Research Korner: Banking Essay Samples

Portfolio Management of Standard Chartered Bank Pakistan

Portfolio management of Standard Chartered Bank (SCB) Pakistan   <li class="MsoNormal" style="line-height: 150%"> Introduction </li> The ideal research approach significant for research is by means of thorough applications of comprehensive financial analysis imposing standards and strength from within into useful research paradigm through case study assimilation as well as having factual evidence that can be directed to financial aspect of the banks as supported by reliable case studies presented through reliable journals and articles as based on the topic. The involvement of SCB Pakistan in annual report and or press releases of banking finance statements is of positive factor to value application of financial approaches found within case patterns and such financial context and principles. The research can have the analytical underpinnings for new class of active investment managers. There needs for a qualitative active management, of better financial analysis and such process to try to beat the market pointing to financial economics in delivering  investment returns, from perspective of financial economist, active portfolio management appears to be reliable consideration from active, effective management. <li class="MsoNormal" style="line-height: 150%"> Methodology </li> The need for a qualitative approach adhering to portfolio management of SCB Pakistan that investigates superior returns and risk control, this will work out through case study analysis of SCB that caters to their financial statements in recent figures and the recognizing of financial strength as the case study will analyze in terms of SCB reports relating to Pakistan and an organized discussion, analysis as well as interpretation of the research depending on data presented through SCB’s financial reports that overlook for a possible active portfolio management on desired approach. Method goal is to provide a structured approach for active investment management applied for SCB Pakistan. The process includes researching ideas as qualitative or not, forecasting exceptional returns, constructing and implementing portfolios, observing and refining their performance then, to provide better set of strategic concepts and rules of thumb which broadly guide the portfolio process. The utilizing of financial methods for SCB Pakistan as these type of methods are the most popular of the various project selection and prioritization methods with 77 percent of businesses using this method overall, and 40 percent reporting it as the dominant method they rely on. The methodology can be based on literature studies of SCB through research analysis as supported by reviewed studies of understanding the background of the bank’s financial strength and how it relates to pricing opportunities as the banks do strive to become more financial competitive centered ( 2000). The data required for case analysis have been collected SCB Pakistan’s annual reports and statements have been referred for the collection of accurate data ( 2002; 2001). <li class="MsoNormal" style="line-height: 150%"> Objectives </li> The need to plan, execute and understand the process of portfolio management of Standard Chartered Bank, the case of Pakistan  Standard Chartered Bank Pakistan will need to adopt such approach to financial planning and management which deploy an effective banking network by linking towards a better financial approach determining financial statement in its value and strength, the research will present better framework for analysis and crafting of financial patterns of Standard Chartered Bank in portfolio management into Pakistan context. The need to know and recognize the importance of portfolio management as research pertains to Standard Chartered Bank involvement in such controlling of risks as well as provide of superior returns can achieve better financial status and competence without experiencing much delinquency of its financial statements like, found in cash flows and balance sheets with Pakistan banking sectors for managing portfolio engagements linking to other Pakistan banking sectors ( 1998). The setting of portfolio standards by SCB is an important factor upon determining success towards financial strength and other matters. 4. Hypothesis H1: There is active and effective approach towards portfolio management of Standard Chartered Bank H2: There is inactive and ineffective approach towards portfolio management of Standard Chartered Bank H3: There is positive portfolio assessment method of SCB upon considering comprehensive financial information H4: There is negative portfolio assessment method of SCB upon considering comprehensive financial information <li class="MsoNormal" style="line-height: 150%"> Literature review </li> New product portfolio management is about how there investment in business’s product development resources is allowing SCB project prioritization, allocating resources across development projects. There has been several goals in portfolio management such as the maximizing the value of the portfolio, seeking the right balance of projects, ensuring that the bank’s portfolio is strategically aligned, and making sure SCB don’t have too many projects for its limited resources and lots of tools to use for measuring portfolio as some quantitative/qualitative, others graphical, strategic as such being designed to help the bank chose the right portfolio of projects. According to  and  (2006), there can be presence of “optimal portfolio management policies for an investor who must pay transaction cost equal to a fixed traction of the portfolio value each time he trades, showing that the optimal policy reduces to solving single stopping time problem as when there is risky stock, there can be system of equations whose solution determines the optimal rule and observe the general qualitative results” ().  Thus, portfolio management is fundamental to new product success but as easy as it seems not only must SCB seek to maximize the value of your portfolio, but the development projects in the portfolio must be appropriately balanced, there must be the right numbers of finances and other related aspects, portfolio management must be strategically aligned. No one portfolio model can deliver on the goals, so SCB may integrate multiple methods to select effective projects. SCB is known and trusted for having high standards of corporate responsibility as the bank is committed to building sustainable business through social inclusion, environmental protection and good governance, by combining the global capabilities with deep local knowledge, SCB develop innovative products and services to meet the diverse and ever-changing needs of individual, corporate and institutional customers in some of the world's most exciting and dynamic markets ( 2007). Financial statements is to provide information about the financial strength, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions, intended to be understandable by readers who have reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently (2008). Financial strength was used in describing certain extent to which an entity is constrained by its financial situation in pursuing its strategic goals or policies. An entity is financially strong when it is relatively unconstrained and weak when financial constraints are binding on policy choices. The financial strength of the banks is intimately linked to the successful management of the enterprise (2005).

Portfolio Management of Standard Chartered Bank Pakistan

Portfolio management of Standard Chartered Bank (SCB) Pakistan Introduction The ideal research approach significant for re...

