ANALYSIS OF HSBC

BANK AND ITS

STRATEGY
May THU AUNG
Indu POUDEL
Elena DORNEANU
John OMESILI

Under the guidance of PROF. Francis MOATY

ESIEE PARIS
MOTIS 2013
Table of Contents

Table of Contents .................................................................................................................................. 2

1. Introduction ................................................................................................................................... 3
1.1. Origin of HSBC ....................................................................................................................... 3
1.2. Timeline .................................................................................................................................. 3
1.3. Crisis of HSBC......................................................................................................................... 4
1.4. Today HSBC ............................................................................................................................ 4
2. Global Diagnosis ............................................................................................................................ 5
2.1. External positioning and market analysis ............................................................................. 5
2.2. PESTEL Analysis ..................................................................................................................... 6
2.3. Porters Five Forces Analysis................................................................................................... 7
2.4. Presentation of HSBC’s products and services ...................................................................... 8
2.5. Strategic segmentation........................................................................................................... 9
2.6. Business Model ...................................................................................................................... 10
2.7. SWOT Analysis ....................................................................................................................... 11
3. Key Strategic Choices .................................................................................................................... 13
3.1. HSBC General Strategy.......................................................................................................... 13
3.2. HSBC Human Resources Strategy ....................................................................................... 15
3.3. HSBC Acquisition Strategy ................................................................................................... 15
4. Deployment and Results ................................................................................................................. 16
4.1. Internationalization Strategy ..................................................................................................... 16
4.2. Organizational Analysis and Change Management ................................................................. 17
5. HSBC – recent evolution................................................................................................................... 19
5.1. During the financial crisis .......................................................................................................... 19
5.2. From 2010 to 2013 ....................................................................................................................... 19
References ............................................................................................................................................. 21
 1. Introduction
1.1. Origin of HSBC
HSBC is the British multinational banking and financial services company which founded in 1991 by the
Hong Kong and Shanghai Banking Corporation. The origin of the bank is in Hong Kong and Shanghai and
branches were opened in 1865.

Figure 1: HSBC in Hong Kong and Shanghai in 1865

1.2. Timeline

Figure 2: HSBC’s Timeline from the origin to 2013

In April 2000, expansion into Continental Europe took place with the acquisition of Crédit Commercial de
France. HSBC also bought Demirbank and Insolvent Turkish bank in July 2001. Hongkong and Shanghai
Banking Corp would provide a fixed-rate mortgage to buyers of Cheung Kong (Holdings)' Victoria Towers
residential development in November 2001. In addition, HSBC announced HSBC USA, Inc., through a new
subsidiary, Wealth and Tax Advisory Services USA Inc. (WTAS), would purchase a portion of Andersen's
tax practice in July 2002. The new Group would serve the wealth and tax advisory needs of high net
worth individuals. In Aug 2002, it acquired Grupo Financiero Bital, SA de CV, Mexico's third largest retail
bank for $1.1bn. HSBC expanded further in the United States in Nov 2002.

The new headquarters of London officially opened in April 2003. To expend further, HSBC bought Polski
Kredyt Bank SA of Poland in September 2003. Furthermore, HSBC expanded into China buying 19.9% of
the Bank of Communications of Shanghai in June 2004. In the UK acquired Marks & Spencer Retail
Financial Services Holdings Ltd for £763m in December 2004. Acquisitions in 2005 included Metris Inc, a
US credit card issuer for $1.6bn in August and 70.1% of Dar es Salaam Investment Bank of Iraq in
October. Moreover, HSBC also bought the 90 branches in Argentina of Banca Nazionale del Lavoro in
April 2006. It also acquired the Chinese Bank in Taiwan in December 2007 and IL&FS Investment, an
Indian retail broking firm in May 2008.

1.3. Crisis of HSBC

Even though HSBC could expend its branches around the world, there are still crisis for HSBC. The major
crisis of HSBC happened in 2005 which Bloomberg Markets magazine accused HSBC of money-laundering
for drug dealers and state sponsors of terrorism. Though Stephen Green, CEO said that “This was a
singular and wholly irresponsible attack on the bank’s international compliance procedures”, subsequent
investigation indicated that it was accurate and proved that the bank was involved in money
laundering throughout Mexico. In March 2009, HSBC announced that it would shut down the branch
network of its HSBC Finance arm in the U.S., leading to nearly 6,000 job losses and leaving only the credit
card business to continue operating.

