HSBC Bank is one of the largest banking organizations in the world, operating in 81 countries. It raises capital through various means including initial investments from stakeholders/founders, selling shares to public investors, borrowing from financial markets, and obtaining government bonds. It transforms capital into banking services and products through its commercial, retail, and investment divisions. These outputs are then released to customers globally. While mergers can create synergies through cost savings from job cuts and cross-selling opportunities between divisions, they also risk negative synergies if the combined organization becomes too broad and inefficient.

1. HSBC Bank Organization as an Open System
The Open-Systems View
 HSBC bank Input stage
Organization acquires resources such as raw materials, money, and skilled
workers to produce goods and services. HSBC, ”The World’s Local Bank”, is one
of the largest banking organizations in the world. HSBC Holdings is headquartered in
England and operates in 81 countries and territories. Interests are concentrated in
Europe and Asia and to a lesser extent North America (United States). Profits are
almost equally divided between the Corporate, Commercial and Personal banking
lines of business.
The money that a HSBC bank raises to lend is often called the capital. So, how
does Hsbc Banks raise capital is something that has to be understood in this
background. Hsbc Banks have to raise money from sources in order to have it
with them to be lent to customers, from whom they charge a rate of interest that
is higher than that at which they borrow. This accounts for their profit. Since
capital is one of the critical components of a Hsbc Banking business, it is
important to understand how Hsbc Banks raise its capital.

2. Capital from stakeholders: Hsbc Banks can do this in a number of ways. The
most common, and in fact, a mandatory method of raising capital is for the
organizers (in most cases, these are the stakeholders or founders) of the HSBC
bank to put in money from their pockets. Usually, while the amount needed to
start a HSBC bank varies from one American state to another, the ratio at which
Hsbc Banks get their capital from their organizers varies between 10 and 15
percent. These organizers are the investors in the Hsbc Bank, and have a deep
interest in the functioning of this lending institution. How do Hsbc Banks raise
capital is understood in a clearer fashion in this context –the greater the ability
of the organizers to raise money, the greater the money the HSBC bank can lend
out , so that it runs healthily and profitably.
Raising capital from shareholders: While organizers make up between 10 and
15 percent of the Hsbc Bank’s investment, how to Hsbc Banks raise capital is
understood when it is seen that the reminder of the money is raised from
shareholders. The term ‘shareholder’ implies those who invest in the HSBC bank
through public borrowing. The number of shareholders and their individual
contributions can vary by a very wide margin, as can their contribution. As with
any other kind of partnership, this kind of financial relationship too, is such that
every stakeholder earns from the profit in proportion to the investment made.
The markets as lending source for capital: How do Hsbc Banks raise capital is
a question that can be answered in another manner. Hsbc Banks look for other
sources in raising capital. For instance, they can borrow from the financial
markets. This option is usually exercised in free market, capitalist economies, a
prime example of which is the US. In these economies, it is a useful source to
have someone borrowing from the markets because this can be used as a buffer
in markets, which by their very nature are volatile and prone to a lot of flux.
When markets are in need of money in case of a crunch, they can always go back
to the Hsbc Banks to which they have lent money. Of course, there are some
drawbacks in this system for both the lender and the borrower. The lender may
not be fully sure of getting back money it has given to Hsbc Banks when it needs
it the most, since they normally ask money back from Hsbc Banks only when it is
faced with an emergency, and it is always difficult to get it at such short notice.
For Hsbc Banks, too, there are problems with this kind of option, because they
cannot invest this money on long term plans.
The government as a source of capital: Getting money from the government
is another option for Hsbc Banks when it comes to how do Hsbc Banks raise
capital. In governments in which the free market is less powerful a force to
reckon with, government bonds can be a good source by how do Hsbc Banks
raise capital. In economies that are either fully or partly controlled, as in the case
of China or India, government lending can be a very useful source of how do
Hsbc Banks raise capital. This is a lesser possibility in free market, consumerist
economies such as the US, but more common in the countries just mentioned. In
these situations, governments lend Hsbc Banks through bonds and other sureties
for a number of reasons. Since it is not always the consumer who dictates

