HSBC Bank Oman Literature - Assignment Example

HSBC BANK Student`s Name Course Code + Name Professor`s Name University Name City, State Date of Submission The aim of writing this report is to discuss the operational problems facing the HSBC Bank Oman. Also, the report will aim at explaining how HSBC initially operated before it merged with Oman International Bank (OIB). Afterward, the report will describe the condition that the bank experiences after joining with the OIB, as well as issues the stakeholders of the bank face after the merger. Additionally, customer issues of the members of OIB who refused to change after the merging will be a priority to be addressed under this report. Indeed, various matters that faced the HSBC Bank, which led to the merging with OIB, will be addressed. These concerns include management strategies, operational problems, the global standards of HSBC, closing some of the branches and other matters related to offshore some departments. Therefore, all essential topics like, theories, paradigms, and models associated with those problems facing the HSBC bank have to be addressed in this report. In the previous years, HSBC has been caught up in some operational problems. Indeed, some of these scandals it got involved in got to do with predatory lending, evading payment of tax, helping organizations related to terrorism, and playing a significant role in supporting drug trafficking. According to this report, the charges of two billion U.S dollars paid by the bank as penalties are also addressed. In fact, the detailed information on scandals facing that faces the bank is discussed in the context (PLUNKETT 2013). U.S legal problems. However, HSBC got into legal difficulties with the U.S that affected the running and operation of the bank. Also, in the year 2001, the New York Republic securities of HSBC divisions were found guilty of charges regarding security conspiracy and fraud. Therefore, the bank had to pay a penalty of six hundred and six million U.S dollars, after accepting the role it played in a scheme of Ponzi, which defrauded companies of Japan of hundreds of millions of dollars[ROB15]. Additionally, the bank got into more trouble when it made a deal of $16 billion to acquire a Household International of consumer finance company, which, is a pioneer of shady subprime that leads business in the United States. Also, the Federal Reserve fined HSBC six million U.S dollars for violating rules governing limited-banks. Indeed, around the time HSBC made this deal, Household was a primary target of a movement that was planning to combat predatory lending. Therefore, even before the deal was announced, Household had come into an agreement to settle multi-state charges by paying four hundred and eighty-four U.S dollars in resolving the mortgage rates. However, this led the bank to close down all operations of the Household. (PLUNKETT 2013). Still, the bank faced other operational problems with the U.S. regulators. HSBC failed to produce the best execution of customer orders for the government securities and was fined by Industry regulator NASD. The bank also faced a penalty of ten million U.S dollars to resolve the civil penalty of allowing its logo to be used for the fraudulent sale of the financial products by the Pension Fund of America (ROBERTS 2015). Further, the HSBC helped the wealthy Americans engage in tax evasion which was reported by the New York Times in the year 2001. Besides, the bank lacked confidential customer information from being accessed, lost, or stolen, and was fined three million pounds by the Britain financial. In reality, the HSBC Bank had an operational problem of inadequate procedures to prevent the problem of money laundering by customers; this made the Federal Reserve order HSBC to improve its services to address this issue. Moreover, the FINRA fined HSBC for the sale of auction-rate securities and also selling of unsuitable collateralized mortgage obligations. Indeed, the bank was surely in real operational difficulties. Eventually, it sold financial products to the elderly customers that were so inappropriate. This operational problem led the Financial Service Authority fine the bank ten million pounds for offering unacceptable and illegal practice which are against the norms. A Polluted Compliance Culture However, investigations conducted and released by the U.S. Senates Permanent Subcommittee, detailed how the weak money laundering controls by HSBC were violating the transactions with connections related to terrorism, and drug trafficking. Also, with deficiencies in anti-money laundering efforts, the bank failed to consider U.S. Treasury Department’s Office of controlling prohibited parties like clearing large quantities of traveler’s cheques. Indeed, the bank provided U.S correspondent accounts to foreign banks and financing terrorists hence, violating Bank Secrecy Acts. Further, the bank failed to monitor operations of reimbursement claims that it submitted to the federal government for foreclosures connections on mortgages of government insurance. However, this operational problem was announced by the Southern district attorney, and the bank was fined to pay ten million US dollars. Indeed, HSBC and other banks violated foreign market exchange rates by manipulating the rates of transactions. Also, the bank failed to register with the agency on settlement of the U.S securities and exchange on commission charges before it offered cross-border brokerage and advisories on investment services to its clients in the U.S. In fact, the HSBC bank played a role of evading tax on its wealthy customers of the Swiss banking unit. Consequently, this operational problem got the bank under severe problems. The international consortium of the investigative journalists and news from other organizations across the globe carried out this investigation. However, they came up with evidence and had to release reports concerning this unhealthy operational fraud by the HSBC bank. Eurozone default HSBC faces this operational problem on the banks Eurozone exposure. The banks own exposure has not been carefully managed. Therefore there occurred an increased sovereign defaults risk which places so much pressure on the bank. The bank is affected by the sovereign crisis because it is exposed to the counterparts to the European countries. In this case, the impact that will result in the operation of the bank could be a long term effect. Indeed, such crises