1.4. Today HSBC

Although there was financial crisis in 2007–2010, it is still better than other global banks. According to
Bloomberg, "HSBC is one of world’s strongest banks by some measures“. Today HSBC is spreading
around 85countries with 7,200 offices through Europe, Asia, Africa, North America and South America.
HSBC is organized within four business groups: Commercial Banking; Global Banking and Markets; Retail
Banking and Wealth Management; and Global Private Banking. HSBC also hasa dual primary listing on the
Hong Kong and London Stock Exchange and is a constituent of the FTSE 100 Index.
 2. Global Diagnosis
In order to find global position and market value of the HSBC bank, we focused in different sector and
used various analysis tools. External market analysis, Identified macro trends with PESTEL, identified
external factors impacting on the profitability of the company with Porter’s 5 forces, Products and
services analysis, various strategic segmentation of the company and internal analysis in business model
and SWOT analysis.

2.1. External positioning and market analysis

Headquartered in London, HSBC is one of the world’s largest banking and financial services organizations
and HSBC successfully established 6,300 offices in 75 countries and territories and more than 54 Million
Customers. “We are committed to growing the business and dividends, implementing the highest global
standards of conduct and compliance” is the global strategy according to Stuart Gulliver, HSBC Group
Chief Executive.

HSBC have a strong believe in local knowledge with global reach that is one of the successful formula
behind covering large area in financial sector, HSBC’s global market has expertise to invest in the four
principal asset classes – foreign exchange, rates, credit and equities. While doing market research we
found specific 5 brand values they are:

Perceptive: - Anticipated and meeting the needs of diverse customers around the world by using their
ability to combine global reach across markets and segments with local knowledge and expertise.

Progressive: - Committed to continuous improvement in quality, effectiveness and efficiency through

team work.

Responsive: - Acting quickly to ensure we meet and exceed customers’ ever-changing expectations.
Management at all the levels is hands-on, operating with a minimum of bureaucracy, giving guidance
with wisdom and delegating with confidence.

Respectful: - Exercise on corporate responsibility, committed to the welfare & development of the local
communities. Committed to complying with the letter and the spirit of all relevant laws and regulations
in the various countries in which they are present.

Fair: - demonstrating the highest levels of integrity and puting the Group’s interests ahead of the
individual’s and treat customers, employees and suppliers fairly and objectively.
 2.2. PESTEL Analysis
The factors analyzed in the “PESTLE Analysis” framework are political, economic, social, technological,
legal and environmental. Organizations use this framework to understand those macro-economic factors
which can help them in identifying external threats or opportunities. But in order to deal with external
threats or take advantage of external opportunities, an organization needs to analyze micro factors using
other frameworks like SWOT or Porters 5 Forces.

Political

HSBC’s management had to make an appearance in 2012 before the US Senate’s Permanent
Subcommittee on Investigations (‘PSI’). The political hearings were related to an investigation by the PSI
into potential risks to the US financial system from HSBC inadequate compliance with US regulations
around money laundering and financial sanctions (HSBC Interim Report 2012). According to BBC (2012),
US government held HSBC responsible for money laundering from criminal activities by drug lords
amounting to more than $2.6bn in assets. The bank is now required to strengthen their compliance and
risk management infrastructure and culture which is likely cost it a lot of money.

Economic

Many financial institutions are still feeling the effects of the 2008 financial crisis and the very real
liquidity problem that led to the failure of others like Northern Rock. According to Franks (2009), banks
like HSBC have been saved by the fact they are universal with product offerings all over many
geographical locations. The HSBC chairman says is surviving and doing well because its underlying
revenue growth is driven by Global Banking and Markets and Commercial Banking particularly in the
faster-growing regions of Hong Kong, Rest of Asia-Pacific and Latin America where the economic outlook
is more positive (HSBC Interim Report 2012)

Social

Social issues like climate change and criminal money laundering are some of the social issues that HSBC
is dealing with currently. In 2012, US government held HSBC accountable for criminal money laundering
amounting to $2.6bn and asked the company to contribute considerable time and resources to monitor
millions of potential crime transactions. HSBC is also gearing towards supporting a move to a low carbon
economy and as a result, it’s providing climate financing, including environmental markets, debt and
equity investment and insurance (HSBC Sustainability Report 2011 p15)

Technological

As the low carbon technology takes hold to support a low carbon economy, HSBC is beginning to invest
in climate and ‘clean tech’ research. For example, in 2011, HSBC provided structured finance for low
carbon emission bus systems in cities like Johannesburg and Panama making HSBC the market leader in
climate technology financing (HSBC Sustainability Report 2011 p15)
Legal

According to Frank (2009), increased governmental regulation from the EU, higher capital requirements
as well as new anti-money laundering requirements mean that HSBC has to deal with legal compliance
that is costly and time consuming.

