Deutsche Bank Vs HSBC

Document Sample
Deutsche Bank Vs HSBC Powered By Docstoc
					                                 END TERM PROJECT




                      End Term Project

       Comparative Analysis of the Global
    Operations of HSBC and DEUTSCHE
                                        BANK



                                      Submitted to:
                                      Prof. C P Joshi




                                       Submitted by:
                                     Siddhant Haralalka
                                      PGDM – IB (II)
                                        Roll no. - 17




K. J. Somaiya Institute of Management Studies and Research   Page 1
                                                     END TERM PROJECT



Table of Contents
The Global Economy ..............................................................................Error! Bookmark not defined.3
DEUTSCHE BANK
   Introduction ...................................................................................................................................6
   Credit Rating...................................................................................................................................8
   Sturcture ........................................................................................................................................9
   Strategy .......................................................................................... Error! Bookmark not defined.12
   Financial performance...................................................................... Error! Bookmark not defined.13
HSBC Bank
   Introduction .................................................................................... Error! Bookmark not defined.15
   Strategy .......................................................................................................................................13
   Emerging Markets and oppurtunities .............................................................................................20
   Credit Rating.................................................................................... Error! Bookmark not defined.27
   SWOT.............................................................................................. Error! Bookmark not defined.28
  Financial Performance............................................................................................................................30

  References...............................................................................................................................................31




K. J. Somaiya Institute of Management Studies and Research                                                                                        Page 2
                                   END TERM PROJECT

The Global Economy
The global economy is currently experiencing its steepest decline in post-war history and is
expected to suffer its first net decline since World War II in the current year, after having
expanded by 3.5 % in 2008. The global economy may start to stabilize by year-end 2009 before
returning to moderate growth in 2010.
The United States economy is the driver of the global contraction. After slipping into recession
in early 2008, U.S. economic output appears set to contract by as much as 3 % in the course of
the year, notwithstanding an economic stimulus package worth almost U.S.$ 800 billion and
despite the Fed‟s zero-interest-rate policy. Only in 2010 is it likely to return to a growth
trajectory, albeit much below its potential.
Emerging markets have been unable to decouple themselves from the United States economy‟s
strong downturn. Growth in Asia will probably decline to below 4 % in 2009, less than half the
rate of 2007. Latin America will likely stagnate and Eastern Europe may even shrink slightly in
the current year.
The Eurozone economies have followed the U.S. into recession. A noticeable improvement is
unlikely before early 2010. Germany, with its pronounced dependence on exports, is hit
particularly hard by the slump in global demand. We expect real Gross Domestic Product in
Germany to shrink by 3.5 %, despite supportive factors including lower oil and commodity
prices, the ECB‟s relaxation of monetary policy and the government‟s extensive economic
stimulus packages. The German economy may see a slight recovery in 2010, with GDP growth
of around 1 %.
Economic output in the Eurozone as a whole has experienced a decline in 2009 of more or less
the same magnitude as Germany‟s. While some member states of the Eurozone are less
dependent on foreign demand than Germany, corrections in the real estate markets of countries
such as Spain, Ireland and the United Kingdom will likely weigh on the GDP growth of those
nations.
Driven by oil and commodities prices, inflation reached multi- year highs in industrial countries
during 2008. As the recession set in commodities prices declined steeply, substantially
alleviating inflation pressures. In the U.S., consumer prices have already stagnated in year-on-
year terms in January 2009 and fell by close to 1 % in 2009 on average. Core inflation, however,
which excludes fuel and food prices, is likely to come in at around 1.5 %.

K. J. Somaiya Institute of Management Studies and Research                                Page 3
                                    END TERM PROJECT

Inflation also temporarily turned negative in Germany in 2009.
Additional risks for the global economy could result from a heightening of geopolitical tensions,
political instability, potential terrorist activities or regional outbreaks of armed conflict. A further
deepening or substantial exacerbation of the financial crisis, particularly when combined with a
failure of government intervention to control the impact, could result in significant disruptions in
the financial sector, lead to the collapse of financial institutions, and cause the global economy to
slide into a long-lasting economic depression.




K. J. Somaiya Institute of Management Studies and Research                                       Page 4
                                 END TERM PROJECT

The Global Branding Index




K. J. Somaiya Institute of Management Studies and Research   Page 5
                                  END TERM PROJECT




                    Deutsche bank
Deutsche Bank is a leading global investment bank with a strong and profitable private client‟s
franchise. Its businesses are mutually reinforcing.

A leader in Germany and Europe, the bank is continuously growing in North America, Asia and
key emerging markets.

With 77,053 employees and about 2,000 branches in 72 countries (as of Dec. 31, 2009),
Deutsche Bank offers unparalleled financial services throughout the world.

