Many banks have been established over the years, HSBC is one such bank which prides itself in being one of the largest financial institutions worldwide. The bank has used a popular tag line ‘world’s local bank’ over the years but recently the bank has had to change its strategy and adopted a new tag line ‘as the World’s Leading International’. Globally the banks customers are over a million and to meet these customer needs it has employed thousands of staff. Over the years due to HSBC ability to purchase and acquire other key banks, the bank has grown and also increased its threshold in the financial market (Davies, 2014). In today’s times of global financial crisis especially in the finance sector, the bank continues to grow.
The international bank was established in 1865 when the idea of a local bank that could serve international needs was put into action. The bank founder was Sir Thomas Sutherland a Scottish gentleman. The bank has grown and today it prides itself with having 7,200 branches in 85 countries and more than 89 million customers across Asia, Europe, Africa, South America and North America. As of 31 December 2012 it had total assets of $2.693 trillion, of which roughly half were in Europe, the Middle East and Africa, and a quarter in each of Asia-Pacific and the Americas (Hui, 2016). The banks technological acumen and diverse human resource enables it to provide different services to its customers that range from: insurance, personal, pension and investment fund management; commercial, cash management; corporate, trade services; investment and private banking; consumer and business finance; treasury and capital markets services; custody services and trustee services; and securities. Currently the banks chairman is Douglas Flint and Stuart Gulliver serves as the Group Chief Executive (Financial Briefing Book: News Digest, 2015).
The banking and financial services company in the group is known as HSBC Holdings plc (HSBC). The company services and products are provided in terms of four businesses known As Commercial Banking (CMB), Retail Banking and Wealth Management (RBWM), Global Private Banking (GPB)a and Global Banking and Markets (GB&M.). The company branches are located in different geographical regions including; Asia, Europe, North America and Latin America and Middle East and North Africa. Customers are able to access personal banking and wealth management products and services through the company’s RBWM business, while the CMB business provides the commercial customers, medium market and small market enterprises with commercial based banking services (Russell-Walling 2014). The Company’s GB&M business provides financial solutions to government, corporate and institutional clients and private investors across the world. The Company’s GPB’s products and services include Investment Management and Private Wealth Solutions (HSBC Holdings plc SWOT Analysis, 2014).
Major acquisitions in South America started with the purchase of the Banco Bamerindus of Brazil for $1bn in March 1997 and the acquisition of Roberts SA de Inversiones of Argentina for $600m in May 1997. In May 1999, HSBC expanded its presence in the United States with the purchase of Republic National Bank of New York for $10.3bn. these acquisitions gave HSBC a strong presence in both North and South America. HSBC expanded their operations in Europe with acquisition of Crédit Commercial de France, a large French bank for £6.6bn and buying Demirbank, an insolvent Turkish bank in 2001. In September 2003 HSBC bought Polski Kredyt Bank SA of Poland for $7.8. Bank of Communications. June 2004 HSBC expanded into China buying 19.9% of of Shanghai. In the United Kingdom HSBC acquired Marks & Spencer Retail Financial Services Holdings Ltd for £763m in December 2004 (UK banking: price war will benefit most consumers, 2005).
Under the leadership of the Group Chief Executive Stuart Gulliver HSBC show a paradigm shift in its strategy and it is no longer to be as the ‘Worlds Local Bank’ as the cost associated with this was spiraling and US$3.5bn needed to be saved by 2013. Further to CEO Stuart Gulliver’s plan to cut $3.5 billion in costs over the next 2 years, HSBC announced that it will cut 25,000 jobs and exit from 20 countries by 2013 in addition to 5,000 job- cuts announced earlier in the year. The consumer banking division of HSBC will focus on the UK, Hong Kong, high-growth markets such as Mexico, Singapore, Turkey Brazil, and smaller countries where it has a leading market share (Guevarra, Granitsas and Chew, 2010).
The HSBC strategic Management contains eight imperatives as listed by Britain: Bank Beats Expectations (2004):
- Brand: The hexagon symbol of the HSBC is one among the leading brands for the experience of the customer and the social responsibility at the corporate level.
- Personal Financial services: the growth in the markets and with the help of different channels at appropriate timing to make HSBC the strongest company and to play across the globe in personal financial services.
- Consumer Finance: to extend the reach of the business to already existing customers with a wide range of products and penetrate into new markets.
- Commercial Banking: to make the most out of the company’s international base for the customers with effective management of the relationship and more improved offerings in all the market in all the groups.
- Corporate Markets and Investment Banking: to increase the growth with the enhancement of the markets and capabilities focused on the service of the client in certain sectors where the company has critical strength and relevance.
- Private Banking: to serve the highest value of the group and the personal clients of the company across the world.
- People: HSBC tends to attract the people, motivate them and develop them helping the company to achieve success and
- TSR: To fulfil the TSR target by achievement of strong performances regarding earnings of the growth of the share.
