Comparative Financial Trend Analysis of HSBC and Santander - Research Paper Example

Comparative Financial trend Analysis: Banco Santander and HSBC Group Banco Santander SA Profile Banco Santander SA is a dominant banking corporation based in Spain. However, it has its operation in other European countries such as the United Kingdom, and Portugal, among other Latin American countries. The European segment of the company covers all activities of the bank in Europe with the services provided including banking and insurance. The subsidiaries or trade names of the bank in the region include Santander Totta, Santander Consumer Bank and Bank Zachodni WBK among others. In the UK, the bank provides wholesale baking, management of assets and insurance. Personal assets among the other services are provided by the bank in other parts of the world such as in Latin America. Although the banking group has been providing wholesale services, it unveiled its retail services in 2013. HSBC Holding Plc HSBC is a global banking group whose operations feature in many countries across the globe. The banking group is headquartered in London with its subsidiaries operating under regional company segments. The group is listed on the London, Hong Kong, New York, Bermuda, and Paris markets with its shares being held by about 220,000 people across the globe. While acting as American Depository receipts, the shares trade on the NY market. The dominant nature of the banking corporation ensures that it minimizes costs through economies of scale while maintaining its dominance. The over 8000 outlets of the company are distributed in about 88 countries across the Asia Pacific Region, the Americas, Europe, Africa, and Middles East. The company’s key contact is Peter Bull, the Head of HSBC operations in the community and Nick Robins, the head of Climate Change Center of Excellence. The management of HSBC works hard to employ the latest strategies to enhance its dominance as well as ensure environmental sustainability. To this end, the banking group perceives consumption of energy as its greatest environmental impact with the use of papers, emission of carbon from business travels of the company being perceived as significant impacts. Financial Trend Analysis This is the main objective of this paper with the focus being comparison of the financial performance of the two major banks. This section compares all forms of financial performance of the banks especially concerning their assets, liabilities, revenues, profits and owners equity among other aspects. Name of financial institution HSBC Banco Santander Principal Address, City, State and Zip Code of Head Office Principal address- 2700 sander Road Zip code- 60070 City- Chicago State- Illinois Principal address- 15 Paseo Eduardo Dato Zip code- 28010 City- Madrid State- Spain Telephone and Fax Numbers: (847) 564- 5000 +34 913198917 Website Address (Hyperlink): https://www.hsbc.com/ https://www.bancosantander.es/cssa/Satellite?pagename=SantanderComercial/Page/SAN_Index Date Founded 1865 1999 after a merger Primary Regulator (State, OCC, SEC) and FDIC Certificate Number, if bank) FDIC certificate number- 589 FDIC certificate number- 623 Total Assets as of Dec 31. 2012 and Dec. 31, 2011 2012- $2.692 trillion 2011-2.56 T 2012- 2.01 trillion 2011-2.16trillion Total Deposits (Same dates as above): 2012-2.1T 2011-1.97T 2012-577.2b 2011-601.73b Total Liabilities(Same dates as above): 2012-2.517 T 2011-2.39 T 2012-1.96t 2011-2.11T Net Income as of Dec 31, 2012 & 2011 2012-14.027 2011-16.797 2012-263 m 2011-4.13m Total Equity: as Dec 31, 2012 and 2011 2012- $175.242b 2011-158.725b 2012-2.02 t 2011-2.16t Names of Directors and Principal Officers, such as: Chairman of Board, CEO, President, COO, CFO, and CIO and other Senior Officers Only: Group chairman- Douglas Flint Group Chief executive- Stuart Gulliver Chairman- Emilio Botin Co-Ceo- Javier Marin Services and Products Offered: Corporate banking, credit cards, consumer banking, private banking, mortgage loans, investment banking and wealth management. Corporate and investment banking Each Company’s Strategy The strategy of the company is based on increasing financial flows