Environmental

HSBC recognizes the current trends in climate change and governments demanding organizations to
reduce their carbon foot prints. HSBC says it’s committed to reducing its own carbon foot print by
reducing recycling waste, transport emissions as well as improving energy efficiency in their buildings
(HSBC Sustainability Report 2011).

2.3. Porters Five Forces Analysis

Porter’s Five Forces Analysis highlights the aspects in the external environment of an organization. These
factors have the ability to affect different organizations in terms of competing (Porter, 1980).
Accordingly, these forces has been defined as factors that drive competition, making sure that the
competitive business will be generated by the interaction of five various factors on a firm. These factors
include rivalry among industries, buying power of the customers, supplier power, the possible threats of
new entrants and the threat for substitute products or services within the market. By merely
understanding the context of each force, enables the company to have important insights that will drive
them to implement effective strategies to outgrow their competitors.

Force 1: The Intensity of Rivalry

It is said that HSBC has many rivals in the banking and financial sectors. The degree of rivalries among
these firms enables HSBC to use efficient strategies to maintain its leadership position in the market.
Furthermore, because of the capabilities of other rival companies, HSBC develops strategic plans to make
sure that they are always be the number one choice of their customers in banking and finance industries.

Force 2: The Threat of Entry

With the potentials of having high profits in this kind of industry, HSBC is subject to several threats of
market entry. The threats of these new entrants sometimes make or break an organization like HSBC. In
this regard, HSBC has been able to establish some entry barriers to ensure that their competitive
advantage. The company also uses strong branding images to make sure that their customers will remain
loyal to them.

Force 3: The Threat of Substitutes

HSBC is also aware that their competitors will provide new products and services in the future. The
threat that these substitute products gives to HSBC’s profitability allows the company to work hard to
sustain its position. Through the strategy of HSBC in focusing on four different customer segments, the
company has able to provide needs of each customer group which lessen the impact of other substitute
products.

Force 4: Buyer Power

Accordingly, the buyer power is noted to be one of the two important forces which affect the occupation
of the value established by an organization. Herein, the vital determinants of this force include the size
as well as the customer concentration. It can be said that HSBC has been able to manage their customers
effectively which allows the company to gain customer loyalty and satisfaction. The strategy used by
HSBC enables them to become the world leader in banking and financial sector.

Force 5: Supplier Power

It is said that supplier power reflects to the buyer power. In this regard, the analysis of this force
commonly focuses on the significant size and concentration of suppliers which is also relative to the
competitors. It also focuses on the degree of differentiation in the materials being supplied (Porter,
1980). It can be said that HSBC has the ability to charge their target markets different prices in
accordance with the differences in the price formulated for each of the buyers. This usually implies that
the audience is described by high supplier power.

2.4. Presentation of HSBC’s products and services

Global Product lines are as follows:

HSBC Direct

HSBC Direct is a telephone/online direct banking operation which attracts customers through mortgages,
accounts and savings. It was first launched in the USA in November 2005 and is based on HSBC's 'First
Direct' subsidiary in Britain which was launched in the 1980s. The service is now also available in Canada,
Taiwan, South Korea, France and India. Poland is launched business direct in September 2009. In the US,
HSBC Direct is now part of HSBC Advance

HSBCnet

HSBCnet is a global service that caters to local business needs by offering specialized functionality for
different regions worldwide. The system provides access to transaction banking functionality – ranging
from payments and cash management to trade services features – as well as to research and analytical
content from HSBC. It also includes foreign exchange and money markets trading functionality.

The system is used widely by HSBC's high-end corporate and institutional clients served variously by the
bank's global banking and markets, commercial banking and global transaction banking divisions.

HSBCnet is also the brand under which HSBC markets its global e-commerce proposition to its corporate
and institutional clients.
HSBC Advance

HSBC Advance is the group's product aimed at working professionals. The exact benefits and
qualifications vary depending on country, but typically require a transfer of Salary of USD 1,500 or more
every month or Maintain USD 25,000 of deposits in a Savings/Current Account or investments.
Advantages may vary depending on country, such as day-to-day banking services including but not
limited to a Platinum Credit Card, Advance ATM Card, Current Account and Savings Account. Protection
plans and Financial Planning Services. A HSBC Advance customer enables the customer to open accounts
in another country and transfer their credit history.