3. demand, governments lend Hsbc Banks as a kind of safety valve. When the key
sectors of the economy, mostly agriculture in these and other related countries,
face problems, the governments can straightaway approach these Hsbc Banks to
which it has lent capital and direct them to divert the money due to the
governments back to the people in need of the money. In most cases, this is
usually a case of money transfer. In other words, the question of how do Hsbc
Banks raise capital needs to be looked at from a different perspective in some
countries.
Other ways: How do Hsbc Banks raise capital is to be understood when it one
looks at another queer way by which Hsbc Banks raise capital. In the days of the
economic slowdown, some financial companies came to Hsbc Banks to advise
them on how to raise capital. The aim was to get these Hsbc Banks to impart
their experience to these companies on how to liaise with the government and
get money from it. These companies, such as Wells Fargo and Morgan Stanley
etc, had to pay a huge consultancy fee for these Hsbc Bankers. There were also
some financial arrangements by which these Hsbc Banks got a cut in the amount
of money they helped the companies raise! The money that these Hsbc Banks got
from these transactions was put back into the market and other sources, as this
too, turned out to be its capital in many ways. In this way, Hsbc Banks raise
capital was a question that was answered in a very unusual fashion.
 HSBC bank Conversion stage
Inputs are transformed into outputs of finished goods as listed below:
 Current Accounts
 Mortgages
 Savings Accounts
 Internet HSBC banking
 Personal
 Current Accounts
 Savings Accounts
 Mortgages
 Investments
 Credit cards
 Loans
 Insurance
 International Services
 Internet HSBC banking
 Financial Planning
 HSBC Premier
 HSBC Advance
 Putting your finances in order
 Newsroom

4.  Output stage
Finished goods are released to the external environment
Closed System
 Closed system
A self-contained system that is not affected by changes in its external
environment.
Likely to experience entropy and lose its ability to control itself but Hsbc
bank is likely to be very much affected by the external environment up to certain
level.
 Synergy
The performance gains that result from the combined actions of individuals
and departments Possible only in an organized system.
When Hsbc Banks merge they do so in order to gain synergies. Simply put, a
synergy occurs when two firms are more productive together than they were
apart. Synergies are not guaranteed, however, so managers, investors and
business scholars should carefully consider the potential synergies of a HSBC
bank merger. Although most synergies will be positive, negative synergies can be
profound.

5. Employee Savings
A study of HSBC bank merger synergies by Erik Devos, Palani-Rajan
Kadapakkam and Srinivasan Krishnamurthy in the "Review of Financial Studies"
in March 2008 found that all 10 of the HSBC bank mergers in their study resulted
in synergies through staff reductions. When two HSBC banks merge it creates
redundancies. Calculate the synergies from a HSBC bank merger by calculating
staff savings. For example, when Chemical HSBC banking Corporation and Chase
Manhattan HSBC bank merged in 1996, they eliminated 12,000 jobs and closed
100 branches, saving $1.5 billion annually. Estimate the the number of positions
slated for elimination and the associated cost savings to determine the synergy
of the merger.
Cross-Selling
According to Charles W. Calomiris of Columbia University's Graduate School of
Business, HSBC banks can achieve synergies by cross-selling products. In one
case that he studied, the only synergies created between two merged HSBC
banks were the result of cross-selling products to each other's customers. For
example, if a HSBC bank that specializes in savings plans merges with a HSBC
bank that specializes in loans, it can offer its savings products to the customers of
the other HSBC bank while the other HSBC bank would gain access to potential
customers for its loan products. Synergy can be calculated by estimating the
additional sales from cross-selling.
Economies of Scale
According to H. David Sherman and Timothy J. Rupert, writing in the "European
Journal of Operational Research," HSBC bank synergies can be created through
economies of scale. The Federal Reserve HSBC bank of San Francisco describes
economies of scale in HSBC bank mergers as the "relationship between the
average production cost per unit of output and production volume." Economies
of scale take place where it becomes cheaper to produce a product or service
with increased production. This potential synergy can be calculated by
estimating the average cost of offering a HSBC banking product, such as a loan,
before and after the merger. The reduction in cost post-merger is the measure of
synergy.
Negative Synergies
Firms tend to focus on the positive synergies that occur in a merger, but negative
synergies should also be considered. Negative synergies occur when the two
HSBC banks are actually less efficient together than they were as independent
firms. For example, Sherman and Rupert explain that diseconomies of scope can
occur when two HSBC banks merge. Diseconomies of scope happen when the
new firm becomes too broad, and the costs of coordinating activities becomes
larger than the savings. Calculate the negative synergies by estimating the
additional costs that the firms will incur to coordinate activities.