that are international and increase economic development that is global. The company strives to apply expertise that is financial on issues affecting the environment. The company applies a future oriented strategy. Mission Statement of Each Financial Institution (from their Websites) The mission of the bank is to enable businesses to thrive and at the same time prosper economies. That can be achieved by people been able to fulfill their dreams and hopes and help them realize their ambitions. The mission of the bank is to apply high standards of integrity and ethics. The company strives to be reliable to the stakeholders at all times and engaging in open dialogue with the public in an attempt to foster understanding. Number of Employees: 254,066 98,219 Number of Branches: 7200 offices in 85 countries Has offices in 70 countries Service Charges 2.5% 1% Loan rates 17.9% 24% per annum Interest Rates paid on deposits Between 0.75% and 6% 4%   HSBC         Banco Santander           2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 Cash & Due from Banks 110.26B 105.55b 102.33b 52.7b 52.33b 35.2b 27.89B 15.93b 17.16b 9.35b Investments: - - - - - 132.8b 124.99b 117.28b 129.28b 96.8b Federal Funds- Sold (Overnight Funds)   - - - -           Bond Portfolio (Securities) 56.2 53.86b 41.97b 36.49b 36.19b           Loans                     Real Estate 192.7 185.7b 179.5b 171.61b 161.42b 192.8 186.91b 181.67b 176.36b 87.63b Commercial 322.76 315.9b 304.24b 284.55b 237.23b 43b 40.23b 37.8b 34.39b 28.25b Consumer 71.2 69.66b 73.78b 100.05b 107.46b 42.6 39.37b 38.66b 35.12 27b Agricultural 4.12 3.28b 4b 4.76b 5.72b 145.2 134.82b 157.25b 162.85b 94.48b Total Loans 9.87 10.62 11.99 13.58b 15.99b 489.2 522.71b 578.68b 503.4b 308.68b Less: Allowance for loan losses 8.7 9.91b 11.27b 12.83b 15.32b 4.7 4.69b 4.16b 3.3b 3.34b Net loans 702.1 707.58b 721.59b 745.15 666.32b 532.2 518.01b 574.51b 500.11b 305.34b Fixed assets (Premises & Equipment) 22.4 21.198 20.859 22.211   5.21 4.96b 5.51b 5.8b 2.78b TOTAL ASSETS 2.87 2.69b 2.56b 2.45b 2.38 2.34 2.02T 2.16t 1.91t 1.5t Financial Report of HSBC Cash Flow HSBC HOLDINGS PLC ADR (HSBC) Cash Flow Flag INCOME STATEMENT Fiscal year ends in December. USD in millions except per share data. 2009-12 2010-12 2011-12 2012-12 2013-12 Revenue Interest income Other assets 62222 58457 63154 56923 51514 Total interest income 62222 58457 63154 56923 51514 Interest expense Other expense 21366 18904 22343 19030 15653 Total interest expense 21366 18904 22343 19030 15653 Net interest income 40856 39553 40811 37893 35861 Noninterest revenue Commissions and fees 21403 17355 17160 16430 16434 Principal transactions 6236 7210 6506 7091 8690 Equity investment income 3627 Securities gains (losses) -3011 968 4346 -1037 4008 Insurance premium 10471 11146 12872 13044 -1752 Other income 2788 3782 1766 9124 1404 Total noninterest revenue 41514 40461 42650 44652 28784 Total net revenue 82370 80014 83461 82545 64645 Provisions for credit losses 26488 14039 12127 8311 5849 Noninterest expenses Compensation and benefits 18468 19836 21166 20491 19196 Tech, communication and equipment 29581 26923 28640 34198 17065 Amortization of intangibles 810 983 1350 969 931 Other expenses 1725 1713 1570 1646 4903 Total noninterest expenses 50584 49455 52726 57304 42095 Income (loss) from cont ops before taxes 5298 16520 18608 16930 16701 Provision (benefit) for taxes 385 4846 3928 5315 4765 Other income (expense) 921 1485 2117 2412 4268 Net income 5834 13159 16797 14027 16204 Net income available to common shareholders 5834 13159 16797 14027 16204 Earnings per share Basic 1.7 3.65 4.6 3.7 4.2 Diluted 1.7 3.6 4.55 3.7 4.2 Weighted average shares outstanding Basic 3255 2549 3540 3625 3706 Diluted 3284 2549 3584 3654 3731 EBITDA 7833 19216 21528 19461 19031 Growth Profitability and Financial Ratios for HSBC Holdings PLC ADR Financials 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 Revenue USD Mil 51,681 62,348 70,916 89,104 93,059 82,370 80,014 83,461 86,264 68,184 Gross Margin % Operating Income USD Mil 17,608 20,966 22,086 24,212 9,307 5,298 16,520 18,608 16,930 16,701 Operating Margin % 34.1 33.6 31.1 27.2 10 6.4 20.6 22.3 19.6 24.5 Net Income