Private & Business Clients


Private & Business Clients provides private individuals and small to medium-sized businesses
with a full range of traditional banking products, including c urrent accounts, deposits and loans,
investment management products and business banking services.
Global Banking comprises Corporate Finance and Global Transaction Banking. Corporate
Finance is comprised of M&A Advisory, Equity Capital Markets, Leveraged Debt Capital
Markets, Commercial Real Estate, Asset Finance & Leasing and corporate lending services.
Global Transaction Banking delivers commercial banking products and services for corporate
clients and financial institutions. Business units include Cash Management, Trade finance and
Trust & Securities Services


Mission


We compete to be the leading global provider of financial solutions, creating lasting value for
our clients, our shareholders, our people and the communities in which we operate.



K. J. Somaiya Institute of Management Studies and Research                                  Page 6
                                  END TERM PROJECT

Brand
Deutsche is clear: we are here to perform – in business and beyond. We do this with a unique
mix of passion and precision. This measured approach gives us the confidence to enable agile
minds to look beyond the obvious, gaining advantage for everyone we work with.



Personality


We are:

        passionate
        precise
        confident
        agile minded

Values


The principles that guide our behaviour to deliver our brand:

        performance
        trust
        teamwork
        innovation
        client focus




K. J. Somaiya Institute of Management Studies and Research                            Page 7
                                   END TERM PROJECT

Credit Ratings

Deutsche Bank is rated by the leading independent rating agencies. We have favorable ratings as
shown below.

Ratings of Deutsche Bank Short term rating Long term rating Outlook Individual rating
Moody's Investors Service    P-1                  Aa3                  stable C+
Standard & Poor's            A-1                  A+                   stable n.a.
Fitch Ratings                F1+                  AA-                  negative B/C



Rationale

The ratings on Deutsche Bank AG are supported by its strong franchise in its global capital
markets businesses, good performance in global transaction banking, a stable management team,
and consistent strategy. These strong points are partly offset by relatively small and declining
contributions to pretax income from the bank's private clients and asset management division,
high dependence on wholesale funding, and vulnerability to the volatile cycles of the capital
markets in the securities trading and underwriting business lines.
Deutsche Bank, one of the world's largest financial institutions with €1.5 trillion in assets at year-
end 2009, maintains one of the largest trading books in the global industry. It suffered substantial
mark-to-market losses from the collapse of financial markets in the second half of 2008, at the
onset of the recession. This left room for better results in 2009. In its Corporate Banking &
Securities (CB&S) division--the group's main profit generator--write-downs dropped to €925
million in 2009, versus €7.5 billion in 2008. Part of the 2009 decline was due to the bank's
reclassification of €38 billion of trading and available- for-sale assets to loans in accordance with
International Account Standard (IAS) 39. This creation of a "legacy portfolio" allowed the bank
to avoid even higher mark-to- market losses and to reduce volatility of results.
Net income for 2009 was €5.0 billion, versus a loss of €3.9 billion in 2008. A robust rebound in
full- year earnings in CB&S led the way. Nonetheless, weaker CB&S returns drove a decline in
pretax profitability in the fourth quarter compared with that for the first nine months. The trading
environment was less favorable at the end of 2009: bid-ask spreads narrowed, volatility remained
lower, and customer business flows dropped. The bank's recognition of €554 million in deferred


K. J. Somaiya Institute of Management Studies and Research                                     Page 8
                                  END TERM PROJECT

tax assets in the U.S. helped offset the impact. Full- year results for 2009 included €1 billion in
gains related to Deutsche Bank's minority stake in Deutsche Postbank AG (A-/Positive/A-2).
The bank's credit loss provisions totaled €2.6 billion in 2009, about 1% of loans. Half were for
legacy assets. Deutsche Bank continues to show good performance in credit underwriting. The
group's Basel II Tier 1 capital ratio rose to 12.6% due to earnings retention and an 11% reduction
in regulatory risk-weighted assets (RWA) in 2009. Standard & Poor's own risk-adjusted capital
framework (RACF) assigns a greater (than Basel II) risk weighting for trading risk, corporate
loans, and equity investments in the banking book. While our assessment of Deutsche Bank's
capitalization is consequently much less favorable than that of the German and European
regulators, our RAC ratio improved during the year.


