FINANCE AND ECONOMICS

Group coursework MBA4643

(Managerial Accounting & Finance)
A CASE STUDY ON THE BANKING INDUSTRY IN
THE UK)

Word Count: 2056 (Excluding Title Page, Footnotes, Bibliography, Charts, Graphs, Formulae,
Calculations, Tables, Appendices and the PowerPoint Presentation)

Table of Contents

1.

BANKING INDUSTRY IN THE UK 1

1.1. Overview
1
1.2. Background
1
1.3. External environment analysis 1

2.

INTRODUCTION AND BACKGROUND OF STUDIED BANKS

2.1. HSBC 1
2.2. BARCLAYS BANK plc 1

3.

ANALYSIS OF QUALITATIVE INFORMATION

3.1. HSBC 1
3.2. BARCLAYS
1

4.

SUMMARY OF RATIO ANALYSIS 1

5.

RATIO ANALYSIS OF HSBC & BARLCAYS

5.1. HSBC BANK 1
5.2. BARCLAYS BANK plc 1

6.

COMPARATIVE ANALYSIS OF THE FINANCIAL PERFORMANCE - HSBC AND

BARCLAYS
1

7.

COMPARATIVE ANALYSIS VIS--VIS INDUSTRY 1

7.1. INDUSTRIAL FINANCIAL ANALYSIS 1
7.2. THE KEY TRENDS
1

8.

RECOMMENDATION

9.

REFERENCES

10. APPENDIX 1
1
10.1. HSBC BANK 1
10.1.1. PROFITABILITY RATIO GRAPH
10.1.2. LIQUIDITY RATIO GRAPH
10.1.3. ACTIVITY RATIO GRAPH1
10.1.4. GEARING RATIO GRAPH
10.1.5. EFFICIENCY RATIO GRAPH
10.1.6. INVESTORS RATIO GRAPH
11. APPENDIX 2
1
11.1. BARCLAYS BANK
1
11.1.1 PROFITABILITY RATIO GRAPH
11.1.2. LIQUIDITY RATIO GRAPH
11.1.3 ACTIVITY RATIO GRAPH 1
11.1.4. GEARING RATIO GRAPH
11.1.5. EFFICIENCY RATIO GRAPH
11.1.6. INVESTORS RATIO GRAPH

LIST OF TABLES

1
1
1
1
1

1
1
1
1
1

Table no. 1 Milestones in UK banking sector

Table 2 - Summary of ratio analysis
HSBC
Table 3: Profitability ratios

Table 4: Liquidity ratios 1

Table 5: Activity ratios

Table 6: Gearing ratios 1

Table 7: Efficiency ratios1
Table 8: Investors ratios1
BARCLAYS
Table 9: Profitability ratios

Table 10: Liquidity ratios1

Table 11: Activity ratios 1
Table 12: Gearing ratios 1
Table 13: Efficiency ratios

Table 14: Investors ratios

LIST OF FIGURES

Figure 1 - Top 5 Banks of the UK - at a glance (2011-2012)

Figure 2: UK bank Leverage

Figure 3 Income statement evolution of banks in UK 2007 to 2017

Figure 4 UK banks sources of earnings

Figure 5: HSBC Revenues by Businesses and Region

Figure 6: Barclays Revenues by Businesses from 1993 to 2012. 1

Figure 7 Profit / Loss before tax of UKs top 5 banks

Abbreviations

HSBC
mn
bn
NIM
C/I
PPI
P/E
EPS
ROCE
ROE

Hong Kong and Shanghai

Corporation
Million
Billion
Net Interest Margin
Cost-Income
Payment Protection Insurance
Price/Earning
Earnings per share
Return on Capital Employed
Return on Equity

Banking

PREFACE

An investigation & study of banking sector can shed light on some often neglected
aspects of modern economic growth. (Wardley, 2000). This case study aims at
analysing several financial dimensions by focusing on the UKs banking industry as well
as the comparative financial performance of UKs two leading banks HSBC and
Barclays.
Firstly we explore the growth of UKs banking industry along with its external
environment followed by scrutinizing their qualitative data. Lastly we put forward the
comparative analysis of the financial performance of both the companies along with the
industry focusing on the period of 2 years.

1.

