SAP

Business Analysis for HSBC Holdings

Student’s full name:

Student’s programme: International Management
Module: Business Data Analysis
Academic Year / Semester: 2017/18
Word Count:
Seminar leader: Peter czagler
Due Date:
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TABLE OF CONTENT
1. INTRODUCTION ........................................................................................................................................ 1
1.1. Overview ..................................................................................................................................................1
1.2. SWOT Analysis .......................................................................................................................................2
1.2.1. Strengths ......................................................................................................................................................... 2
1.2.2. Weaknesses ..................................................................................................................................................... 3
1.2.3. Opportunities .................................................................................................................................................. 3
1.2.4. Threats ............................................................................................................................................................ 4

2. INDUSTRIAL ANALYSIS .......................................................................................................................... 5

2.1. Porter’s five forces analysis ....................................................................................................................5
2.1.1. Threat of new entrants .................................................................................................................................... 5
2.1.2. Threat of substitutes ........................................................................................................................................ 5
2.1.3. Bargaining power of customers ...................................................................................................................... 6
2.1.4. Bargaining power of suppliers ........................................................................................................................ 6
2.1.5. Industry rivalry ............................................................................................................................................... 6
2.2. PESTEL Analysis ...................................................................................................................................6
2.2.1. Political........................................................................................................................................................... 6
2.2.2. Economical ..................................................................................................................................................... 7
2.2.3. Social .............................................................................................................................................................. 7
2.2.4. Technological.................................................................................................................................................. 7
2.2.5. Environmental factors ..................................................................................................................................... 7
2.2.6. Legal ............................................................................................................................................................... 8

3. FINANCIAL ANALYSIS ............................................................................................................................ 9

3.1. The main changes in the Balance Sheet ................................................................................................9
3.2. The main changes in the Profit and Loss account ..............................................................................10
3.3. The main changes in the Cash Flow ....................................................................................................11
3.4. Ratio analysis ........................................................................................................................................12
3.4.1. Interest sensitive ratio ................................................................................................................................... 12
3.4.2. Capacity Ratio .............................................................................................................................................. 12
3.4.3. Leverage Ratio .............................................................................................................................................. 12
3.4.4. Internal Capital Growth Rate (ICGR)........................................................................................................... 13
3.4.5. Return on Equity (ROE) ................................................................................................................................ 13
3.5. Different pricing strategies ...................................................................................................................13
4. CONCLUSION .......................................................................................................................................... 14
5. REFERENCES .......................................................................................................................................... 15
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1. Introduction

1.1. Overview
HSBC is one of the leading financial organizations in the world, spread across 87 countries
with more then 7,500 offices globally. The company today has more than 150,000 shareholders in
over 124 countries (Head, 2018). It is considered to be one of the most comrprehnsive financial
services companies around the globe. HSBC offers a full range of financial services to its
customers mainly revolving around Personal Finance, Commericial Banking, Coroporate
Investment Banking and Markets Private Banking.

The financial giant is spead across several regions including Hong Kong (which is the
headquarter), Europe, Australia, America and Asia-Pacific. Since the last few years, it has been
seen that the company has been especially interested in the Asia-Pacific region because of its high
potential and has been investing in the region heavily. This has been the model the company since
its inception. They have experts who see financial opportunities and if they consider them viable
the company decides to invest in that market.

As a financial organization, HSBC has built its reputation over the years by becoming a
bank that has helped millions of customers in fulfilling their financial dreams. The bank has
expertise in the understanding of markets and investmet opportunities around the world and these
are the insights that they provide to their customers based on which they get handsome returns.
This trust has been build by years of world class financial services and it goes on till today. HSBC
knows and understands markets and appreciates different cultures (HSBC, 2018). These aspects
are important because in order to be an expert on financial investments, it is imperative that the
company knows the regions they operate in inside out and HSBC does exactly that for its
customers. The vision and mission of the company it to take each and every customer, whether a
single consumer or another financial instition, as an individual and treat them with utmost respect
and importance. They continually strive towards providing personalized services to everyone for
a wide range for financial products and services.
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1.2. SWOT Analysis

For any company, in order to position itself as a market leader, it is imperative that it knows
its external and internal environmental well. For this purpose, SWOT analysis is used as an
essential tool to understand what the company’s strengts, weaknesses, opportunities and threats
are (Dess, 2018). This analysis provides the company a clearer picture of where they stand and
what they need to do in order to grow further and stifgle their competition. Before preparing any
plans or taking up major projects, companies run a details SWOT analysis in order to move forward
with clarity and utilize their strengths to overcome their weaknesses and threats in the market
(Dess, 2018). It also opens up new avenues and opportunities to explore in the market. The SWOT
analysis for HSBC is as follows:

1.2.1. Strengths
1. The strength of the company lies in their strong financial standing (Head, 2018). HSBC
as an organization is very well capitalized. In other words, this means that despite the
economic volatility around the world in different markets, the company has been able to
withstand the challenges and survived through the financial crunch. Their strong
financial standing has meant that they were able to also withstand credit crisis in the
market around the region.
2. For most of their financial problems, the company is self sustainable (Head, 2018). This
means that the company does not rely on external organizations or even the government
for any kind of financial assistance during difficult times.
3. A strong foothole across the world. The bank is now established as a major name in
most of the markets around the world. This has meant that it enjoys a high market share
almost everywhere it operates and is able to stifle its competition fairly easily.
4. Banking industry is all about building trust with the customers. HSBC enjoys a strong
reputation with its customers in markets across the world.
5. The company has a very diverse portfolio of products and services. This is excellent in
terms of offering a wide range of services to the customers. Additionally, it also dilutes
the overall risk that the company is facing in the case of a financial crisis or of a threat
from competing banks.
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6. HSBC has successfully implemented many cost cutting measures which has made the
become financially very strong. It has also been able to increase its long term
profitability.
7. The company continues to add new markets and new products to its portfolio and has
enough to invest in order to capture these new avenues.
8. The bank has a very strong taskforce with some of the most skilled financial executives
around the world.

1.2.2. Weaknesses
1. HSBC has a strong association with the small business sector. While this diversifies its
portfolio, it still makes it very vulnerable to risk. Any problems with the small business
sector would mean that HSBC could face the risk of financial downfalls.
2. The bank has been involved in two major scandals in the US markets in 2012. That has
left a long lasting black spot on the their reputation. In some markets, the bank is still
facing implications of those two cases.
3. A recent case against the company was that it was being investigated for foreign trade
exchange rate manipulation. That caused considerable damage to the company’s
reputation around the world.
4. Recently, as a part of their cost cutting scheme, the company had to lay off a sizeable
number of employees from various regions around the world. This has once again added
to a backlash and a bad name in the market. In many regions, the company has faced
criticism from various sections of the society, causing harm to their reputation.
5. HSBC is a global company and that is the positioning it has maintained in all the regions
that it operates in. Critics say that this is meant that they find it difficult to connect well
with local markets in terms of brand loyalty.

1.2.3. Opportunities
1. HSBC is financially very strong which means that it can easily take up investment
opportunities in several regions to further strengthen its portfolio of investments. Their
strong financial status means that the bank is always in a position to explore investment
opportunities and strengthen the overall position of the bank in the market.
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2. Acquisitions is an area that HSBC can venture into. The strong reputation and name that
they have in the financial world means that there will always be suitors in the market who
would want to associate themselves with the bank and form a partnership. HSBC can
easily explore acquisitions in the market in order to boost their market share in various
regions around the world. This is a good strategy especially in emerging markets where
the bank is trying to create a stronghold for themselves.
3. HSBC’s biggest strength lies in its strong global position. This means that they are able to
withstand most global challenges such as the credit crunch or financial issues. This opens
up more opportunities for the bank as they are seen as a reliable and trustworth institution
to invest money in. From the costomer’s perspective, HSBC offers a safe haven for
people who want to invest and grow with a company that is financially very stable and
has a trustworthy brand name along with having a history of being able to stand tall
against the financial callenges of the world.
4. The competitors of HSBC have often beein in the limelight in the media because of their
wrongdoings. This can be seen as an opportunity for HSBC to further highlight their
strong brand and invite more customers to invest and take their services. This should also
be seen as an opportunity for further brand building through activities such as corporate
social responsibility initiatives. The bank should try and paint a great picture for itself by
working for the community and giving back to the society in which they operate. This
will further enhance the brand image and reputation of the company.

1.2.4. Threats
1. No matter how strong the bank might be financially currently, the threat of major losses,
credit issues or anything global financial challenges cannot be ignored. This will always
be a linger threat to the business.
2. Any such threats also cause consumer distrust as they become less confident towards
financial institutions such as HSBC.
3. Global credit crunch has meant that the working environment has become very difficult.
The bank’s lending ability to customer gets reduced significantly.
4. Because of the rising interest rates and the overall reduction in the house values, HSBC’s
housing investment business is under threat.
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5. Possible scandals or probes by authorities are always a threat for HSBC.

