Finance

Hong Kong and Shanghai Bank Corporation (HSBC) is a global organisation providing one of the most expansive financial services with 8,500 offices spread in 86 countries mainly in Europe, the Asia Pacific region, the Middle East, Africa and America. It provides banking services such as personal, commercial, corporate, institutional, investment and private banking. Its financial statements meet International Financial Reporting Standards (IFRSs) recognised by the E.U. the banks net profit decreased by 70.06 in 2008 to USD5,728M and a further lower profit of USD5,019M was recorded in the year 2009. HSBC holding was established in the year 1965 in the U.K. and has shares held by 220,000 shareholders. The stocks are actively traded in The New York Stock Exchange (NYSE).

Having been established in 1865, its expansion was aided by takeovers, mergers and acquisitions. An example is its entrance into the Korean insurance market mainly for growth purposes during the economic downturn in the year 2008. The bank uses environment friendly products as a campaign to keep the environment conservation efforts high. 60 of its net income is realised from personal financial services while 19.3 is drawn from commercial banking. The remaining percentage is from global banking and markets and private banking which takes the least percentage. The HSBC bank has subsidiaries that include HSBC Limited in Asia Pacific region, Hong Kong Bank Limited in Hong Kong, HSBC Bank plc in the UK, HSBC France, Household International Inc in the USA, HSBC Private Banking Holding(Suisse) SA mainly in Europe, HSBC Bank USA NA  and Grupo Finances SA de CV in Mexico. Government entities, institutes, corporate clients, multinational and SME companies form its customer base. Stiff competition in the market that challenges HSBC in the USA and UK include Barclays Bank plc, Royal Bank of Scotland, Lloyds Bank Group, Citigroup, Bank of America and JP Morgan Chase (JPM).

Companies linked with HSBC prepare annual and semi-annual reports to reflect accountability. Interim reports were first prepared in the year 2002 with the formats differing from country to country due to the different regulations that exist in the different countries. These reports were used by the stakeholders to judge the strength of the company. These reports are also tracked by the web-crawler technology that allows for easy searching and copying into other documents with ease enabling easy location of important documents at the Global Reports Library on Research and Markets. The interim consolidated financial statements must include comparative information, a requirement by the IAS 34, UK Disclosure and Transparency Rules and The Hong Kong Listing Rules. The future state of financial affairs can then be judged using the available information. The HSBC adheres to accounting policies. These policies guide the efficient running of the company funds. The ones that are readily used are policies like Interest income and expense, Policies on non-interest income, Segment reporting, Policies on loans and advances to banks and customers and finally policies on the Impairment of Loans and advances.

Corporate governance analysis is the link to management, board of directors and shareholders that holds the management accountable and safeguards the interests of the shareholders. Compliance with the combined code on corporate governance was released by the Financial Reporting Council. There are several committees appointed to deal with several activities of the bank, for instance the Group Management Board, Group Audit Committee and the Remuneration Committee. Directors conduct internal controls within the bank so as to safeguard assets from unauthorised use, to maintain financial accounts that are proper, prevent frauds, errors, material misstatement or losses in the business. It also manages risks associated with health and safety of its operators. This is done by the Health, Safety and fire coordinators. Regular information is passed to customers in annual general meetings and timely responses provided ensure good customer-bank relations. During the financial meltdown, it augmented its capital by 8.3 and complemented its capital ratio by maintaining 83.6 advance to deposit ratio. Certain limitations hinder its growth despite all this an example of the limitations is marginal growth in the major business segments. Return on average invested on capital, basic profit per share an return on average total shareholders equity are some of the ways that HSBC benchmarks against competitors.

The current ratio for the last two years is at 0.92 from 0.70. Liquidity ratio is 7.1 while the shareholders liquidity ratio declined from 7.23 in 2006 to 1.16 in 2008 indicating little increase in shareholder funds. Solvency ratio is at 3.84 down from 5.65 last year but maintained 5.8 to 6.8 over the last four years. The gearing ratio shows vulnerability in repayment of interest if profits drop. Return on capital employed declined from 14.4 in 2007 to 5.2 in 2008. These results are a clear indication that management actions need to be questioned.

In the fiscal trend analysis, fixed and current assets have increased year-on-year (YoY) by 41.9 and 48.5 respectively. Current liabilities show an increase of 47.7 which is inline with increase in total asset increase. A percentage profitability trend analysis reveals a decrease in profit before taxation.  As such, HSBC has outsmarted its other rivals after the economic downturn. It is only Barclays that performed at par with HSBC as it also survived without bail out packages from their respective governments. HSBC implemented stringent corporate governance in line with NYSE and Stock Exchange of Hong Kong guidelines as exposed by the 2008 annual report. It also changed its accounting policies for financial instrumentations under recognition and measurement and the one under disclosure.
   
HSBC is focused on improvement by having synergy between each of its groups. By creating strong brands, providing offerings in accordance with each countrys culture, capitalising on human assets improvement is achieved. Revenue growth, revenue mix, cost efficiency ratio and credit performance are some key indicators, financial and non-financials that measure the companys strength. Currently, 59 of HSBC is in developed countries. It plans gain 50 in G7 and non-G7 countries in a decade due to a realisation that the future lies in expansion. The objective of financial reporting, according to IAS, is to provide information about financial position performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. They are prepared on historical transactions of the company. Governance in HSBC is managed by a board of directors that constitutes of a total of a group chairman, group chief executive and nineteen other directors with different positions.

In conclusion, HSBC handles and manages risks efficiently by implementing stress testing and other techniques. It also has a department that handles legal issues. Its growth is currently focused on the worlds economic centre of gravity which is moving from east to west. It therefore focuses on this particular market. A good analysis of its services suggests that the quality of its services is among the best in the world of banking. As a result, it offers the best quality for markets. Global incentive programs as well as global scorecards for its top managers ensures that it remains a leader in quality of the staff including its employees and managers who run the different departments in the bank. It is therefore recommended that the HSBC expands it tentacles to cover emerging markets as these have proved to be the points that foster growth in the current economy. This pursuit does not promise an easy escapade and it is a must that the HSBC focuses on its strong points to overcome the competition in the emerging markets. A SWOT analysis reveals that the HSBC has fewer weaknesses as compared to strengths and therefore it is likely to fair well in its exploration of new markets. Finally, due to all the facts that have been mentioned above, the HSBC was noted to have escaped the wrath of the recession that hit the worlds economic giants.