Financial institutions are a key element of the modern economy and form the corner stone of the overall financial system (Anonymous, 2001). In order for all the sectors of an economy to perform efficiently, the sectors have to be backed by strong financial frameworks and institutions that have the ability to withstand both internal and external economic forces prevalent in the modern dynamic economy. HSBC is one such institution that forms a key component of the global economy. The company has withstood the adverse effects of the global crisis making it one of the most solid financial institutions of the time.
The history of HSBC
The HongKong and Shanghai Banking Corporation group, formerly known as HSBC Holdings plc was founded in 1865 under the inspiration of Thomas Sutherland shortly after United Kingdom established a colony in Hong Kong (HSBC, 2010). The financial institution was established to facilitate the growing trade between Europe, India and China by offering finances to newly established businesses in the region. Its first branch was established in Hong Kong in March of 1865 while another branch was opened in Shanghai a few weeks later to cater for the growing demand for banking facilities in the regions of Hong Kong and the Chinese coast (HSBC, 2010). After its formation, the bank established agencies and branches across the world by penetrating into the European and the American markets despite the fact that its initial aim was to build a strong establishment in the Asia-Pacific region. HSBC pioneered modern banking practices in the 19th century. For instance, in 1866 the bank opened up a new branch in Japan where the institution acted as a government advisor on issues relating to banking and currency while in 1888, the bank opened a branch in Thailand where it printed the country’s bank notes (HSBC, 2010). The bank’s main focus in both local and international business was trade finance, exchange, merchant banking as well as note issuing (HSBC, 2010). By the 80s, the bank was acting as a banker to the government of Hong Kong and also actively participated in the management of various government accounts such as China and Singapore. Through out the 19th century, the bank achieved remarkable success which made it one of the most successful financial institutions of the time in Asia.
The early 20th century saw the widening in scope of HSBC activities in the region through intensification of its financial activities across regions and issuance of loans to national governments to promote government spending within these nationals (HSBC, 2010). Although the First World War significantly disrupted business in 1920s, the HSBC bank played a major role in stabilizing the Chinese economic activities in 1930s through the bank’s long standing connections with the government’s finance as well as its efforts to stabilize the Chinese national currency. The second war however presented a major blow for the company. Majority of the institution’s staff were held captives of the war, numerous branches were shut down, while the chief manager and his designated successor died while serving as prisoners in Hong Kong (HSBC, 2010). Fortunately, the bank was salvaged under the guidance of the London Advisory Committee which was appointed to act as board of directors in 1943 and assisted the bank in adjusting to the war time conditions that were prevalent at the time. After the Second World War, HSBC intensified its efforts to move back home and quickly reinstated its head office powers and functions in Hong Kong. Its immediate response to the post war conditions was the reconstruction of Hong Kong’s economy through offering financial support to developing skills of new comers as well as other businesses. In its other markets across the globe, the bank needed to make extensive structural readjustments (HSBC, 2010).
By the 1970s the bank had developed policy of expansion through numerous acquisitions and establishment of subsidiaries under their own identity and expertise across diverse regions of the world. In the 80s, HSBC concentrated on widening the markets that it had ventured into. The bank purchased Marine Midland Bank in the US and assumed full ownership in 1987 which was the major highlight of the expansion (HSBC, 2010). HSBC further sought to establish itself in Europe by acquiring 14.9% share in Midland Bank UK. 1999 saw the establishment of HSBC Holdings plc which created a holding company for institutions established under the company and its shares were quoted in London and Hong Kong’s stock market (HSBC, 2010). The company viewed the European market as a key component to the company’s development evidenced by the company’s move to acquire full ownership of Midland after which the company became one of the largest institutions of its kind in the world (HSBC, 2010). Growth in the company continued to be registered through its numerous strategic acquisitions in the developed and emerging markets. Towards the end of 1998, HSBC group announced its intentions of brand standardization by using HSBC and its hexagon symbol in all the regions in which it operates. This promoted the company’s image among its customers across regions and also enhanced customer and shareholder confidence with the institution.
The 21ST century HSBC Group
The century has been characterized by remarkable successes in HSBC through the company’s strategic acquisitions. In 2000, the company’s shares started being traded at the Paris stock exchange for the first time (HSBC, 2010). This, coupled with the company’s acquisition of Credit Commercial de France (CCF) further strengthened HSBC presence in the European region. The company continued to make strategic acquisitions in the subsequent years which further led to HCBS expansion. In 2001, the company purchased companies in Australia, Turkey, China and Taiwan’s leading asset management companies (HSBC, 2010). In 2002, the company coined and adopted the slogan ‘The world’s local bank’ which highlighted the company’s understanding of diverse cultures and markets in which it operates making it increasingly popular in the global scale. In the same year, HSBC launched its five year ‘Investing in nature programme’ which not only served as evidence of the company’s corporate responsibility but also served as a marketing tool in a global economy that currently emphasizes on environment protection and preservation. HSBC further acquisition of the Mexico based company; Grupo Financiero Bital in the same year increased the market share by introducing 5.5 million new customers and 1400 branches into the group (HSBC, 2010).
