Consider the Various Product and Service offerings Provided by Investment Banking Vs. Commercial Bank

Mengyu He Z5097077

Consider the various product and service offerings provided by investment banking vs. commercial bank.

1. What are the differences?

Commercial banks usually provide services for the general public, such as providing loans, accepting deposits, and some basic investment products.  In addition, commercial banks also have agency functions, such as, to make payments of rent, and utility functions, including offer money transfer facility. However, investment banks as a kind of financial institution usually help governments, corporations, and individuals to increase financial capital by acting or underwriting as the client's agent in the issuance of securities (or both). For example, HSBC Investment Banking Group Limited provides the investment banking activities for companies.

1. Why does HSBC want to be a major force in wholesale and investment banking industry?

HSBC focus on wholesale and investment bank, because according to HSBC’s chairman, he considered that it was the right time to target the industry. There is no denying that HSBC had a great chance to develop its global investment and wholesale bank, because HSBC own an enviable client list of large companies around the world and have good relationships with them, especially Goldman Sachs, Morgan Stanley and Citigroup are in HSBC’s client list. In addition to that, HSBC’s management board was confident on the bank’s intrinsic strength. Being a major force in global investment and wholesale bank industry also can help to strengthen HSBC’s brand name and win trust from customers.

1. What are the main risks the shareholders of HSBC is facing in creating a global investment banking business?

The main risk the shareholders of HSBS is facing Financial Risk. This risk depends on how a business is funded in the long run. There are two types of funding available to a company, including loan funds (debt) or shareholders funds (equity). Debt results in repayment of capital and interest, whereas equity results in profit sharing and ownership. The Debt to Equity ratio increases, the financial risk also faced by the shareholders increase. HSBC has bad history in February 2007, HSBC had startled investors by issuing the first profits warning in its 142- year history. The Bank’s earnings picture would have been far more dismal had it not been for its strong performance in key emerging markets and investment banking. In addition, according to balance sheet of HSBC, total shareholders’ equity increased slowly.