BANKING INDUSTRY IN THE UK

1.1. Overview

Banking has its ancestry from seventeenth century which has experienced continuous
developments through fast and volatile variations however the structural and
considerable growth with a fast development of its possessions and resources was
seen only in 1990. The dynamic changes in technologies change in marketing policies
and methodologies due to advancements in e-services have already put meaningful
modifications in the banking industry and the experts say that the impact will further be
powerful for betterment of the industry.(Wardley, 2000)

1.2. Background

UKs banking sector experienced catastrophe in the year 1825 when around 93 banks
in England and Wales failed to cater to its customers fundamental demand of cash
which was a clear consequence of the pressure of several external changes in nonbanking world. This unfavourable phase marks the beginning of the evolution of modern
banking in the UK. (Wardley, 2000)

Milestones in UK banking sector

1650 A cloth merchant, Thomas Smith opened the first provincial bank in
Nottingham.
1694 The Bank of England was founded
1708 An Act of Parliament restricted banks with more than six partners from
issuing bank notes. Keeping private banks as small partnerships.
1797 England threatened by war. The Bank of England suspended cash
payments.
1896 Twenty smaller private banks formed a new joint-stock bank.
1960 ATMs were introduced & first put in use by Barclays bank
1964 Bank of England was nationalised as a central bank regulating the
supply of money.
1970 Deregulation increased the leverage ratios
1976 Introduction of computing, credit cards and many new services
continued to drive the expansion of banks. Deregulation was
introduced resulting into competitiveness.
2008 A bank rescue package of approximately $850 billion was announced
by the British government
2009 A second bank rescue package totalling at least 50 billion was
announced as a response to the ongoing global financial crisis.
Table no. 1 Milestones in UK banking sector

Figure 1 - Top 5 Banks of the UK - at a glance (2011-2012)

(Kpmg.com/UK, 2012)

Figure 2: UK bank Leverage (Stephen Reid, 2013)

Figure 2 Illustrates leverage in the UK banking structure. Leverage is fundamentally the ratio of
bank lending to its equity.

Figure 3 Income statement evolution of banks in UK 2007 to 2017 (expected)

*Source Accenture survey, 2012

1.3. External environment analysis

According to Porter (1985), PESTEL analysis ensures that the performance is aligned
with the powerful forces of change that are affecting business macro-environment which
consists the impact of political, economic, social, technological, economical and legal
forces.
Political - Government is often seen imposing stringent rules and policies on the
banking sector due to its appearance as monetary institution and that apparently
initiated the financial catastrophe.
Economic Liquidity of banks is a concern and there are no movements in the
interbank segment. Simultaneously, banks are seeking and attempting to construct the
respective balance sheets as recovery plan.
Social Banks seen as starving organization has impacted its customers trust factor
majorly.
Technology With the boom in dot.com trend online banking, trading, purchasing &
managing finances has been popular. Currently the research and development in new
types of investments innovative services has been the priority in order to generate more
profits and also restore customer trust.

Legal - Unstable regulatory environment in UK related to direct and indirect taxes has
been a delicate legal issue in the banking sector of the UK (Bbc.co.uk, 2013)
Environmental - Banks usually do not have abundant consequence over the
environment. In fact so many of them proactively participating and helping in issues like
rainforests etc.

Figure 4 UK banks sources of earnings

*Source: Bank of England, Annual report

2.

INTRODUCTION AND BACKGROUND OF STUDIED

BANKS

2.1. HSBC

Indeed one of the world's major, A British multinational bank and financial services
provider HSBC originated in London, UK in 1991. In 1865, its maiden offices were
opened in Hong Kong and Shanghai where its root lies. Deriving its name from the
initials of The Hong Kong and Shanghai Banking Corporation Limited, HSBC overall
has about 7,000 centers in more than 80 nations and territories throughout Asia,

Europe, Africa as well as North and South America, and nearby 90 million consumers.
(Hsbc.co.uk, 2013)
By 31 December 2012, it owns total assets of $2.69 trillion all over the world. And was
the world's biggest bank in relations of assets, according to Forbes magazine for the
same year.(Forbes.com, 2012)

Figure 5: HSBC Revenues by Businesses and Region (William Wright, 2012)

2.2. BARCLAYS BANK plc

As a group Barclays is a large international fiscal service provider delivering in retail
banking, credit cards, corporate banking, investment banking, and wealth management.
As a group it functions via its subsidiary Barclays Bank PLC, in more than 50 nations
with more than 200,000 professional workforce and a amalgamation with Absa group in
South Africa.

Ranked as the 3rd biggest bank globally as long as assets are concern and with a core
tier one ratio of 11% Barclays is one of the biggest internationally. In the UK it is ranked
as 3rd biggest in terms of market capitalization, with its head office in the heart of central
London, which is the financial hub of the world. (Barclays.com, 2013).