USD Mil 11,840 15,081 15,789 19,133 5,728 5,834 13,159 16,797 14,027 16,204 Earnings Per Share USD 5.35 6.75 6.95 8.15 2.35 1.7 3.6 4.55 3.7 4.2 Dividends USD 3.15 3.45 3.8 4.35 4.65 1.7 1.7 1.95 2.05 2.4 Payout Ratio % 58.9 51.1 54.7 53.4 193.5 95.7 32.9 41.6 53.4 55.3 Shares Mil 2,213 2,231 2,272 2,348 2,383 3,284 2,549 3,584 3,654 3,731 Book Value Per Share USD 38.27 41.37 47.8 56.54 38.66 36.85 41.75 44.42 47.42 48.29 Operating Cash Flow USD Mil 31,367 7,021 80,781 91,038 30,420 6,898 55,742 79,762 -9,156 44,977 Cap Spending USD Mil -2,956 -3,712 -3,076 -2,326 -2,786 Free Cash Flow USD Mil -310 9,272 -131 -675 40,297 -28,874 -6,209 5,739 -2,490 9,575 Free Cash Flow Per Share USD -0.14 4.16 -0.06 -0.29 16.91 -8.79 -2.44 1.6 -0.68 2.57 Working Capital USD Mil The above financial report of HSBC indicates that the company has been performing well in terms of revenue, although it fluctuated over time. The company realized a revenue of $82,370 million in 2009 before it dropped to $80,014 million in 2010. The revenue increased gradually to $86,264 in 2012 before declining again to $68,184 million in 2013. This indicates the fluctuating nature of the performance of the company. Following revenue fluctuations, the net income of the company fluctuated as well with the minimum being $5,834 million in 2009 and the highest being $16,797 in 2012. Financial Ratios Profitability Ratios The ratios indicate the level of profitability of HSBC. The net margin of the company indicates progressive profitability since 2009, although the company realized reduced profits and income in 2013. The net margin was 7.08% in 2009 and increased to 20.13% in 2011 before decreasing to 16.26 in 2012. However, it increased to 23.77 in 2013. The turnover on assets indicates the income that the firm realizes on its assets. The ratio was a constant of 0.03 while the return on assets increased over time from 0.24 in 2009 to 0.6 in 2013. The company’s return on equity also fluctuated over time thereby indicating the changing business environment for the bank. The ratio increased from 5.26 in 2009 to 10.96 in 2011 before decreasing to 8.4 in 2012. The return on invested capital was always negative for the first four years between 2009 and 2012. However, it increased to 1.58 in 2013. Financial Growth Ratios The average annual growth of the company fluctuated over time. The 2009 average was the lowest at 11.49 while it increased to a high of 4.31 and 3.36 in 2012 and 2013 respectively. The annual operating income of HSBC increased from -43.08 in 2009 to a high of 211.82 in 2010 before declining -9.02 in 2013. The EPS of HSBC was -27.66 in 2009. However, the company increased the EPS to 111.76 in 2010 before it decreased to 26.39 and -18.68 in 201 and 2012 respectively. The Price per earning ration of HSBC was 0.47, 0.43, and 0.39 in 2009, 2010 and 2011. However, the ratio increased to 0.41 in 2012. Concerning the short-term debt, the company’s short-term debt increased over time from 0.74 in 2009 to 0.94 in 2013. On the contrary, the long-term debt of HSBC decreased over time from 10.89 in 2009 to 1.08 in 2013. Despite the increase in the debt, the equity of stockholders increased marginally from 5.43 to 6.81 in 2009 and 2013 respectively. Following in the decrease in the long-term debt, the debt to equity ratio of HSBC decreased gradually from 2.01 in 2009 to 0.16 in 2013. The financial health of HSBC is indicated by the financial leverage ratio that decreased gradually over the five year period from 18.43 to 14.59 in 2009 and 2013 respectively. The efficiency of the remained relatively constant as the fixed asset turnover of the company increased slightly from 5.92 in 2009 to 8.04 in 2012 before decreasing to 6.36 in 2013. Financial Analysis of Banco Santander BANCO SANTANDER BRASIL SA/BRAZIL ADR (BSBR) Cash Flow Flag INCOME STATEMENT Fiscal year ends in December. BRL in millions except per share data. 2008-12 2009-12 2010-12 2011-12 2012-12 Revenue Interest income Loans and Leases 45859 Deposits with banks 5731 Other assets 30355 39343 40909 51736 1070 Total interest income 30355 39343 40909 51736 52661 Interest expense Deposits 15079 Long-term debt 4673 Other