Hsbc Case Study - Building a Global Wholesale Banking Capability

1.        Given its powerful global commercial banking franchise, why does HSBC want to become a major force in global wholesale and investment bank as well?

        In November 2003, HSBC officially announced its growing plan for the period 2004 – 2008 with a strategy focusing on wholesale and investment bank. Ultimately, there are both internal and external factors, which could potentially be the reasons for “Managing for Growth” plan.

According to Mr. John Bond, HSBC’s chairman, it was the right time to target the industry. It may be because HSBC already missed opportunity once to expand its investment banking business despite owning some franchise including British securities brokerage James Capel &Co. and merchant bank Samuel Montagu in 1980s and 1990s, when almost all firms went public or merged with public companies. Although M&A activity declined precipitously in 2001 and 2002, it did experience a rebound in 2003, which continued and accelerated from 2004 onwards.

In addition to that, HSBC’s management board was confident on the bank’s intrinsic strength.  Certainly, the powerful commercial banking position on the ground in various Asian countries gave HSBC a useful head start over the competition. It is undeniable that HSBC had a great chance to leverage its global wholesale and investment bank based on existing relationships with an enviable client list of large corporations around the world, especially it was the same blue – chip client list that Citigroup, Morgan Stanley and Goldman Sachs had.

Moreover, the bank ranked among top 5 global players in foreign – exchange and metal trading in the period 1999 – 2003. That would definitely a solid foundation for HSBC to achieve its targets of being top 3 in global FX and top 1 in precious metals. Also, the bank’s unexpected boost during the debt crisis in 1997 and 1998, while many US and European bank slashed, helped strengthen its brand name and win trust from customers. In 2003, with $1.012 trillion in assets (Figure 1) and $172 billion in market capitalization (Figure 2), HSBC was ranked only behind Citigroup. Its operating income (Figure 3) and operating profit before provision (Figure 4) were tremendously increased compared to previous years. Such financial strength is a valuable asset at a time when banks increasingly must compete on the basis of their balance sheets and ability to commit capital.

Besides, another vital factor, which led to the growing plan could be pressure from shareholders due to the decrease in share price (Figure 7), return in assets and return in equity (Figure 6) in year 2001, 2002.

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        Figure 1: HSBC’s Total Assets from 1999 to 2004

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        Figure 2: HSBC’s Market Capitalization from 1999 to 2004

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        Figure 3: HSBC’s Income from 1999 to 2004

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        Figure 4: HSBC Operating profit before provision from 1999 to 2004

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        Figure 5: HSBC’s Cost : Income Ratio from 1999 to 2004