could lead to higher possibilities of market risks and credit losses problems, recapitalization of bank, liquidity tightening, compression spread, capital flows, and contracting trade. Also, another operational risk facing the bank of HSBC is the problem of Eurozone member departing from the banks currency union. This risk will make the bank incur very significant losses resulting from the exit of one or more countries exit from the Eurozone, which will bring low returns on its currencies. Therefore, the bank is trying to manage Eurozone by limiting its exposure and taking other limited, unspecified measures to reduce the risk (ROBERTS 2015). Regulatory problems. Nevertheless, the HSBC bank is highly facing the operational problem of regulations on how it runs its business. It has a difficult time on its operations concerning the regulations on costs and supervisory requirements, managing liquidity and capital, business conduct, operations on structures, and delivery services on financial integrity. Further, increased interventions by the government and financial control is another operational problem facing the bank, which will lower the bank`s ability to manage the competitive landscape. The operational expense is another problem that the bank faces. The amount of cost that takes to run the functionalities of the bank is much more and up to 6.1%. However, this amount is large in comparison with regulatory changes that are huge. Therefore, the mere cost of becoming a global financial institution is on a higher alert. Besides this operational problem, there are fines on the bank`s manipulation of foreign exchange making payments on protecting insurance to individual customers and the imposing interest rate on products to the business. Also, the bank reported further problems on online banking platform in which customers were affected by disruptions in their systems. Indeed, these disruptions left about seventeen billion users locked out of their accounts for more than nine hours. In fact, the website of personal banking could not allow customers to log into the system, hence, locking interfering with transactions. Also, the internet services of the bank are sometimes down causing some transactions to go pending[FIT12]. Another operational problem that faced the bank is a problem of debit cards that affected customers using the system. Most clients reported having their cards declined at the tills, and they found out that their pins had been blocked. Certainly, this problem raised the alarm from majority customers who failed to transact the bank due to this banking glitch that denied them those services. Nonetheless, before the merger with Oman International Bank, HSBC performed its transactions under different forms of operations. In fact, it recognized how online banking is essential to its customers. Therefore, it provided different options to log into the banking systems to transact. The bank system had an accessible digital key through the mobile banking application, which is convenient for use. The online banking system was used to transact on making payments, managing personal account details, and customers could transact their banking accounts by viewing balances, Further, the bank offered several services such as commercial banking that helped both small and large grow both internationally and domestically. Also, the bank conducted global private banking to help net-worth clients manage their wealth. Further, global banking and markets offered financial services for the institution, government, and corporates. Other ways that the bank operated before the merging was the use of retail banking and wealth management to provide banking services at full range. However, the HSBC merged with the Oman International Bank to create HSBC Oman. After the merging, the customers of HSBC will be able to use OIB ATMs, which will carry the Oman logo free of charge. Also, the customers can get access to the largest branch network in the Oman. Another change in operation is that the operation of HSBC will remain under the commitment in Oman by serving their customer needs in Oman. According to the terms of the deal, the operation of HSBC under the merger will provide support services under the merge. Therefore, this will provide an excellent opportunity for investment. Certainly, the bank will inject a capital of ninety-seven million U.S dollars from its internal resources into the HSBC Oman. Indeed, after this injection, the local business will be merged with the OIB. (Roberts 2015) Nevertheless, the HSBC will acquire management powers and board control of this new business entity, but the bank will remain under the Oman bourse. Under this new operation, the overall chief executive of the HSBC will not hold the same position in the new bank under the merge. Instead, the bank will have new operational rights of coming on board and revising the trends. However, the bank will have the opportunity of operating into new Islamic Banking Market with new expertise. After the merge, HSBC will have the chance of operating elsewhere by restructuring itself from where its operations are unprofitable and lacks the scale of exploitation. The stakeholder`s issues in the merger between HSBC and OIB became a subject of regulatory and the completion of other approvals. Indeed, these concerns are expected in the final agreement of the merging. Notably, during the term of the merger, the HSBC will inject total capital of $94.4 million into HSBC Oman. However, before this injection, it will be issued new shares, which will be an estimate of fifty-one percent total ownership of the entity(Fitsell 2012) Another issue of being a stakeholder in the merge is that the bank will be renamed HSBC Oman and get listed on the Muscat Securities Market. The listing of the securities will enable the bank to have a wider operational hand in new markets and be able to avoid the areas that were not profitable to the bank. Further, the stakeholders in Oman will receive significant potential benefits which will be transformational to the shareholders and the bank`s customers. Oman`s reputation is as a result of the overall reputation from its stakeholders in some specified categories. Such categories include customer service, product quality, handling of the environment, the financial performance of the bank, the capital of the intellectuals, and issues concerning the society. Stakeholders HSBC and OIB will have to maximize their