expense 23450 17176 16814 23834 1216 Total interest expense 23450 17176 16814 23834 20969 Net interest income 6905 22167 24095 27902 31692 Noninterest revenue Commissions and fees 1124 6238 6836 8769 7753 Equity investment income 325 96 148 167 Securities gains (losses) -1456 Other income 5916 3295 1455 -614 661 Total noninterest revenue 7040 9858 8386 8303 7125 Total net revenue 13946 32025 32482 36204 38817 Provisions for credit losses 2207 Noninterest expenses Compensation and benefits 6644 7127 Tech, communication and equipment 5417 10947 11231 5729 5578 Advertising and marketing 499 Amortization of intangibles 892 1106 Other special charges 10867 8254 9420 16065 Other expenses -5417 1249 3470 5061 2726 Total noninterest expenses 23063 22955 27746 33101 Income (loss) from cont ops before taxes 13946 8963 9526 8458 3510 Provision (benefit) for taxes -973 2629 2614 1155 51 Other income (expense) -13320 -826 470 444 1990 Net income 1599 5508 7382 7748 5449 Preferred dividend 18 Net income available to common shareholders 1581 5508 7382 7748 5449 Earnings per share Basic 1.61 1.86 1.95 1.37 Diluted 1.61 1.86 1.95 1.37 Weighted average shares outstanding Basic 1749 2027 2027 2022 Diluted 1749 2027 2027 2023 EBITDA 2649 10211 10764 9920 5341 Financial Ratios Growth Profitability and Financial Ratios for Banco Santander Brasil SA/Brazil ADR Financials 2003-12 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 Revenue BRL Mil 5,248 10,047 13,946 32,025 32,482 36,204 40,818 Gross Margin % Operating Income BRL Mil 1,032 1,934 1,253 8,963 9,526 8,458 3,510 Operating Margin % 19.7 19.3 9 28 29.3 23.4 8.6 Net Income BRL Mil 804 1,845 1,599 5,508 7,382 7,748 5,449 Earnings Per Share BRL 1.61 1.86 1.95 1.37 Dividends BRL 0.16 0.44 0.3 0.39 Payout Ratio % 5.2 12.1 7.9 14.5 Shares Mil 1,749 2,027 2,027 2,023 Book Value Per Share USD 10.45 11.41 11.02 10.45 Operating Cash Flow BRL Mil 81 5,554 -12,214 -10,326 -11,110 4,582 Cap Spending BRL Mil -645 -2,826 -3,282 -2,406 -2,553 -3,168 Free Cash Flow BRL Mil 556 -37,893 -14,442 2,733 3,090 2,145 Free Cash Flow Per Share USD -4.73 0.8 0.82 0.52 Working Capital BRL Mil Key Ratios -> Profitability Margins % of Sales 2003-12 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 Revenue 100 100 100 100 100 100 100 COGS Gross Margin SG&A 27.7 28.58 38.84 34.18 34.58 38.12 32.35 R&D Other -27.7 -28.58 -38.84 37.83 36.1 38.51 48.75 Operating Margin 19.66 19.25 8.98 27.99 29.33 23.36 8.6 Net Int Inc & Other -5.41 EBT Margin 100 100 100 27.99 29.33 23.36 13.5 Profitability 2003-12 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 Tax Rate % 5.32 7.03 32.31 26.15 12.96 0.93 Net Margin % 15.31 18.37 11.33 17.2 22.73 21.4 13.35 Asset Turnover (Average) 0.05 0.09 0.06 0.1 0.09 0.09 0.1 Return on Assets % 0.79 1.69 0.69 1.68 2.14 2 1.33 Financial Leverage (Average) 12.79 12.52 6.99 4.6 5.11 5.13 5.18 Return on Equity % 10.08 21.41 5.45 9.38 10.39 10.24 6.84 Return on Invested Capital % -32.18 -39.01 -29.19 -6.91 -5.18 -11.27 -13.14 Financial Growth Ratios The average annual growth in revenue of Banco Santander fluctuated over time. The 2009 average was the highest at 129.64 while it decreased to a low of 1.42 and 11.46 in 2010 and 2011 respectively. The annual operating income of HSBC decreased from 615.36 in 2009 to a low of 58.51 in 2012 before increasing slightly -1.41 in 2013. The EPS of Banco Santander was 15.34 in 2009. However, the company decreased the EPS to 4.98 in 2010 before it decreased to -29.54 2012. The Price per earnings ratio of Banco Santander was 0.47, 0.43, and 0.39 in 2009, 2010 and 2011. However, the ratio increased to 0.41 in 2012. Concerning the short-term debt, the company’s short-term debt increased over time from 0.74 in 2009 to 0.94 in 2013. On the contrary, the long-term debt of Banco Santander decreased over time from 10.89 in 2009 to 1.08 in 2013. Despite the increase in the debt, the equity of stockholders increased marginally from 5.43 to 6.81 in 2009 and 2013 respectively. Following in the decrease in the long-term debt, the debt to equity ratio of Banco Santander decreased gradually from 2.01 in 2009 to 0.16 in 2013. Comparison of the two Banking Companies The comparison