Comparative Financial Trend Analysis of HSBC and Deutsche - Case Study Example

Comparative financial trend analysis of HSBC and Deutsche of financial HSBC Deutsche Principal Address, State and Zip Code of Head Office Principal address- 2700 sander Road Zip code- 60070 City- Chicago State- Illinois Principal address- 60 wall street Zip code- 10005 City- New York State- new York Telephone and Fax Numbers: (847) 564- 5000 (704) 386 5972 Website Address (Hyperlink): https://www.hsbc.com/ https://www.db.com/ Date Founded 1865 1870 Primary Regulator (State, OCC, SEC) and FDIC Certificate Number, if bank) Primary regulator- SEC FDIC certificate number- 589 Primary regulator- SEC FDIC certificate number- 623 Total Assets as of Dec 31. 2012 and Dec. 31, 2011 2013- 2.87trillion 2012-2.692 T 2013- 2.34 trillion 2012-2.01trillion Total Deposits (Same dates as above): 2013-456.7 2012-2.1T 2013-602.4 2012-577.2b Total Liabilities(Same dates as above): 2013-1.61 T 2012-2.517 T 2013-1.82t 2012-1.96T Net Income as of Dec 31, 2012 & 2011 2013-9.21t 2012-14.027 2013- 987.2m 2012-263m Total Equity: as Dec 31, 2012 and 2011 2013- 123.5 2012-175.24b 2013- 57.68 2012-2.02t Peer group number and description It is in peer group 6 that is for IIROC dealer. The group is for institutions. It is in peer group 6 that is for IIROC dealer. The group is for institutions. Number of banks in peer group 40 40 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- Paul Achleitner Co-Ceo- Juergen Fitschen Co-Ceo- Anshuman Jain Number of branches 156 131 Services and Products Offered: Corporate banking, credit cards, consumer banking, private banking, mortgage loans, investment banking, and wealth management. Wealth management, credit cards, private equity savings, investment banking, insurance, corporate banking and consumer 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% ( 2013)www.hbsc.com 4% (2013) (db.com) HSBC Deutsche 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: Federal Funds- 128.4 134.2 127.4 112.45 187.2 132.8b 124.99b 117.28b 129.28b 96.8b Bond Portfolio (Securities) 56.2 53.86b 41.97b 36.49b 36.19b 23.4 12.8 18.92 18.90 16.3 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 21.78 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 (db.com) Comparison of total assets From the comparison of the total assets, it is clear that HSBC has more assets than deutsche bank. In terms of change in the assets, the two banks have had a decrease in assets over the years. The reason behind the decrease is the fact that the companies have been liquidating their assets and that has lead to a reduction in the assets. The two banks have invested most of their assets on loans. HSBC has invested in bonds but not in federal investments of which deutsche bank has invested in. The graph below shows a comparison of the changes in assets for the two banks. Assets chart for both banks HSBC Deutsche 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 Deposits: Non-interest bearing 283.08 278.96b 99.05b 89.07b 51.73b 294.2 278.96b 99.05b 89.07b 292.49b Interest bearing 342.6 298.25b 502.68b 444.92b 292.49b 342.76 298.25b 502.68b 444.92b 292.49b Total Deposits 456.7 344.22b 533.98b 601.73b 577.21b 602.4 577.2b 601.73b 533.98b 344.22b Borrowings (from other banks) 789.3 672.4 689.32 576.3 601.32 374.55B 393.2b 401.95b 304.27b Total Liabilities 1.61 1.54t 1.54t 1.47t 1.38t 1.82 1.97t 2.11t 1.86t 1.46t Stockholders’ Equity (a/k/a Equity or New Worth) Common Stock 5.32 5.68b 5.75b 5.65b 5.39b 2.47 2.38b 2.38b 2,38b 1.59b Surplus 12.4 11.89 9.78 8.32 7.43 1.87 1.98 3.2 2.8 2.75 Retained Earnings 92.1 90.84b 89.55b 79.62b 70.67b 28.7 29.2b 30.12b 26b 24.06b Dividends Paid 9.2 8.9 7.8 6.32 8.45 19.32 18.32 17.23 16.43 20.43 Total Stockholders’ Equity 123.5 112.66b 106.87b 98.95b 84.01b 57.68 54.41b 54.66b 50.39b 37.97b Total Liabilities and Equity 1.87 1.66t 1.64t 1.57t 1.46t 1.98 2.01t 2.16t 1.91t 1.5t (hsbc.com). Comparison of total liabilities and equity with time In comparing liabilities and equity, deutsche has more liabilities and equities. As compared to HSBC. For the 2 banks, there has been increase in liabilities and equity over time and that may have been caused by increase in customer deposits, which a good thing is got the company