Figure 6: Barclays Revenues by Businesses from 1993 to 2012.

(Cityam.com, 2013)

3.

ANALYSIS OF QUALITATIVE INFORMATION

3.1. HSBC
As we examine annual reports of both years (2010 & 2011) we can determine that
HSBC concentrated mostly on stakeholders obligation by accumulating companys
mission and vision. The policies of assets administration and management helped
Increase Firms income, which was the key emphasis while making report for year 2011.
Chairman statement in the report is categorized as accounting narrative (Bartlett and
chandler, 1997) hence considered being a voluntary disclosure (Core, 2001). For both
years Chairmans statement of HSBC discloses firms growth is in income and revenue
which bettered by managing assets undertakings which has been applied in latest
years. Directors report for HSBC replicates overall business affair, and also evidence
of the sum, which recommends carrying reserves in balance sheet, corporate overview
as well as firms monetary wellbeing. The Auditors report advises stakeholders and
shareholder, as well as the government, on firms monetary accounts which have been
arranged as per GAAP (General Accepted Accounting Practice). In HSBCs Annual
report, the goals of building more trust and to expand the horizons with more strategies
to build more business were very clear.

3.2. BARCLAYS

Annual reports for both years 2010 and 2011 of Barclays are alike with the aspects
covered are the objectives, arrangements, graphs, the communication style and market
analysis, understanding and representation (Barclays.com, 2012). In the Financial
Statement 2011, Barclays strengthen going concern with various arrangements of

inscription which to illustrate stakeholders that the trade has adequate capital flow and
resources to sustain procedures for the future predictions. For the complete AR of 2011,
the corporation prepared numerous up gradation compare with 2010 AR to principally
accomplish an improved appreciation from stakeholders, Shareholders and financiers.
For both years, the chairman of Barclays is confident that trade will develop effectively
in future and bring superior dividends to shareholders.

SUMMARY OF RATIO ANALYSIS

Table 2 - Summary of ratio analysis

4.

RATIO ANALYSIS OF HSBC & BARLCAYS

5.1. HSBC BANK

Table 3: Profitability ratios (For Graph refer Appendix 10.1.1)

Profitability Ratios

Net Profit Before Interest

and Tax
Called up Share Capital
share premium account
Other equity instruments
Share capital
P&L Account
Reserve
Other reserves
Reserves
Share Holders' Equity
Non-Current/ Total Long
Term liabilities

Variables

Source

Pg
No
.

2,011

2,010

million
()

million
()

3,111

4,011

b
c
d
E = (b + c + d)

797
20,025
20,822

797
20,025
1,750
22,572

10,805

9,473

Balance Sheet

91

g
H = (f + g)
I=E+H

-537
10,268
31,090

-220
9,253
31,825

Balance Sheet

91

29,496

50,676

Balance Sheet

91

Income
Statement
Balance Sheet
Balance Sheet
Balance Sheet

89
91
91
91

Return on Capital
Employed (ROCE)

ROCE = {A / (I +
J)}*100

5.13%

4.86%

Net Profit After Taxation

2,377

3,015

Share Capital
Reserves

E
H

20,822
10,268

22,572
9,253

Return on Ordinary
Shareholder's Equity
(RoE)

RoE = {K / (E +
H)}*100

7.65%

9.47%

Income
Statement
Balance Sheet
Balance Sheet

89
91
91

Income
Statement
Income
Statement
Income
Statement

Interest Income

7,223

7,694

89

Non-Interest Income

8,982

10,405

Total Operating Income

N = (l + m)

16,205

18,099

Net Profit Margin (NPM)

NPM = (A / N)*100

19.20%

22.16%

Net Interest Income

7,223

7,694

Income
Statement

89

Total Earning Assets

7,46,46
7

7,50,572

Balance Sheet

91

Net Interest Margin (NIM)

NIM = (O / P)*100

0.97%

1.03%

Non-Interest Expense

9,256

9,781

Income
Statement

89

Cost-Income Ratio (C/I)

C / I = {Q / (O +
M)}*100

57.12%

54.04%

89
89

Analysis

Drop in net profit margin in 2011 indicating the fall in HSBCs revenue for every $1.
Profit before tax has decreased along with non-current liabilities hence ROCE has

increased. Earnings of shareholders also remained more or less same.

Total operating income has dropped by 10.5% in 2011 due to unemployment and
reduced loans.

Minor decrease in NIM indicates that the bank charged very low interest rates loans
and deposits.