The HSBC has developed to be the leader among the banking sector. It is the largest bank in the Hong Kong and in China it is the largest and first foreign bank. It gives importance to the value of the shareholders and also believes in the talent of the employees working for the company. The company wish to stay on the top facing the competition, maintains a good brand image, well established customer loyalty well controlled of the costs of the operations and the ongoing adjustment of the business to cater for the needs of the customer. By this success it was quite useful in evaluating the development of the strategy of the company. This is mainly to examine the strategies of the HSBC to be aware of the mission, vision and in turn to be able to apply for the developmental strategies for other organizations (Company Spotlight: HSBC, 2005).
Global Development Strategy of HSBC
By end of year 2003, the company has launched the program called ‘Managing for Growth’ which was a strategic plan to provide the organization with a blue print for the growth. This helps to build up company’s strength and it addresses about the areas where the need for more improvement is required and which could be achieved (Langston, 2012).
The core values of the company are integral for the strategy in order to communicate with the customers, employees, shareholders and to compromise on the long term, client relationships, increased productivity with a good team work, ambitious, to be international in its outlook and the character. Also there have been several elements in the achievement of the development of the objectives which includes the speeding up of the growth of the revenue, development of the brand, improving the productivity and maintenance of the risk management (HSBC Global Fund Services, 2004). Development of the employees’ skills is given so much importance by the company to make sure that all the employees can understand how they can contribute for the achievement of the objectives set.
Strategic Marketing Perspective
A number of concepts are important taking into concern about the strategic marketing. These are important as they are the ones to determine the strategies of the company. These include the determining of the needs of the customers, focusing on the development of the product and the exchange happening between the consumers and the producers in the market (Banks, 2016). These concepts have become the basis of HSBC and helped to develop the strategies and to maintain the reputation across the world.
The very first strategy is to make the customers to be at the heart of the company’s strategy. They have got specific approaches for all the groups of the customers which are located in North and South America, Europe, Asia and Middle East countries. The second thing is to maintain the position as the local bank in the world which helps the company to approach all the countries and by mixing up the knowledge across the country (Banks, 2016). This is considered as a good approach as all the places are different from each other with different beliefs and cultures. The last approach is for the company to concentrate certain activities on the places where the critical mass and growth are located. Some of those activities are outsourcing strategy globally. The company managed to establish in all the call centers in order to provide the services in relation to the sales and checking the accounts (HSBC partnering with Discovery on sponsorship, 2003). The main aim of HSBC in outsourcing is to focus upon the needs of the customers. The call centers take the responsibility to answer any queries from the customers.
As a response to the development of the product, the company has continued in enhancing certain products which were very important for the customer group offering of the company and some of the products to be managed at a global level. Some of these products include like HSBC cards, Management of the cash, insurance, Management of the Assets, Funds and Custody Administration and benefits for the Retirement (Banks, 2016). Also the improvement of the HSBC products makes sure that the company will have the best ability and will be able offer a great service to its customers.
The development and the improvement of the product is very important as it serves as a good source to gain profits and to keep up with the trust of the consumers. The company will be able to attract even more customers whilst maintaining the old ones as well. With the improvement and development of the products, the company will be able to deliver the growth by enhancement of the culture which involves four aspects. These include the strengthening of the use of marketing as a key tool of management, which rewards the performance of the revenue, by focusing the investment on the businesses and localities where there is high potential for growth which can be achieved continuously when these aspects are implemented in an effective and efficient manner in the market (Banks, 2016).
The brand image of the company has been affecting the relationship between the consumers and the producers in the market. Everyone knew that maintaining brand image brings success to the organization and HSBC was equally strong to get that image. It managed to accommodate the variety at the product at local and international level. This also helps in establishment of a reputation, which is quite essential for the company to be familiar and for the market to react favorably with the company (HSBC partnering with Discovery on sponsorship, 2003). The brand image helps to hold associations which are strong, favorable and unique. It also helps in tying up with stronger companies and gain reputation globally.
HSBC is already a brand name which is recognized all over the country. Yet I have come up with my own assessment and some recommendation for HSBC, on the areas that I have covered so far. Like- HSBC has very few numbers of branches in The UK. They should expand their branches more in Dhaka as well as in the whole country. This will not only increase their business area but also give chance to serve more customers (Philbin, 2007). They are more concerned with the global and corporate customer group. In addition to that, they can also give some special service and facilities to other customer groups as well for example, try a form of MPESA transaction that has been successful in Kenya. HSBC has always stepped ahead in terms of bringing new technological advantage in products and services. They also put focus on providing and ensuring quality service to all of their customers. Even though The UK Bank has many rules and regulation for the banks operating in the UK, but then also competitors are increasing day by day in this sector (Langston, 2012). So considering this factor they should have proper strategic plans, both short term and long term, so that they can face any type of challenge and their business can have smooth running.
