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Last Updated: Monday, 28 February, 2005, 11:55 GMT
HSBC banking on global expansion
By Harjinder Mann
BBC World Service business reporter

A HSBC bank branch
HSBC is established in most of the world's major markets
The increasing demand for credit has boosted the profits of the big banks - particularly in the US and the UK.

International players, such as HSBC, are also benefiting from growing business in Asia.

London-based HSBC likes to call itself "the world's local bank", and has operations in 76 countries.

On Tuesday, it revealed a 37% rise in pre-tax profit to 9.2bn ($17.6bn) for 2004 - largely on the back of the company's performance outside the UK.

HSBC started life as the Hong Kong and Shanghai Banking Corporation, 140 years ago, to finance the growing trade between China and Europe.

It has since grown to become one of the world's largest banks, snapping at the heels of Citigroup of the US.

"HSBC has expanded mainly through acquisitions," says Richard Staites, a banking analyst with Society General.

"The most transformational of them was the move out of Hong Kong when they first bought Midland Bank in the UK in 1992."

Rising earnings

Headquarters in London
10,000 offices in 76 countries
Listed in London, Hong Kong, New York, Paris and Bermuda
Took over Midland Bank in the UK in 1992

"HSBC is doing rather well because it's focused on where it's trying to develop," says Justin Urquhart Stewart, of Seven Investment Management.

"When you actually look at where the profits come from, most of them are derived from just three areas - the US, the UK and Hong Kong."

But expansion for HSBC has not been without its share of problems.

"We saw during the Asian financial crisis, when a lot of countries ran into major difficulties, HSBC did lose a certain amount of money out there," says Mr Staites.

"They also had to deal with problems in Argentina, in 2001, when the financial system broke down, but they took that in their stride."

China deal

Like many companies, HSBC is now trying to gain a foothold in China's economy.

HSBC's headquarters
HSBC's gleaming headquarters (left) in London's Docklands

Last year, it bought a $1.7bn stake in China's fifth largest bank, the Bank of Communications.

However, HSBC has bought in a rapidly growing market and could be exposed to some risk if the market in China reverses.

Mike Smith, chief executive of HSBC Asia, believes the Chinese government could control a potential economic slowdown.

Outsourcing concerns

"The advantage that China has over other countries is that it can direct policy and doesn't have to use interest rate mechanisms, which would take a lot longer," he says.

"It can intervene in the market, and it has done so for logical reasons and this is not the sort of intervention that we saw in Europe 20 years ago."

But with such a huge global network, can HSBC truly provide a local service in every country where it operates?

India has largely benefited from HSBC's global reach, as the firm employs labour in call centres there.

However, this has caused concern in the UK about the outsourcing of banking services.

"Because HSBC is a global business, it does face this concern that it is taking business away from one area and giving it to someone else," says Mr Urquhart Stewart.

"In the UK and the US, the operation of low-cost call centres - moving out to the Far East and into the Indian sub-continent - has been a concern.

"They have to be careful that, by doing so, they don't actually change some of the quality standards they've tried to put in."

HSBC Asia chief executive, Mike Smith
"The advantage that China has over other countries is that it can direct policy."

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