6. Contingency Theory
 Contingency Theory (External Enviornment)
The idea that the organizational structures and control systems manager
choose, are contingent on characteristics of the external environment in which
the organization operates.
To maximize the likelihood of gaining access to resources, managers must
must allow departments to obtain resources , given the constraints of the
environment they face
 An important characteristic of the external environment that affects an
organization’s ability to obtain resources is the degree to which
environment is changing
 Changes in the organizational environment include :
 Changes in technology e.g internet banking , forex etc.
 The entry of new competitors e.g Citibank, ING, JP Morgan Chase,
Bank of America and Deutsche Bank.
 Unstable economic conditions e.g “2001 was an "annus horribilis" for
the world economy in general and for the banking sector in particular”
according to Rolf-E Breuer, spokesman for the managing directors of
Deutsche Bank and one of HSBC’s global banking competitors. The
slowing of the United States economy and its follow-on effect to the Asian
exporters adversely affected HSBC’sresults. However, it was the economic
collapse of Argentina was the major problem for HSBC, resulting in a $1.1
billion charge (HSBCAnnual Report).
 Other popular contingency variables are :
 Organization size
 Environmental uncertainty
 The routineness of task technology
 Indıvidual differences
 competition
 economy
 government interference (laws, regulations)
 location
 demographics
 consumer behavior
MajorTrends in the Hsbc global banking environment
 increasing mergers and acquisitions
 increasing market share by the larger banks
 declining cost to income ratios
 shrinking interest margins
 decreasing dependence upon interest margins.

7. Competitors
The obvious competitors are similar juggernaut sized global banking groups such
as Citibank, ING, JP Morgan Chase, Bank of America and Deutsche Bank.
“…Some large multinational banks—the local subsidiaries of Citibank, HSBC, and
Standard Chartered—have developed strong and profitable local franchises with
a wide range of services. Others, including JPMorgan-Chase and Deutsche Bank,
are much more selective and in some cases are narrowing their activities in
emerging markets, refocusing on investment banking and private banking
activities.” (Adams)
However, depending upon the market segmentation virtually all sized banks can
present competition (Westwood).
Strengths
Size: The juggernaut strategy is based upon size: companies that control large
market shares usually outperform the average industry return (Westwood).
Ability to successfully grow by mergers and acquisition: HSBC's acquisition of
Midland resulted in a fall in the ratio of cost to income from over 70 percent in
1992, to under 60 percent by the end of 1997 (Molyneux). Ability to successfully
implement their custom electronic banking application. Hexagon is the
foundation of HSBC’s strategy to deliver innovative services via Information
Technology. Hexagon is focused on business customers engaged in
intercontinental trade and high-end retail customers who use global banks to
mange their personal global finances. Successful multi-domestic strategy
combined with global branding. Successful management structure, valued and
valuable employees.
Weaknesses
HSBC has a greater and perhaps increasing dependence upon emerging and less
developed markets than many of its major global competitors. The $1.1 billion
write down in 2001 being the most recent example.
Threats
HSBC’s development of emerging markets provides increased vulnerability to
external factors that are more likely to occur than in developed markets such as:
currency instability, financial market instability, adverse government
intervention and steeper economic downturns. Obviously the benefits have
exceeded the risks. Although during 2001 HSBC fared less well than for example
Citibank due to this increased vulnerability. HSBC is justifiably proud of its
custom information system, Hexagon. However, the importance of such systems
combined with the relatively short life-span of such products provides
opportunities for competitors to overtake HSBC’s advantages in these areas.
Opportunities
HSBC stated aim is to be the World’s Leading Financial Services Company
(Bond). This requires HSBC to transform itself from a global bank to a more
diversified global financial services company such as Citibank. The challenge will
be to do this while increasing shareholder return, another major aim and