 Table 4: Liquidity ratios (For Graph refer Appendix 10.1.2)

Liquidity Ratios

Variables

2,011

2,010
million
()
5,47,43
4
7,66,13
7

Current Assets

Total Liabilities

million
()
8,12,01
5
7,96,36
6

c
D = (b c)

29,496
7,66,87
0

50,676
7,15,46
1

Current Ratio (CR)

CR = A /
D

1.06

0.77

Acid Test Ratio (Quick Ratio)

QR = A /
D

1.06

0.77

Non-Current/Total Long Term Liabilities

Current Liabilities

Source

Pg
No.

Key Note
Balance
Sheet
Balance
Sheet

91
91

Analysis

Current ratio went up to 1.06 in 2011 from 0.77 in 2010

o Cash in hand decreased from 24,776,000 to 24,488,000 (difference of
1.16% only)
o Current liabilities increased by 7.19% on the other hand HSBC increased

their current assets by 48.33% which indicated good position.

In 2010, HSBC couldnt repay the cost of short term liabilities which resulted in Acid
test ratio of 0.77. However in 2011, Acid test ration increased to 1.06 which depicts

that the bank efficiently paid its short term debts.

Although average current ratio of the industry is 1.04 HSBC managed to maintain a
healthy current ratio of 1.06

 Table 5: Activity ratios (For Graph refer Appendix 10.1.3)

Activity Ratio

Variables

Sales Revenue
Share Holders' Equity
Non-Current/Total Long Term liabilities

A
B
C
NAT = A /
(B + C)

Net Asset Turnover (NAT)

2,011
millio
n ()
21,626
31,090
29,496
0.36

Source
2,010
millio
n ()
22,786
Key Note
31,825 Balance Sheet
50,676 Balance Sheet

Pg
No.

91
91

0.28

Analysis

Increase in net asset turnover in 2011 reflects that HSBC has effectively used its
assets

 Table 6: Gearing Ratios (For Graph refer Appendix 10.1.4)

Gearing Ratios

Non-Current/Total
Long Term
Liabilities

Called up Share
Capital

share
premium account
Other
equity
instruments
Share Capital
P&L
Account Reserve
Other
reserves
Reserves
Share Holder's
Equity

Gearing Ratio
'Debt/Equity'
(GR)

Variables

2,011

2,010

million ()

million ()

29,496

797

797

20,025

20,025

20,
822
10,

1,750

d
E = (b + c +
d)
f

805

H = (f + g)

537
10,
268

I=E+H

31,090

GR = A / (I
+ A)

50,676

0.49

22,572
9,473
220
9,253

Source

Pg
No
.

Analysis

Key Note

Balance
Sheet

Balance
Sheet
Balance
Sheet
Balance
Sheet
Balance
Sheet
Balance
Sheet
Balance
Sheet

91

Minor decrease
in the share
capital due to
declining
investments by
shareholders
because of
decreasing
profits

91
91
91
91
91
91

31,825

0.61

In order to
reduce the
gearing ratio
HSBC can
improve its
shareholders
equity & reduce
its long-term
liabilities

Total Liabilities
Equity Gearing
Ratio (EGR)

7,96,366

7,66,137

3.90

4.15

EGR = (I /
J)*100

Balance
Sheet

HSBC managed
to reduce its
long-term
liabilities in 2011
by 41.79%

91

Table 7: Efficiency Ratios (For Graph refer Appendix 10.1.5)

Efficiency Ratios

Trade Debtors
Interest Income
Non-Interest
Income
Total Revenue/
Sales

Trade Debtors
Days (TDD)

Variabl
es

A
B
C
D = (b
+ c)

TDD =
(A /
D)*365

Unit

Sales Revenue

2,011

2,010

million ()
7,45,295

million ()
5,13,093

7,223
8,982

7,694
1
0,405

21,626

22,786

12579

8219

days

days

21,626

22786

Source

Key Note
Income
Statement
Income
Statement
Income
Statement

P
g
N
o.

Analysis

89
89
89
HSBCs
trade
debtor
increased
by 31.16%
in year
2011
however as
HSBC
offered
more longterm loans
the total
revenue
dropped

Income
Statement

89

Non-Current (Fixed
Assets)
Non-Current
(Fixed Assets)
Turnover

Number of
employees
Sales Revenue
Revenue Per
Employee
Unit

15,955

2,51,060

FAO =
E/F

1.36

0.09

Bank Scope

80,013

77,932

Bank Scope

21,626

22,786

Key Note

R/E = H
/G

270.3

292.4

Lower
sales/empl
oyee ratio
indicates
that HSBC
has not
been able
to generate
expected
revenue
despite of
employing
high nos.
of
resources
in 2011

 Table 8: Investors Ratios (For Graph refer Appendix 10.1.6)

Investors' Ratios

Profit for the year

Number of Ordinary shares
Earnings Per Share
(EPS)

Variables

2,011

2,010

million
()

million
()

A
B

2,377
2,583

3,015
4,130

EPS = A /
B

0.92

0.73

5.88225

6.54883

Unit
Market value per share

Price/Earnings Ratio
(P/E)

P/E = A /
EPS

6.4

9.0

0.27

0.21

DYR = (D
/ C)

4.6

3.2

Dividend per Share

Dividend Yield Ratio

Source

Pg No.