Leadership in HSBC

TABLE OF CONTENTS  TOC \o "1-3" \h \z \u Task 1 Current theories and models of leadership and their applicability. PAGEREF _Toc231702440 \h 2 Current Leadership Theories. PAGEREF _Toc231702441 \h 2 Leadership Effectiveness. PAGEREF _Toc231702442 \h 4 Task 2 Current and future requirements. PAGEREF _Toc231702443 \h 9 Current Requirements of Leadership. PAGEREF _Toc231702444 \h 9 Future Requirements of Leadership. PAGEREF _Toc231702445 \h 10 Task 3 Proposals for the development of leadership. PAGEREF _Toc231702446 \h 11 References. PAGEREF _Toc231702447 \h 14   Task 1 Current theories and models of leadership and their applicability Current Leadership Theories Leadership is one of the most pressing issues and one of the least understood concepts in the corporate world. The history of leadership encompasses through several paradigm shifts and voluminous body of knowledge. As a universal activity, leadership is fundamental for effective organizational and social functioning.  The very nature of leadership is its influencing process and its resultant outcomes. Such process is determined by the leaders and followers characteristics, dispositions, behavior perceptions, attributions and the context wherein the process of influencing occurs. The moral purpose of leadership is to create an empowered follower that leads to moral outcomes that are achieved through moral means (Antonakis, et al, 2004, p. 5).             In defining leadership, we must take into consideration its distinctness from power and management. Power refers to the potential of any leader to influence others that include referent power, expertise, the ability to reward or punish and others. Management refers to objective-driven approaches in acquiring stability based on rationality, bureaucratic means and the fulfillment of contractual obligations.  Whereas, leadership refers to purpose-driven that results in changes that are based on values, ideals, visions, symbols and emotional exchanges. Based on these definitions, we can say that leadership and management both requires power, however, management implicates the cognitive domain of employees compared to leadership that has direct effect on affective domain (Ibid).      Since leaderships rely upon providing directions that satisfies the motivational needs of others, there is a relationship between leadership and motivation. As an individual power, motivation can stand on its own. Leaders, on the other hand, act to provide satisfaction. To wit, successful leaders understand the needs of others and subsequently apply perception and influence to show others that the most satisfaction is achieved when following the leader’s view. Leadership cannot succeed without motivation (Bittel, 1992, p. 269). According to Antonakis, et al, leadership is fundamental for effective organizational and social functioning.  The very nature of leadership is its influencing process and its resultant outcomes. Such process is determined by the leaders and followers characteristics, dispositions, behavior perceptions, attributions and the context wherein the process of influencing occurs. The moral purpose of leadership is to create an empowered follower that leads to moral outcomes that are achieved through moral means (2004, p. 5). As a universal activity, leadership refers to purpose-driven that result in changes that are based on values, ideals, visions, symbols and emotional exchanges. There are two theories on leadership that shape leadership aspect of most organizations of today as transactional and transformational theories. Transactional theory is also known as management theory. The transactional nature of leadership deals with the task-oriented leaders. They tend to focus on role of supervision, operations and group performance in achieving finite goals. A system of reward and punishment is the basis of this theory; hence, the relationship is very dependent. Many economists believed that the integration of transactional with the transformational leadership is more favorable instead of just substituting the former with the latter (Martin, 2006, p. 47). Transformational leadership, also refer to as relationship theory, builds upon the connection between leaders and followers. Transformational leaders have a strong sense of mission and an ability to influence subordinates. They lead the group from “what is” to “what is describable” to “what ought to be”. The main functions of transformational leaders are idealized leadership, inspirational motivation, intellectual stimulation and individualized consideration (Martin, 2006).             Leadership can be distinguished as explicit and implicit and formal and informal. Explicit leadership is base on leader’s actual behavior (overt) that are measured and evaluated and implicit leadership theory is founded on conceptual structure, definition and expectation of the people on how a leader should behave (covert). Assessing the implicit leadership theory always incorporates explicit elements (Silverthrone, 2005, p. 68). Leadership Effectiveness             Effective leadership per se takes on influencing followership. Leadership organizations ensures that decision-making is placed at the proper level and purports that proper checking and balances are in place. The Board of Directors is responsible for conducting thorough review through solid and diverse experiences and credentials. The board also embodies the corporate governance guidelines, codes of business conduct and financial ethics. The corporate officers support the board and occupy the management role. The leadership’s role mainly focuses on driving growth and sustainability thus it requires a close contact with different committees and units. First, there is a clear distinction on the roles played by the leaders and the employees; they know their stand. Second, leaders manifest faith towards the capability of the employees regardless of the gender. The workplace is not discriminating in any way. Third, individualized consideration and reasonable sanctions are other positive aspects of their leadership. Fourth, because of fear, poignantly, the workforce is more disciplined. Avoiding punishments also forces the employees to work productively. Fifth, the knowledge that ‘their hardwork will be recognized’ worked as implicit motivators. And finally, informations are disseminated faster and easier; thus, reciprocation is usual and acknowledged. The leadership style itself must be improved. The organization must combine another leadership style which is transformational with transactional leadership (Goethals, et al, 2004, p. 697). Concerns with business operations and discipline within the workplace are evident. Though the people will be motivated more if the organization will provide for a ‘sense of purpose and ownership’ as a motivation. Influence over followers, task goals and organizational culture should be a priority for leaders. Interaction patterns must be likewise examined (Deresky, 2006, p. 423) and identify the possibility of face-to-face exchanges. In this way, the leaders can directly, beyond doubt identify the needs of their people. In considering how the leaders influence the organizational culture, the structure of leadership must be also explored. Since there are many leadership styles that could be used then the manner of influencing the culture-building process conforms to many ways as well. For one, transactional leaders work within their organizational culture and transformational leaders change them. While also, leaders worked on transforming organizational visions into reality then the performance and productivity of the organization as a whole must be aligned around that vision. Culture-building, in lieu with this, necessitates a purpose-driven leadership. However, as Edgar Schein puts it, leaders are exposed to different orientations and role definitions and the impact of founders as leaders as well. Schein maintains a ‘culture embedding’ that claims that culture manages management more than management manages culture especially when organizations approach the organizational midlife. Bass argued that leaders could function as founders of cultures, of counter cultures and even act as agents of change in dominant cultures. Antecedent leaderships are the main source of organization’s culture and it affects the subsequent leader-subordinate relationships in several ways (1990). The founding or organizational cultures relates to a preconceived ‘cultural paradigm’ that could either strengthen or damaged the entire organization. As culture-builders, leaders understand the power of culture, values and integrating them into the organization. The need for leaders to be cultural facilitators is manifested in the daily management structures and routines in order to achieve organizational purposes or end values.    Organizational evolution in midlife is apparent in the changing dynamics of culture and leadership. As groups mature they develop subgroups. The consideration of microcosm reflects a degree of relativity. The creation and management of subcultures are other tasks for leaders. However, there are major bases of differentiation as functional, geographical, differentiation (by product, market and technology and by hierarchical level), ‘divisionization’, mergers and acquisition, joint ventures and structural opposition groups. Occupational functions help organizations to be more articulated and, thus, shorten the communication gap. Since occupational functions are exercised at all levels of the organization, a diversified workforce based on functions will exist. Another thing is that the creation of subcultures conforms to several geographical units that logically alter the communication. The impact of strategic alliances and organizational members’ resistance, in addition, calls for an organizational change that may sacrifice the organizational culture. The culture of an organization is intertwined with the philosophy, purposes, functions and structures and wherein organizational members develop mutually-accepted ideas and beliefs regarding what is real, what is important and how to respond. Further, the importance of leaders is viewed as main transmitters of organization’s culture and values. Leaders act as builders, as maintainers and as watchdogs of organizational culture and values per se (as cited in Bass, 1990, pp. 586-588). Aside from the reality that leaders create culture, countercultures and changing the dominant cultures, the leaders’ role also deals with managing the culture and maintaining them as always acceptable. Leaders must develop new values and recognize emerging values while exploiting existing values. An aggressive approach is necessary at this stage to facilitate the expansion of organization’s knowledge and value base. Organizations may further identify themselves with internal and external sources of knowledge, values and corporate culture. Internal processes involve creation, as discussed above, integration and dispersal of culture within the boundaries of the organization. External process is a two-step process wherein organization members are exposed to outside culture and then transfer them to other members inside the organization (Choo and Bontis, 2002 p. 280).                   