8. maintaining its already low cost base. Current directions which could be
expanded include greater diversification into equity products which is currently
being pursued via HSBC Merrill Lynch, increased presence in insurance and card
products.
Despite the 2001 decrease in revenue from this line of business, Private Banking
is regarded as an important high profit opportunity for growth as it currently
only contributes four percent of profit.
Hsbc bank’s contingency planning effort has one main goal:
To get back to “business as usual” as quickly as possible, ideally within two days
after a disaster. Quick recovery of processing capability may now be more
difficult and take longer than when your bank’s recovery strategies were first
approved by the board of directors.
Recovery / Hurt/ Benefit
The Corporate contingency planning strategy which not only reflects appropriate
support for current business objectives, but also allows for the interdependency
of Hsbc bank product lines. The argument is directed mainly toward companies
that already have a contingency plan and may now consider it timely to review
and update their mainframe backup strategies. The benefits to be derived from
reviewing the present strategy include creating the opportunity to determine
how much backup is currently needed and identifying ways of spending
contingency planning dollars more efficiently.
One strategy that your board of directors may have adopted as part of its original
contingency planning program is to “provide off-premises mainframe computer
capability.” The primary focus of providing mainframe backup capability is to
ensure that the Hsbc bank will be able to accomodate customers and that its
products and services will be available as advertised. This strategy may be
enhanced to provide greater protection for Hsbc bank’s product line.

9. Main Frame Recovery Strategy
The mainframe computer continues to be the most critical operations
component of Hsbc bank’s ability to conduct business. It is currently crucial for
survival, and it remains the central point for data storage and information
processing. The more automated and integrated Hsbc bank’s operations are, the
more difficult it is to substitute manual or semiautomated activities for
mainframe computer processing. The conventional approach to mainframe
backup strategy is to document and test procedures to restore the mainframe
operations at a remote processing center. Each test includes restoration of the
main software systems and processing of selected applications as of a
predetermined “disaster date.” The typical programming department has the
major responsiblity of developing procedures for backing up the application
systems. Installation of such procedures preserves the account information and
positions Hsbc bank to respond quickly to a disaster. The programming
department also maintains a prioritized list of applications which is used in
selecting systems for testing. In most banks, considerable progress has already
been made in developing and testing the mainframe recovery strategy. The
sequential development of recovery plans could be strengthened by making
some changes in procedure. Three recommendations for refining existing
disaster recovery plans.
 Standardize & Test Backups for Critical Applications
The crux of the disaster recovery issue for Hsbc bank lies in the ability to restore
operations in a timely manner. The timeliness factor must be emphasized, since
it impacts customer impression and satisfaction, management, information, legal
and regulatory compliance, and ultimately, market share. Hsbc bank may
improve its chances for surviving a disaster by “standardizing” and testing
backups for the “critical” applications. Critical applications are defined as
systems that will have a higher recovery priority after a disaster strikes. Of
course, recovery of the remaining systems will be completed in an orderly
sequence after the disaster is contained. Standardizing, as used here, means that
the same standard will be used for creating all data file backups. Recovery of the
applications can be made more efficient by developing and adopting a procedure
to back up all application systems at the same stage of processing. For example,
either back up the volumes before the day’s processing is started, or create the
backups after processing is completed. Recovery will be impeded if the various
volumes are backed up at different stages of processing. Standardization of
backups will ensure that account information is synchronized. Inherent in this
concept is the requirement for zero generation backup. If the data file backups
are one or more generations old, additional processing of one or two days of
transactions will be needed in order to restore the data files to the disaster day.
The immediate impact of such additional processing may be to increase the
restoration period to three to four days, or even longer. In that additional
interval, prompt service to Hsbc bank’s customers may be jeopardized. This
delay will occur because the Hsbc bank is unable to post current transactions
and deliver accurate information until the additional processing and adjustments
to synchronize the data can be completed.