6. Regulatory or legal changes in the region the bank operates in could have serious
implications.

2. Industrial Analysis

2.1. Porter’s five forces analysis

Like SWOT, the Porter’s analysis is also a very popular tool used to understand the external
factors of the organization that could possibly have an impact on them. These are the factors that
are always having some or the other impact on the bank. Porter’s five forces discusses the threat
of new entrants in the market, threat from substitutes products and services, bargaining power of
customers, bargaining power of suppliers and competition in the industry. The below part of the
paper discusses the five forces for HSBC:

2.1.1. Threat of new entrants

The banking industry is a high profit industry which means that there will always be new
entrants who will be looking to enter the market. There are many big companies around the world
that could consider entering the banking industry. Even though the investment would be massive,
the returns from the banking industry are sizeable enough for any new entrant to consider coming
into the market. Therefore the threat from new entrants for HSBC in this market is high. Even
though HSBC has built a stronghold in the banking industry based on years of good service and
reputation, they will still have to be wary of any new entrants in the market.

2.1.2. Threat of substitutes

Threat of substitutes will be low in this industry because people usually go to big and
trusted names when it comes to their financial services and investment opportunities. For any
smaller names, it is hard to get customers to trust them. Therefore HSBC need not worry about
any threat from substitutes in this case.
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2.1.3. Bargaining power of customers

As mentioned previously in this paper, the banking and financial services industry is an
extremely competitive one with names from decades ago having established themselves in the
industry. This means that customers will always have a lot of choices to go to for their banking
needs. Therefore the bargaining power of the customers is high. And that is exactly why banks like
HSBC and its competitors have to always be on their toes ensuring that they consistently provide
world class services to their customers so that they can retain them for the long term.

2.1.4. Bargaining power of suppliers

In the banking industry, the bargaining power of suppliers is low because of their lack of
involvement. This is one area that HSBC does not need to worry about much.

2.1.5. Industry rivalry

The banking industry is one of the most competitive industries in the world. The fact that
it is historically so financially beneficial for companies makes it an extremely attractive industry
to be involved in. The chances of making profits consistently year after year means that more and
more banks will enter the market and this would make the competition very high. Plus, like HSBC
there are many more banks who have been serving their customers for decades and have built a
strong reputation for themselves. All of these entities in the industry make it a very competitive
one.

2.2. PESTEL Analysis

A PESTEL analysis is used to analyze the external macro environment of the company.
This tool is used to get a deeper understanding of the company’s external environment and that
information is then used to strategize for the future (Lawrence and Alfred, 2009). The different
factors that are analyzed in PESTEL analysis include politics, economy, social, technology,
environment and legal factors. The PESTEL analysis for HSBC is as follows:

2.2.1. Political
The world is going through a tough time of political instability. Many regions especially
Europe for example are suffering from political instability. For instance, a region like UK, which
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is one of the most important markets for HSBC is currently suffering a political situation against
the current ruling party. Plus the UK’s tussle with the Brexit movement makes it all very risky for
businesses operating in such an environment. Political instability poses big risks to businesses and
HSBC is no different.

2.2.2. Economical
The world frequently comes under financial scrutiny with problems like fluctuatin interest
rates, destabilized economies around the world and inflation, the banking industry regularly faces
difficult times and risk all around the year. But HSBC is financially very strong and stable and
therefore they have been able to weather the storm on many occasions. Anyone with a standing as
strong as HSBC will always have the stability to be able to survive the economical risks the world
present to financial institutions every now and then.

2.2.3. Social
Consumers of the modern world is well informed and educated. The access to information
because of technology has meant that they are more knowledgable about financial matters. This
means that people are now self aware and want to secure their futures by making meaningful
investments with names like HSBC. This change in consumer attitude towards investments bodes
well for a financial services organization like HSBC.

2.2.4. Technological
The banking industry is very competitive and it keeps evolving. In the pursuit of becoming
more and more competitive, companies like to innovate with the use of latest technology.
Therefore technology is a major player in the financial services sector. HSBC must always be
looking to innovate and bring on new products and services for their customers.

2.2.5. Environmental factors

For the financial services industry, environmental factors are not a major matter of concern.
However, banks must ensure that they follow all environmental laws and guidelines.
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2.2.6. Legal
Any change on regulations by the regulators or legal matters can be very risky for the
players in the banking industry. That is why HSBC maintains a fully functional legal department
everywhere in the world that ensures that they are kept on track and do no indulge in any kinds of
legal wrongdoings knowingly or unknowingly.
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3. Financial Analysis

3.1. The main changes in the Balance Sheet

Key changes:
 The total assets were 6% higher than they were in 2016 with a value of $2.5tn and also 1%
higher ona constant currency basis.
 The balance sheet looks strong because as the company targeted growth opportunites by
increasing lending mostly in the Asian market. That is where they experienced an increase of
14% in balances that are a testament to the growing momentum of the country due to corporate
lending in the region (Head, 2018).
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 Ratio of the customer accounts to customer advnances went up by 17% as compared to 2016
when it was at 68%. Once again, this was due to the company’s increasing focus on lending in
the markets.
 Advances and loans also increased by 12% reaching an amount of $101bn last year.
 Customer accounts globally also saw an incrase of 7% at $92bn.

