Hong Kong and Shanghai Banking Corporation (HSBC)
HSBC is one of the largest banking and financial organizations in the world. It was established in Hong Kong and Shanghai in 1865. It is the founding member of the HSBC Group, one of the largest banking and financial services globally. It is the largest banking incorporation in the Hong Kong SAR and one of the note issuing banks. The core of the corporation is domestic commercial banking and financial services which funds them and the business locally. Its operations are linked by the high technology that delivers a broad range of products and services created to meet the needs of the local customers.
HSBC serves the financial management needs of the international customer base through its personal, commercial and corporate banking service. It employs about 54,000 people of which 47,000 work for the bank itself. The consolidated assets of the bank and its subsidiaries are at HK,151 billion as of December 2006. HSBC Limited is wholly owned by the HSBC Holdings of the HSBC Group. Its growth ambitions centers on the four groups of customers. These comprises of the personal financial services, commercial banking, corporate and investment banking. Specific strategies are developed for each of these areas. The customer focus is reinforced by organizing the internal and external reporting around the customer groups.
The main competitors in global banking are Citibank, JP Morgan Chase, Bank of America and Deutsche Banks. Some of these multinational banks have developed strong and profitable franchisees with a wide range of services in various local regions.
Operations
HSBC holds a distinctive position in the banking sphere of Hong Kong. Aside from the bulk of note issues, it has some attributes which are associated with a ‘central bank’. It serves as a banker to the government and other banks though not in exclusive terms. At some occasions, it also acts as lender of the last option. There are no statutory obligations for the HSBC to perform these functions and its quasi-central bank qualities are not sought after but came naturally towards becoming the largest operating bank in the country (2004).
At the beginning of 2004, HSBC rebranded its global banking business giving it the moniker of HSBC Private Bank. According to the firm, the initiative is designed to achieve a full recognition of the HSBC Private Bank as one of the world’s largest and most powerful banks. Currently, it is the first largest private banks globally in terms of assets under management, providing trustee services to high net worth individuals and their families through 60 locations in the Americas, Asia Pacific Region, Europe and the Middle East. This move reflects the significant growth of the firm over the recent years. In 1999, it has billion in assets under management. As of June 30, 2005 the unit had 3.2 billion in assets under management and a 25 percent year-on-year rise in pre tax profits to 1 million ().
Core Competence
HSBC has established itself as a leading commercial bank not only in Hong Kong but worldwide. Its long term existence has earned it the reputation which is unequaled by any other banks. Today, HSBC remains to be one of the most trusted financial institutions with operations in Europe, Asia Pacific region, America, Middle East and Africa. It maintains a sound financial status which is growing by the year. According to the Euromoney, no financial institution has been more effective than HSBC in its ability to adapt to rapidly changing market conditions and in providing products and services that keeps it ahead of the competition ().
Strategy
HSBC started in Hong Kong and has adapted to the global market through the creation and acquisition of subsidiaries. The strategy which started in the 1950s peaked in 1992 when one of the largest bank acquisitions in history, the purchase of the UK’s Midland Bank. It soon added various financial institutions such as Credit Commercial de France and the Republic New York Corporation (2004).
The acquisition strategy stepped up in 2003 when it purchased the down-market US consumer finance group Household International for billion which represented the need for the bank for US presence in line with its global ambitions. It also reflected to be seen as a consumer based company. Two-thirds of every economy in the world is based on consumer expenditure and the more the business get astride that the better it is for the business. HSBC has shown that companies with big budgets can enter new markets by buying companies that are already there ( 2004).
Unlike giant organizations acquiring established companies, HSBC maintains a uniform brand identity. Its aim is to make the name and the logo recognizable all over the world so that each local subsidiary has the psychological power of the global brand. While expanding its global presence, HSBC maintains its local approach. As with its main rival Citibank, HSBC is a global brand that operates as a retail bank all over the world.
Corporate Culture
HSBC used to be a federation of banks and financial services companies located and managed within the local regions it serves. The managers focus on the local rather than the global and operated with minimal involvement from the head office. But with the global nature of the competition and the need to produce greater value for the customers and the shareholders, it had to move towards the central coordination and the adoption of single global identity. In order to present itself coherently to the customers, employees, shareholders and the financial community, HSBC adopted a single unified brand which is more focused in the way it present itself. This unified brand helps the customer to better understand what the organization can offer which makes the cross-selling easier ().
