This report compares financial performance of two major banks of UK i.e. HSBC Bank Plc and Barclays Bank Plc on the basis of their Balance sheets and profit and loss accounts for the year 2009. This report also provides SWOT analysis of both banks i.e. HSBC and Barclays Bank Plc and provides an insight into their Banking Strategies.
The key financial indicators for evaluating financial performance of any bank are Profit Before Tax, Capital Ratio, Adjusted Gross Leverage, Loan Funding Ratio, Net income, Assets and Liabilities, Equity and Share Holders return.
Barclays reported net profit of £ 10,289 milllion in 2009, an increase of 96% as compared to 2008.Although Barclays Bank UK reported a decrease of 55% in profit before tax and it was £ 612 million in 2009.Barclays commercial bank profit before tax decrease 41% to £ 749 million in 2009.
HSBC Bank Plc and its group subsidiaries reported net profit of £3,158 million as compared to £3,523 in 2008, a decrease of 10.36% than previous year. HSBC UK retail bank reported a profit of £ 988 million for 2009 as compared to £ 2,139 in 2008 registering a decrease of 54% in profit before tax as compared to previous year.
BARCLAYS BANK PLC AND HSBC BANK PLC
Barclays plc
Barclays logo.svg
Type
Public
LSE: BARC
NYSE: BCS
Industry
Banking
Founded
1690
Headquarters
Tower Hamlets, London, England, UK
Area served
Worldwide
Key people
Marcus Agius
Chairman
BARCLAYS BANK PLC
"Fluent In Finance; Its Our Business to Know Your Business".
Barclays Plc is a full-fledged financial services group from United Kingdom. Its a Holding Company of Barclay Brand companies listed on London and New York stock, till 2008 it was also listed on Tokyo Stock Exchange.
Barclays offer very wide portfolio of financial services under two word renowned business clusters: Global Retail Banking and Corporate Investment Banking and Wealth Management Services.
Barclays provides world-class services in Retail Banking, Credit Cards, Corporate Banking , Wealth Management and Investment Management around the globe with an extensive international presence in Europe, The Americas , Africa and Asia.
With 300 years of history and expertise in banking , Barclays operate in over 50 Countries employs around 1,44,000 people around the world. The History of Barclays can be traced back to 1690, when two goldsmith bankers namely John Freame and Thomas Gould started trading on Lombard street, London.
Barclays has over 1800 UK high street branches (including former Woolwich branches) and it has also joined up with the Post Office Ltd to provide personal banking services to customers who live near a Post Office branch and those who need financial services such as secured or unsecured loans. Worldwide, Barclays has over 4,750 branches in over 50 countries[47]. Most Barclays branches have 24/7 ATMs. Barclays' customers and customers of many other banks can use Barclays ATMs free of charge.
Barclays Capital is a strong investment arm owned by Barclays Bank PLC. Barclays Capital had created an investment funds business that handles billions of pounds daily, iShares. After much debate, Barclays president Bob Diamond, along with other Barclays bosses chose to sell the iShares business to further boost capital. The preliminary price for the business is £3billion, although Barclays has the flexibility to sell at a higher price, should a bidder show interest before the selling deadline.
HSBC Holdings plc
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HSBC Holdings PLC logo
Type
Public
LSE: HSBA
SEHK: 005
NYSE: HBC
Euronext: HSB
BSX: 1077223879
Industry
Banking
Financial services
Investment services
Founded
Hong Kong (1865)
Founder(s)
Thomas Sutherland
Headquarters
London, United Kingdom[1]
Area served
Worldwide
Key people
Stephen Green
Group Chairman
HSBC Bank PLC
"The Worlds Local Bank".
HSBC Holdings Plc was incorporated in 1990, in England, and this was followed by change in its name from "The Hong Kong and Shanghai Banking Corporation" to HSBC and moving its headquarters to London in 1993.
The foundation of The Hong Kong and Shanghai Banking Corporation was laid in HongKong(march) and Shanghai(april) in 1865. Although the parent company HSBC holdings was established in 1990,when "The HongKong and Shanghai Banking Corporation" Purchased Midland Bank of UK, and its headquarter moved to London from HongKong as a condition in the takeover deal in 1993.
HSBCs stock is traded on London, NewYork, HongKong, Paris and Bermuda stock exchange.
HSBC is one of the Largest Banking and Financial Services organisations in the world, shares in HSBC holdings plc are held by over 220,000 share holders in 121 countries. HSBC provides a comprehensive range of financial services to more than 100 million customers through four customers an global businesses: Personal Financial Services; Commercial banking: Global banking and Markets: private banking.
HSBC UK retail banking comprises two customer groups , personal Financial services ('PFS') and commercial banking('CMB'). UK personal Financial Services provides current account, savings , personal loans , mortgages , cards, financial planning, as well as life and general insurance to UK personal customers through a variety of distribution channels under various HSBC brands, including First direct, Marks and Spencer money and partnership card.
