Problems Being Faced by HSBC - Report Example

HSBC Problems and Possible Solutions Introduction With the increasing levels of globalization resulting from liberalization of markets, efficient flow of information and integration of economies, the level of competition in the local and global market has increased tremendously. This has mainly resulted from the entry of multinational firms which have huge financial base to segment the market, attract the customer loyalty, and position their products and services strategically in the market. Banking sector has seen an increased in the level of competition. International banks such as Barclays have diversified their services in order to reduce the risks and uncertainties associated with concentrating in a single market. In addition, banks are participating intensively in corporate social responsibility in order to improve their reputation in the local and global market. For instance, many banks are sponsoring various football and athletics clubs in an attempt to attract the attention of the customers towards their services. This has led to emergence of strong brands in the market. However, maintaining this brand name is requiring intensive advertising in the audio, visual, print, and social media. However, the recent negative news about HSBC has threatened the banks position in the market. Current Situation The bank is struggling to retain its global outlook especially with the increasing levels of competition in the market. The operating costs have increased tremendously after the bank expanded to different markets across the world. Much of the banks revenues are spent on paying salaries and maintaining its subsidiaries which are scattered in different parts of the world. In addition, the bank has failed to segment the US, Mexico and Brazilian markets and position itself strategically in the market (Arnold 2015). Therefore, the bank is planning on an exit strategy because the branches in these areas are straining the bank’s revenues. The bank is struggling with strict regulations in different countries. In addition, it needs to upgrade its IT system in order to keep up with its competitors. Currently, the level of cyber crime has increased tremendously. In order for the bank to protect its customers, it needs to upgrade its systems. Furthermore, the consumption behavior of the target market is changing drastically (The Economist 2015). For instance, retail banking and wealth management profits reduced drastically. However, profits emanating from commercial banking and smaller private banking arm increased tremendously. In order for the bank to improve its performance and remain competitive, it needs s to re-strategize and reorganize its operations. Problems being faced by HSBC HSBC bank is facing a major challenge of rebuilding its tainted reputation after it has been mentioned in tax-evasion scandal at its Swiss private bank. Customers want to be associated with institutions that observe ethical guidelines. Therefore, the case of tax evasion has affected the trust of the bank’s customers towards its operations. Majority of them are now opting to take away their savings from the bank to other upcoming banks. This will have a major impact on the performance of the bank especially with the current entry of international banks in different markets that were earlier held by HSBC bank (The Economist 2015). HSBC bank is facing management crisis especially in its subsidiaries. Some of these branches are not making enough profits to sustain them in these markets. For instance, in Brazil, the bank is facing stiff competition from local banks which have been able to integrate with the culture of the local population. This has made it hard for such subsidiaries to increase their market share. As a result, the headquarters is forced to give these banks some money in order to stage stiff competition in the markets (The Economist 2015). However, over the years, the banks have failed to penetrate these markets as the local businesses have put up barriers of entry, thereby, making it hard for other interested investors to penetrate the markets. The bank is facing a major challenge of negative perception especially after being accused of overstating its balance sheet with questionable assets. Many of the customers now believe that the performance of the bank has been overhyped in order to attract more customers and investors. Furthermore, the bank was accused of being the largest practitioner of capital forbearance in the world. This means that it is allowed to pay just enough to service its debts rather than paying its capital. Economists therefore, argue that in case the interest rates rise, many of the companies will not be able to pay their loans (The Economist 2015). The bank is facing stiff regulations in different countries. Last year, the bank was forced to pay out billions of fines and settlement. The bank is facing several uncertainties and challenges especially in relation to its sustainability, an aspect that makes it hard to forecast its future. This aspect is putting off the investors, thereby straining its current revenues. Moreover, the bank is facing a challenge of geopolitical tensions and Euro zone membership uncertainties (Larsen 2013. The chairman of the bank is even proposing that the bank might move its headquarters from UK. This has made the UK customers jittery especially with the bank’s current allegations of enabling its customers to evade taxes. The bank’s retrenchment strategy is making it hard for the firm to operate effectively. Majority of the subordinates leaving the firm are likely to join the competitors. These are employees who have worked in different countries and have enough experience to enable the companies to record immense growth. Therefore, the strategy is likely to strengthen the competitors in the market, an aspect that will weaken the banks competitive advantage. Recommendations The company needs to take action to any employees that aided the tax-evaders. In addition, it needs to set up strict policies that will ensure that such an issue will never happen again in the future. This will play a significant role in regaining the public confidence. The bank needs to change its brand name. The reputation of the company has been tainted. Tax evaders have been said to participate in funding drug trafficking and terrorist activities. Therefore, many customers will not be willing to associate themselves with the bank. After changing the brand name, the bank should intensify its advertising campaign in order to attract more customers and investors. This will enable the bank to open a new chapter. The bank needs to shut down underperforming subsidiaries. In the past one decade, some of its subsidiaries in US, Brazil, and Mexico have not been performing effectively. In addition, stiff competition from local banks. Therefore, closing them down will reduce the banks burden which has been emanating from supporting these branches. The bank should invest heavily in the modern technologies. This is to increase its efficiency and reduce the cost of operation. With the current retrenchment of the employees, the bank needs to purchase modern technologies which will enable it to accelerate its performance. The bank should intensify its involvement in corporate social responsibility. This is to attract the customers towards its services. This will also play an important role in improving its reputation in the market. Conclusion HSBC bank is facing major challenges which might affect its growth. With the toughening economic times, the bank needs to develop new strategies in order to remain relevant in the market. In addition, it needs to do away with the subsidiaries which have been performing poorly. These aspects will be significant in improving the bank’s performance in the market and strengthening its financial position. References Arnold, M. (2015). Dark days turn darker for HSBC as profits dive. Retrieved April 24, 2015, from http://www.ft.com/cms/s/0/7411ce86-bb7e-11e4-b95c-00144feab7de.html#axzz3Tb5zlUQu Larsen, P. T. (2013, May 7). The Challenges Ahead for HSBC. Retrieved April 24, 2015, from http://dealbook.nytimes.com/2013/05/07/the-challenges-ahead-for-hsbc/?_r=0 The Economist. (2015, February 28). Tax-evasion allegations are not the bank’s only problem. Retrieved April 24, 2015, from http://www.economist.com/news/finance-and-economics/21645257-tax-evasion-allegations-are-not-banks-only-problem-stocks The Economist. (2015, April 14). Tax evasion: Hiding Sir’s Black Cash | The Economist:The leaking of old data creates fresh problems for HSBC. Retrieved April 24, 2015, from http://www.economist.com/news/britain/21643143-leaking-old-data-creates-fresh-problems-hsbc-hiding-sirs-black-cash Read More