banking to build a popular image of the bank. The managerial has to be very sustainable (Fitsell 2012). Customers who were having accounts with OIB faced some difficulties to transact their accounts when they resisted change. It all happened after the merging. Former Oman International Bank`s customers now called the HSBC Oman bank were locked out in carrying transactions in their accounts. According to the research conducted by diverse expertise, it was reported that those customers who refused to change into HSBC Oman bank could not access their accounts[PLU13]. Oman International Bank Chief Executive Officer indicated that the clients who declined to switch to the new bank would not be given a run to operate their accounts until after some days for issues to be resolved. However, customers reported that they could not have online access to their accounts. In fact, some of them called the customer service and were informed that they would not have access to their accounts both online and from other branches, for one week, until the issues of their personal transactions are resolved. Undeniably, the report findings are that the transfer of services from both Oman International Bank, and the HSBC Oman bank were totally unorganized. Some customers reportedly said they were planning to other banks. Others reported that they called the customer service unit of the bank, but could not get any help. However, the Bank managers when interviewed explained that they were not facing any customer difficulties. In fact, they said they were responding well to their clients. Although some customers served with the bank for so long, after the merger, they had to close their accounts and open up with other banks. Those who refused to make a change to the new bank when asked why they said that the merger had just destroyed Oman International Bank`s reputation. In fact, they indicated that they could not feel secure to make the change. In this report, according to the interviews from various customers of the Oman International Bank who refused to make the change, concluded that some clients resist change simply because they are not comfortable with the way the new HSBC bank will operate. They know the role and the expectation OIB played for them. When a big change such as a merger occurs, some customers are disrupted simply because they are not well conversant with the kind of services they will receive from the new bank. However, creating awareness to the former customers of the bank about the benefits they will receive from the bank will help resolve the problem. Certainly, various operational problems faced the new bank of HSBC Oman after the merging process finalized. For instance, it was difficult for the bank to operate under more compliance regulations that seemed to be so complex. Some of the operational problems are covered in detail and reported in this context. Still, the bank faced increased regulatory pressures. In fact, research from the sources showed that the burden of regulations is increased by a small percentage in the HSBC bank after the merge. Certainly, there were new rules that even went ahead to inhibit the bank its lending ability and indeed, the bank endorsed harsh financial penalties for lack of compliance[SUR10]. Another operational challenge that faces the bank is the technology platforms. There are new trends in technology such as evolving marketing platforms like social media. This platform requires much more time. Hence, the bank has to take up this operational challenge. Also, new technology platforms like cloud computing introduce more operational costs on the bank. Later, the bank has to be compliant with it. In the recent incidences, there were reports about complaints about failure on online banking by the HSBC bank. Essentially, in the new merge with the Oman International Bank, this problem has to be experienced again due to increased number of transactions. There is an increase in the customer base and a well reliable system of automation if not well implemented, will be a huge problem for the banking sector of HSBC Oman. Consequently, HSBC Oman is expected to incorporate its mobile banking as a delivery channel. Another operational problem that the bank faces is competition from alternative banks. When the merging was finalized, some of the customers resisted shifting to the new bank. Actually, some of them closed their accounts and transferred their savings to other alternative banks. Without a doubt, the HSBC had a rough time in convincing its members to maintain the membership. The only way to retain the number of members of customers in a bank is by giving them better services than other alternative banks. These favors could be regarding lowering the interest cost which is a challenge to the operation of the bank. However, this could cause high cost of operation as compared to the output. According to the report, the bank should advance in the areas of banking and payment service to counter competition from other banks. Further, this reports makes the analysis on the operational problem of competition facing the HSBC Oman bank and reaches a conclusion on the same. Essentially, competition in the banking system is not all about the economies of scale under which the bank operates, but it is all about favorable terms and conditions that the bank offers its customers. Undoubtedly, customers will always prefer where terms and conditions are favorable[FIT12]. However, the HSBC bank also faced an operational problem of increased demand in capital. In most legislation, the number one operational challenge is the growth of the application for the capital. This requirement will increase the cost of securing funds. Also, there are new trends of securing liquidity and leverage requirements. Definitely, this requirement will pressure the bank`s operation to the limit. Besides, an operational problem of stable economies of England and other countries in which the bank operates means low-interest rates for the bank. To attract more borrowings, some factors compress net interest margins to keep more capital on hand. But, the HSBC bank has to meet the customer demands in a view to increase savings, investments and lending. On the other hand, the HSBC Oman bank has offshored some departments and closed some of its branches in some countries. This report will cover in details on some of the issues that make the bank offshore and close its branches. The bank has been