HSBC Premier

HSBC Premier is the group's premium financial services product, comparable to the Centurion service of
American Express. It has its own Elite Card entitled HSBC Premier World Card. The exact benefits and
qualification criteria vary depending on country. Customers have a dedicated Premier Relationship
Manager, global 24-hour access to call centers, free banking services and preferential rates. A HSBC
Premier customer receives the HSBC Premier services in all countries that offer HSBC Premier, without
having to meet that country's qualifying criteria ("Premier in One, Premier in All").

2.5. Strategic segmentation

HSBC is one of the largest banks in UK and is increasing its operations in other counties. There are
strong competitors from the world’s leading financial services organizations. To achieve constant growth
in business HSBC is persuading a “managing for growth” strategy. Their “strategic human resource
management” strategy involves developing comprehensive values among their employees. The
“strategic management” initiative was launched to ensure competitive advantage from each business
unit.

The intensity of strategy formulation is primarily focused on Private Banking, Personal Financial Services,
Commercial Banking and Corporate and Investment Banking. In current economic slowdown, HSBC is
emphasizing on helping domestic customers with additional products and advisory services as well
intensify on brand strategy to focus on globalization. HSBC plans to carry on building its strengths on
international connectivity and global business development with aims to invest primarily in fast growing
emerging markets.

HSBC was able to fully utilize the untapped business potential available and thereby capture a huge
chunk of the market.

Despite growing in almost 80 countries al over the world, HSBC has been successful in positioning itself
in ‘World’s local bank’. As the bank constantly works hard to maintain a local feel and local knowledge,
customers feel comfortable to bank with an international brand like HSBC. Consequently it has ensured
high customer loyalty and HSBC has been able to retain its large customer pool.
Another key factor of success is the ability of HSBC to reach a large section of customers by different
innovative promotional campaigns. Moreover discounts, rebates, relaxing of interest rates on loan
during crisis etc. has helped to gain popularity as well as confidence among its customers.

HSBC also keeps a strong focus on the services that it offers to the customers. It offers personal banking
services, consumer finance, commercial banking, corporate investment banking and market, private
banking etc. among 100 million customers spread all over the world in a very professional and efficient
way .This has helped to boost up the confidence level of the customers to a great extent. Also its
professional attitude towards understanding the different hitherto untapped segments like niche
marketing or targeting a specific demographic segment has led to its success story.

2.6. Business Model

HSBC business model is based on an international network connecting faster growing and developed
markets.

Banks takes deposits from customers and uses the funds to make loans, either directly or through the
capital markets. Direct lending includes unsecured lending, residential and commercial mortgages and
overdrafts, and term loan facilities. Finance importers and exporters engaged in international trade and
provide advances to companies secured on amounts owed to them by their customers. In addition, wide
variety of products and financial services are offered including broking, asset management, financial
dvisory, life insurance manufacturing, corporate finance, markets, securities services and alternative
investments. Products provide for clients ranging from governments to large and mid-market corporates,
small and medium-sized enterprises (‘SME’s), high net worth individuals and retail customers.Operating
income is primarily derived from:

• net interest income – interest income bank earn on customer loans and advances and on surplus
funds, less interest expense we pay on interest-bearing customer accounts and debt securities in issue;

• net fee income – fee income earn from the provision of financial services and products to customers;
and

• net trading income – income from trading activities primarily conducted in Global Markets, including
Foreign Exchange, Credit, Rates and Equities trading. Bank identified the markets where it expect future
growth opportunities to be concentrated. The structure is illustrated below.
 Figure 3: HSBC‘s market structure

2.7. SWOT Analysis

The SWOT analysis of HSBC Holdings provides strategic intelligence on:

 Strengths and weaknesses

 Category and country opportunities for growth
 Challenges and threats from current competition and future prospects
 Global and regional market positions
Strengths
 Strong brand name and good financial position
 Diverse customer base decreases risk
 Employs over 275,000 people globally
 Present in various business groups like commercial
banking, investment banking, financial services and
private banking
 The bank is well capitalized and this has enabled it to
perform relatively well against other banks in recent
economic events.
 The level of capitalization means that, going forward, the
bank is unlikely to need to borrow from the UK
government: this will enable it to retain more autonomy.
 The bank has a strong presence in emerging markets,
putting it in a good position to take advantage of future
growth in those economies.
 The bank’s global presence in Europe, Asia and South
America helps to spread risk and offers significant
economies of scale. (Has over 7500 offices in around 87
countries)
Opportunities
 Expansion in other countries
 Diversifying portfolios for customers
 Lower interest rates will boost market share
 HSBC’s high level of capitalization places it in a strong
position to acquire assets
 Banks finding trading conditions particularly difficult at
present may be available at low cost
 HSBC’s generally strong position presents the opportunity
to outperform competitors during the economic
downturn and to build a reputation for being one of the
safer banks for depositors, helping to increase resources
for lending.
 Negative press coverage of competitors such as HBOS may
encourage customers to choose HSBC instead.
Weaknesses
 US a declining market
 Weak retail banking as compared to competition
 HSBC associates itself strongly with investment in the
small business sector, but the current economic situation
has led to increased risks, potentially compromising the
activity levels in this area of the operation.
 The bank was involved with sub-prime markets in the US
and has had to write off large figures lent to high-risk
borrowers.
 Despite falls in the UK interest rate, HSBC has increased
its mortgage rates. This may be perceived negatively by
borrowers and potential borrowers, adds pressure to an
already depressed housing market and could ultimately
lead to more defaulting as borrowers struggle with higher
repayments.
 HSBC’s branding emphasizes its global presence, and this
may be seen negatively by some customers in its
implication of homogenization and lack of
personalization.
Threats
 Trust in banks has decreased due to financial losses
suffered by investors, who may be more inclined to invest
elsewhere.
 Financial losses affecting banks and investors on a global
scale have resulted in less credit being available to
customers. In the UK this is coupled with increases in
living costs resulting in less money being saved.
 Claims have been made that HSBC has understated losses
resulting from US sub-prime markets, and this could
undermine confidence in the bank
 Competition (BNP Paribas, Citigroup, China Construction
Bank Corporation, Deutsche Bank, Bank of America,
National Australia Bank, Standard Chartered Bank, Royal
Bank of Scotland)
 3. Key Strategic Choices
3.1. HSBC General Strategy

HSBC’s objective is to become the world’s leading international bank. Our strategic direction is aligned to
two long-term trends:
 International trade and capital flows: the world economy is becoming more connected.
Financial flows between countries and regions are highly concentrated, and over the next
decade we expect 35 markets to generate 90 per cent of world trade growth with a similar
degree of concentration in cross-border capital flows.
 Economic development and wealth creation: we expect the GDP of economies currently
deemed ‘emerging’ to have increased five-fold by 2050, benefiting from demographics and
urbanisation, by which time they will be larger than the developed world. By then, we expect 19
of the 30 largest economies will be markets that are currently described as emerging.
HSBC is one of the few truly international banks. Their advantages lie in the extent to which our network
corresponds with markets relevant to international financial flows, our access and exposure to high-
growth markets and businesses, and our strong balance sheet, which helps to generate a resilient stream
of earnings.
Based on these long-term trends and our competitive position, their strategy has two parts:
A network of businesses connecting the world: HSBC is well positioned to capture the growing
international financial flows. Our global reach and range of services place us in a strong position to serve
corporate clients as they grow from small enterprises into large and international corporates.
Wealth management and retail with local scale: we will capture opportunities arising from social
mobility and wealth creation in the faster-growing markets in which we are present. We will invest in
retail businesses in markets only where we can achieve profitable scale.
To implement this strategy we have set three priorities for the Group: grow the business and dividends;
implement global standards; and streamline processes and procedures.

Grow the business and dividends

We continue to position HSBC for growth, generating capital to invest in mostly organic opportunities in
our home and priority growth markets, while progressively growing the dividend.
We have adopted six filters, which serve as a tool to determine which businesses fit in our portfolio. They
help to address fragmentation in our portfolio by identifying which non-strategic businesses to dispose
of.
In deciding where to invest additional resources, we will follow this stringent framework to assess
investment opportunities using strategic, risk and financial criteria. Decisions on how we allocate our
resources are made by the Group Management Board under authority delegated from the Board.
Implement global standards
We are adopting and enforcing the highest global standards across HSBC. This means building a more
sustainable business model by investing in world-leading risk and compliance, while seeking to reduce
overall risk. We believe that implementing global standards in these areas gives HSBC a distinct
competitive advantage.
The three primary areas of focus are:
 Customer due diligence: developing an integrated framework to manage financial crime risk
more effectively across the complete customer lifecycle. This includes Know Your Customer
programmes, affiliate due diligence programmes and work on areas such as tax transparency
and bearer shares.
 Financial crime compliance: creating a consistent, flexible and scalable compliance organisation
and the financial crime risk controls to make sure we meet all Deferred Prosecution Agreement
(DPA) and other regulatory obligations. This includes implementing a comprehensive anti-money
laundering and sanctions compliance programme globally.
 Financial intelligence: building our capabilities in the capture and use of customer and
transaction data to identify suspicious transactions, activity or connections.