Structure


Deutsche Bank‟s business model combines global investment banking activities with a strong,
profitable and growing retail business, especially in Europe and Asia. In the light of the most
severe financial crisis experienced in decades, this broad base is the key to securing a certain
level of stability in the development of the company.
Management structure
The Management Board of Deutsche Bank AG has as its prime responsibility the Group‟s
strategic management, resource allocation, financial accounting and controlling, capital and risk
management, and internal controls. The Management Board is supported in the performance of
its leadership and oversight duties by functional committees which are chaired by Management
Board members, and by the Corporate Center.
In April 2008, Stefan Krause joined the Management Board of Deutsche Bank AG; with effect
from 1 October 2008, he assumed the position of Chief Financial Officer as successor to
Anthony Di Iorio, who retired, as planned, on this date.
The Group Executive Committee ( GEC ) is made up of the members of the Management Board,
the heads of the five core businesses, and the head of Regional Management. The GEC supports
the Management Board in its decision- making. At regular meetings, it reviews developments
within the businesses, discusses matters of Group strategy and formulates recommendations for
the Management Board. Josef Ackermann chairs both the Management Board and the GEC.

K. J. Somaiya Institute of Management Studies and Research                                  Page 9
                                  END TERM PROJECT




Group Divisions
Deutsche Bank‟s Group Divisions are: the Corporate and Investment Bank ( CIB ), Private
Clients and Asset Management ( PCAM ) and Corporate Investments ( CI ).
Corporate and Investment Bank
CIB is responsible for Deutsche Bank‟s capital markets business, comprising the origination,
sales and trading of capital markets products including debt, equity, and other securities, together
with our corporate advisory, corporate lending and transaction banking businesses. Our clients
are institutions, both public sector, including sovereign states and supranational bodies, and
private sector entities, from medium-sized businesses to large multinational corporations.
CIB is subdivided into two Corporate Divisions: Corporate Banking & Securities (CB & S) and
Global Transaction Banking (GTB). Corporate Banking & Securities comprises our Global
Markets and Corporate Finance businesses, and covers Deutsche Bank‟s origination, sales and
trading of securities, corporate advisory and M & A businesses, together with other corporate
finance activities.
Global Transaction Banking covers Deutsche Bank‟s trade finance, cash management and trust
& securities services businesses and serves both financial institutions and corporate clients.
Corporate Finance and Global Transaction Banking are together named Global Banking.
Private Clients and Asset Management
PCAM comprises two Corporate Divisions: Asset and Wealth Management and Private &
Business Clients. Asset and Wealth Management comprises two Business Divisions: Asset
Management and Private Wealth Management. Asset Management provides retail clients across
the globe with mutual fund products through our DWS and DWS Scudder franchises.
Asset Management also provides institutional clients, including pension funds and insurance
companies, with a broad range of services such as traditional asset management, alternative
assets, sophisticated absolute return strategies and real estate asset management. Private Wealth

K. J. Somaiya Institute of Management Studies and Research                                   Page 10
                                  END TERM PROJECT

Management serves high net worth individuals and families worldwide. We provide these very
discerning clients with a fully- integrated wealth management service, encompassing portfolio
management, tax advisory, inheritance planning and philanthropic advisory services. Private and
Business Clients (PBC) provides private individuals and small to medium-sized businesses with
a full range of traditional banking products, including current accounts, deposits and loans,
investment management products and business banking services.
Outside Germany, PBC has for some years operated in Italy, Spain, Belgium and Portugal, and
more recently in Poland. We are also making focused investments in fast growing Asian markets,
for example in China and India.
Corporate Investments
The Corporate Investments Group Division covers our industrial shareholdings, certain bank-
occupied real estate assets and other non-strategic holdings.




K. J. Somaiya Institute of Management Studies and Research                             Page 11
                                  END TERM PROJECT

Growth Strategy

We regard the current financial crisis as very serious, but we are convinced that Deutsche Bank
can emerge stronger. Our business model remains fundamentally intact. Our medium-term
strategy remains committed to exploiting the growth potential in all of our core businesses, while
also making adjustments to our platform to take account of the market upheavals we have
recently witnessed. To this end, we aim to build on our broad-based business model. Corporate
Banking & Securities will be recalibrated. Investment banking remains one of Deutsche bank‟s
core businesses. However, we will withdraw resources from areas in which a recovery seems
unlikely in the near future. At the same time, we will be investing in growth areas, including
some „flow‟ trading businesses and commodities trading, corporate finance in certain industry
sectors, and our German mid-cap business. Global Transaction Banking, which has delivered
strong growth, will step up the pace of its activities. We are concentrating mainly on new and
growing markets, for example by continuing to expand the local trust & securities services
businesses and the development of new products and solutions for our clients. Our aim is to
achieve organic growth while monitoring acquisition opportunities.
Asset Management is focusing strongly on re-positioning its core business areas: retail,
alternative investments, institutional investors and insurance asset management. In all core
businesses, we are re-engineering in order to restore operating leverage in changed market
circumstances. As a large provider with an extensive range of services, Deutsche Bank is also
benefitting from the crisis-driven “flight to quality”. We will also continue to globalize our DWS
brand. PWM will take measures to improve its cost efficiency, while also capturing selective
expansion opportunities.
In Private & Business Clients, the focus is on rolling out our growth and efficiency program. We
are expanding the branch network in Germany and other European countries and increasing
efficiency in the mid and back-office. Our minority share in Deutsche Postbank offers
considerable immediate-term opportunities for co-operation, which we are already taking
advantage of.
Relatively robust business model
The current crisis has exposed weaknesses in some parts of our business model, which we have
addressed with focused and decisive actions. Furthermore, our fundamental business model