All of the factors mentioned above are organizational evolution that calls for necessary evolution of leadership functions and roles. More than being integrators and facilitators, leaders are required to have keen observation and scrutinizing skills. For an instance, when the organization is faced with the conflict that emerge from its founders and when maintaining cultures is gradually being insufficient to the organization’s needs and demands, then the organization must congregate with an external organizational specialist – an OD practitioner, for example. So as not to distort existing, effective values and knowledge, leaders must carefully examine the emerging trends in culture and employee behaviors. In this process, leaders could manipulate the culture for their own term and not on the OD practitioner’s side (Harvey and Brown, 2006). In effect, leaders could maintain equilibrium and maximize autonomy while motivating changes even in the presence of an external force (Schein, 2004).             As overseers, leaders are also expected to be cultural change agents in order to unlearn things that are no longer serving the organization well. The process of unlearning involves anxiety, defensiveness and resistance to change from both leaders’ and subordinates’ side. Change must begin with the leaders. When leaders find themselves possessing dysfunctional processes, then these must be changed. Thinking of themselves as change agents, leaders must think of themselves as providers of ‘psychological safety’ and a genuine believer of cultural dynamics and the attributes of their own organizational culture. Since culture cannot be manipulated then the leaders must ‘walk the talk’ and not the other way around. In addition, safeguarding the changes in culture directly points to assessing the cultural dimensions. This can be done through internal interventions to facilitate leadership commitment and the exploring the views of the macrocosm. This involves the acquiring knowledge on their values, shared assumptions, identifying barriers and analyzing them (Schein, 2004).   Task 2 Current and future requirements Current Requirements of Leadership Amongst the function of leadership and governance, one of the most important is sound decision-making. Though this function is also the least visible since most of the decisions are made behind closed-doors with only the top management to witness, decisions are applied organization-wide, from top to bottom; hence, decisions are observable and often consequential. Optimal decisions are revealed in the course of transcendent dedication, vigilant attention and decisive realization. Transcendent dedication refers to an overarching commitment to the goals of the organization. Vigilant attention is a vow made by top management to maintain assertive and analytic while reaching a decision. Top management’s effort to assure that decisions reached and are executed at every corner of the organization is hereby referred to as decisive realization (Gandossy and Sonnenfeld, 2004, p. 65).  According to Yogendra Malik, there are three classes of factors that affect leadership decisions as personality structure of a leader, expectations of the people around him and characteristic behavioral patterns of the culture that he/she is a part of (1983, p. 78). Other factors that affect leadership decisions are documented as nature and behavior of followership, perceptions of power – sources, use, effects and nature, domains or the specific application of leadership, e.g. political, non-profit, educational, etc., and leadership styles and theories. Some organizations typify styles based on conformity while theoretical applicability deals with human behaviors in the context of leadership (Goethals, et al, 2004). Future Requirements of Leadership             The framework of leadership over 21st century organizations is too complex and uncertain than ever. As Gandossy and Efron put it, organizations who are able to build and to destroy strength and speed by other organizations will dominate. The topic of leadership will be embedded on the continuous prevalence of speed and uncertainty and the continued disruption and enablement of technology. Further, demographics will dictate much of the trend in businesses. Contemporary leadership swiftly shifted focus into a more collaborative and complementary as well as knowledge- and talent-based leaderships (pp. 161-165).       Since works are virtually done anywhere, anytime, the span of leadership control widens and crosses geographical and cultural boundaries. Global leaders are honed by means of developed, and continually developing, global processes to assess and caliber talent. The challenge, however, is the systematical movement of such talent in building global capabilities (pp. 168-170). The basics of modern leadership besides the aforementioned is the direct integration of leadership processes in business strategies that support selecting, aligning, developing and rewarding leaders whom act consistently towards accomplishing organizational objectives. The “fit” criteria of leaders will drive them in achieving high performance. The basis would be the measures on a continuum from a growth strategy to a return strategy and from incremental change to transformational change even with uncertainties – physically or virtually (p. 154).    Task 3 Proposals for the development of leadership             HSBC thrives toward ethical leadership wherein customers are served to generate reasonable return for owners and shareholders, provides stable jobs for their employees in a progressive and responsive manner and help communities where the bank operates while staying within boundaries of regulations. HSBC also complies to local laws and regulations, takes apolitical stance and emphasizes performance over conformance. Since HSBC is operating under ‘Key Business Value’ principle, the company expects and demands the highest of standards among the employees. HSBC is very particular with commitment, loyalty, hardwork and integrity. Aside from this, HSBC is a fair and an objective employer though the interest of the group is placed ahead of the individuals. While also, HSBC uses merit approach with respect t to recruitment, selection and promotion as well as delegation of authority based on accountability. Moreover, the company promotes good environmental practices and sustainable development. More than the usual definition of leadership as communicating the need to the people, HSBC takes into account a less-word-more-action leadership style or exemplary leadership. Such attitude considers transparency as part of effective leadership. Integrity, in addition, is another key term for HSBC as a central idea of ethical leadership. HSBC fully understand the role of their employees as ‘the eyes and the ears’ of the business and also recognizes the fact that the satisfaction and commitment of ‘internal customers’ are also crucial for the company. As such, HSBC employees proved to have higher productivity through enhanced systems and adequate management. HSBC also safeguards ‘corporate memory’ through keeping the most productive, most loyal and high-caliber employees. In effect, HSBC has relative low employee turnover as documented and find easiness to retain and attracting more employees. For the company, the implications include reduced recruitment and training costs. Within working teams and groups, the profound effects are comprise by a higher-level commitment of the workforce wherein team members are more than willing to contribute ideas and adapt to the organizational changes. Since managerial initiatives also serves as support mechanism, team leaders and members are willingly supports the corporate image and takes pride in their respective works.  Structured leadership is another concern for process interventions. Despite possible clashes between teams, team members and leaders, process interventions are carried-on through clarifications, synthesis, inquisitions, listening, reflections, providing support, modeling, agenda-setting, periodic feedbacks and structural suggestions. The communication model present within the organization is the Content-Processes-Roles (Church and Waclawski, 1998, p. 67). This model can be used to identify what is needed to be communicated, how it is communicated and who does the communicating. This model will provide the organization a focus to integrate effective leadership with self-esteem, performance and productivity. Since the company is already using a technology-based communication, surveys regarding the effects of leadership style to the employees’ performance and implications of leadership disposition in their daily productivity. Likewise, the organization could fully utilize ‘collaborative softwares’ towards pooling different employee perceptions on current leadership and perceptions on using computer-generated interactions. The data gathered will serve as point of discussion on what areas are in most need of improvement.   References Antonakis, J., Cianciolo, A. T. & Strenberg, R. J. (2004). The Nature of Leadership. Sage Publications, Inc. Bass, B M 1990, Bass and Stogdill’s Handbook of Leadership: Theory, Research and Management Applications, 3rd ed., Free Press, New York. Bittel, L. B. (1992). What Every Supervisor Should Know. McGraw-Hill Professional. Choo, C W and Bontis, N 2002, The Strategic Management of Intellectual Capital and Organizational Knowledge, Oxford University Press, US. Cheng, V. (2007). ‘Living and Leading in Transparent Times’ – Keynote Speech. Ethical Leadership for the New Generation’ Youth Summit. Baptist University Hong Kong. Church, A. H. & Waclawski, J. (1998). Designing and Using Organizational Surveys. Gower Publishing, Ltd. Deresky, H. (2006). International Management: Managing Across Borders and Cultures. (5th Ed.). Prentice Hall. Gandossy, R. P. Effron, M. (2004). Leading the Way: Three truths from the Top Companies for Leaders. John Wiley and Sons. Gandossy, R. P. & Sonnenfeld, J. A. (2004). Leadership and Governance from the Inside Out. John Wiley and Sons. Goethals, G. R., Sorenson, G. J. & Burns, J. M. (2004). Encyclopedia of Leadership. Sage Publications, Inc. Harvey, D. & Brown, D.  (2006). An experiential approach to organization development, (7th ed.) Upper Saddle River, NJ: Prentice Hall. Martin, B (2006). Outdoor Leadership: Theory and Practice. Human Kinetics. Schein, E. (2004).  Organizational Culture and Leadership, (3rd ed.)   San Francisco, CA: Jossey-Bass (paper). Schein, E. (1995). The Leader of the Future. Drucker Foundation (paper). Silverthorne, C.P. (2005). Organizational Psychology in Cross-cultural Perspective, NYU Press.