HSBC continuous growth in 2004 was attributed to increment in strategic acquisitions with the Bank of Bermuda joining the group. HSBC also acquired the retail financial sector of Marks and Spencer group (HSBC, 2010). In 2005, the group focused on increasing its stake in its home country. The company diversified its service provision and in the same year, it published the world’s most comprehensive report on global attitudes to ageing and retirement (HSBC, 2010). Strategic acquisitions increased the market share and customer numbers in the regions where the group has established its holdings. The company further shifted its focus to the development of its personal and corporate financial services. In china, the group launched the RMB deposit service to consumers and the international business centers which facilitated the small and medium enterprises in regional trading (HSBC, 2010). However, 2007 and 2008 were challenging years for HSBC. The foreclosure crisis that hit the American property market adversely affected the HSBC Finance Corporation in US prompting the bank to issue warning statements on the impact of bad debts. Further, the unprecedented global recession and the collapse of major financial markets disrupted financial activities in the global economy forcing the company to adjust accordingly.
Strengths of HSBC
Despite the global financial crisis HSBC remained one of the most strongly capitalized and liquid banks in the global market due to its continuous efforts to venture into the opportunities for growth. Amidst the financial instabilities prevalent in the modern economy, HSBC has stayed strong which has served to increase investor confidence as well as consumer loyalty. In fact, the company is one of the few institutions that did not receive any government assistance with the occurrence of the financial crisis (HSBC, 2010). Its US $ 17.7 billion Rights issue is a clear indication of the company’s worth to investors trust and has strengthened the company’s position as a target investment. Its impressive performance as a financial institution has been widely recognized evidenced by its numerous awards inclusive of the global bank of the year 2009 (HSBC, 2009). Therefore, the company is a suitable investment opportunity for potential investors due to its impressive performance in the global economy as well as its inherent ability to withstand the effects of global recession. Further, the company continues to display corporate responsibility in the community. HSBC donated US $28.2 million to the victims of the 2008 Sichuan earthquake that occurred in China. The company has also made substantial donations to other natural disaster victims such as typhoon Ketsana in Philippines and Vietnam and earthquakes in Indonesia (HSBC, 2009). In addition, the company’s employees worldwide have embarked on a mission to bring smiles to thousands of children across the world.
Services offered by HSBC
HSBC provides a wide range of financial services to both private and corporate institutions across the globe. Being among the largest banking and financial service institution in the world, HSBC has expanded and diversified its services to its international network which cuts across 88 countries spread across six continents. The company provides a wide variety of mortgage services to its customers. The company offers personalized expert advice to its customers who have varying needs in terms of mortgage requirements (HSBC, 2010). The company’s mortgage advisors assist customers in making appropriate decisions depending on one’s requirements and affordability. The company offers varying mortgage loans at standard fixed rates inclusive of a two year fixed rate mortgage special which assists customers dreaming of being home owners (HSBC, 2010). The monthly repayments are fixed and remain fixed independent of any changes in the base rate. This, coupled with interest charging on daily basis allows the borrowers to effectively budget repayments during the fixed period which reduces incidences of defaulters. The company also offers discounted rates for its mortgage borrowers and presents them with options that are fee free consequently reducing costs for its customers. The company’s fixed and tracker rate mortgages exempt borrowers from booking fees, standard valuation fee, and exit fees among other expenses (HSBC, 2010).
HSBC offers expert financial advice to its personal and corporate customers through their skilled financial planners. This assists the customers in efficient planning of their finances in an ever increasing demanding world compounded by uncertainties prevalent in the contemporary market which constantly depreciates purchasing power (HSBC, 2010). The HSBC philosophy on financial planning is based on the company’s effort to understand the financial needs of its customers, supporting the informed decision made by the customer as well as adoption of a customized and integrated approach towards the process (HSBC, 2010). In addition, HSBC offers both personal and corporate loans to its customers. These loans range from mortgage financing loans, home equity loans, personal and corporate loans among other loans that fit the varying customer needs (HSBC, 2010). The company offers short term loans to its customers. These loans are beneficial to people with poor credit ratings and offers opportunities for customers to obtain unsecured loans (HSBC, 2010). The company further offers investment and savings services to its personal customers across regions.