The management of HSBC in the UK should put special attention to reduce the coordination gap between front and back office (Philbin, 2007). This problem can have serious impact on their service as well as on their image. HSBC has some sort of hidden charges and interests in their loans and credit facilities. These things hamper customers and may create some negative feelings towards them. So these sorts of fees or interests should be clearly defined to the customers. The main revenue of HSBC comes from the corporate banking category, which is one of the reasons that they don’t have varieties of loan categories. But most of the banks are earning revenue from the loan sector and they have number of loan categories (like- any purpose load is providing by Prime Bank). HSBC can also introduce different types of loan facilities for their customers. This can help their existing customers as well as can enhance new customers to them. They can plan further move to gain competitive advantage over the rivals (likewise the position of SCB is also very established in The UK). In pursuing advantage over rivals, they may pursue several competitive moves (Langston 2012). For example- lowering or changing interest rates in their services, improving features, implementing innovations in the service etc. HSBC is among one of those banks which has taken number of corporate social activities and tried to put local touch with their business in The UK. Such respectful attitudes towards our country and culture have been appreciated by the UK people (Philbin, 2007).
Guide on investing in HSBC
Simon Gergel (as accessed on http://www.whatinvestment.co.uk/financial-news/shares-and-trading/2487446/why-hsbc-is-the-most-investable-uk-bank-for-income-investors-right-now-by-top-fund-manager.thtml) shared his sentiments that the key to the investment case for HSBC is that, on a ten-year view, it has greater optionality, more areas from where the growth can come, for example, it has a very strong focus in fast growing Asian markets. That breath of options to generate future returns is not something you can get with any other UK bank. The thing with investing in any bank is, well, you have to watch them carefully, the picture can be quite opaque, but HSBC is quite conservative in how it does things, and in terms of its costs base (Philbin, 2007). Some of the negativity is about the quite poor performance of some of the subsidiaries of HSBC, and the fact that it is so big, perhaps too big to be allowed to fail, and the regulatory complications that brings are a challenge. But the management of the company is under enormous pressure to make changes, to clear up the legacy issues, and it is a very interesting investment.
The bank made pre-tax profits of $18.7 billion, which hardly suggests a business in trouble, but when you look at it another way, it is almost $4 billion of profit that has disappeared in the space of 12 months since the bank logged a $22.6 billion gain in 2013. In fact, it is the lowest figure since the global financial crisis-afflicted number in 2009 (Philbin, 2007). One argument is that the decline in profits is almost exactly matched by what you might consider an exceptional item: the US$3.7 billion the bank paid or set aside for “fines, settlements, UK customer redress and associated provisions.” Still, while investors might take comfort that such a one-off hit is unlikely to be repeated, they should also be wondering why a bank that made its name on safe and predictable professionalism should have behaved in such a way as to earn these fines in the first place.
Besides, that is not the whole story. Philbin (2007) notes that investor concern should be “right across revenues, costs and impairments.” Net interest income fell to $8.5 billion in the fourth quarter compared to $9 billion in the same quarter the previous year, while group banking and markets saw revenues fall 29% quarter on quarter, or 23% year on year. There were negative results in both credit and rates, while foreign exchange earnings were down too. Loan impairments are up by half a billion dollars’ quarter on quarter, with Latin America largely to blame. And, on top of all of this, the market had been expecting so much better: reported fourth quarter profit before tax was US$1.7 billion compared to a Bloomberg consensus expectation of $4.5 billion, which was itself well down from $5.8 billion four weeks earlier. Little surprise that HSBC’s share price plunged 6% after the announcement (Guevarra, Granitsas and Chew, 2010).
The tax question is more reputational. It certainly does not help matters that the bank’s behavior has dragged the entire British government into the mess, with UK chancellor George Osborne facing questions in British parliament about why HM Revenue & Customs, the British tax office, did not do more to take action against HSBC and its clients who were attempting tax evasion through HSBC’s Swiss private bank. One could argue this represents a broader malaise and drop of standards at the bank – which has also, in recent years, faced censure for its behavior in Mexico and Iran, among other places – but as a damaging matter for shareholders, it is not likely to be particularly severe (Philbin, 2007).
Factors to Consider
HSBC has taken a bit of a beating over the past few years just like all the other banks, but I think this one has done a solid job of steering through the crisis. Earnings and dividends may be down substantially from the peak years of 2007/8, but things are not remotely as bad as they have been at some other banks. And there are new plans for growth. The recently announced a 3-year plan to improve returns and position the company for new growth is now in full swing, and over the next few years we will find out if it is working or not (Guevarra, Granitsas and Chew, 2010). So does the world’s second largest bank add up as an investment?
The first thing to look for in any investment is safety, and HSBC is about as safe as a bank can be. It is huge and very internationally diverse with operations in most parts of the globe. It is the number two bank in the world with its sights set on being number one, it has been profitable every year for a very long time and it always pays a dividend (Guevarra, Granitsas and Chew, 2010). The earnings are generally quite stable and so it is relatively easy to estimate what sort of earnings the company may make in the future and what sort of dividend it is likely to pay.
But there is more to investing than safety – most people want good returns too, from dividends, earnings growth and an increasing share price too. That is not a great return for 10 years, although the dividend would have been some consolidation. The point is that the market is now offering the chance to buy the same company, with about the same level of earnings and dividends, but for a substantially lower price than 10 years ago (Guevarra, Granitsas and Chew, 2010).
...(download the rest of the essay above)