K. J. Somaiya Institute of Management Studies and Research                                Page 12
                                   END TERM PROJECT

remains sound. With its diversified business portfolio and global franchise, its solid Tier 1 capital
ratio and funding base, Deutsche Bank in 2008 has managed to increase its share in many
businesses even in shrinking markets. However, revenues often were lower in absolute terms
compared with 2007.


Acquisitions
      Morgan, Grenfell & Company, 1990.
      Bankers Trust 30 November 1998.
      Scudder Investments, 2001
      Berkshire Mortgage Finance 22 October 2004.
      Chapel Funding, now DB Home Lending 12 September 2006
      MortgageIT Holdings 3 January 2007




K. J. Somaiya Institute of Management Studies and Research                                   Page 13
                                 END TERM PROJECT




K. J. Somaiya Institute of Management Studies and Research   Page 14
                                 END TERM PROJECT




The HSBC Group is named after its Parent company. The Hongkong and Shanghai Banking
Corporation Limited, which was established in 1865 to finance the growing trade between China
and Europe. HSBC Bank is the largest bank in Hong Kong and second largest group in the world
after Citicorp. Before moving its headquarter to London in 1990, it was headquartered in Hong
Kong Headquartered in London, HSBC is one of the largest banking and financial services
organizations in the world. HSBC's international network comprises around 9,500 offices in 85
countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and
Africa.
With listings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares
in HSBC Holdings plc are held by around 200,000 shareholders in some 100 countries and
territories. The shares are traded on the New York Stock Exchange in the form of American
Depositary Receipts.
                                      HSBC BANK
Type              Public (LSE: HSBA, SEHK: 005, NYSE: HBC, Euronext: HSB, BSX)
Founded           Hong Kong (1865)
Founder           Thomas Sutherland
Headquarters      London, England, United Kingdom
Area served       Worldwide
Key people        Stephen Green, Group Chairman
Industry          Finance and insurance
Market cap        US$ 175,661.42 million (October 14, 2008)
Revenue           US$ 146.50 billion (2008)
Net income        US$ 19.1 billion (2008)
Total assets      US$ 2.35 trillion (2008)
Total equity      US$ 128.2 billion (2008)
Employees         330,000 (9,500 offices in 85 countries and territories)



K. J. Somaiya Institute of Management Studies and Research                             Page 15
                                 END TERM PROJECT

Through an international network linked by advanced technology, including a rapidly growing e-
commerce capability, HSBC provides a comprehensive range of financial services: personal
financial services; commercial banking; corporate, investment banking and markets; private
banking; and other activities
PRINCIPLE ACTIVITIES:
The group provides a comprehensive range of banking and related financial services.
  the group divides its activities into geographical segments: UK, Continental Europe and Rest
of the World
   the group also divides its activities into the following business segments: UK Personal
Financial Services; UK Commercial Banking; UK Global Banking and Markets; International
Banking; HSBC France; Private Banking.


CORPORATE BANKING                            RETAIL BANKING
Corporate Solutions                          Home Loans
Government Solutions                         Car & Two Wheeler Loans
Capital Market Services                      Consumer/Personal Loans
Agriculture Finance                          Saving & Term Deposit
Structured Finance                           Salary Account
Project Finance                              Roaming Current Accounts
Infrastructure Finance                       Investment Products
Term Loans                                   Private Banking
Working Capital Finance                      NRI Services
Cash Management Services                     Demat Services
Trade Finance Services                       Credit & Debit Cards
International Banking                        Smart Cards
Treasury Services                            Bill Payment Services
Corporate Internet Banking                   E-Cheques
Corporate Advisory                           Branches
Custodial Services                           ATMs
Professional Clearing                        Internet Banking
Membership Services                          Phone Banking




K. J. Somaiya Institute of Management Studies and Research                            Page 16
                                  END TERM PROJECT