Leadership in HSBC

TABLE OF CONTENTS TOC \o "1-3" \h \z \u Task 1 Current theories and models of leadership and their applicability . PAGER...

Strategies in Action “HSBC”

Strategies in Action “HSBC” Introduction Headquartered in London, HSBC is one of the largest banking and financial services organizations in the world. HSBC's international network comprises over 9,500 offices in 76 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With listings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares in HSBC Holdings plc are held by nearly 200,000 shareholders in some 100 countries and territories. The shares are traded on the New York Stock Exchange in the form of American Depositary Receipts. Through an international network linked by advanced technology, including a rapidly growing e-commerce capability, HSBC provides a comprehensive range of financial services: personal financial services; commercial banking; corporate, investment banking and markets; private banking; and other activities. The HSBC Group has an international pedigree which is unique. Many of its principal companies opened for business over a century ago and they have a history which is rich in variety and achievement. The HSBC Group is named after its founding member, The Hong Kong and Shanghai Banking Corporation Limited, which was established in 1865 to finance the growing trade between China and Europe. HSBC’s Strategy for 2004 At the end of 2003, HSBC launched ‘Managing for Growth’, a strategic plan that provides HSBC with a blueprint for growth and development during the period to 2008. The strategy is evolutionary, not revolutionary. It builds on HSBC’s strengths and it addresses the areas where further improvement is considered both desirable and attainable. Management’s vision for the Group remains consistent: HSBC aims to be the world’s leading financial services company. In this context, ‘leading’ means preferred, admired and dynamic, and being recognized for giving the customer a fair deal. HSBC will strive to secure and maintain a leading position within each of its customer groups in selected markets. HSBC will concentrate on growing earnings over the long term at a rate which will place it favorably when compared with its peer group. It will also focus on investing in its delivery platforms, its technology, its people and its brand to support the future value of HSBC as reflected in its comparative stock market rating and total shareholder return (‘TSR’). HSBC remains committed to benchmarking its performance both absolutely and by comparison with a peer group. HSBC’s core values are integral to its strategy, and communicating them to customers, shareholders and employees is intrinsic to the plan. These values comprise an emphasis on long-term, ethical client relationships; high productivity through teamwork; a confident and ambitious sense of excellence; being international in outlook and character; prudence; creativity and customer-focused marketing. The plan also reaffirms HSBC’s recognition of its corporate social responsibility (‘CSR’). HSBC has always aspired to the highest standards of conduct, recognizes its wider obligations to society and believes there is a strong link between CSR, long-term success and value creation. Moreover, changing public expectations across a wide spectrum of social, ethical and environmental issues require continuing attention to this area. The strategy therefore calls for a renewed emphasis on CSR and for increased external communication of the Group’s CSR policies and performance, particularly on education and the environment, which will remain the principal beneficiaries of HSBC’s philanthropic activities. HSBC’s growth ambitions centre on its four customer groups: Personal Financial Services; Commercial Banking; Corporate, Investment Banking and Markets; and Private Banking; and specific strategies are being implemented for each of them. HSBC believes that by organizing its internal and external reporting around customer groups, it reinforces to all its employees the Group’s customer focus. Within Personal Financial Services, the increasing integration, skills sharing and transfer of technology with the consumer finance business has augmented and enhanced existing activities. In addition, the introduction of skills and practices from the world’s leading retailing businesses is shaping HSBC’s competitive positioning. Key elements in achieving HSBC’s objectives for its customer groups will be accelerating the rate of growth of revenue; developing the brand strategy further; improving productivity; and maintaining the Group’s prudent risk management and strong financial position. Developing the skills of HSBC’s staff will also be critical and it will be necessary to ensure that all employees understand how they can contribute to the successful achievement of the Group’s objectives. Employees who do make such a contribution will be rewarded accordingly. Operational management will continue to be organized geographically under four regional intermediate head offices, with business activities concentrated in locations where growth and critical mass are to be found. The plan contains eight strategic imperatives: <ul type="disc" style="margin-bottom: 0in"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Brand: make HSBC and its hexagon symbol one of the world’s leading brands for customer experience and corporate social responsibility;</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Personal Financial Services: drive growth in key markets and through appropriate channels to make HSBC the strongest global player in personal financial services;</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Consumer Finance: extend the reach of this business to existing customers through a wider product range and penetrate new markets;</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Commercial Banking: make the most of HSBC’s international customer base through effective relationship management and improved product offerings in all the Group’s markets;</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Corporate, Investment Banking and Markets: accelerate growth by enhancing capital markets and advisory capabilities focused on client service in defined sectors where HSBC has critical relevance and strength;</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Private Banking: serve the Group’s highest value personal clients around the world;</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> People: attract, develop and motivate HSBC’s people, rewarding success and rejecting mediocrity; and</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> TSR: fulfil HSBC’s TSR target by achieving strong competitive performances in earnings per share growth and efficiency.</li> </ul> The key elements of HSBC's strategy were presented to analysts and investors during our investor day on 27 November 2003 (HSBC.com). Diversity Strategy             In its successful business operation, HSBC Bank understands the local communities and spread that understanding around the world.  In doing so, they are in a unique position.  The business has been built for 166 years with local, on-the-ground, financial experts and is a part of the local culture.  This expertise and understanding is considered invaluable as a principal member of a global financial services and banking group.              What also makes HSBC soar is their employment of diverse people that make the company more adaptable to new situations.  Such diversity strategy targets not simply about gender, ethnicity, disability, religion or age but also about respecting individuals and treating everyone, customers and colleagues, with dignity.              Diversity reaches far beyond compliance with legislation and equal opportunities initiatives for HSBC.  As an international bank, HSBC value the diversity of the markets in which it operates.  HSBC’s diversity strategy is based on the premise that the most important competitive differentiators are the quality of individual service they provide to individual customers and the way they treat individual employees.              As a matter of fact, HSBC have a number of senior general managers who champion initiatives that particularly focus on such issues as disability, race, gender, and sexuality.  Their role is to help every employee to increase their understanding of the communities and customers and to ensure that understanding is shared throughout HSBC bank.  One of the ways in which they do this is by forging partnerships with organizations that promote equality of opportunity in business and in the community.              Diversity has been so important to HSBC which operates internationally and have put up offices to over 70 countries worldwide with over five thousand offices in the Americas and almost three thousand in Europe.  Fundamental Strategic Thinking             As the bank is a leveraged play on the underlying economy, two challenges came along with it.  First key challenge is to select the better performing economies and second is to attract the most valuable clients in HSBC’s chosen economies.  Additionally, HSBC aims to produce a blend of earnings from developed mature-growth economies and those developing higher-growth economies (considered on a risk-adjusted basis).              Leveraging HSBC’s internationality provides revenue generating and cost saving opportunities.  That is, leveraging through HSBC’s local presence the increasing trade and other links between developed and developing economies, transferring skills and best practice, and managing resources globally.  Fundamental Operating Strategy Ø  Customer-driven company that stay close to customers Ø  International teamwork Ø  Strong capital and financial position Ø  Conservative, sound risk management Ø  Disciplines expense control Ø  Ethical behavior, observing the letter and the spirit of rules and regulations HSBC’s Broad-brush 25-year Scenario             The key economic areas will be focused on NAFTA (North America Free Trade Agreement) which is led by the United States of America, and in China.  