Streamline processes and procedures

We have put in place a structure to manage the bank globally, rather than on a federated basis. Our aim
is to continue to streamline, globalize and simplify processes and procedures to generate sustainable
savings. This will release capacity to further invest in growing the business.

Targets
We have defined financial targets to achieve a return on equity of between 12 per cent and 15 per cent
with a Basel III Common Equity tier 1 ratio above 10 per cent, and achieve revenue growth in excess of
cost growth (“positive jaws”). We will also aim to maintain a cost-efficiency ratio in the mid-50s.
Taken together, we are confident that these measures will deliver consistent and superior financial
results and move us closer to achieving our ambition of being the world’s leading international bank.

HSBC’s strategy is focused on

• domestic customers with additional products and advisory services
• intensify on brand strategy to focus on globalization
• international connectivity
• global business development with aims to invest primarily in fast growing emerging markets

HSBC objective is to become the world’s leading international bank through international trade and
capital flows and economic development and wealth creation.
“Our advantages lie in the extent to which our network corresponds with markets relevant to
international financial flows, our access and exposure to high-growth markets and businesses, and our
strong balance sheet, which helps to generate a resilient stream of earnings”

• HSBC is persuading a “managing for growth” strategy.

 • Their “strategic human resource management” strategy involves developing comprehensive
values among their employees.
• HSBC implements new all-employee benefits strategy, through which they create the right
culture, an organization that people want to join and then stay.

There can be mentioned 2 strategies HSBS adopted: regarding the human resources sector and the
acquisitions made.

3.2. HSBC Human Resources Strategy

Pension - a new, trust-based defined contribution arrangement. From 1 July 2015, HSBC will increase its
core employer contribution from 8% to 10% for the first £20,000 of employees’ pensionable salary and
to 9% for any remaining pensionable salary above £20,000. It will also match any employee contributions
of up to 7%.
Private medical insurance (PMI) - from January 2015, all employees will be eligible for company-paid
private medical insurance for themselves and their family.
Income protection - from January 2015, all employees will be eligible for company-funded income
protection of 60% of salary.
Holidays - as of 2015, annual holiday entitlements will range from 25-30 days (plus public holidays),
depending on global career band. Days can be bought and sold up to a maximum of five days.
Maternity leave - as of 2015, HSBC will provide 19 weeks’ paid maternity leave.

3.3. HSBC Acquisition Strategy

HSBC want to become a major player in the banking market in continental Europe. The acquisition of
CCF(Credit commercial de France) in 2005 will provide HSBC the quick entry it seeks. The acquisition
enhances the bank's presence in both private banking and asset management. CCF is strong in each of
these business areas. They acquire a firm with a record of performance that is comparable with that of
HSBC. CCF posted a return on equity (ROE) of 18 per cent in 1999, compared with 17.5 per cent at HSBC.

Expansion into Continental Europe took place in April 2000 with the acquisition of Crédit Commercial de
France, a large French bank for £6.6bn. In July 2001 HSBC bought Demirbank, an insolvent Turkish bank.
In July 2002, Arthur Andersen announced that HSBC USA, Inc., through a new subsidiary, Wealth and Tax
Advisory Services USA Inc. (WTAS), would purchase a portion of Andersen's tax practice. The new HSBC
Private Client Services Group would serve the wealth and tax advisory needs of high net worth
individuals. Then in August 2002 HSBC acquired Grupo Financiero Bital, SA de CV, Mexico's third largest
retail bank for $1.1bn. In November 2002 HSBC expanded further in the United States. Under the
chairmanship of Sir John Bond, it spent £9 billion (US$15.5 billion) to acquire Household Finance
Corporation (HFC), a US credit card issuer and subprime lender. In September 2003 HSBC bought Polski
Kredyt Bank SA of Poland for $7.8m. In June 2004 HSBC expanded into China buying 19.9% of the Bank
of Communications of Shanghai. In the United Kingdom HSBC acquired Marks & Spencer Retail
Financial Services Holdings Ltd for £763m in December 2004. Acquisitions in 2005 included Metris Inc, a
US credit card issuer for $1.6bn in August and 70.1% of Dar es Salaam Investment Bank of Iraq in
October. In April 2006 HSBC bought the 90 branches in Argentina of Banca Nazionale del Lavoro for
$155m. In December 2007 HSBC acquired the Chinese Bank in Taiwan. In May 2008 HSBC
acquired IL&FS Investment, an Indian retail broking firm.