HSBC global access assists millions of consumers in establishing their enterprises as well as transforming their small businesses into large multinationals (HSBC, 2010). The company offers a wide range of full service banking to small and medium business enterprises that promote these businesses. The services include provision of business bank accounts and credit cards, online banking, cash management, commercial mortgages among other financial services that have transformed the way of doing business among the small and medium enterprises in the modern world (HSBC, 2010). Through the corporate banking manager, HSBC addresses the requirements of its corporate customers and provides them with a range of services such as working capital provision and liquidity management, insurance services, and collection management services among others which have facilitated global business operations. HSBC further offers financial solutions to major governments as well as the corporate and institutional client’s across the world through its relations and development managers and product specialists whom through extensive analysis; develop financial solutions for the customers (HSBC, 2010). The company prides itself with the largest market businesses of its kind providing its numerous clients with 24 hour service and updates of the local markets hence its efficient provision of foreign exchange services, global asset management services and research services for regional economies.
Challenges likely to face HSBC group across regions
According to the HSBC (2010 p 14), “The Company’s business model is founded upon having ready access to financial resources whenever required to meet its obligations and grow in business”. Therefore, the company has to ensure that it maintains a diversified and stable funding through corporate and private customer deposits as well as institutional balances. In cases of market illiquidity, the value of return to financial institutions becomes highly unpredictable and this may result in reduction in capital resources as a result of valuation decline (HSBC, 2010). The market conditions experienced during the height of the financial crisis by financial institutions across the globe were manifested in reduced liquidity, reduced availability of long term wholesale market funding as well as pressure on capital and prices across a wide range of assets (HSBC, 2010). Illiquidity hindered the realization of some asset positions and constrained risk distribution in banking activities. HSBC’S global banking and markets business operates in a market that is highly uncertain and is often characterized by illiquidity and price volatility which may adversely affect the financial services of the company. The financial crisis that hit the global economy saw HSBC make substantial write downs and recognize impairments on illiquid legacy credit as well as structured credit positions (HSBC, 2010). Although the global economy experienced some level of stabilization in market conditions in 2009, the continuity of this trend remains highly unpredictable and if the economic situation turns to the worst in subsequent years, the company’s financial services are likely to be adversely affected.
The reforms of the regulatory environment aimed at responding to the recent global crisis that hit the world’s economy poses a risk to overall activities of HSBC. A consensus reached by the G-20 nations proposing that the institutions likely to pose systemic risk to the global economy as a result of business failure should be subjected to enhanced regulations in the markets in which they are established would heavily impact on the operating costs of HSBC across the regions in which it has substantial presence since it is among the significant institutions in the world (HSBC, 2010). The European Commission, the UK Tripartite Authorities, the government of US among others has adopted these regulatory regimes and this could adversely affect the entities of HSBC group in these regions. In addition, the bank has to deal with political and economic risks that arise in the countries in which it operates. Political instabilities in regions where its subsidiaries are situated would result to substantial losses consequently affecting the overall performance of the entire group. Further, these regions may experience economic instabilities resulting into currency fluctuations and changes in government policies which may significantly affect the performance of the company.
Threats facing the company
“HSBC operates in a highly competitive environment and competition could intensify as a result of current global market conditions and possible changes thereto” (HSBC, 2010 p 17). The recent financial crisis adversely affected the financial institutions of the world with those institutions that demonstrated strength to withstand the crisis being perceived as the solid financial institutions of the world. However, the HSBC group continued to demonstrate adequate strength during the period of the crisis which significantly increased its deposits and shareholding. The company should seek to address the issues of loan re-pricing and retail deposits which other weaker financial institutions are utilizing as a strategy to regain consumer confidence from the aftermath of the financial crisis. The crisis promoted a global shift towards emerging markets which has promoted the emergence of newly established financial institutions and intensifies the competition in the global market. The company is also exposed to numerous operational risks that are likely to affect the company’s activities as well as its image. Internal and external fraudulent activities and other criminal activities prevalent in financial institutions may disrupt the company’s activities and also tarnish the company’s name among its customers and shareholders consequently reducing their confidence.
HSBC bank is one of the most notable representative of the global economic system. Economic forces that move the global financial resources create solid financial basis for institutional banking structure. The latest financial tendencies that form banking strategy helped HSBC to overcome crisis, however, the traditional values of banking system had to be changed. Though, in spite of the required changes, the bank started offering new financial services for both private and corporate institutions across the globe. Analyzed changes in the service range are associated with financial progress and development as few banks offer varying mortgage loans at standard fixed rates. The fact that the monthly repayments are fixed and remain fixed independent of any changes in the base rate denotes that customer care strategy is one of the mostly valued aspects of business activity. Personal loans represent the latest economic tendencies, and offer the most valued aspects of economic services. Though, the challenges that are mainly faced by the bank and entire banking system of Shanghai signifies that the system is far from perfect, however, it is developing, and revels the most perspective challenges and values of economic development.
Anonymous. (2001). Why study financial markets and institutions. New York: McGraw Hill professionals.
HSBC. (2010). HSBC Official Website. Web.