HSBC HOLDINGS

Case 2-3

HSBC Holdings

As of 2010, it’s the world's sixth-largest banking and financial services group

The world's eighth-largest company according to a composite measure by Forbes magazine

In 91 countries including: Africa, Asia, Europe, North America, and South America

100 million customers

Abbreviation: Hongkong and Shanghai Banking Corporation

HSBC Holdings

“Today we are a contender and not yet the champion. We aim to change that.”

--Sir John Bond, HSBC Holdings Group Chairman

HSBC Holdings

John Bond’s goal is to make HSBC “the world’s local bank”

HSBC’s primary challenge is to create from its muti acquisitions, a seamless enterprise that follows a common design

In 2003, only Citigroup, Standard Chartered, and HSBC operated in multiple foreign markets for multiple clients

CitigroupIn 2003, world’s largest and most profitable financial institution

Offices in 100 countries (60% of income from North America alone)

Line of business drove decisions (not local market concerns)

Outside of the US, Citigroup shunned joint ventures

Operated as a single bank with a single balance sheet

Traveler’s Group bought Citicorp and renamed it to Citigroup

European acquisitions

Bought Banamex which increased emerging markets to 25%

Board consisted of all American representatives except two

Headquartered in London

Specialized in emerging market banking

28,000 employees in 500 offices in 50 countries

$113 billion in assets

Although larger than HSBC, failed to grow quickly after 70’s debt exposure

Retained strength in Hong Kong, India, and Africa

In 2003, 15% owned by Khoo Teck Puat and UK insurer owned 5%

British execs represented 12/18 board members

HSBC Holdings

Reorganized as HSBC Holdings in 1991, group headquarters relocated from Hong Kong to London

One of the largest banking acquisitions on record was when HSBC acquired the UK’s Midland Bank

This doubled their assets and enhanced their European presence

Dramatically broadened geographic scope

HSBC Acquisitions

Created a significant European presence during the acquisition of the French company, CCF

HSBC Control and Management

To promote rapid decision making and local accountability, the head office provided only the essential functions (HRM, strategic planning, legal control)

HUB (HSBC Universal Banking) which ran IT applications and credit control systems

Required subsidiaries to remit profits to the center

“Our traditional modus operandi really was as the world’s local bank. We had a local customer base, local management, local deposits, local lending. We acknowledged that the world is not a homogenous place that could be micromanaged from several thousand miles away.”

--local manager (pg.146)

HSBC Control and Management

HSBC’s traditional strategy was to invest surplus profits from its dominant position in Hong Kong elsewhere to improve their performance

In 1998, HSBC overlaid “customer groups” upon its existing geographic organization which centralized and shared best practices in product development, management, and marketing

How HSBC Differed from Competitors

All transactions exceeding $50 million were submitted to London for same-day approval which required regulatory parameters. This differed from competitors who let local managers decide what to distribute

“Boring is Good”HSBC was known as “thrifty, cautious, disciplined, and risk averse.”

HSBC managers emphasized to air on the side of caution.

Despite its extreme conservatism, its volatility is believed to benefit HSBC

HSBC CharacterFrugality has always been a virtue at HSBC where all staff fly economy class, including Chairman Bond. Bond took the subway to work and encouraged staff to turn off office lights at night.

HSBC created a program called International Managers for young recruits which gave them insight into the company and placed a value on determination and hard work

HSBC’S Branding TechniquesAfter talks about possible decentralization, HSBC took a major turn around and formulated a new strategic plan. In 2002, HSBC rolled out the tagline “the world’s local bank” with $50 million spent

on advertising.

“The global piece differentiated us, and the local piece made us relevant to local

customers.”

--HSBC manager

HSBC named most valuable banking brand (The Banker)

23rd most valuable brand in the world (Interbrand, Business Week)

HSBC advertises in 41 airports around the world

HSBC is often cited as an example of successfully implementing brand consolidation strategies

In November, 1998, the company embarked on brand integration efforts by creating a single hexagonal shape brand.

According to industry experts, such brand strategies enabled HSBC to create a

successful global brand without losing touch with local flavor and content.

Despite rebranding in 1999, the HSBC brand has become well-established and is considered particularly valuable within the

industry.

What can HSBC bring to a leading North American consumer finance

company such as Household? HSBC can bring to leading consumer finance company such as

Household the structured international collaboration it took to focus on the local markets and apply that to the private consumer financing aspect of Household.

Household hoped to develop local consumer data by partnering with local subsidiaries of existing corporate clients and cross-selling financial products

HSBC’s reliance on Household’s skills required training and integration across the board. This depended upon the developing relationships between colleagues and cultural integration.

Is HSBC organizationally ready to take on consumer finance?

HSBC has a 50 year perspective under their belt and is cautious in their decision making. HSBC is ready to forego a venture into consumer finance with the help of Household International. It has the foreign operations skills to know how to invest in client relationships and acquire funds from different markets. The only thing lacking is the knowledge of how to develop local consumer data.

Should Sir John Bond have bought Household International?

The evidence indicates that Household had tripled HSBC’s provisions for bad debts. Household had also settled a course case dealing with excessively high interest rates. Clearly there was a rocky beginning with the buy out of Household but through diligent integration, Bond could successfully benefit from this acquisition.