Income
Statement

Shareprice.com

Analysis

Raise in earnings per share reflects that HSBC has worked towards the increase
in revenue & reduce expenses.

5.2. BARCLAYS BANK plc

Table 9: Profitability Ratios (For Graph refer Appendix 11.1.1)

Profitability Ratios

Net Profit Before Tax and

Interest
Share Capital
P&L Account
Reserve
Share Holders' Equity
Non-Current/Total Long
Term Liabilities
Return on Capital
Employed (ROCE)

Variables

2,011

2,010

million ()

million ()

5,974

6,079

17,802

17,724

c
D = (b + c)

44,276
62,078

41,450
59,174

8,023

1,64,428

ROCE = {A / (D
+ E)}*100

8.52%

4,046

4,563

Share Capital

17,802

17,724

P&L Account Reserves

Return on Ordinary
Shareholder's Equity
(RoE)

44,276

41,450

6.52%

10
6
10
9
10
9

Balance
Sheet

10
8

Income
Statement
Statement of
Equity
Statement of
Equity

10
6
10
9
10
9

Income
Statement
Income
Statement

10
6
10
6

7.71%

Interest Income

12,196

12,518

Non-Interest Income

20,927

19,696

Total Operating Income

I = (g + h)

33,123

32,214

Net Profit Margin (NPM)

NPM = (A /
I)*100

18.04%

Income
Statement
Statement of
Equity
Statement of
Equity

2.72%

Net Profit After Taxation

ROE = {F / (B +
C)}*100

Source

P
g
N
o.

18.87%

Net Interest Income

Total Earning Assets

K
NIM =
(J /
K)*100

Net Interest Margin

(NIM)
Non-Interest
Expense
Cost-Income Ratio
(C/I)

12,19

12,51

6
14,32,86
5

8
13,68,20
5

0.85%

0.91%

20,77
L
C/I =
{L / (H
+
J)}*10
0

19,96
7

62.71%

Income
Statement

10
6

Balance Sheet

Income
Statement

10
6

61.98%

Analysis

We can see very minimal increase in the Net profit margin of Barclays in 2011
compared to 2010. ROCE increased to 8.25% in 2011 from 2.72% in the previous

year.
Non-current liabilities decreased in year 2011 by 95.12% which indicates that return
on capital increased from 2.72 to 8.52

NIM has remained same which implies that interest rate was low in both the years.

 Table 10: Liquidity Ratios (For Graph refer Appendix 11.1.2)

Liquidity Ratios

Variables

Current Assets

Total Liabilities
Non-Current/Total Long
Term Liabilities

2,010

million
()
15,43,15
0
14,98,23
2

2,010
10,94,01
0
14,27,39
7
1,64,428
12,62,96
9
0.87

Current Liabilities

D = (b - c)

8,023
14,90,20
9

Current Ratio (CR)

CR = A / D

1.04

Acid Test Ratio

(Quick Ratio)

2,
011

QR = A / D

1.04

Source

Pg
No.

Key Note
Balance
Sheet
Balance
Sheet

108

Analysis

108

0.87

The Acid test

ratio has
improved in
2011 which
shows the
capability of
the bank to repay its short
term debts

Analysis
The current ratio of Barclays went up in 2011 as compared to 2010 due to:
o Increase in current assets by 41.05%
o Increase in cast at hand from 17060 million to 18237 million in 2011

 Table 11: Activity Ratios (For Graph refer Appendix 11.1.3)

Analysis
Activity Ratio

Variables

2,011

2,010
million
()
41,228

Sales Revenue

million
()
43,102

Share Holders' Equity

Non-Current/Total Long
Term liabilities

62,078

59,174

8,023

1,64,428

Net Asset Turnover

(NAT)

NAT = A /
(B + C)

0.61

0.18

Source

Pg No.