STRATEGY - Four key businesses

HSBC has four key businesses:
Global Banking and Markets:                                  Positioning for the next wave of
emerging markets- led and financing focused                  global growth
wholesale bank
Private Banking:                                             Building on intra-Group referrals
a world leading international private bank
integrated into a unique distribution network
Commercial Banking:                                          Strengthening international links
the leading international business bank and best
small business bank
Personal Finance Services:                                   We will use the business models,
use our global scale and local knowledge to grow             which give us a 'right to win'
profitably in selected markets
Alignment of presence with global trends

HSBC's strategy is aligned with three trends which are shaping the global economy

   1. Emerging markets are growing faster than developed countries
   2. World trade is expanding faster than GDP
   3. Longevity is increasing virtually everywhere

Building on HSBC's heritage

Our strategy is focused on delivery superior growth and earnings over time




K. J. Somaiya Institute of Management Studies and Research                                    Page 17
                                 END TERM PROJECT




Invest primarily on high growth economies




The business is being re-shaped to focus primarily on high growth economies, by aspiring to
trend to 60% of revenues coming from these economies. When looking at the developed markets




K. J. Somaiya Institute of Management Studies and Research                          Page 18
                                    END TERM PROJECT

business, focus is to build particularly on those parts of the customer base which have
international connectivity for which our "right to win" is particularly meaningful.
Focusing on business models defining our 'right to win'




Global Banking and Markets: 4,000 international customers, where emerging markets, balance
sheet and global platforms (HSBCnet, Payments & Cash Management, Global Sub-Custody,
Trade Services) are HSBC's calling card
Private Banking: 90,000 customers, where our international connectivity and emerging markets
footprint are HSBC's calling card
Commercial Banking: 2.7 million customers locally, where top end customers and 40% of
HSBC's SME customers have international needs, HSBC's calling card. The platforms used are
shared with the Global Banking and Markets business.
Personal Financial Services: the Global Premier market, focusing on customers looking for
constant experience and recognition no matter where they are in the world allowing them to
manage their credits and investments holistically.




This refers mainly to our SME customers in Commercial Banking and the mass market in
Personal Financial Services. There are two key areas which will support this strategy:

      Technology and Services: through the allocation of more than 25% of IT expenses
       to"global platforms", delivery a higher level of STP on higher volumes and focused
       internet solutions.




K. J. Somaiya Institute of Management Studies and Research                               Page 19
                                    END TERM PROJECT

      Global Resourcing: to continue transferring and reengineering processes to our group
       service centres, located in lower cost countries.




Currently there are two products that we single out as important given our actual strength:

      Credit cards : a leading global position building on our global presence as a top five
       issuer with over 120 million cards in force; and
      Direct Banking: building our model once and deploying many times. Initially launched
       in the US in Nov05 with US$12bn in deposits as at Jun07 – 90% new to the bank. Then
       rolled out to Taiwan and Korea in 2006 and 2007, with the expansion into further markets
       with strong savings pools.

It is our aspiration to roll out six totally standardized products worldwide: two assets, two
liabilities and two insurance products.
Execution of strategy

Execution of HSBC's strategy entails improving intra- group linkages by joining up the Group's
businesses and functions to more effectively create additional value. The HSBC brand and global
networks will be leveraged to reach new customers and offer more services to existing ones.
Efficiency will be enhanced by taking full advantage of local, regional and global economies of
scale. Appropriate objectives and incentives will be adopted to encourage employees to be fully
engaged in delivering the strategy.

Emerging markets and opportunities

Emerging markets are at the heart of HSBC's corporate identity. Throughout its history, the
HSBC Group has maintained a strong presence in global trade, particularly in India and China,
the world's most dynamic emerging markets.


K. J. Somaiya Institute of Management Studies and Research                                Page 20
                                    END TERM PROJECT

HSBC has been a participant and a witness to the development of emerging markets for over a
century. We have established branches even in countries that were considered closed, restricted
or highly centralised. Over the years, HSBC rose to the status of a respected institution as it
worked actively in these markets.

Sensitive to the unique cultures in emerging markets, HSBC has often been the first foreign bank
to work in partnership with local businesses. HSBC Amanah was among the first to offer
Islamic banking products and has the largest Islamic banking team of any international bank.

While some institutions have struggled in the turmoil that struck many of the world's financial
markets last year, HSBC posted pre-tax profits of USD9.3 billion in 2008. Although representing
a 62 per cent drop over 2007 performance, the Bank‟s strong fundamentals have allowed it to
pay out dividends to shareholders in the amount of GBP4.6 billion, the second highest of any
bank in the world and the third highest payment in the FTSE100.




