive banking environment in Germany, HSBC Trinkaus sees its competitive advantage in marketing HSBC product capabilities, including lending throughout HSBC's global network. The significant referrals of clients to other HSBC entities suggests that HSBC Trinkaus's actual contribution to group profits is higher than reported (around 0.9% of 1H15 group pre-tax profits), emphasising the core subsidiary role of HSBC Trinkaus for HSBC Group.

The Stable Outlook reflects our view that HSBC Trinkaus's importance within the HSBC Group is not about to change in the foreseeable future and the Stable Outlook for HSBC Bank/Holding's IDRs.

VR
The VR affirmation reflects continued adequate financial fundamentals as HSBC Trinkaus executes its growth strategy in corporate banking. However, we expect profitability to deteriorate somewhat, especially when its historically low loan impairment charges start to rise. We also expect that HSBC Trinkaus's parent would inject capital to support the growth strategy if needed, as it did in 2014.

We expect HSBC Trinkaus's loan book, including a larger proportion of speculative grade or longer-dated loans, to continue to rise rapidly in 2015 and 2016, albeit at a slower rate in light of intense competition and its negative impact on asset margins. At the same time, we expect increases in operating expenses to outpace a rise in operating revenue during the bank's expansion phase. However, we expect that the bank's risk profile, balance sheet structure, capitalisation and profitability will still remain sound.

In addition, HSBC Trinkaus is expanding in German mid-corporate lending during a period of low interest rates and increasing competition for German corporate clients from both domestic and foreign banks. While we believe that HSBC Trinkaus has the capabilities to correctly price German corporate risk and to maintain underwriting and pricing discipline, it nonetheless exposes that bank to earnings volatility and higher credit impairment charges once the economic cycle turns.

RATING SENSITIVITIES
IDRs AND SUPPORT RATING
We believe that the group's propensity to provide support is unlikely to diminish in light of HSBC Group's current strategy and our expectation is therefore that HSBC Trinkaus's IDRs will continue to move in line with HSBC Bank's /HSBC Holdings'.

This assessment would change - and potentially result in a notching differential between HSBC Trinkaus and HSBC Bank/ Holdings - if the importance of the Germany subsidiary's role within the group diminishes. Rating divergence could also occur should tighter national regulations lead to weaker integration or capital and liquidity across the group becomes less fungible. Although the latter is possible we believe that a scenario in which HSBC Trinkaus would need support which HSBC Bank's regulator, the UK Prudential Regulation Authority (PRA), would consider material is highly unlikely.

VR
The bank's VRs are sensitive to a change in Fitch's assumptions regarding the loan book expansion and the development of HSBC Trinkaus's common equity Tier 1 (CET1) ratio. We expect that HSBC Group will ensure that HSBC Trinkaus is adequately capitalised during and after its strategic growth period. All this is factored into HSBC Trinkaus's VR.

In addition, if risk-adjusted operating profits continue to fall beyond 2016, and if contingency risks in lower rated classes increase, the VR could come under pressure. Upside potential, while limited in the medium-term, could arise from successful execution of the bank's revised strategy while maintaining strong financial metrics.

The rating actions are as follows:

HSBC Trinkaus & Burkhardt AG
Long-term IDR: affirmed at 'AA-'; Outlook Stable
Short-term IDR: affirmed at 'F1+'
Viability Rating: affirmed at 'a-'
Support Rating: affirmed at '1'.