4. Deployment and Results

4.1. Internationalization Strategy

In its growth strategy is the internationalization drive, The Bank placed great emphasis on increasing its
geographical coverage. HSBC entered with a strong presence in to developed markets of the United
Kingdom, France, Germany, the United States (primarily in New York), Canada, and Australia. And on the
flip side, it continued this drive to expand its presence in developing markets; the bank was especially
focused on developing operations into Asia and a number of emerging markets with recent acquisitions
to highlight its commitment to emerging market growth. Take for instance in 2008, HSBC acquired a
88.89% stake in Bank Ekonomi, in Indonesia, for USD 607.5 million doubling the bank’ network in the
country to 190 outlets. Also in 2008, HSBC substantially expanded its operations in the Korean insurance
market. To take another example, two years earlier, in 2006, HSBC acquired Banca Nazionale del Lavoro's
banking operations in Argentina.

Taken together, HSBC's assets in emerging markets exceeded USD 100 billion.

Indicators have shown that it international strategy has proven ingenious, these substantial steps into
the world's developing markets did not escape the attention of the industry and the analyst community,
which acknowledged HBSC's global presence with a number of industry awards and distinctions. Looking
back at 2010, HSBC was widely viewed as the number one bank in Hong Kong and the biggest
international bank in China. Furthermore, the bank received no less than four Euromoney awards,
including Best Emerging Markets Bank, Best Emerging Markets Debt House, Best International Islamic
Bank, and Best Sukuk (Islamic bonds) House.

Not surprisingly, movement into new emerging markets also brought with it the possibilty of expanded
banking services. Following its move into India, for instance, HSBC began offering RMB settlement
services for Indian importers. Analysts cited the strong business potential for such an offering. As of
2010, Indian companies in Hong Kong numbered 1,700, and the level of China-India bilateral trade was
estimated to be USD 60 billion. RMB-denominated services in Canada and New Zealand soon followed.

To be sure, HSBC's internationalization move into emerging markets helped not only distinguish itself
from other competitors, but also provided very real protective insulation during the historic challenges
faced during the global financial crisis. This feat as stated earlier is an obvious indicator of a strategy
gone good.

4.2. Organizational Analysis and Change Management

Towards achieving a simplified, more focused and easier to manage organization, HSBC carried out an
organizational analysis as well as put in place a change and risk management procedure.

Starting with the implementation of the organizational analysis, the bank created four global business,
these are , Commercial banking, global banking and Markets, Retail banking and Wealth Management
and the fourth as the Global private bank.
Furthermore, HSBC created 10 global functions covering communications, audit, legal marketing, Human
resources and Finance, risk management, strategy and planning. HSBC’s built a three layer matrix for
which grouped the 5 global locations, the 4 Banking business types and the 10 global functions work
together to achieve set objectives.

In terms of Human Resource management, HSBC created a strong leadership Strong Senior leadership
team with long experience in the industry and worked on building a talent pipeline that would attract
and retain talent within the industry and also simplified their workforce. This transformation reshaped
their portfolio and the outcomes were visible, financially, savings to the tune of USD.4bn dollars were
saved in the first quarter of 2013. There as net reduction of 39K from four programs.
 Figure 4: Human Resources declining portfolio

Another very important introduction in the organizational analysis was the Six (6) Filters HSCB applied
portfolio criteria applied with discipline towards reshaping the group, these were called the 6 Filters. The
six filters have led to an unprecedented number of disposals and exit.

Other procedure put in place were in form of risk management, the key risk management and internal
control procedures included the following:
 Group standards. Functional, operating, financial reporting and certain management reporting
standards are established by global function management committees, for application throughout
HSBC.
 Delegation of authority within limits set by the Board. Authority is delegated to each relevant Group
Managing Director to manage the day to day affairs of the business or function for which he or she is
accountable within limits set by the Board.
 Risk identification and monitoring. Systems and procedures are in place to identify, control and
report on the major risks facing HSBC including credit, market, liquidity and funding, capital, financial
management, model, reputational, pension, strategic, sustainability, operational (including
accounting, tax, legal, regulatory compliance, financial crime compliance, fiduciary, security and fraud,
systems operations, project and people risk), insurance and Islamic finance risk
 Changes in market conditions/practices. Processes are in place to identify new risks arising from
changes in market conditions/practices or customer behaviors, which could expose HSBC to
heightened risk of loss or reputational damage.
 IT operations. Centralized functional control is exercised over all IT developments and operations.
Common systems are employed for similar business processes wherever practicable
As a direct result of the application organization analysis and change management in their operations,
very significant growth was seen in CMB and RBWM, but they recorded expected marginal losses in
GB&M and GPB. The changes also brought an Increase in share price -Shareholders’ equity c.USD27bn
and declared dividends c.USD16bn. in 2012.

