HSBC SWOT & PESTLE Analysis
ID : 52351153 | Apr 2018 | 19 pagesCOMPANY PROFILE - HSBC
Business Sector : Banking and Financial Services
Operating Geography : Global
About HSBC : Driven by four major business segments, namely, Commercial Banking, Global Banking and Markets, Global Private Banking and Retail Banking and Wealth Management; HSBC is one of the world's largest banks. Headquartered in London, United Kingdom; the bank has an international coverage with significant footprints in the markets of Europe, Asia, Middle East and North Africa, North America and Latin America. All these include 3900 offices across 67 countries and territories. As of 2016, it has 235,175 employees worldwide.
HSBC Revenue : US$51.5 billion (FY 2017)
Competitive Analysis of HSBC
| 1. Geographic and business line diversification 2. Strong capitalization 3. Good dividend record 4. Sound financials | 1. Rising operating costs 2. Lack of good customer experience |
| 1. Opening of China's domestic capital markets 2. Growth prospects in Asia 3. Benefits from transition in senior leadership | 1. Financial Crime 2. Risk Exposure in Qatar |
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Strength
1. Geographic and business line diversification: In the words of Stuart Gulliver, HSBC is a bank that is bestowed with a diversified yet universal banking business model. The business model comprises of one Corporate Centre and four global businesses, namely; Retail Banking and Wealth Management (RBWM), Commercial Banking (CMB), Global Banking & Markets (GB&M) and Global Private Banking (GPB). This business diversification into specialised fields coupled with the exceptional talent pool that business possesses has made HSBC one of the world's largest banks. This sort of an operating model combined with capital strength and international network, provides HSBC a hedge even amidst political and economic instabilities. This was evident at the time of Brexit when customer activity across different business segments remained resilient. It was therefore credited with the prestigious title of 'World's Best Bank' at the Euromoney Awards of Excellence 2017.
2. Strong capitalisation: HSBC enjoys a strong capital position supported by the fact that its CET1(Capital Equity Tier 1 Ratio) is 14.6%. Also, in accordance to the strategic measures being followed by the company it will lower its Risk Weighted Assets (RWA). Since the start of 2015 until now, RWAs worth $296 billion have been extracted. The size of balance sheet has increased, stimulated by an increase in customer accounts. Total reported assets were 5% higher in 2017 than in 2016. It is because of this strong capitalisation that HSBC has been able to affect share buybacks and provide a sustainable dividend.
3. Good Dividend record: HSBC is an attractive investment for investors owing to its good dividend history and luring dividend yield. Even at times of lower earnings, HSBC has provided stable and sustainable dividends to maintain investor confidence. It at present offers a dividend yield of 5.3%, which is notably the high compared to its large global peers. While currently the dividend payout ratio was 60% in 2016, it is expected to be 70% on 2019. An upward trend is expected in the dividend yield in lieu of the share buybacks, which is an attractive factor for income oriented investors.
4. Sound financials: From 2014 to 2016, revenue growth fro HSBC in terms of CAGR has been +5%. For the first half of 2017, it delivered a 7% increase in revenue from transaction banking products along with a 17% rise in revenue synergies. Annualised run rate savings of $4.7 billion were achieved since 2015. Profit before tax; higher by $0.5 billion higher than 1H16 was reported in 1H17 totalling out to $10.2 billion. Adjusted jaws witnessed a change of +0.5% over the same period, indicating that change in revenue is higher than corresponding rate change in costs. The RoI also went up from 7.4% in 1H16 to 8.8% in1H17.
Weakness
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Opportunity
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Threat
1. Financial Crime: The entire banking and financial industry is faced with the threat of financial crimes, whereby unauthorised people illegally access and hack into the financial system. Concerns in this regard have aggravated ever since the digitisation wave kicked in. Bank secrecy laws and regulations are being designed to address these issues. The first quarter profits of 2017 saw a 19% decline in profits, as HSBC's spending on regulatory programmes and compliance rose by 12% to $800 mn. This came in response to the £1.2 bn penalty that HSBC had to pay in 2012 in lieu of a banking scandal where it was alleged of running deposits of Mexican drug traffickers. However, it is worth commenting that the rate of change has been considerably slow on the part of HSBC.
2. Risk Exposure in Qatar: HSBC in July 2017 had reported a risk exposure worth US$12.5 bn. What is threatening is the fact that Qatar is under a diplomatic and economic embargo by Saudi Arabia, the United Arab Emirates and Bahrain. The breakdown of exposure is as follows: US$2.6 bn to sovereign entities, US$ 1.8 bn to banks, US$ 7.9 bn to corporates and US$ 200 mn to retail customers. While the sovereign and bank exposures are all investment grade, the corporate exposures on other hand are 80% investment grade. This embargo has the potential to impact the creditworthiness of some of the bank's customers driven by increased operational burdens and costs and reduced sales.