10.  Identify the Critical Business Products
Assess the criticality of the business products to determine what level of
mainframe backup is appropriate for your operations. Verify that this backup is
adequate to support only the processing of production work. Plan in advance to
suspend all development and testing activities until complete recovery from a
disaster is effected. Next, develop criteria for identifying the “critical” business
products. Following the standardization of all critical applications, involve the
user departments in assessing the Hsbc bank’s product line exposure. The goal of
this analysis should be to determine which application systems will be regularly
tested at the remote recovery site. The assessment and testing process
establishes a more accurate definition of the necessary computer hardware,
storage and item processing capacity Hsbc bank requires in order to cover
whatever level of risk it is willing or able to accept. This process also benefits
Hsbc bank in another way by closely linking the perceived backup requirements
to the real cost of providing them. It is imperative that you involve Hsbc bank’s
business units in this evaluation project. Besides the more obvious factors that
determine criticality (such as the negative dollar impact on the Hsbc bank if it
has an unsupported product or a product whose recovery is delayed), there are
other exposures.
Some issues the business units can help wrestle with include the following
 Criticality may also be dependent on the time of day, day of month, and
month of year at which the disaster occurs. The business units should
help determine how the timing of a disaster could impact their products.
 The term “critical” as related to disaster recovery is also a dynamic
condition because the criticality of applications or products increases
each day the recovery is delayed. The analysis of the applications and
products should also identify the point at which the applications are (or
will become) critical. This kind of analysis helps determine whether a
data file backup is essential for ensuring the product’s recovery. Another
factor to consider is that an application will assume a higher level of
criticality because of its interdependence. As application systems evolve,
they tend to become interdependent because the output of one system
becomes input for other applications. A single application may eventually
support multiple products. The programming department should help
identify the level of application interdependence and assist in defining
Hsbc bank’s major outstanding recovery issues.
 Test Products Rather than Applications
Focus on product rather than application testing. The broad goal of a viable backup
plan should be to emphasize the restoration of the business products. This approach
differs from the procedure generally followed where the object is to test several
applications independently of one another. The preferred approach is to perform
an interactive test chaining together multiple applications supporting one
product, as during normal operations. This revised form of testing should validate
the workability of all application system backups that support the business
products and will strengthen your bank’s ability to protect the interests of its

11. customers. When planned well, the new procedure should not increase the costs
of testing.
CONCLUSION
The present status of contingency planning is one of completed groundwork. At
the typical Hsbc bank that has a formal contingency plan, the foundation for
attempting a successful recovery from a disaster is already in place. The next
phase of planning should emphasize shortening the estimated recovery period,
and move toward a “critical products” driven planning objective while keeping
cost containment goals clearly in view. Success in controlling contingency
planning costs will ultimately also benefit the Hsbc bank’s shareholders. The
reorientation in emphasis should help your company revise its contingency planning
program. This should lead to revitalizing each strategy for protecting the customer’s
interests. Finally, the reorientation should improve Hsbc chances of surviving a
major data processing disaster and thus taking advantage from it rather than
getting hurt.