Which bank is the world’s largest? Prior to the merger of Citicorp and Travelers in 1998, it was the Hongkong and Shanghai Banking Corporation (HSBC). By 2018, HSBC was the world’s seventh largest banking and financial services group and the UK’s no.1 largest banking group. Formed in 1865 by a Scotsman in the then British colony of Hong Kong, HSBC grew to employ approximately 235,000 people in 130 countries, serving over 39 million customers (2018). In the process, it became the world’s first truly global bank, offering a full range of financial services from retail to corporate banking to insurance and financial management. HSBC built this global business based on its strong Hong Kong base. The bank owns the Hongkong Bank and most of the Hang Seng Bank, giving it over 40 per cent of the market in the Hong Kong Special Administrative Region of China that was created on 1 July 1997.
Perhaps less well known is that HSBC is also the owner of the former Midland Bank chain in the UK, the Marine Midland and Republic New York Banks and Household Finance in the United States, and the Hongkong Bank of Canada. It has also acquired large banks in Latin America, including Banco Bamerindus in Brazil and Bital in Mexico. In all these cases HSBC greatly improved the efficiency of the underperforming local banks through better systems and processes. For some time HSBC has operated a branding strategy under the HSBC title and logo, ‘the world’s local bank’. This captures one of the central dilemmas of global firms – to be both large and dominant, while being sympathetic to the needs of local customers. Branding, however, is only a start.
Today HSBC is well developed across the triad regions of Asia, Europe and the Americas. It is a global bank in terms of assets, but not revenues. Its diversification strategy helped to insulate it from the Asian financial crisis of 1997–98. There is an old saying that the best test of a business is how well it does in a downturn (because a ‘rising tide floats all boats’, the strong and the weak). Again, in the world financial crisis 2007–09, HSBC looked pretty resilient. HSBC reported revenue of US$142.069 billion and profits after tax of US$5.728 billion for 2008. Although revenue was down 3 per cent on a year earlier, that looked very healthy compared to sickly peers such as Citigroup, UBS and Royal Bank of Scotland (RBS). RBS required a British government bailout.
HSBC partly thrived because of its strong presence in emerging markets including India, China, the Middle East and Brazil, cushioning it against the big losses it took in the US market due to the subprime mortgage crisis. From 2007, HSBC expanded into Japan, Korea, Vietnam and India by launching new branches and services. Profits in some of HSBC’s Middle East businesses, such as capital markets and private banking, were growing at a near 100 per cent.
Significant events in 2009 included its decision to sell landmark buildings in New York, London and Paris to raise cash. HSBC agreed to sell its London base at Canary Wharf to the National Pension Service of Korea for $1.25 billion in cash and its New York headquarters to Israeli investment holding IDB Group for $330 million. HSBC sold its Paris building to private investors represented by French Properties Management for $573 million. HSBC would lease back these buildings. Importantly, HSBC announced in 2009 that it was relocating the principal office of the Group Chief Executive to Hong Kong. This underscores HSBC commitments to emerging markets’ businesses and reflects the historic shifts now taking place in the world economy. HSBC’s corporate headquarters remain in the UK where it continues to benefit from being at the heart of the world’s financial centres.
Its first-mover advantage as a truly global bank may prove hard for its competitors to match. There is constant pressure in banking to reduce costs through greater scale economies and improved information technology. HSBC is well positioned to continue as an industry leader because of its successful strategy.
In retrospect, one of the world’s largest banks came from one of the world’s smallest economies. And it did this despite the regulatory barriers to entry for foreign-owned firms in Europe and North America. As a result, HSBC is an example of a bank using modern management systems and market forces to win out over old-fashioned protectionism in a highly regulated worldwide industry.
Perhaps the biggest influence of HSBC and its efficient banking methods has been on British banking. Various restructurings in the early 2000s, including the acquisition of NatWest by the Royal Bank of Scotland and a merger of the Bank of Scotland and Halifax, led to closures of high-street bank branches and an early push towards online banking. Barclays and other banks were then pressured by these restructured competitors to close branches, cut costs and increase operational efficiency. HSBC realised at this time that to be a successful international operation it needed not only to have wide geographic coverage but also to be able to offer efficient services.
More recently HSBC has worked to fundamentally change its culture under the leadership of António Simões, who became CEO of HSBC global private banking in 2018 and openly gay. He has pushed for greater diversity and inclusivity in the workforce and is strongly supportive of a family friendly approach to management. This was reflected in the development of HSBC’s UK head office, opened in Birmingham in 2018, separate from the global group HQ in London.
HSBC reported revenue of US $53.8 billion and profits before taxation of U$19.8 billion in 2018, as the largest bank in Europe. Presenting his first annual results, the HSBC chief executive, John Flint, said the fourth quarter had been ‘undeniably weak’ and that there were more risks to global economic growth ahead.