5. HSBC – recent evolution

5.1. During the financial crisis

Although it was at the center of the subprime storm, the wider group has weathered the financial crisis
of 2007–2010 better than other global banks. According to Bloomberg, "HSBC is one of world’s strongest
banks by some measures". When HM Treasury required all UK banks to increase their capital in October
2007, the group transferred £750 million to London within hours, and announced that it had just lent
£4 billion to other UK banks. In March 2009, it announced that it had made US$9.3bn of profit in 2008
and announced a £12.5bn (US$17.7bn; HK$138bn) rights issue to enable it to buy other banks that were
struggling to survive. However, uncertainty over the rights' issue's implications for institutional investors
caused volatility in the Hong Kong stock market: on 9 March 2009 HSBC's share price fell 24.14%, with
12 million shares sold in the last few seconds of trading.

5.2. From 2010 to 2013

On 11 May 2011 the new chief executive Stuart Gulliver announced that HSBC would refocus its business
strategy and that a large-scale retrenchment of operations, particularly in respect of the retail sector,
was planned. HSBC would no longer seek to be 'the world's local bank', as costs associated with this were
spiraling and US$3.5bn needed to be saved by 2013, with the aim of bringing overheads down from 55%
of revenues to 48%.

In 2010, then-chairman Stephen Green planned to depart HSBC to accept a government appointment in
the Trade Ministry. Group Chief Executive Michael Geoghegan was expected to become the next
chairman. However, while many current and former senior employees supported the tradition of
promoting the chief executive to chairman, many shareholders instead pushed for an external
candidate. HSBC's board of directors had reportedly been split over the succession planning, and
investors were alarmed that this row would damage the company.
On 23 September 2010, Geoghegan announced he would step down as chief executive of HSBC. He was
succeeded as chief executive of HSBC by Stuart Gulliver, while Green was succeeded as Chairman
by Douglas Flint; Flint was serving as HSBC's finance director (chief financial officer).

In August 2011, 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 and Brazil, and smaller countries where it
has a leading market share. According to Reuters, Chief Executive Stuart Gulliver told the media, "There
will be further job cuts. There will be something like 25,000 roles eliminated between now and the end
of 2013." In August 2011 “to align our U.S. business with our global network and meet the local and
international needs of domestic and overseas clients", HSBC agreed to sell 195 branches in New
York and Connecticut to First Niagara Financial Group Inc for around $1 billion and announced the
closure of 13 branches in Connecticut and New Jersey. The rest of HSBC's U.S. network will only be about
half from a total 470 branches before divestments. On 9 August 2011, Capital One Financial Corp.agreed
to acquire HSBC's U.S. credit card business for $2.6 billion,netting HSBC Holdings an estimated after-tax
profit of $2.4 billion. In September it was announced that HSBC seeks to sell its general insurance
business for around $1 billion.

In 2012, HSBC was the subject of hearings of the U.S. Senate permanent subcommittee for investigations
for severe deficiencies in its anti-money practices. On 16 July the committee presented its
findings. Among other things it concludes that HSBC has been transferring $7 billion in banknotes from
its Mexican to its US subsidiary, much of it related to drug dealing, was disregarding terrorist financing
links and was actively circumventing U.S. safeguards to block transactions involving terrorists, drug lords
and rogue regimes, including hiding $19.4 billion in transactions with Iran.

In July 2012 HSBC came under investigation for allegedly assisting in the money laundering of drug
dealers[53] and terrorist money [54] for many years, after a probe by the US Federal Reserve and Office
of the Comptroller of the Currency found that there was "significant potential for unreported money
laundering or terrorist financing".

On 11 December 2012, HSBC agreed to pay a record $1.92 billion fine in this money laundering case.
"Bank officials repeatedly ignored internal warnings that HSBC's monitoring systems were inadequate,
the Justice Department said. In 2008, for example, the CEO of HSBC Mexico was told that Mexican law
enforcement had a recording of a Mexican drug lord saying that HSBC Mexico was the place to launder
money." The DOJ, however, decided not to pursue criminal penalties, a decision which the New York
Times labeled a "dark day for the rule of law."

"We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we
do so again." HSBC Chief Executive Stuart Gulliver said.

In July 2013, Alan Keir was appointed Chief Executive of HSBC Bank plc after Brian Robertson resigned
from his post. Keir’s duties include overseeing the firm’s UK, European, Middle Eastern and African
divisions.
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