Key Note
Balance
Sheet
Balance
Sheet

108
108
The net asset
turnover has
gone up due
to decrease
in long term
liabilities,
increase in
shareholders
equity and
the revenue

 Table 12: Gearing Ratios (For Graph refer Appendix 11.1.4)

Gearing Ratios

Non-Current/Total Long Term

Liabilities
Share Capital
P&L Account Reserves
Share Holder's Equity
Gearing Ratio 'Debt/Equity'
(GR)

Total Liabilities
Equity Gearing Ratio (EGR)

Variabl
es

A
b
c
D = (b +
c)
GR = {A
/ (D +
A)}

E
EGR =
(D /
E)*100

2
,011

2
,010

million ()

million ()

8,023
17
,802
44
,276

1,64,428
17
,724
41
,450

62,078

59,174

0.11

0.74

14,98,232

14,27,397

4.14

4.15

Source

Pg
No
.

Key Note
Statement of
Equity
Statement of
Equity

10
9
10
9

Balance Sheet

10
8

Analysis

The gearing ratio has drastically gone down because the bank has been able to

decrease its long term liabilities by 95.12% in 2011

The equity gearing ratio has marginally decreased although the share holders
equity has increased but on the other hand there is an increase in the total
liabilities

 Table 13: Efficiency ratios (For Graph refer Appendix 11.1.5)

Efficiency Ratios

Trade Debtors
Interest Income

Variable
s

A
b

Non-Interest Income
Total Operating
Income

c
D = (b +
c)

Trade Debtors Days

(TDD)

TDD =
(A /
D)*365

2,
011

2,
010

million ()
14,31,322
12,
196
20,
927
33,
123

million ()
9,90,915
12,
518
19,
696
32,
214

12121

8773

days

days

Unit

Sales Revenue
Non-Current (Fixed
Assets)

43,102

41,228

20,252

3,96,028

Non-Current (Fixed
Assets) Turnover

FAO = E
/F

Number of employees
Sales Revenue
Revenue Per
Employee
Unit

G
H
R/E =
H/G

2.13

0.10

1,49,700
43,102

1,51,300
41,228

287.92

272.49

Source

Key Note
Income
Statement
Income
Statement
Income
Statement

Income
Statement
Balance Sheet

Pg
No
.

10
6
10
6
10
6

10
6
10
8

Analysis

Trade Debtors days has gone up in 2011 as compared to the previous which
shows more long term lending by the bank. However, increased revenue has

alleviated the effect of trade debtor days

The non-current (fixed asset) turnover has increased from 0.10 in 2010 to 2.13 in
2011 because of a sharp decrease in non-current assets in 2011 by 94.9%

 Table 14: Investors Ratios (For Graph refer Appendix 11.1.6)

Investors' Ratios

Profit for the year

Number of Ordinary shares

Earnings Per Share

(EPS)

Variables

A
B

EPS = A /
B

Unit

2,011

2,010

millio
n ()
4,046
2,342

millio
n ()
4,563
2,342

1.73

1.95

Market value per share

Price/Earnings Ratio
(P/E)

P/E = (A /
EPS)

3.3

3.2

0.15

0.1

Dividend per Share

Dividend Yield Ratio

DYR = (D /
C)

3.0025

5.00

Source

Pg
No.

Annual Report

173-4

Analysis

The
earnings per
share
dropped
because the
net profit
after tax
decreased
in 2011 as
compared to
2010

2.335 Shareprice.com

4.28

The
dividend
yield ratio
increased
because the
bank
announced
increased
dividend in
2011 i.e.
15p

5.

COMPARATIVE ANALYSIS OF THE FINANCIAL

PERFORMANCE - HSBC AND BARCLAYS

HSBC and Barclays both had made profits to 8.5 billion and 6.1 billion in year
2010 respectively as compared to 2009. (www.kpmg.com, 2010). Cost income ratio
for both the banks Barclays and HSBC had increased to 64% and 55.2%
respectively in 2010 as compared to 2009 which declares that they are working
incompetently. Barclays bank had to suffer a big loss due to heavy payment towards
PPI claims of customers in 2011 wherein HSBC paid a small amount against the PPI
claims in 2011 to the UK government and able to make profit in comparison to other
banks. Barclays bank issued increased dividends to its shareholders in 2011
whereas HSBCs shareholders received a decreased share of dividends in contrast
to 2010. (www.hsbc.co.uk, 2010).
Core Tier one Ratio for HSBC and Barclays has increased to 10.5% and 10.9%
(www.barclays.com, 2010) respectively in year 2010 as compared to 2009 which
demonstrates that both the banks are able to generate capital progressively. Debt to
equity ratio has reduced for both HSBC and Barclays in 2010. The market value of
HSBC is greater than the market value of Barclays in 2010. Therefore, customer
market has more confidence in HSBC for the long term growth projections rather
than Barclays as per P/E ratio.