An astounding 50% of the increase in world demand will come from developing countries such as China, India, Mexico and Brazil.  Furthermore, major opportunities within the Diaspora of Chinese, Hispanic, Indian and many other expatriate communities.              In general areas, Long Term Capital Management (LTCM) has been affected along with Russian debt default, corporate scandals, rollercoaster equity markets, unbalanced global growth, and increasing regulation.  Positioning of HSBC Investing in countries of future consumer demand             In China alone, US$663 million is invested in 10% of Ping An Insurance and 8% of Bank of Shanghai.  In Mexico, US$2 billion is invested on acquisition of GF Bital.  In Brazil, US$815 million is invested on acquisition of Lloyds TSB assets in Brazil (2003).              In its acquisition of Data Management Platform, HSBC’s purpose is to build on an integrated application suite that can deliver an operational trading environment based on centralized data repositories in a short time frame.  Consequently, this strategy will avoid the time and resources it takes to build in-house as well as the cost of systems development and maintenance ().    HSBC’s Impact in Latin America             HSBC is about to significantly increase its presence in Latin America, with plans to buy Mexico's fifth largest bank, Grupo Financiero Bital SA, well in motion.  Bital, with 1400 branches, six million customers and 12.5 per cent of the Mexican market, will be HSBC's biggest branch network outside of Europe once the transaction is completed.             The purchase of the Bital (for US$1.14 billion) will be a massive bonus for traders as HSBC can now seamlessly facilitate trade throughout all of the Americas ().  Managing for Growth             HSBC have a strategy for growth that is delivered in many ways.  Acquisitions remain an integral part of HSBC strategy for growth. ·         Focusing on enhancing HSBC’s revenue generation culture ·         Further developing the brand ·         Managing costs strategically ·         Maintaining a prudent credit/market risk stance ·         Investing further in people Customers remain at the center of HSBC strategy having a specific strategy for each of the five worldwide customer groups.  In addition, HSBC position as the world’s local bank enables to approach each country uniquely, blending local knowledge with a worldwide operating platform.  Customer proposition will be calibrated along a spectrum with intensive relationship management at one end and monocline services at the other.  Taken as a whole, HSBC will concentrate activities on geographies where growth and critical mass are located.  HSBC Strategy is focused on Customer Groups.  Such groups comprises the Personal Financial Services (PFS) including HSBC Premier, Consumer Finance (CF), Commercial Banking (CMB) including Small and Medium-sized Enterprises (SMEs) and Middle Market Enterprises (MMEs), Corporate, Investment Banking and Markets (CIBM), and Group Private Banking (GPB). The key regional axes of management cover the United Kingdom and Eurozone, North America and NAFTA, Asia-Pacific, South America, and the Middle East.   Enhancing Products             HSBC is continuing to enhance certain products which are core to customer group offering.  Some products will be managed or coordinated globally and particularly.  Specifically, cards will be enhanced by exploiting the experience and platforms provided by Household.  Scale and international reach is considered in Cash Management along with Custody and Funds Administration, and further promoting Insurance and Asset Management including Retirement Benefits.              Such enhancements will enable the Group to ensure that HSBC have the best capabilities that will be able to offer a comprehensive service to customers, particularly where products are sold globally and use the product expertise globally.  Customer Proposition             Customer Proposition will be calibrated along a spectrum of strategic advisory relationship between Corporate, Investment Banking and Markets, and Group Private Banking.  Premier International sets an example of enhanced personalized banking.  The Monoline proposition, especially in cards, promotes efficiency.  It is also effective in both mature and emerging markets and can be run in parallel with relationship based services.              In delivering growth through enhancing revenue generation culture, it involves a lot of what HSBC have to do.  First, is strengthening the use of marketing as a key management tool of the business lines.  Then rewarding revenue performance and penalizing mediocrity.  Next is focusing investment on business and geographies with largest growth potential.  Finally, benchmark the growth targets and achievements rigorously against peer group.  Developing the Brand             The brand has been already a great success and HSBC is continuing with the next phase.  The brand is now sufficiently strong that can accommodate brand variety at customer, product and even country level as and when required by the business model.  Reputation is the key element of the brand proposition and cannot be overstated.  HSBC’s policies for corporate and social responsibility are part of the brand.  HSBC will treat employees with the same values as treating with customers.  Managing Costs Strategically             Managing costs strategically will greatly help in achieving maximum efficiency and flexibility.  Global resourcing and processing will be an essential element of the business.  Maintaining a Prudent Credit/Market Risk Stance             HSBC independent credit function has an excellent track record in a testing environment.  HSBC’s approach to credit for corporate and institutional clients will remain relatively conservative.  Credit for Small and Medium-sized Enterprises and personal customers will continue to be managed on a portfolio, risk-adjusted return basis.  Investing Further on People             The substantially increased size of the Group means that it is imperative to invest fully on people.  The management of Group talent is at the heart of the Group’s competitive advantage and needs to be strengthened.  Graduate recruitment will remain central to the growth of talented people aligned to the Group character.  The IM cadre will remain an essential element of the Group’s management and will be adapted to reflect the evolution of the Group’s businesses.  People will be more directly compensated in relation to their performance.  HSBC have to significantly strengthen the diversity of the people.  Acquisitions as Foreign Entry Strategy             Acquisitions still remain an integral part of HSBC strategy.  There is no need for a transformational acquisition but opportunities for incremental acquisitions which extend HSBC customer base or provide key product capabilities will be considered.  Such examples are The Mexican AFORE, Lloyds TSB Brazilian assets, and Bank of Bermuda (2003).  Criteria for Selecting Acquisitions             Acquisitions must fit into the overall business strategy.  They must be Earning per Share accretive in the first full year and to exceed the Group’s cost of capital within an acceptable time frame (3-4 years).  Moreover, They should bring a valuable customer base or product capability.  Human fit is essential – a similar outlook and character is a sine qua non.  They should be capable of smooth integration of IT platforms.  Finally, the existing Group should be able to add value to the acquired business (2003).  How does Corporate Social Responsibility Matters to HSBC?             As for HSBC, the term Corporate Social Responsibility (CSR) means addressing the expectations of their customers, shareholders, employees and other stakeholders in managing business responsibility and sensitively for long-term success.  The Chairman of HSBC believed that Corporate Social Responsibility is the best way of fulfilling obligations to their customers, shareholders, colleagues and the world at large.              In the social dimension, HSBC listens to their stakeholders in developing their business in ways that will continue to appeal to customers, investors, employees and other stakeholders.  In its belief that the world is a rich and diverse place, HSBC concentrates workforce on diversity strategy (as stated earlier) in anticipating and meeting their customers’ needs.              Moreover, HSBC has found that community involvement of their employees brought them many benefits.  Being recognized in the community as good corporate citizens and employers, helps HSBC attracts great people who in turn can provide great service to their customers.  Aside from that, education is also crucial to the development and prosperity of every country.  This part is very important for HSBC since it goes to more than 60 countries worldwide.  HSBC seek to build the confidence and abilities of young people (customers and employees) on whom their future business will depend by investing in education. Conclusion             Within the span of two years, from January 2003 up to November 2005, HSBC garnered almost 40 awards along with soaring rankings.  The Global Finance Magazine (2005) awarded HSBC as the Best Consumer Bank, Best Corporate/Institutional Information Security Initiatives.  This was just one of those awards won by the HSBC in its excellent performance.  Such achievements, rankings, and awards can be directly caused by HSBC’s business strategies.  With the previously-stated strategies, there has been no doubt that HSBC deserves awards and rankings in the field of business.