HSBC has a unique control orientation. The company operates its control structure by the book which has been literally the ‘bible’ containing all the policies and the procedures that must be followed by the each division. Upon the acquisition of a new entity, the book is distributed and the organization is expected to render full compliance. This approach works well for the organization mainly because it has been operating under the clear mandate and direction of senior management and ingrained in the corporate culture of the firm. Clearly, this is unique to HSBC. It would simply not fit with other corporate cultures that operate with greater freedom and flexibility (2002). Employees are required to know and understand the different parts of the organization and feel they are part of the same organization and owe each other allegiance and cooperation
By the end of 2003, HSBC launched a strategic plan which serves as a blueprint for growth and development until the year 2008. The strategy is evolutionary and builds on the key strengths of HSBC. More so, it addresses the areas which need further improvement. The vision of the Group remains constant: HSBC aims to be the premier financial service company worldwide. To be ‘leading’ means being preferred, admired and recognized for providing the customers with a fair deal.
HSBC’s core values focus on the long term ethical relationships with the clients, high productivity through cooperation, a sense of excellence, international in outlook and customer focused. The strategic plan also involves the corporate social responsibility. HSBC continue to commit itself to high standards of conduct and its obligations in the society. The groups’ Corporate Social Responsibility policies are focused on education and environment which are the primary recipients of their charitable activities.
The competitive positioning of HSBC is accomplished by introducing skills and practices from the leading retailing businesses world wide. The integration is increased with more skills sharing and technology transfer to enhance its existing activities. The key elements in achieving its objectives is to accelerate the growth rate of revenue, develop brand strategies, increase productivity and maintain the risk management and the strong position in the financial services. The development of staff skills is a critical factor and is necessary to ensure that they contribute to the success of the Group. Employees who contribute to the achievement of corporate goals are rewarded.
SWOT ANALYSIS
Strengths
- The size of the company allows it to control large market shares and enables it to outperform others
- It has the ability to grow through mergers and acquisitions
- Unified global branding.
- Ability to maintain a local approach in the regions where it operates
Weaknesses
- Great and increasing dependence upon the emerging and the less developed markets as compared to their major global competitors.
- While the global branding gave HSBC an advantage, it came late to perform an integrated marketing strategy. HSBC has set up many banks in different countries under different names. All of which have separate names until they are branded together in 1998 but the lack of previous branding could have hurt the HSBC in terms of brand recognition
Opportunities
- HSBC aims to be the leading financial service company globally which requires it to transform itself from a global bank to a global financial service company
- HSBC can penetrate emerging economies and expand its global presence
Threats
- The development of emerging markets results to increase vulnerability to external factors that are more likely to occur in developed markets such as instability of currency and financial market, government intervention and economic downturns. With this, the benefits of exploiting emerging markets are exceeded by the risks.
VALUE CHAIN ANALYSIS
Primary Activities
Inbound Logistics
- The work processing is offshore to lower costs economies so that the costs associated with services provided in developed countries is reduced
Operations
- HSBC operates globally in number of local banks all over the world. It operates on 10,000 offices in 82 countries in Europe, Asia-Pacific region, America, Middle East and Africa.
Marketing and Sales
- The HSBC adopted a unified branding in all its markets where it has operations to increase recognition of the group by the customers, stakeholders and employees all over the world.
Service
- HSBC provides a wide range of financial services which includes business and commercial banking, investment banking and personal banking.
Support Activities
Technology Development
- It increases its capability by investing in IT infrastructures such as the investment with Sparkice Inc. which will develop the online trade finance, payments and insurance services in the business-to-business website of the company.
Human Resource Management
- Employees are valued within HSBC and the company recognizes the need to attract, retain and motivate talented individuals. Its value emphasizes the importance of embracing and respecting ideas, abilities and the diversity in the culture of the employees. The company has the principle of “Your point of view” which acknowledges the creativity of its employees. Its global sourcing strategy plays an important role maintaining competitiveness in the international financial services.
Firm Infrastructure
- The HSBC is headquartered in London and operates in five other regions including Europe, Hong Kong, Asia Pacific, Middle East, Africa, north and South America. The financial services it provide range from personal, commercial and corporate banking. In 1999, the HSBC Group was established with a uniform international brand name.
Evaluation of Results
HSBC is one of the leading banks not only in Hong Kong but worldwide. It operates globally but also maintains its distinct position in the Hong Kong financial market. The bank has developed into a global bank through acquisition and mergers. Its strategy of expanding is basically focused on acquiring business that are already there rather than setting them up. Its competence is based on the its ability to adapt to different market conditions and provide products and services ahead of its major competitors. Another distinct quality of the bank is its ability to maintain its local approach despite its global presence. It has also developed and maintained a uniform brand identity that has increased the recognition of the brand in various countries.