Source: From 2008 Final Results - Highlights, HSBC Holdings plc

K. J. Somaiya Institute of Management Studies and Research                               Page 21
                                   END TERM PROJECT


There has been a shifting in the positions of the regions in terms of contribution to HSBC's
numbers. In 2007, Europe, followed by Hong Kong, the rest of Asia-Pacific (including the
Middle East), Latin America, and finally North America contributed to the Group's pre-tax
profits, in that order. But the highest growth was from Asia, the Middle East and Latin America.

In 2008, filling up the vacuum left by the pronounced economic downturn in the United States,
Europe still contributed most to profit (116.7 per cent) and registered 26 per cent growth versus
year-ago performance. But the rest of Asia-Pacific (including the Middle East) registered the
highest growth (up by 27 per cent). Hong Kong, although second in terms of contribution to
HSBC Group results, actually slowed down in terms of growth (down by 26 per cent). Latin
America's performance also dropped by six per cent.

The Bank's good relationship with host governments and regulatory bodies in these markets puts
it in a strong position to advocate for financial reforms for the benefit of its clients and the
industry. This rich international background serves Global Banking and Markets we ll, as we
deliver a host of financial solutions for clients seeking expertise and experience in emerging
markets.


Profile and potential

HSBC has established branches even in countries that have been considered closed, restricted or
highly centralized. Working actively in these markets, the Bank has been a respected institution
in these markets for many years.

GDP growth trends
Economic indicators growth rate (%)          Market category      2005    2006    2007 forecast
Annual GDP                                   Developed            2.4     2.8     2.4
                                             Emerging             6.6     7.4     7.5

Source: 'A battle of ills', HSBC Global Research Macro Global Economics Q2 2008




K. J. Somaiya Institute of Management Studies and Research                               Page 22
                                  END TERM PROJECT

Other key growth trends

Industrial production 1                    Developed             1.8         3.6        2.4
                                           Emerging              9.1         9.5        10.3
Exports 2                                  Developed             5.5         7.9        5.7
                                           Emerging              13.6        13.5       12.2


Source: 'Goodbye to all that', HSBC Global Research Macro Global Economics Q1 2008
1
    Industrial production growth in emerging markets was twice to five times that in developed
economies
2
    Even in periods of economic slowdown in developed economies, exports from emerging
markets continue to grow, showing less dependence on the former

Risks and re wards

Many investors look to diversify their portfolios across different economies, thereby distributing
risk, while others seek out new, more affordable opportunities that may be available in the
leading industrialized nations.

In today's global economy, emerging markets have become a staple of many investor portfolios
because of the high future rewards associated with being the first to put money into companies
and economies with good growth potential. And, as recent economic indicators have shown, it is
possible for emerging markets to accelerate their growth while more developed economies slow
down.

HSBC Group Chairman Stephen Green was co-chairman of the Capital Markets Consultative
Group of the International Monetary Fund (IMF) which authored the 2003 Foreign Direct
Investment in Emerging Market Countries report. The group observed that foreign direct
investment (FDI) flows started streaming towards emerging markets in the 1990s. These were
made possible primarily by mergers and acquisitions, particularly of state-owned assets. Since
the writing of the IMF report, net foreign investments in the emerging markets have surged
upwards.



K. J. Somaiya Institute of Management Studies and Research                                Page 23
                                  END TERM PROJECT




Aside from good growth prospects, productivity-adjusted labour costs (labour efficiency rather
than the cost of labour per se), physical and personal security, and good governance are among
the country characteristics investors examine when considering investment in an emerging
market.


A ne w, evolving economic stage

All indications point to a very different balance of economic power in the years to come.




K. J. Somaiya Institute of Management Studies and Research                                  Page 24
                                  END TERM PROJECT

      Emerging markets represent approximately 80 per cent of the world's population and 20
       per cent of the world's economy
      Many emerging economies are transitioning from centralized political and economic
       systems to more open market models:
           o   Relaxation of controls on foreign exchange
           o   Greater autonomy for financial institutions
           o   Transparency in the capital markets
           o   Removal of trade barriers
           o   Political reforms that in turn facilitate more change
      Momentum for reform is driven by the need to raise living standards, increase
       opportunities for the local population and attract foreign investment

As the driving force for development in its region, major changes in an emerging market are
likely to reverberate throughout neighbouring economies.

Although many emerging markets continue to receive overseas aid, the most successful have
broken that dependency by raising their capital markets to international financial and governance
standards, thereby becoming more attractive to foreign investors.

An 'emerging markets' approach to global economics

HSBC Global Research analysts are redefining the relationships between economic events in
developed economies, particularly the US, and the effect of these on the rest of the world.
"Tradition is wrong," asserts HSBC Group Chief Economist Stephen King.