References
1. http://www.hsbc.com/-/media/hsbc-com/investorrelationsassets/hsbc-results/2017/2q/hsbc-holdings-plc/170731-interim-report-2017.pdf
2. http://www.hsbc.com/-/media/hsbc-com/investorrelationsassets/presentationsandwebcasts/2017/20171208-gbm-factbook-3q17.pdf
3. http://www.hsbc.com/-/media/hsbc-com/investorrelationsassets/hsbc-results/2017/3q/hsbc-holdings-plc/171030-presentation-to-investors-and-analysts.pdf
4. http://www.gbm.hsbc.com/insights/economics/uk-interest-rates-higher-sooner
5. https://mobile.reuters.com/article/amp/idUSKCN1BT0QG
6. http://www.hsbc.com/tag/green-finance
7. http://www.hsbc.com/our-approach/diversity-and-inclusion/valuing-diversity
| 1. Political Uncertainty surrounding EU | 1. Growth synchronization of major economic regions 2. Interest Rate Environment |
| 1. Workforce diversity 2. HSBC education program 3. Digitisation of demography | 1. Need for automation and digitisation 2. Launch of 'Move Money' and 'LinksScreen' |
| 1. Creation of UK ring-fenced bank | 1. Sustainable Operations and initiatives 2. Sustainability and Green Finance |
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Political
1. Political uncertainty surrounding EU: Britain's exit from the EU has given rise to both geopolitical tensions and the possibilities of changing political agendas in lieu of the uncertain relationship that the two would share. Political developments in the region are likely to render market volatility and impact cross border banking models. Moreover, customers' needs and requirements will also be affected. What is essential for the business is that Europe must not allow its financial capacity and capabilities to be diminished. The outcome of the political negotiations should be such that Europe continues to enjoy at least the same amount of financial capacity and related risk management services, keeping the availability and pricing similar to what existed before the Brexit.
Economic
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Social
1. Workforce Diversity: Diversity coupled with inclusion is one such virtue that HSBC lives by. Founded 150 years ago, HSBC has ever since promoted a healthy interaction of different communities, different cultures and different people. It has been honoured with many prestigious awards such as 'Times Top 50 Employer for Women' for three consecutive years in 2015, 2016 & 2017 and 'Company of the Year' at European Diversity Awards 2017. HSBC employees have also been recognised in the Financial Times' '100 Leading Ethnic Minority Power' list and 'Top 30 Ethnic Minority Future Leaders'. All the seven employee networks of HSBC aim to promote a culture of inclusion.
2. HSBC education program: HSBC has taken upon itself the responsibility of educating the disadvantaged children through its association with the SOS Children's Village. Moreover, it also provides scholarships which had around 5800 student recipients in the year 2016. Its education program is focused towards giving the under privileged children an opportunity to live a stable life and undertake formal schooling. It also provides funding for programs aimed at imparting life and entrepreneurial skills as well as those supporting youngsters to develop language and cultural understanding. Realizing the importance of education in society, HSBC does its bit to make a meaningful contribution to this noble cause.
3. Digitization of the demography: Basis its own research, HSBC estimates that the number of mobile banking users is forecasted to double between 2015 and 2019 to 1.8 billion people. This is also related to the prevailing demographic dividend being witnessed in the Asian economies, a growing target market for HSBC. As a result, over two thirds of the people surveyed by HSBC; across 11 countries around the globe, believe in and are positive about technological advances. Digitization has and would continue to increase the smartphone ownership. This coupled with exponential growth in number of internet users has revolutionized the way people do banking. Hence, there is great opportunity for HSBC to make significant developments and advances in this direction because the future is all about digital banking.
Technological
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Legal
1. Creation of UK ring-fenced bank: The Independent Commission on Banking in 2011 had recommended the creation of UK ring-fenced bank. This has been one of the largest projects undertaken by the Group in terms of structural changes. The Prudential Regulation Authority in early July 2017, had provided a green flag thereby approving a restricted license for the new bank. This was an important event and a step ahead in the direction of the Group meeting its legal obligations. The Group is hence, targeting an advanced date of July 1,2018 against the statutory deadline of January 1,2019 to functionalize the UK ring-fenced bank. This transition ranks on the priority list of execution for HSBC.
Environmental
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References
1. http://www.hsbc.com/-/media/hsbc-com/investorrelationsassets/hsbc-results/2017/2q/hsbc-holdings-plc/170731-interim-report-2017.pdf
2. http://www.hsbc.com/-/media/hsbc-com/investorrelationsassets/presentationsandwebcasts/2017/20171208-gbm-factbook-3q17.pdf
3. http://www.hsbc.com/-/media/hsbc-com/investorrelationsassets/hsbc-results/2017/3q/hsbc-holdings-plc/171030-presentation-to-investors-and-analysts.pdf
4. http://www.gbm.hsbc.com/insights/economics/uk-interest-rates-higher-sooner
5. https://mobile.reuters.com/article/amp/idUSKCN1BT0QG
6. http://www.hsbc.com/tag/green-finance
7. http://www.hsbc.com/our-approach/diversity-and-inclusion/valuing-diversity
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HSBC SWOT and PESTLE analysis has been conducted by and reviewed by senior analysts from Barakaat Consulting.
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