As at 31 December 2009 , the bank had 1,369 branches in the United Kingdom.
Financial Performance and Interpretative Analysis
Barclays Bank PLC
Barclays delivered net profit for the year of £10,289m in 2009, an increase of 96% on 2008. This included the BGI gain on sale of £6,331m before tax, and was achieved after absorbing: £6,086m in writedowns on credit market exposures (including impairment of £1,669m), other Group impairment of £6,402m and a charge of £1,820m relating to the tightening of own credit spreads. Profit included £1,255m of gains on debt buy-backs and extinguishment.
Total income grew 34% to £30,957m, and income from continuing operations grew 40% to £29,925m, with particularly strong growth in Barclays Capital. Within Global Retail and Commercial Banking (GRCB), Barclaycard and GRCB -Western Europe also reported good income growth. The aggregate revenue performance of GRCB businesses was, however, affected by the impact of margin compression on deposit income as a result of the very low absolute levels of interest rates. Barclays Capital income was up 122% compared to 2008. Top-line income rose by £8,004m reflecting the successful integration of the acquired Lehman Brothers North American
businesses, buoyant market conditions observed across most financial markets in the first half of 2009 and a good relative performance in the second half of 2009 despite weaker markets. Income in Barclays Capital was impacted by writedowns of £4,417m (2008: £6,290m) relating to credit market exposures held in its trading books and by a charge of £1,820m (2008: gain of £1,663m) relating to own credit.
Total operating expenses increased 24% to £17,849m, but by 10% less than the rate of increase in Group total income. Operating expenses from continuing operations increased 25% to £16,712m. Expenses in GRCB were well controlled, with the cost:income ratio improving from 53% to 52%. Operating expenses in Barclays Capital increased by £2,818m to £6,592m reflecting the inclusion of the acquired Lehman Brothers North American businesses. The Group total cost:income ratio improved from 62% to 58% (57% on a continuing basis). At Barclays Capital the compensation:income ratio improved from 44% to 38%.
Business Performance - Global Retail and Commercial Banking UK Retail Banking profit before tax decreased 55% to £612m as economic conditions remained challenging. Income was down 11% reflecting the impact of deposit margin compression net of hedges, partially offset by good growth in Home Finance. Total loans and advances to customers increased £4.7bn to £99.1bn. Gross new mortgage lending was £14.2bn during 2009 and net new mortgage lending was £5.7bn. The average loan to value ratio of the mortgage book remained conservative at 43%. Impairment charges increased 55% due to the deteriorating economic environment. Operating expenses continued to be tightly controlled and decreased 3% reflecting a one-off credit from the closure of the UK final salary pension scheme offset by a year on year increase in pension costs and
the non-recurrence of gains from the sale of property.
Barclays Commercial Bank profit before tax decreased 41% to £749m. Income was broadly flat on 2008 with good growth in net fees and commissions offset by lower income from principal transactions. Net interest income was broadly flat as margin compression on the deposit book was offset by higher lending and deposit volumes. New term lending extended to UK customers during 2009 was £14bn. Operating expenses were tightly controlled and fell 3% driven by a one-off credit from the closure of the UK final salary pension scheme partially offset by an increase in pensions and share-based payment costs and the non-recurrence of gains from the sale of property. Impairment charges increased to £974m reflecting the impact of the weak business environment with rising default rates and falling asset values across all business segments.
Barclaycard profit before tax decreased 4% to £761m. Income growth of 26% reflected strong growth across the businesses driven by increased lending and improved margins. Average customer assets increased 19% to
£28.1bn.
Shareholders' Equity
Share Holders Equity excluding non-controlling interests, increased 35% to £55.9bn in 2009 driven by profit after tax of £10.3bn. Net tangible asset value increased by 53% to £47.1bn.
Balance Sheet
Total assets decreased by £674bn to £1,379bn in 2009, primarily reflecting movements in market rates and active reductions in derivative balances. Balances attributable to derivative assets and liabilities would have been £374bn lower (31st December 2008: £917bn lower) than reported under IFRS if netting were permitted for assets and liabilities with the same counterparty or for which we hold cash collateral. Excluding this, assets and liabilities held under investment contracts, settlement balances, goodwill and intangible assets, our adjusted total tangible assets were £969bn at 31st December 2009 (31st December 2008: £1,027bn). On this basis, we calculate adjusted gross leverage, being the multiple of adjusted total tangible assets over total qualifying Tier 1
capital, as 20x as at 31st December (31st December 2008: 28x). Assets and risk weighted assets were affected by the depreciation in value of various currencies relative to Sterling during 2009. As at 31st December 2009, the US Dollar and the Euro had depreciated 10% and 7%, respectively, relative to Sterling.