The competitiveness of HSBC can be attributed to the integration and sharing of skills, technology transfer and adoption of best practices. It attributes its competitive positioning in the integration and sharing of skills, technology transfer and the adoption of best practices. Its structure is basically controlled and guided by the book which is followed by each division. Such promotes cooperation and allegiance in the entire HSBC Group. It also recognizes the need to develop its human resource as they are crucial elements in achieving the goals of the corporation. Moreover, it adheres to its corporate social responsibility through its philanthropic activities for education and the environment.
FINANCIAL HIGHLIGHTS
HSBC (Hong Kong)
2006 2005
For the year HK$m HK$m Net operating income before loan impairment charges 92,325 77,222
Profit before tax 52,016 45,249
Profit attributable to shareholders 37,709 32,873
At year-end
Shareholders’ equity 145,450 97,334
Total equity 165,445 114,425
Total regulatory capital 183,981 154,065
Customer accounts 1,989,467 1,735,110
Total assets 3,150,840 2,672,532
Risk-weighted assets 1,367,607 1,238,164
Ratios % %
Return on average shareholders’ equity 31.1 37.4
Post-tax return on average total assets 1.46 1.44
Cost efficiency ratio 41.4 41.2
Net interest margin 2.31 2.14
Capital adequacy ratios
– total capital 13.5 12.4
– tier 1 capital 12.3 11.7
The profit attributed to the shareholders for 2006 increased by HK,836 million or 14.7% to HK,709 million. The profit before taxation increased by HK,767 million or 15.0 % to HK,016 million.
HSBC Holdings Plc
Revenue: .1 billion (2006)
Operating: .8 billion (2006)
Net income: $ 15.8 billion (2006)
Leverage Analysis
HSBC Holdings plc Leverage Analysis
Fiscal Year[10]
2005
2004
2003
2002
2001
Fiscal Year End Date
12/31/05
12/31/04
12/31/03
12/31/02
12/31/01
Long Term Debt-
% of Earnings Before Interest & Taxes
1,006.2%
733.9%
782.5%
302.8%
306.9%
Long Term Debt-
% of Earn Before Int, Tax, Depr & Amort
938.0%
673.1%
710.8%
271.8%
272.7%
Long Term Debt-
% of Total Assets
14.3%
11.1%
11.3%
4.5%
4.0%
Long Term Debt-
% of Total Capital
68.5%
58.5%
57.7%
36.6%
35.1%
Long Term Debt-
% of Common Equity
231.6%
162.8%
156.3%
65.0%
61.7%
Total Debt-
% of Earnings Before Interest & Taxes
1,384.4%
1,723.7%
1,726.0%
1,041.8%
1,152.6%
Total Debt-
% of Earn Bef Int, Tax, Depr & Amort
1,290.6%
1,580.8%
1,567.9%
935.2%
1,023.9%
Total Debt-
% of Total Assets
19.6%
26.0%
24.9%
15.3%
15.1%
Total Debt-
% of Total Capital
94.3%
137.5%
127.3%
125.8%
131.6%
Total Debt-
% of Total Capital & Short Term Debt
75.0%
76.8%
75.0%
66.5%
67.0%
Total Debt-
% of Common Equity
318.7%
382.3%
344.8%
223.7%
231.6%
Minority Interest-
% of Earnings Before Interest & Taxes
27.2%
68.7%
73.1%
58.8%
71.1%
Minority Interest-
% of Earn Bef Int, Tax, Depr & Amort
25.4%
63.0%
66.4%
52.8%
63.2%
Minority Interest-
% of Total Assets
0.4%
1.0%
1.1%
0.9%
0.9%
Minority Interest-
% Total Capital
1.9%
5.5%
5.4%
7.1%
8.1%
Minority Interest-
% of Common Equity
6.3%
15.2%
14.6%
12.6%
14.3%
Common Equity-
% Total Assets
6.2%
7.2%
7.2%
6.8%
6.5%
Common Equity-
% of Total Capital
29.6%
36.0%
36.9%
56.3%
56.8%
Total Capital-
% of Total Assets
20.8%
20.0%
19.6%
12.2%
11.5%
Minority Interest-
% of Earnings Before Interest & Taxes
27.2%
68.7%
73.1%
58.8%
71.1%
Fixed Assets-
% of Common Equity
16.5%
21.7%
21.1%
27.3%
29.8%
Dividend Payout
39.4%
37.4%
48.3%
57.8%
65.3%
Funds From Operations-
% of Total Debt
6.0%
3.6%
3.2%
5.9%
Credit:ivythesis.typepad.com
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