to increase its customer base. Liabilities chart HSBC Deutsche 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 Interest income 22.89 23.91b 25.46b 25.41b 26.18b 16.32 15.89 17.45 15.58 12.46 Investment income 893.2 921.4 978.32 1.12 1.01 1.29 1.3 1.27 492 1.34 Non- interest income 28.32 27.03b 27.02b 27.39b 28.29b 22.34 21.1 18.55 18 17.95 Total income 5.29 5.33 5.6 5.99 4.95 4.67 651m 5.65b 5.98b 5.14b Expenses Interest expense 11.32 12.01b 13.94b 12.45b 13.69b 14.98 15.62b 17.43b 13.2b 14.49b Salaries and benefits 13.01 12.93b 13.2b 12.85b 11.83b 13.67 13.49b 13.14b 12.67b 11.31b Consumer provisions for loan loses 5.67 5.15b 7.18b 8.78b 15.98b 1.98 1.72b 1.84b 1.27b 2.63b Other expenses 765.89 4.86b 35.56m 846.54m 661.94m 1.01b 987m 1.27b 492m 1.34b Taxes 2.98b 3.35b 2.45b 3.14b 246.7m 786.2 498m 1.06b 1.65b 244m Total expenses 27.89 26.29b 58.39 25.62b 28.71b 33.2 32.315b 34.74b 29.282b 30.014b Net income 9.21 8.85b 10.48b 8.52b 3.74b 987.2 263m 4.13b 2.31b 4.97b (hsbc.com) HSBC For HSBC bank, most of the income is derived from interest while the highest portion of expense is on interest paid. The other expense that is large in the company is salaries and wages. That shows that the company remunerates its employees fairly. The company got an increase in profits from the year 2008 to 2011. However, there was a reduction in profits in the year 2012, which was the case in most banks. Net Income’s chart Deutsche bank The bank experienced increase in income from 2008 to 2011. However, the bank got a reduction in profits in 2012. The largest portion of income for the company is realized from interests earned from customers while the largest expenses are on interest paid out. Both expenses and income dropped drastically in the year 2012. Net incomes chart Ratio analysis for HSBC HSBC Peer group 2012 2011 2010 2009 2008 2008 Return on assets 0.03 0.04 0.03 0.02 0.023 0.08 Return on equity 0.08 0.09 0.09 0.04 0.06 0.08 Efficiency ratio 0.12 0.08 0.075 0.072 0.06 0.10 Amount of loan charge offs 8.78 7.92 9.78 12.11 14.32 - Percentage of loan charge offs to total loans 88.67% 74.6% 81.7% 89.2% 89.56% 92.1% Assets per employee 10.58 10.01 9.78 9.36 9.28 8.2 Number of employees 254066 80,000 Average salary per employee 50,892 per annum 50,000 (hsbc.com) Ratio analysis for deutsche bank Deutsche bank Peer group 2012 2011 2010 2009 2008 2008 Return on assets 0.01 0.02 0.01 0.03 0.02 0.08 Return on equity 0.05 0.08 0.05 0.12 0.1 0.08 Efficiency ratio 0.1 0.09 0.08 0.07 0.065 0.1 Amount of loan charge offs 472.3 500.21 571.32 498.7 299.87 - Percentage of loan charge offs to total loan 96.5% 95.7% 98.7% 99.1% 97.14 92% Assets per employee 20.56 21.9 19.8 15.27 16.23 8.2 Number of employees 98,219 80,000 Average salary per employee 137,346 per annum 50,000 (fdic.gov) For both banks, their performance about the peer groups is fair. A peer group is a group of competitors in the same industry and it is used to compare performance of a company against its competitors. The banks should however try to be above the average set mark so that they can lead the pack. Recent information on the banks Deutsche bank has been appointed by a boutique prime brokerage firm based in London to provide custodian services. This is because of the increase in the client base. This is an emerging trend for brokerage firms in stopping to offer services that are direct to small hedge funds. Instead, the companies are basing their efforts on more lucrative and larger clients. This will help the bank in increasing its income and it is a positive trend for the bank. HSBC bank has been strongly hit by the slowdown in activity in the private sector in the month of March 2014 (indiatimes.com).That will have a direct impact on the profitability of the bank. Swot analysis for HSBC Location of factor Type of factor Favorable Unfavorable Internal Strengths The company has an advantage of having a leading in market position and that has contributed to its increase in profitability. The strength of the bank’s brand has been able to increase the customer base of the bank and in return increased profitability. Weaknesses Decline in the profitability attributable to North America. The company has a weakness of having poor performance on financial