3.2. The main changes in the Profit and Loss account

Key changes:
 After 2016, the company went into a big slump but the net profit in 2017 was a major increase
at $11,870 million as compared to the $3,446 million in 2016.
 There is still a lagging from the previous 3 years from 2013-2015. Profit percentages are still
lower in 2017 as compared to 2013-2015. 2016 was the year of the financial crunch for the
company.
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3.3. The main changes in the Cash Flow

Key changes:
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 The interest received by HSBC dropped from previous year dropped by 4% (HSBC
Holdings, 2017)
 The interest paid also dropped by 8% in 2017 (HSBC Holdings, 2017)
 However the biggest jump was experienced in the dividends received in 2017 when the
company experienced a staggering increase of 467% from 2016 (HSBC Holdings, 2017)

3.4. Ratio analysis

3.4.1. Interest sensitive ratio

2013 2014 2015 2016 2017

0.93 0.90 0.93 0.93 0.91

The current interest sensitivity ratio shows that the bank is consistently maintaining a ratio
of below 1 which indicates that it has been a liability sensitive bank tince 2013 (HSBC Holdings,
2017).

3.4.2. Capacity Ratio

2013 2014 2015 2016 2017

43% 46% 48% 44% 43%

Capacity ratio is the ratio between the total assets and the net loan. This shows a healthy
ratio as HSBC has been able to keep the net loan to total assets ratio below 50% consistently for
the last 5 years which means the company is cash rich and can look to invest in any interesting
avenues (HSBC Holdings, 2017).

3.4.3. Leverage Ratio

2013 2014 2015 2016 2017

3.77% 4.74% 5.43% 5.46% 5.61%
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Leverage Ratio is a ratio that gives a measure of the core capital over total assets. This ratio
is used to measure whether the bank is sufficiently capitalized or not. Any leverage that is greater
than 5% indicates that the bank is well capitalized (Investing.com, 2018). During the last 3 years,
it can be seen that the company has had a strong capitalization status (HSBC Holdings, 2017).

3.4.4. Internal Capital Growth Rate (ICGR)

2013 2014 2015 2016 2017

0.81% 0.02% 0.64% 0.67% 0.66%

Internal Capital Growth rate is a mesure of the speed at which the bank allows it assets to
grow such that the capital to assets ratio does not get affected negatively (HSBC Holdings, 2017).
The bank showed good recovery since 2014 when the ICGR fell sharply and has been stable for
the last three years (HSBC Holdings, 2017).

3.4.5. Return on Equity (ROE)

2013 2014 2015 2016 2017

5% 5% 9.2% 10.6% 8.1%

The return a company generates on the funds of its shareholders is called the return on
equity. After sharp falls in 2013 and 2014, HSBC has made a good recovery and has stayed
consistently healthy for the last three years with an ROE average of roughly 7% (HSBC Holdings,
2017).

3.5. Different pricing strategies

Considering the company is strong financially, they can afford to set average to low prices
for their customers. The company is strong in terms of capital as has been proved by the ratios and
also been in a healthy shape, hence they can afford to offer customers comparatively lower prices
as compared to their competitors.
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4. Conclusion

Through a thorough analysis of the company using the SWOT, PESTEL and Porter’s 5
Forces analysis, I have concluded that HSBC is currently in a very healthy position financially.
They can afford to take investment risks and can also afford to explore new and exciting new
investment avenues for themselves. The fact that they are financially so strong means that the
company is in a position to take calculated risk to grow further and expand their business across
the world.
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5. References

Dess, G. (2018). Strategic Management. United States: McGraw-Hill. p. 73.

Head, R. (2018). HSBC Holdings PLC ADR. [online] Marketwatch.com. Available at:
https://www.marketwatch.com/investing/stock/hsbc/profile [Accessed 7 Dec. 2018].

HSBC (2018). Annual Report | HSBC Holdings plc. [online] HSBC. Available at:
https://www.hsbc.com/investors/results-and-announcements/annual-report [Accessed 13
Dec. 2018].

HSBC Holdings (2017). HSBC Holdings Annual Report. Hong Kong: HSBC.

Investing.com (2018). HSBC (HSBC) Financial Ratios. [online] Investing.com. Available at:
https://www.investing.com/equities/hsbc-holdings-plc-ratios [Accessed 2 Dec. 2018].

Lawrence, P. Carr and Alfred, J. Nanni Jr. (2009). Delivering Results: Managing What Matters.
Springer Science & Business Media. p. 44.