Capital Management
At 31st December 2009, on a Basel II basis, the Core Tier 1 ratio was 10.1% (31st December 2008: 5.6%) and our Tier 1 ratio was 13.0% (31st December 2008: 8.6%). Capital ratios reflect a 12% decrease (£51bn) in risk weighted assets to £383bn in 2009. Key drivers included a reduction in the overall size of the balance sheet and foreign exchange movements.
Liquidity
The liquidity pool held by the Group increased to £127bn at 31st December 2009 from £43bn at the end of 2008. Whilst funding markets were difficult, particularly in the first half of 2009, we were able to increase available liquidity and we extended the average term of unsecured liabilities from 14 months to 26 months. We issued £15bn equivalent in public senior unguaranteed debt markets, across multiple currencies and maturities. In addition, we raised £1.8bn equivalent in the covered bond market and issued £21bn equivalent of structured notes. We have continued to manage liquidity prudently in the light of market conditions and in anticipation of ongoing regulatory developments
HSBC BANK PLC
The HSBC Group reported a pretax profit of 4014 million pounds as compared to 4366 million pounds in the year 2008. The overall pretax profit increase was 45%. There was a gain of353 million on the sale of the group's London Headquarters building. In UK Retail Banking there was a loss of 179 million for HSBC Insurance (UK) Limited compared to a loss of 19 million in the year 2008. Despite the economy being in recession HSBC made 15 billion in residential mortgages and helping 121000 business startups in the commercial sector. The UK Retail Banking pretax profit fell by 63 percent; this was primarily due to deterioration in the economic environment. The Net Interest income decreased by 9% driven by narrowing of liability spreads, the bank however built a strong deposit base in 2009. Other operating income decreased by 89 percent due to the income realized as a result of sale of MasterCard and visa shares in 2008 of 191 million. In Commercial Banking the loan impairment charges rose by 285 million pounds reflecting a general economic downturn. The Net Interest Income increased by 15%. The UK retail Banking reported a profit of 988 million pounds against 2139 million pounds in the year 2008.. Excluding the losses from HSBC Insurance and the accounting gain for some UK employee benefits in 2009, the UK Retail Banking pretax profits fell from 63 percent. This was basically due to higher impairments in both personal and commercial segments due to the deterioration of economic environment. The operating expenses decreased by 8 percent to 2968 million pounds as compared to 3214 million pounds in the year 2008. The Net Fee Income remained almost constant in both 2008 and 2009, the the other operating income decreased by 89 percent because of the income realized as a result of the shares of Master Card and Visa shares in 2008 of 191 million pounds not repeated in 2009.
The basic earnings per share ratio for 2009 for HSBC were US$ 0.34 which was a decline of 17% as compared to the ratio of 2008. In the year 2009 the ratio on average total shareholder's equity was 0.4 higher as compared to that in 2008. The total dividend per share growth for 2009 amounts to US$ 0.34 per ordinary share percent(Annual Report 2009).
SHARE HOLDERS EQUITY
Shareholders equity increased 11.12% to £32,248million in 2009 as compared to £28,985 in 2008.
Capital Management
The Core Tier 1 capital of the bank increased 26% to £ 20,809 million in 2009 as compared to £ 15,568 in 2008,and the Tier 1 capital of the bank increased 23% to £ 22,707 million in 2009 as compared to £ 17,523 in 2008.
SWOT ANALYSIS
BARCLAYS BANK PLC
STRENGTHS
WEAKNESSES
Barclays is one of the UK's largest Financial companies
Reduction in the banks branches
Global diversity in 60 countries
Weak Private Clients performance
Excellent acquisition strategy that has expanded Barclays distribution base
OPPORTUNITIES
THREATS
Expansion in wealth management and Private banking
Lack of cross-selling initiatives in wealth management
Offering life, pension and varied investment products to customer base
Increased UK competition from clearing and mortgage banks
The proliferation of banking consolidation within the industry is and has created a new era of international banking conglomerates, particularly in the United States. The preceding is causing European based banks to appear small in terms of relative comparison. Barclays' operation in a liberal market economy means it competes with equity financing for corporations and as such, this does not represent a strength concerning its overall performance base. The SWOT analysis identifies that Barclays' performance underpinnings are represented by its strategy of acquiring other banking concerns to expand its retail as well as other banking services through representation in international markets as represented by the bank's presence in 60 countries. This provides Barclays with the means to sell its highly profitable investment banking services as well as be positioned to service the cadre of multinational companies that utilize its diverse banking financial service packages.
HSBC BANK PLC
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.
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 programme announced recently may affect morale among staff, leading to decreased production and loyalty.
HSBC's branding emphasises its global presence, and this may be seen negatively by some customers in its implication of homogenisation and lack of personalisation.
Opportunities
HSBC's high level of capitalisation places it in a strong position to acquire assets
Banks finding trading conditions particularly difficult at present may be available at low cost
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.
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 sub-prime markets, and this could undermine confidence in the bank.