The recent performance of emerging markets shows that on the global economic platform, the
direction of impact now seems to be going the opposite direction. While the USA struggled from
a softening of the housing sector in 2005, analysts expected the rest of the world to follow suit
and perform poorly. This didn't happen.

In fact, it was apparently the dramatic performance of emerging markets and their continued
demand for goods that helped keep the US economy from slipping any further. Among the top
three US export partners that year, two were emerging markets (China and Mexico). Other

K. J. Somaiya Institute of Management Studies and Research                               Page 25
                                 END TERM PROJECT

emerging market economies that made strong contributions to the US' export income were:
Korea, Brazil, the United Arab Emirates (UAE), India, Chile, Turkey, Saudi Arabia, Taiwan,
Russia, Argentina and South Africa.

Since US GDP represented roughly 30 per cent of global GDP at that time (2006), conventional
analysis dictated that a weakness in the US market would lead to a dip in economic performance
elsewhere. Weaker US investment demand, in particular, and domestic demand, in general, did
exert a depressing influence on US imports from its trading partners. But the actual performance
of emerging economies debunked conventional analysis.

For instance, forecasts for 2006 placed capital spending growth in China at 14 per cent. Actual
performance, however, was almost double at 27 per cent. Mexico's GDP growth also surpassed
expectations, driven by consumption and investments. The story was the same in the United
Arab Emirates (UAE), another major emerging market. So despite lower domestic demand in the
USA for goods from emerging markets, these economies continued to grow.

2006 forecasts versus performance

Growth       rates US                         China                     Mexico
(% per year)        Forecast      Actual      Forecast       Actual     Forecast      Actual
                    2006Q1        31/1/07     2006Q1         31/1/07    2006Q1        31/1/07
GDP growth          3.3           3.4         8.9            10.6       3.4           4.8
Consumption         2.7           3.2         8.0            8.7        3.5           5.4
growth
Investment          6.8           3.0         14.1           27.0       5.7           8.8
growth
Government          2.5           2.1         5.0            6.0        2.5           4.0
spending
Export growth       5.6           8.9         25.0           25.0       7.7           15.8
Import growth       6.9           5.8         20.0           20.0       7.1           16.3

Source: 'A shifting centre of gravity', HSBC Research


K. J. Somaiya Institute of Management Studies and Research                              Page 26
                                  END TERM PROJECT

Credit ratings
                                     Moody's             S&P*               Fitch       DBRS
                                 Rating Outlook    Rating Outlook     Rating Outlook   Rating
Europe
HSBC Holdings      Long          Aa2     Negative AA-        Negative AA      Stable   AA
plc                Term/Senior                                                         (high)
                   Short Term    P-1               A-1+               F1+              R-1
                                                                                       (high)
HSBC Bank plc      Long          Aa2     Negative AA         Negative AA      Stable   not
                   Term/Senior                                                         rated
                   Short Term    P-1               A-1+               F1+              not
                                                                                       rated
HSBC France        Long          Aa3     Negative AA         Negative AA      Stable   not
                   Term/Senior                                                         rated
                   Short Term    P-1               A-1+               F1+              not
                                                                                       rated
Asia (Hong Kong)
The Hongkong       HK$ issues
and Shanghai       Long          Aa1     Stable    AA        Negative not              not
Banking            Term/Senior                                        rated            rated
Corporation Ltd    Short Term    P-1               A-1+               not              not
                                                                      rated            rated
                   Non-HK$ issues
                   Long           Aa1    Stable    AA        Negative AA      Stable   not
                   Term/Senior                                                         rated
                   Short Term     P-1              A-1+               F1+              not
                                                                                       rated
USA
HSBC USA Inc.      Long          A1      Negative AA-        Negative AA      Stable   AA
                   Term/Senior
                   Short Term    P-1               A-1+               F1+              R-1
                                                                                       (high)
HSBC Bank USA      Long          Aa3     Negative AA         Negative AA      Stable   AA
NA                 Term/Senior
                   Short Term    P-1               A-1+               F1+              R-1
                                                                                       (high)
HSBC Finance       Long          A3      Negative A          Negative AA-     Stable   A
Corporation        Term/Senior
                   Short Term    P-1               A-1                F1+              R-1
                                                                                       (low)




K. J. Somaiya Institute of Management Studies and Research                             Page 27
                                    END TERM PROJECT

SWOT of HSBC


Strengths


· The bank is well capitalised and this has enabled it to perform relatively well against other
banks in recent economic events.
· The level of capitalisation means that, going forward, the bank is unlikely to need to borrow
from the UK government: this will enable it to retain more autonomy.
· The bank has a strong presence in emerging markets, putting it in a good position to take
advantage of future growth in those economies.
· The bank‟s global presence in Europe, Asia and South America helps to spread risk and offers
significant economies of scale.
· Despite rebranding relatively recently (1999), the HSBC brand has become well established and
is considered particularly valuable within the industry.