of the two banks involves their different measures of performance such as profitability. Figure 1 below indicates the comparison of interest income of the two banks. From the figure, it is clear that while the interest income of Banco Santander was increasing, the value for HSBC was decreasing over the five year period. Fig. 1 Net Income The comparison of the net income of the two companies is indicated in figure 2 below. Fig. 2 From the above figure, it is clear that the net income realized by HSBC is higher than that realized by Banco Santander. In addition, the net income of HSBC increased at an increasing rate while that of Banco Santander increasing at a decreasing rate thereby beginning to decrease after the 2012 period. Revenue Fig. 3 The comparison of revenue reveals that HSBC has higher revenue as compared to Banco Santander. However, the revenue of HSBC decreased over the five-year period from the 2008 figure of $93,059 to the 2013 figure of $68,184. On the contrary, the revenue value of Banco Santander increased gradually over the same period. SWOT Analysis HSBC Strengths The large size and dominance is a significant strength for the bank as it ensures large scale operations and economies of scale. Weaknesses HSBC does not have the same clout in investment banking as Barclays or Morgan Stanley. While this may have worked to the group’s benefit during the financial crisis, now that markets are picking up, HSBC could lose some ground to its rivals. Opportunities HSBC never had to ask for a taxpayer bailout during the financial crisis and has been relatively untouched by the LIBOR and PPI miselling schandals. The reputational damage suffered by Barclays, Lloyds and RBS gives HSBC an opportunity to win significant business in the UK market. Threats The UK government’s banking levy is charged on assets owned by the banks. However, with much of its assets overseas, HSBC’s charge seems disproportionate. If UK regulators continue their assault on the sector, HSBC may be forced to relocate Banco Santander SWOT Analysis SWOT Analysis Strength 1. Strong Strategic Alliances with other leading institutions 2. Market leaders in Europe and presence in Latin America, Singapore, Hong Kong, Africa, USA 3. Robust Operating Performance 4. Has over 175,000 employees 5. It has over 90 million customers, 13,000 branches and 2 million shareholders 6. Sponsor of many sporting events Weakness 1. Dependency on Eurozone policies 2. Negligible presence in Asia as compared to other banks Opportunity 1.  Small enterprise banking 2.  Microfinance Threats 1.  Stringent economic policies world over 2.  Highly  competitive environment 3. Changing govt regulations and financial crisis like recessions Conclusion The financial trend analysis of two banks has revealed the performance of the two banks in terms of their sizes and operations. The analysis indicates that HSBC is more stable as compared to Banco Santander and therefore, all investors willing to invest in the company should pursue the option of HSBC. This is because the bank has a higher rate of earnings per share as compared to Banco Santander. In addition, the banks has realized large amounts of revenues and performance improvement. List of References Badreldin, A. & Kalhoefer, C. 2009. The Effect of Mergers and Acquisitions on Bank Performance in Egypt. German University in Cairo, Working paper No. 18 Banco Santander, 2006. Key Group Figures, Retrieved on April 13, 2014 from: Banco Santander, 2010. Spain Bank Merger and Acquisitions (Banco Santander). Retrieved on April 13, 2014 from: Craig, T. & Campbell, D. 2005. Organizations and the business environment. London, UK: Butterworth-Heinemann. Ison, S. & Griffiths, A. 2001. Business economics. London, UK: Heinemann publishers. London Stock Exchange, 2011. Banco Santander S.A. Retrieved on April 13, 2014 from: Rajeev, S. & Yun, Z. 2009. Benefits and Costs of Diversification for Firms in Chapter 11, Retrieved on April 13, 2014 from: Shimizu, K. et al. 2004. Theoretical Foundations of Cross-Border Mergers and Acquisitions: A review of Current Research and Recommendations for the Future. Journal of International Management, 10, 307–353 Read More