services. External Opportunities The company has an opportunity of getting an increase in profitability from markets that are emerging. The company has an opportunity of enjoying interest rates that are low and that will increase market share and revenues. Threats The threat of financial markets being consolidated and that is likely going to have an increase on competition. The issue of an slowdown in the economy in Europe and US is going to reduce revenues for the bank SWOT analysis for deutsche bank Location of factor Type of factor Favorable Unfavorable Internal Strengths The bank has an advantage of having a market position that is strong in Germany and financial markets that are global. The product offerings that are broad help the bank in maintaining customers who are large and with different needs. The company also has a strong database research that is useful in the strengthening on the business of wealth management. Weaknesses 1. Poor expense management that has an effect on profitability. 2. Increase in assets that are not performing. 3. Decrease in good performance of corporate banking that affects investment banking. External Opportunities The company is at the verge of a likely acquisition that will accrue to a sustainable growth. The probability of the asset management market that is buoyant been likely to provide increase in income. Threats 1. Challenge accruing from the environment 2. Slowdown in the economy at the euro zone will affect the business 3. Volatility in the credit market and that will lead to a high cost in refinancing. Conclusion If I were a depositor, there are a number of reasons that will lead to the conclusion of whether to deposit the money in HSBC bank. In terms of liquidity, the bank is liquid and it has no going concern problems. That means that the investment is at safe hands and there are minimal risks of loss. The company has liquid asset that can be disposed in order to repay the deposit in case of a problem. However, in terms of the risk insured, the bank is not a good place to deposit to deposit the money. However, if the pros and cons are weighed, it is good to deposit the money in the bank. As for deutsche bank, the bank also does not have any liquidity problems or going concern problems. The bank is in tier 2 and hence it is a safe investment because chances of bankruptcy are minimal and the bank will be able to pay back the deposit plus the agreed interest rate. Therefore, the venture is favorable and a depositor should undertake it. If I had a chance to choose whether or not to invest $5 million in HSBC bank, I would not approve the decision. This is because the bank is undergoing a reduction in the dividends paid over years and the growth in dividends is a negative. That means that it is not a promising investment because it is a big risk. As for Deutsche bank, dividends are fairly stable and the growth rate has been stable over the last 5 years. Based on the analysis, an investor can foresee an increase in profitability in the future. The bank also does not have any major threats to its operations. If I was a board of director in a third bank, I can approve the credit for overnight federal funds for HSBC and Deutsche bank. The first thing that I would consider is the liquidity of the bank. I would have to consider the liquid assets that can be easily disposed incase of default of payment. For the two banks, they have enough liquid assets that can be used to repay the debt and hence there is no reason not to approve the federal funds. Bibliography Private sector activity in emerging markets slows in March: HSBC. Retrieved on 9th April 2014. From http://articles.economictimes.indiatimes.com/2014-04-04/news/48866768_1_hsbc-survey-sector-output-asian-economic- research Global prime partners with Deutsche to serve emerging managers. Fin alternatives. Retrieved on 9th April 2014. From https://www.finalternatives.com/node/26672 Bray Chad. 2014. Deutsche Bank A.G.New York times. HSBC performance with time. Retrieved on 9th April 2014. From http://www.fdic.gov/ Emerging markets PSI. Retrieved on 9th April 2014. From http://www.hsbc.com/news-and-insight/emerging-markets Deutsche bank. Retrieved on 9th April 2014. 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