Strategies in Action “HSBC”

Strategies in Action “HSBC” Introduction Headquartered in London, HSBC is one of the largest banking and financial services organiza...

The relationship of economic development and banking sector of a government

ECONOMIC DEVELOPMENT AND BANKING SYSTEM       Banking system in every country plays a vital role in economic development for substantial reasons of funds and savings which is given by the banking system and government regulation and policy. Generally speaking the banking system in other country contributes to a large framework of success among various government projects through the use of lending, micro-financing, capital investment and government funding. The banking system generates not just employment but economic stability and International trade through the use of foreign exchange. The banking system approach may vary from country to country accordingly or as directed by their government.       In Malaysia the banking system plays an important role being an intermediary as well as performing short term and long term economic growth.  Their gross domestic product (GDP) is measured by domestic credit which benefits the small and medium industry through the help of public and private banking institutions. The economic growth through lending and borrowing shows that the banking system in this country has been a determinant contributor in nation building and development.  Therefore in most developing countries likes Malaysia these banking system ensure resource allocation for their economic growth.       In African countries like Nigeria, Kenya, Botswana and  Senegal the banks played a major role in sustainability and social rejuvenation providing finances and better access to financial services through achievement of  short term and long term goal as their common objectives. Most funds and resources are attributed directly to Small and Medium Enterprise and individuals practicing agricultural reform which is their common sources of income.          In Morocco the banking system is strong over the past 20 years; however the government restriction implication is to limit the relation of some chosen or favored industries. Until recently some other banks started to channel their credit distribution to tourism, agriculture and housing projects. The financial system will grow even stronger if specialized banks do not limit themselves from government regulatory body. Not much indication of economic progress has been shown in this country with the help of banking sector. The government limits the capability of the banks in lending industry, while the high implication deficit of tax indebted them heavily by the government sectors. Such tax rates can reduce returns of investment by the bank. Because of this limited fund utilization these banks have a very limited return over the country’s economic development.       Most of the time banking industry helps promote the economic stability of a country however governments control should not hamper its extreme privilege to dominate institution; the worst thing could happen is the misleading funds that cannot penetrate the market resource distribution that could results in heavily indebtedness to international banking industry like World Bank or International Monetary Fund (IMF). Since the role of Banking Industry is to uplift the economic standard of a country, Government should takes advantage of the following Banking System Objectives and its importance: 1.    Promoting Capital through the use of funds and loans -  Public, private and individual organization deposit their money in the bank so this bank in return can provide funding by distributing financial resources necessary to economic development. 2.    Agricultural Development- Banks can provide credits for individuals especially in agricultural production in rural areas of developing countries 3.    Influence economic activity through average interest rate 4.    Bank helps provide pricing stability and promote economic growth. 5.    Invest in new enterprise – People can borrow loan to invest in new enterprise to create their own new business and become independent if they have succeed. Most banks including Micro-financing organization do this. This provision helps many industries in many economic developing countries in Asia and in Africa. 6.    Promotion of International trade and Industry – With the help of foreign exchange, bonds, bank drafts, credit cards Virtual banking like ATM online payments Mobile payments and credit cards and other financial instrument this can help largely in developing worldwide economic growth. 7.    Helping small and medium industries through export integration among various institution and help them find partners in participating countries worldwide through information and development research.       Bank is the lifeblood of a business, as long as the blood is in circulation the life of the nation is sound and healthy.  If the blood is not supplied within the body the person may become useless. A country should take advantage of its function in order to establish a well rounded banking system to achieve economic stability.

The relationship of economic development and banking sector of a government

ECONOMIC DEVELOPMENT AND BANKING SYSTEM Banking system in every country plays a vital role in economic development for substantial ...

