HSBC Holdings PLC and Barclays PLC. Two leading players in the global banking market

Analytical Project


Essay, 2019
9 Seiten

Leseprobe

Analytical Project

HSBC Holdings PLC and Barclays PLC: Two leading players in the global banking market

Abstract

Within an economy, banks serve a crucial role in helping the economy grow by providing loans to people and businesses in order to invest and expand. Within this essay the authors goal is to analyse the goals and financial situation of two of the most important of such financial intermediaries in the United Kingdom - HSBC Holdings PLC1 and Barclays PLC2.

The goals of HSBC and Barclays

HSBC (2019) describes it’s goal as: “HSBC is one of the largest banking and financial services organisations in the world, with operations in 66 countries and territories. We aim to be where the growth is, enabling businesses to thrive and economies to prosper, and, ultimately, helping people to fulfil their hopes and realise their ambitions.” Barclays (2019) describes their goal as: “Barclays moves, lends, invests and protects money for customers and clients worldwide”. Both Barclays and HSBC are banks, meaning they are offering a service for people to save money and they are offering a service for business and people to lend money, which they are needing to invest and expand. By paying lower interest on client savings and charging higher interest for client loans, banks profit from the interest spreads3. (Economicshelp 2017)

The last year in retrospect

Figure 1: Barclays stock price in GBP4

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Figure 2: Barclays stock price relative to the UK Banking Sector.5

During the last year, as can be seen in Figure 1, Barclays stock significantly reduced in value, from 205 Pence as of 25 March 2018 to 155 Pence as of 25 March 2019. While the whole United Kingdom Banking Sector was facing stock price losses, Barclays – as can be seen in Figure 2 – was performing significantly worse than the market, losing 14% relative to the FTSE UK All-Share Sector index6.

Figure 3: HSBC stock price in GBP7

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Figure 4: HSBC stock price relative to the UK Banking Sector8

While HSBC was also facing a significant reduction in stock price from 670 pence as of 25 March 2018 to 615 Pence as of 25 March 2019, as can be seen in Figure 3, HSBC managed to outperform it’s peers by 4% as can be seen in Figure 4.

Within this analytical project it is the authors goal to evaluate the financial situation of both HSBC and Barclays and to compare and contrast both to themselves and to their peers. By doing so, it may become clear why both banks have performed as observed over the last year and what can be expected of their future development9.

Evaluation of the balance sheet: Assets

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Figure 5: Assets of HSBC and Barclays as of 31 December 201810

Banks do have no significant tangible assets. Their business model consists of taking in client savings and giving out loans. (Economicshelp 2017) This can be seen on their balance sheets. For HSBC in 2018, their Property, Plant & Equipment only made up 0,40% of their total assets. For Barclays, this was even lower at 0,22%.

HSBC has about double the total assets of Barclays, which is not surprising, as HSBC is one of the biggest global banks (HSBC 2019). Both banks have significant investments in trading account securities as those are necessary to maintain their trading operations. Barclays has more investments in securities while HSBC has more in loans. This might indicate, that Barclays business model is based around trading securities and HSBC business model is based more around giving out loans. Compared to companies from other sectors, banks in general do not have any significant tangible assets. Their value lies within the funds they are taking in and giving out. And this can also be seen when looking at their liabilities11.

Evaluation of the balance sheet: Liabilities

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Figure 6: Liabilities and Shareholders’ Equity of HSBC and Barclays as of 31 December 201812

For both HSBC as well as Barclays, most of their funding is provided by client deposits, be it in the form of those to mature daily, short-term debt13 or long-term debt14. Another significant funding source are bonds, which are issued by both banks. Those are represented within other liabilities. As banks are only required to hold 8%15 of their risk-weighted assets16 in equity, they hold significantly lower equity than companies in other sectors. In addition, their whole business model is based around taking debt and giving loans, which leads to such a high proportion of debt within the balance sheet.

[...]


1 Within this analytical project, the author will refer to HSBC Holdings PLC as HSBC

2 Within this analytical project, the author will refer to Barclays PLC as Barclays

3 In addition to that, banks provide Financial Services for which they charge fees or trade on the financial markets, but the main source of income for banks are

interest earnings.

4 Figure taken from London Stock Exchange (2019a)

5 Figure taken from London Stock Exchange (2019a)

6 The FTSE UK All Share Index represents the performance of all eligible companies listed on the London Stock Exchange’s main market (Morningstar n.d.). The FTSE UK All Share Sector groups the stocks of the FTSE UK All Share by Sector, meaning Figure 2 represents the performance of Barclays to all FTSE listed UK banking stocks (London Stock Exchange 2019c).

7 Figure taken from London Stock Exchange (2019b)

8 Figure taken from London Stock Exchange (2019b)

9 All data provided in this sub-section is based on The Wall Street Journal (2019a) and The Wall Street Journal (2019b).

10 Aggregation of data retrieved from The Wall Street Journal (2019a) for Barclays and The Wall Street Journal (2019b) for HSBC by the Author.

11 All data provided in this sub-section is based on The Wall Street Journal (2019a) and The Wall Street Journal (2019b).

12 Aggregation of data retrieved from The Wall Street Journal (2019a) for Barclays and The Wall Street Journal (2019b) for HSBC by the Author.

13 Client deposits to mature within 1 year.

14 Client deposits to mature within more than 1 year.

15 Regulation (EU) Article 92 (1) c)

16 Risk weighted assets (RWA) are used to determine the minimum amount of equity that must be held by banks. For further information on RWA please refer to Investopedia (2019b).

Ende der Leseprobe aus 9 Seiten

Details

Titel
HSBC Holdings PLC and Barclays PLC. Two leading players in the global banking market
Untertitel
Analytical Project
Autor
Jahr
2019
Seiten
9
Katalognummer
V480263
ISBN (eBook)
9783668965720
ISBN (Buch)
9783668965737
Sprache
Deutsch
Schlagworte
hsbc, holdings, barclays, analytical, project
Arbeit zitieren
Daniel Weiß (Autor), 2019, HSBC Holdings PLC and Barclays PLC. Two leading players in the global banking market, München, GRIN Verlag, https://www.grin.com/document/480263

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