6.

COMPARATIVE ANALYSIS VIS--VIS INDUSTRY

7.1. INDUSTRIAL FINANCIAL ANALYSIS

Last few years went through standstill position of economic recuperation majorly due
to Euro-zone sovereign debt crisis. It is observed that in 2009 the banking sector
apparently struggled to make its capital ratio and lending performance strong.
However in 2010 as economic conditions began to improve the UKs banking sector
experienced recoup in their profitability. (www.kpmg.com, 2010)

7.2. THE KEY TRENDS

In 2009, Income from trading activities in the investment banking was
exceptionally high which experienced decline in 2010.
Several bank had to cut down on the cost but banks like Standard Chartered,

HSBC and Barclays have continued to spend for their growth schemes.
Banks which were exposed to Ireland and Spain, RBS and Barclays respectively
were impacted majorly due to economic turbulence in the Euro zone. Being more
exposed to Asian climate of economy, HSBC and Standard Chartered continued
to perform well. (www.kpmg.com, 2010)
As Asian markets dominated high performance with the profits of 65.6% for
HSBC and 87.0% for Standard Chartered for which India was the most profitable
region for the first time (www.kpmg.com, 2010)

Figure 7 Profit / Loss before tax of UKs top 5 banks

Barclays had the lowest effective tax rate 25.0% whereas it was almost same for
HSBC that is 25.5%. At the same time low interest rate compressed the interest
margin and created pressure in increasing net interest income. Standard
chartered and HSBC experienced adverse effect on their Asset and liability
management as they reinvested the maturing investment in the beginning of
2010 at lower yields.
In June 2010, UKs banking sector experienced head start of the Liquidity
Regime. As per this regime banks were suppose to assess the liquidity risks and
proactively develop policies. Operationally this regime was introduced to protect
against the liquidity risks by requiring banks to set a liquidity buffer

Overall, this was the period when HSBC and Barclays along with the other retail
banks in the industry realized the only way of surviving was by putting their
customers at the heart of their business which was ultimately possible by
attracting new customers & retaining current ones.

7.

RECOMMENDATION

Evaluating the banking literature definitely provides a great scope of forecasting the
future trends in the industry. However based on this case study it is recommended that
organisations should use financial ratios to examine their performance not only with the
close competitor but also with the other players in the industry.

Direct links to studied financial reports

http://group.barclays.com/Satellite?blobcol=urldata&blobheader=application
%2Fpdf&blobheadername1=Content-Disposition&blobheadername2=MDTType&blobheadervalue1=inline%3B+filename%3D2009-Barclays-Bank-PLC-Annual-ReportPDF.pdf&blobheadervalue2=abinary%3B+charset%3DUTF8&blobkey=id&blobtable=MungoBlobs&blobwhere=1330686330091&ssbinary=true
http://group.barclays.com/Satellite?blobcol=urldata&blobheader=application
%2Fpdf&blobheadername1=Content-Disposition&blobheadername2=MDTType&blobheadervalue1=inline%3B+filename%3D2010-Barclays-Bank-PLC-Annual-ReportPDF.pdf&blobheadervalue2=abinary%3B+charset%3DUTF8&blobkey=id&blobtable=MungoBlobs&blobwhere=1330686360767&ssbinary=true

http://www.hsbc.co.uk/1/2/about-us/reports-and-accounts/financial-reports

8.

REFERENCES

Bank

Scope

(Barclays

Bank).

(2012).

Retrieved

June

20,

2013,

from

https://bankscope2.bvdep.com/version-2013614/Report.serv?

_CID=67&context=1YCQ8YIHPG6WXKO&SeqNr=0
Banking-history.co.uk. (2010). The history of English clearing Banks. Retrieved 06 19, 2013, from

http://www.banking-history.co.uk/history.html
Bankscope (HSBC Bank). (2012). HSBC Bank. Retrieved June 20, 2013, from BankScope:
https://bankscope2.bvdep.com/version-2013614/Report.serv?