Research Paper for Banking-Insurance Combinations or Bancassurance

In Europe, the development of bancassurance is divided in three stages.  In 1980s, this type of bank operations is limited to certain insurance services such as consumer credit, home property and currency theft.  Post-1980s enabled savings insurance into the operations which is also the time when Europe deregulated bancassurance.  Finally, the 1990s started the era where banks offered insurance not only on savings but also investment and whole-life contracts.  The services offered by this combined operation resulted to lucrative opportunities for customers to use relationship pricing.  This enabled them to obtain banking and insurance services for a better price than engaging to two different companies for separate service.                        The growth of banks offering insurance services to clients is triggered by historical longevity, deregulation, similarities, non-traditional competition, and changing of distribution channels (e.g. online) prominent in both banking and insurance industries.  Earlier studies found that bank-insurance mergers resulted to increase wealth of bidders and targets approximated at 1% and 5% respectively.  Other qualitative characteristics of such mergers can provide synergies, diversification and economies of scope.  Diversification advantages can be derived by reduced risks particularly pertaining to lower probability of business failure.  This feature is offered by insurance companies that participated to bank mergers.  However, there are also studies that undermine such activities.  Diversified assets are found to have less added-value compared to focused assets.  The latter is eminent on horizontal integration.  In addition, although risk of failure is reduced in such mergers, return on assets (ROA) had no significant changes attributed to them.              There are specific commonalities of banks and insurance carriers (i.e. carriers).  They pool savings, compete for public funds and channel them in investing to capital expenditures.  They have priorities and crucial emphasis on law of large numbers, economies of scale, liquidity creation and risk management.  All such activities serve as basic frameworks in their strategy and decision-making.  For banks, integration of insurance services is important to simplify the process of extending loans and then selling insurance to protect them.  Further, although carriers have longer maturity structures in its terms and contracts compared to short-term offers in bank practice, both institutions have primary objective to          manage asset-liability portfolios.  It means that the reason behind such practices is directed to maximize their portfolios.  Finally, their value chain is optimized as insurance brokers/ agents are diluted due to introduction of new technologies and increase geographical expansion of their branches.  This propelled direct marketing with less to zero intermediary.             The impacts of bancassurance to merging parties are attached to four hypotheses; namely, information, scale economies, diversification and scope economies.  These are hypotheses as they require empirical proof to formally and objectively attach to parties and establish less generalization.  A specific empirical record is available for 136 bank-insurance mergers among US and non-US companies from 1997 to 2002.  The research found that there is a positive abnormal return for the bidder during merger announcement reflecting its positive wealth creating impact.  This advantage is attributed to the emergence of strong evidence of scope economies and weak evidence of scale economies.  In-country deals, higher profit targets, and lower systematic risk are causes attached to obtaining higher bidder returns during mergers.  In this case, the reduced systematic risk is attributed to diversification hypothesis although supported by weak evidence.              Information hypothesis is a bancassurance phenomenon from increased debt monitoring that can lead to higher borrower value and enhanced certification services and market signaling.  In separate operations, banks and carriers have accessed to valuable information about their clients and also the market.  The former holds the information concerning private deposit accounts while the latter have the non-bank debt information (i.e. information relating to capital financial market and stock exchanges).  Scale economies hypothesis is the phenomenon where the combination of bank-insurance services enables broader customer base and corporate clients.  Legal restrictions on underwriting maintain asset specialization between the institutions where banks pull out credit via short-term floating rate deposits while carriers via long-term fixed rate contracts.  Diversification hypothesis is largely contributed by carriers as mentioned earlier.  It is obtained to empirical studies that concluded that carriers have low risk than banks.  However, there is no evidence that earnings are more robust in insurance industry.  Lastly, scope economies hypothesis mean that bank-insurance combination can produce two or more outputs more efficiently that separate entities. There are other catalysts of bancassurance occurrence.  The US Financial Services Act of 1999 broadened bancassurance capacities in underwriting and selling insurance products.  In Europe, single licensing of carriers within the region is implemented leading to mobilization of regional mergers.  According to Swiss Re, bancassurance led to cheaper insurance premium rates and more efficient finance products and services.  However, there are three main set-backs.  Customers who traditionally keep bank deposits substituted life insurance savings in this position or vice versa.  Second, reputation of well-known banks is exposed to carrier risks as the former is more popularly and historically-tested for client relationship based on trust.  Lastly, as assets and capital of both institutions are combined, limits situated by regulators on capital requirement are easily reached that causes capacity constraints. In a study, samples are gathered from European acquiring banks and European targeted carriers to measure the effects of risk and wealth to each party based on 1983-2004 data.  The research found that acquirers had reduced systematic risks but their total risks remained constant in relation to home banking indices.   This is coupled with negative and significant short abnormal returns that caused reduction in systematic risks or beta.  Consequently, with lower beta and high leverage of merged firm, the wealth of shareholders is transferred to debt holders.  Further, it is also found that greater synergy is obtained when the size of deal is comparatively larger than the market value of the bidder.  Alternatively, the market punished bidders that overpaid for their targets.  Finally, the benefits from the merger are greater when acquirers and targets are operating in geographically diverse locations.  This is a partial deviation to the preceding study in US that found that in-country deals resulted to higher bidder returns.             In the US, banks-insurance mergers had developed into an interesting transformation where carriers and insurance brokers/ agents (i.e. middlemen) are appropriately classified as prospect for combinations.  The role of middlemen in the US bancassurance escalated during late 1990s where large increasingly acquired small agents resulting to consolidated middlemen industry.  This progress is compatible with the efforts of carriers to also consolidate in their industry and alternatively internalize the role of middlemen.  Prior to these ramifications, 30% of US middlemen are composed by small agents providing risk analysis (i.e. coverage provisions) to customers and screening services for carriers.  Profit targets are attained in a cyclical manner wherein they are obtained easily during hard market but difficult during soft market.  This periodic value seen by carriers to agents had facilitated fee-based compensation (i.e. commissions) to arrive at reasonable profits even during soft markets as commission is a percentage of insurance sales.           However, the agency relationship of carriers and middlemen did not last long due to several reasons.  The deregulation of bancassurance reduced yield on commissions which is aggravated by tighter regulation to profit margins of middlemen, rising insurance costs and introduction of new technology (i.e. internet transactions).  The selling of relatively expensive insurance became difficult while internet provided efficient services to customers through direct contact with carriers.  Due to these, consolidation in middlemen industry began and predation of carrier roles by large agents followed.  As competition between traditional partners is gradually initiated, bancassurance had developed into two broad options.  Negotiating banks can choose either middlemen or carriers for the purpose of merger. Middlemen are traditionally focused on distribution while carriers are on underwriting insurance products/ services.  In the interest of merging banks, there are several and distinct advantages of preferring the former.  The combination can result to expansion of non-interest revenues (i.e. fee incomes) which is used to diversify risks on net interest rate without sacrificing profitability.  Economies of scope can also be obtained wherein middlemen can increase customer base that are customarily bank-based clients, the geographical dispersion of bank branches can augment middlemen channels and bank employees can serve as agents themselves.  Another, the merger can create one-stop banking to the benefit of banks.  Middle-income bank clients that are traditionally not interested in insurance services can have heightened interest from the merger supported by reputation that is built by banks in previous transactions.  Finally, banks can choose whether to create insurance subsidiary or simply act as agent for carriers depending on their strategy. In the study that sampled mergers and acquisitions of US middlemen industry from 1990 to 2005, the investigation is focused on comparing abnormal stock returns from consolidation between agents, vertical integration between carriers and agents, and bancassurance between banks and agents.  It is found that middlemen consolidation can provide wealth effects to shareholders.  This is stronger when shareholders of banks merge to them creating bancassurance.  In the contrary, vertical integration between property-casualty insurance carriers and agents did not provide significant wealth gains.  This phenomenon is possible largely due to the defensive nature of such strategy against middlemen concentration and competing banks.  As banks can easily internalize life-health that property-casualty services, mergers and acquisitions (M&A) of banks to agents of the latter led to larger abnormal returns than M&A to agents of the former.  Also, distribution of property-casualty insurance can minimize the risks of bank revenues with non-interest fee income and aid in enhancing bank's performance indicators.  Lastly, it is found that large banks entering bancassurance experienced diseconomies of scope and smaller abnormal returns compared to smaller banks.  This indicated the size effect or possibility of outweighing scope economies by the scope diseconomies.       Banking-Investment Combinations or Universal Banking             In the US, regulation on bank-investment combination are intended to assure protection of the high value consulting abilities of investment banks and prevention of taking substantial risks by commercial ones.  