Weaknesses


· HSBC associates itself strongly with investment in the small business sector, but the current
economic situation has led to increased risks, potentially compromising the activity levels in this
area of the operation.
· The bank was involved with sub-prime markets in the US and has had to write off large figures
lent to high- risk borrowers.
· Despite falls in the UK interest rate, HSBC has increased its mortgage rates. This may be
perceived negatively by borrowers and potential borrowers, adds pressure to an already
depressed housing market and could ultimately lead to more defaulting as borrowers struggle
with higher repayments.
· A redundancy program announced recently may affect morale among staff, leading to
decreased production and loyalty.
· HSBC‟s branding emphasizes its global presence, and this may be seen negatively by some
customers in its implication of homogenization and lack of personalization.



K. J. Somaiya Institute of Management Studies and Research                                 Page 28
                                   END TERM PROJECT

Opportunities


· HSBC‟s high level of capitalization places it in a strong position to acquire assets
· Banks finding trading conditions particularly difficult at present may be available at low cost
· HSBC also has adequate capital to purchase stronger banks such as Bank Ekonomi in
Indonesia, in which it has purchased a stake to continue its Asian expansion despite challenging
economic times.
· HSBC‟s generally strong position presents the opportunity to outperform competitors during
the economic downturn and to build a reputation for being one of the safer banks for depositors,
helping to increase resources for lending.
· Negative press coverage of competitors such as HBOS may encourage customers to choose
HSBC instead.


Threats


· Trust in banks has decreased due to financial losses suffered by investors, who may be more
inclined to invest elsewhere.
· Financial losses affecting banks and investors on a global scale have resulted in less credit
being available to customers. In the UK this is coupled with increases in living costs resulting in
less money being saved.
· The falling property market has created a rise in numbers of homeowners with negative equity.
If a property is worth less than was borrowed to finance its purchase, there is little likelihood that
the bank will recoup all its losses if owners default.
· Claims have been made that HSBC has understated losses resulting from US subprime markets,
and this could undermine confidence in the bank.




K. J. Somaiya Institute of Management Studies and Research                                    Page 29
                                 END TERM PROJECT

Financial performance




SUGGESTIONS: for Deutsche Bank and HSBC Bank
►Strong In-house research & market Intelligence.
►Focused marketing- Focus on region-specific campaigns rather than national media
campaigns.
The growth of the retail financial services sector has been a key development on the market
front. Banks (both public and private) will not only be keen to tap the domestic market but also
to compete in the global market place. New foreign banks will be equally keen to gain a foothold
in the Prospective markets.

K. J. Somaiya Institute of Management Studies and Research                              Page 30
                                 END TERM PROJECT

References
   1. Annual Report HSBC Holdings PLC 2008-09
   2. Annual Report Deutsche Bank 2008-09
   3. Annual Report HSBC Holdings PLC 2007-08
   4. Annual Report Deutsche Bank 2007-08
   5. Sustainability report Deutsche bank 2009

   6. A Century of Deutsche Bank in Turkey, Istanbul 2008, pp.21-27.
   7. Historische Gesellschaft der Deutschen Bank (ed.), Die Deutsche Bank in Frankfurt am
        Main, Munich, Zurich (Piper) 2005.
   8.   Manfred Pohl / Angelika Raab- Rebentisch, Die Deutsche Bank in Leipzig 1901-2001,
        Munich, Zurich (Piper) 2001.
   9. Manfred Pohl, Deutsche Bank Buenos Aires 1887-1987, Mainz (v. Hase & Koehler)
        1987.
   10. Maximilian Müller-Jabusch, 50 Jahre Deutsch-Asiatische Bank 1890-1939, Berlin 1940.
   11. "Special Report - The Global 2000," Forbes, April 2, 2008.
   12. "HSBC tops Forbes 2000 list of world's largest companies," HSBC website, 4 April 2008
   13. HSBC Shanghais CEO To Hong Kong, March 2008
   14. Vidya Ram, "HSBC Gets Back In Touch With Its Roots" Forbes, 03.10.08
   15. HSBC, "HSBC Fact Sheet" HSBC, March 2008
   16. HSBC buys Bamerindus, Brazil Bank, for $1bn
   17. UK Business Park: HSBC
   18. Bank group to buy Republic New York
   19. HSBC leads the way into euro zone with £6.6bn french bank takeover




K. J. Somaiya Institute of Management Studies and Research                           Page 31

				
DOCUMENT INFO
Shared By:
Tags: bank
Stats:
views:612
posted:12/16/2010
language:English
pages:31