_CID=67&context=3ADN8YIHPE7OERB&SeqNr=1
Barclays Bank Annual Report. (2011). Annual Report.http://group.barclays.com/Satellite?
blobcol=urldata&blobheader=application%2Fpdf&blobheadername1=ContentDisposition&blobheadername2=MDT-Type&blobheadervalue1=inline%3B+filename%3D2011-

Barclays-Bank-PLC-Annual-Report-PDF.pdf&blobheadervalue2=abinary%3B+ch.
Barclays.com. (2013). About us. Retrieved 06 19, 2013, from http://group.barclays.com/about-

barclays/about-us#about-us
Bbc.co.uk.
(2013).

http://www.bbc.co.uk/news/business/13758784.
Cityam.com. (2013). Barclays told to rein in top pay to regain trust. Retrieved 06 19, 2013, from

http://www.cityam.com/article/barclays-told-rein-top-pay-regain-trust
Forbes.com.
(2012).
FDC.
Retrieved
06

http://www.forbes.com/fdc/welcome_mjx.shtml
HSBC Bank Annual Report. (2011). HSBC Bank Annual Report.http://www.hsbc.co.uk/1/PA_esf-

News.

Retrieved

June

19,

2013,

19,

2013,

from

from

ca-app-content/content/pws/content/personal/pdfs/annual-results2011-full.pdf.
Hsbc.co.uk. (2013). About us. Retrieved 06 19, 2013, from http://www.hsbc.co.uk/1/2//about-us
Keynote

(Barclays

Bank).

(2012).

Retrieved

June

20,

2013,

from

https://www.keynote.co.uk/business-intelligence/company-information/view?regdNo=01026167
Keynote (HSBC Bank). (2012). HSBC Bank. Retrieved June 20, 2013, from Keynote:
https://www.keynote.co.uk/business-intelligence/company-information/view?regdNo=00014259

Kpmg.com/UK. (2012). UK Banks: Performance Benchmarking Report. (M. Peck, Editor)

Retrieved

06

19,

2013,

from

www.kpmg.com:

http://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Market

%20Sector/Financial%20Services/banking-performance-benchmarking-report-2012.pdf
Oliver Lodge, C. f. (2012). A Review of the UK Banking industry. Retrieved 06 19, 2013, from
http://www.cps.org.uk/files/reports/original/111220143147-

TheUKBankingIndustryJuly2003OliverLodgeandSeanWilliams.pdf
Shareprice
(Barclays
Bank).
(2013).
Retrieved
June

http://shareprices.com/lse/barc
Shareprice (HSBC). (2013). Shareprice. Retrieved June 20, 2013, from Shareprice:

http://shareprices.com/lse/hsba
Stephen Reid, N. (2013, June 06). Mythbusters: Excessive government borrowing got us into

20,

2013,

from

this mess. Retrieved June 19, 2013, from http://www.neweconomics.org/blog/entry/mythbusters-

excessive-government-borrowing-got-us-into-this-mess
William Wright, E. (2012, March 13). Unravelling the enigma that is HSBCs profits. Retrieved
June 21, 2013, from http://www.efinancialnews.com/story/2012-03-13/unravelling-the-enigma-

that-is-hsbc-profits
Wardley, P., 2000. Journal of Industrial History. 3(2), p. 72.
Wolfe, S., 2007. International Journal of Bank Marketing , 25(3).
www.barclays.com, 2010. [Online] Available at: http://group.barclays.com/Barclays-Bank-PLC-

Annual-Report-PDF.pdf [Accessed 22 June 2013].

www.hsbc.co.uk,
2010.
[Online]
Available

appcontent/content/uk/pdfs/en/annual_results2010 [Accessed 20 June 2013].

www.kpmg.com,
2010.
[Online]
Available

at:

http://www.hsbc.co.uk/1/PA_esf-ca-

at:

http://www.kpmg.com/IL/en/IssuesAndInsights/ArticlesPublications/PublicationSeries/Documents/
UK_Banks_Performance_Benchmarking_Report_FY2010.pdf [Accessed 15 June 2013].

9.

APPENDIX 1

10.1. HSBC BANK

10.1.1. PROFITABILITY RATIO GRAPH

10.1.2. LIQUIDITY RATIO GRAPH

10.1.3. ACTIVITY RATIO GRAPH

10.1.4. GEARING RATIO GRAPH

10.1.5. EFFICIENCY RATIO GRAPH

10.1.6.
INVESTORS RATIO GRAPH

10. APPENDIX 2
11.1. BARCLAYS BANK
11.1.1 PROFITABILITY RATIO GRAPH

11.1.2. LIQUIDITY RATIO GRAPH

11.1.3 ACTIVITY RATIO GRAPH

11.1.4. GEARING RATIO GRAPH

11.1.5. EFFICIENCY RATIO GRAPH

11.1.6. INVESTORS RATIO GRAPH