Before the Glass-Steagall Act of 2000 is launched totally banning bank-investment integration, the bank-investment service operations in the US under a more lenient Glass-Steagall version in 1970s and 1980s are forecasted for piecemeal reunification.  The Act under these earlier periods is argued to have substantial flaws in which not only commercial and investment banks had exploited but also the legal profession.  Although the current regulation put bold measures to eradicate these loopholes, it is useful to discuss the history of bank-investment services industry.  There are two main flaws of the pre-2000 Act.  With respect to commercial banks, there are no barring of underwriting instrument of Federal Government and general obligation bonds extended by states or municipalities and exemption of foreign securities.             As the primary function of commercial banks is for depository and credit, the loopholes provided attractive opportunities to them to enter investment banking albeit excessive risks to potential investment clients and more importantly depositors.  However, these adversaries are partially traded-off by several benefits not only to commercial banks but also to entire economy.  Using 1975-1984 data, it is found that security underwriters (16.2%) and investment banks (21.5%) have higher return on equity (ROE) than commercial banks (12.3%).  The entry of commercial banks to investment banking can improve this profitability measure.  In analyzing 1985 data, findings showed that high salaries and profit-sharing schemes enjoyed by employees of investment banks can be concealed if competition increases leading to compress investment banking sector.  Clients can afford relatively cheaper investment service.  Commercial banks can also re-use and optimize their risk evaluation skills and experience on loan grants for underwriting works.  Prominent advantage in bancassurance, the network of relationship eminent in commercial banking including the domestic government and corporate clients abroad can be transferred to investing business.              Further, as experienced by absence of restriction in Europe reflected in Glass-Steagall, securities and investment markets can enjoy lower underwriting spreads fees due to increased competition.  The evidence is Europe’s lower concentration ratio (i.e. market share) in its five firm Eurobond market.  When such costs are reduced, the economy is in better position to prosper due to increased capital expenditure from government and corporations.  Primary beneficiaries of this cost reduction are customers of merger advisory services as this business area is where the bulk of earnings of investment banks are derived (i.e. far larger than underwriting contribution) due to its unique value-added and knowledge-based features.  By allowing bank-investment services, US financial industry can improve because companies will channel their funds directly in New York and not the more lenient London market.  For commercial banks, the argument that entering investment services can lead to substantial risks is undermined by the fact that underwritten assets last only for days while default on loan can proceed until the due date is reached.  Also, loans are more illiquid than deals in underwriting.             Lucrative prices on investment services that commercial banks can offer to their large customer base are a win-win situation to commercial banks, their clients and competition in investment banking.  These are the motivation why commercial banks in the US find ways to circumnavigate the loopholes of Glass-Steagall in pre-2000 version.  In contrast, risks of combination to commercial banks are hypothesized into two categories; namely, risk to conflict of interest and affiliation risk.  The former is observed when combination leads to commercial banks extending credit to finance purchases of securities to support the underwriting affiliate.  The latter is a condition wherein the historically-proven steady earnings of commercial banks can be adversely affected by high earnings variability from an underwriting affiliate.  Commercial banks have minimal experience in trading activities that can aggravate the inherent risks.             In other studies, the differences and incompatibilities of bank-investment integration are further categorized in three hypotheses.  Bank certification hypothesis states that bank-investment services executed by commercial banks reduced information costs and lead to improve financing option to clients.  Conflict of interest hypothesis states that commercial banks can misuse this superior information to shift bad debts/ loans to capital markets.  Finally, distribution disadvantage hypothesis states that commercial banks are new participant to investment banking that time and funding is required to construct its own distribution channels.  This delay and additional expenditure can harm the interest of large clients especially in integrated services.  However, commercial and investment bank mergers are unstoppable particularly in 1996 when revenues allowed to commercial banks are increased from 10% to 25%.              Before recent studies, prominence is applied to the notion that commercial banks are better underwriters than investment banks derived from the former practice to underwrite bonds with lower net yields.  In contrast, such tendency is attributed to client-underwriting matching wherein both institutions have their own market base that has specific needs.  A specific research is conducted on the data from non-utility and non-financial underwriting clients for the period 1991-2000 contradicted the earlier notions about superiority of commercial banks.  Consistent with bank certification hypothesis, most of the clients of commercial banks are small firms.  The rationale behind this inclination is that flexible future financing is enjoyed by commercial banks when offering service to low cash holding and less capital investment needs of small firms.  Consistent to conflict of interest hypothesis, clients of commercial banks with high interest expense resulted in payment for higher net yield to repay bank debts.  With superior better information, commercial banks can easily trashed clients to capital market than offering new loan.  Consistent to distribution disadvantage hypothesis, the target of commercial banks are size with smaller issues particularly during early entry.  Subsequently, clients will pay greater yields when the size of the issue increases in the long-run.              It is also found that the absence of positive net yield differential from commercial bank clients supported the non-dominance of commercial banks in terms of technology or human resource contrary to investment banks.  The study found that specific market needs drive market share of each institution.  The research implicated that its findings would serve as evidence for both institutions to serve different market segments in domestic environment while operating in cross-border setting can also be tapped.  Their separation is also supported because they exist to provide valuable and unique services to their specified markets.  As illustration, the upper-hand of commercial banks to provide loan monitoring and effective certification of bond issue is attracted to some firms.  This option can intensify preference during re-certification as it is found to create positive market reaction to re-certified firms.  On the other hand, investment banks      can serve as safety net of firms to prevent private loans to be dumped in capital markets when commercial banks uncovered negative information in its evaluation.  Without significant economies of scope from this practice (i.e. lemon-dumping behavior) of the latter institution, the dumped securities of client-firms will be heavily discounted by the market.                    The amendments in Glass-Steagall Act in 2000 brought the final solution to the risks in bank-investment combinations by completely disallowing the integration of two services.  In the current setting, however, investment banks are threatened by growing appeal of commercial and universal banks.  For example, the spin-off of Agere Systems from Lucent Technologies which is formerly administered by Goldman Sachs (i.e. an investment bank) is transferred to J.P. Morgan Chase, Citigroup and Morgan Stanley (i.e. universal banks).  The main cause of the transfer is the inability of Goldman to provide credit as additional service to investment consultancy.  On the other hand, as multi-service banks, the three universal banks offered purchase of $2.6 Billion of Lucent debts as well as loan of $1.23 Billion.  In this regard, it is concluded that the competitive position of investment banks relies on its ability to sacrifice as much as 30% of its ROE for the purpose of credit capabilities or merge with commercial banks outside US territory.              In dispute of this argument, there are also cases where expertise and skills outweighed credit offerings supporting the continuous market prominence of investment banks.  As an illustration, J.P. Morgan Chase and UBS are focused on investment-grade and high yield debt, Citigroup only on high-yield debt issues while Deutsche Bank prioritizes investment-grade debt sector.  This shows that universal and investment banks have specific market segments which supported the findings of 1991-2000 analysis of US non-utility and non-financial underwriting clients above.  Further, investment banks undermine the debt capacity of commercial banks this service is the simplest investment issue.  Most of their clients trust them to address more sophisticated issues such as M&A and initial public offering (IPO) deals.  Universal banks also had increased its market share not because of competition but from acquisitions of value-adding banks offering services that inflamed synergies.  In the case of Lucent spin-off, qualities of commercial and universal banks are preferred as the company needed interference in IPO and equity support.  The linking of spin-off to new funding is triggered by economic downturn and subsequent credit requirements.  Commercial and universal bank preference is argued to cease once credit crunch is ended and expertise will matter most in M&A and IPO making credit capabilities only sweetening to key competencies of investment banks.             There are also researches that found overstatements in integration of commercial and investment combinations in post-2000 Glass-Steagall Act.  Unlike small firms and individual clients, large corporations do not require one-stop banking rather preferred specialization among service providers to select the best breed.  Bank-investment clients are also prone to end-up as riskiest borrowers.  Third, the provision of credit grants to clients simply outstrips the service fees that such combinations derive from investment banking services.  The new Basel Capital Accord is also a threat to syndicated loans exploited by bank-investment combinations due to restrictions to maintain higher capital requirement for low-rated borrowers to enable matching of risks.  Finally, as universal banks have larger underwriting experience than commercial ones, it is recommended that they should increase credit ability and improve underwriting skills to compete with investment banks.  For commercial banks, integration to investment banking is recommended to be fully-revisited due to regulation and questionable synergy.  For investment banks, it is recommended that they should not shift focus from superior authority in underwriting and advisory skills to credit capabilities because their service still holds the most lucrative areas in financial services industry.

Research Paper for Banking-Insurance Combinations or Bancassurance

In Europe, the development of bancassurance is divided in three stages. In 1980s, this type of bank operations is limited to ce...