continuously trimming down, or pulling out their services in foreign countries. This action has left out some prominent opportunities that have eagerly been snatched by local banks that are prominent in their individual countries. However, as reported by most analysts, it has been a matter of factors of pull by HSBC Oman, but not push. According to the analysts, it is reported that HSBC Oman being foreign banks is focusing toward its home headquarters. Thus, this makes the bank start revolving in the offshore operations in the global economy. In other cases, the HSBC Oman has been forced to quit because the competition from local banks has not been an easy task for the operation of the bank. It has found it difficult to work with the state-owned banks in the local markets. This is the main reason as to why the HSBC has forced closing some of its branches in the foreign countries, and focus on more corporate investments that are profitable. In this segment the banks can be very competitive in their markets with other large owned banks. Neverhtless, local banks have a very competitive banking retail sector, and this makes it difficult for HSBC Oman to survive in this area(SURESH 2010) Due to the financial crisis that is leading up, HSBC Oman has been into many profitable emerging markets. Indeed, the bank has identified a shift pulling out from many markets in which, its subsidiaries branches have not been profitable. Currently it is focusing on more core substantial profits, making it to forcibly close some of its branches in some other countries. For sure, tax rules are always different from country to country. Apparently, some countries have imposed unfriendly regulatory policies on taxes and end up taxing so highly making it not conducive HSBC to operate in such an environment. This problem makes the HSBC Oman bank to close up some of its branches. Certainly, if a country does not want the operation of a particular foreign agency in its country it is just simple, they simply hike the taxation which will make that company do decline. Therefore, this has been a core reason as to why the HSBC has closed up some branches. HSBC is a global bank, and besides, it is a world financial service company having its headquarters in London. The objective of the bank is to be a world`s leading company that will connect its customers to greater opportunities than any other bank in the world through laying of strategic management. An efficient strategy ensures that the bank supports a strong capital and that shareholders receive a substantial benefit. The HSBC strategic direction is to ensure that the bank is aligned to long-term economic development trends. The bank expects economies of the countries in which it operates to go up. Also, the economy of the world is much anticipated to go up with an increase in the world`s trade. Therefore, the high financial flow between the countries in which the country operates from is a major managerial strategy that the bank is aiming to implement. Indeed, in the next decade, HSBC expects thirty-five markets to generate ninety percent of the world`s trade growth, with similar concentrations on capital flows. All in all, HSBC has been successful in the market and has gained many advantages in the competition simply because it has been using a managerial strategy called Managing for Growth. This strategy has helped the company to develop more and bring strength to the organization. HSBC has used this strategy to help remain at the top of the business market. The strategic management employed by the bank ensures exceptional and comprehensive values for its employees. The management believes that if its employees are motivated, it will help the organization achieve its goals. Furthermore, the HSBC bank is using relational management between customers and the employer, which will ensure that the company makes relations with the customers all over the world. In essence, the organization is always responsible for meeting the needs and demands of the customers. However, the HSBC has used a management strategy of internet and technology, to reach customers around the globe, which has helped the company to deliver quality and satisfactory services to their customers (SURESH 2010). In principle, the reason as to why HSBC uses strategy management is that the business aims at gaining profits both at local and international level. The company is portraying the right image to the customers and to the whole world to increase client base. HSBC is ensuring the principle of contact between employees and customers, to ensure accountability to the customers. Another strategy used by HSBC is called Branding. This management strategy ensures that the organization reaches many customers around the world, and leads its position in business across all platforms. The bank ensured a good managerial strategy for each of the client group. With effective management by the bank, the customers will be able to get satisfied on the services that the bank offers. Also, the Global Standards of HSBC bank is to ensure that the bank can strengthen its standards to the ongoing financial crime threat. The bank is also working on ensuring that, the policies and processes that manage how it does business is strong. Therefore, applying the HSBC`s values is the main standard the bank has implemented on and having highest global standards, HSBC bank will be able to yield a competitive edge in the market. Indeed, the bank`s Chief Executive Officer Stuart Gulliver reported that instilling best standards will offer a competitive advantage on the bank. The operational problems are affecting the HSBC bank as reported in this report and have had various impacts on the people, the government, and society as a whole. Tax evasion has diminishing earnings in the country. This problem will make the government spend less, borrow much money from foreign agencies, and spend much to hire people to combat the tax evasion. On paying tax, it will help the economy grow since the government will generate the income which it uses to run the country like building up infrastructures. Still, when the company pays tax, it affects policies and decisions of most businesses. However, the society around will benefit from employment opportunities and good infrastructures build by the government corporate tax generated from the business. References PLUNKETT, J. W. (2007). Plunkett's Banking, Mortgages & Credit Industry Almanac 2008: Banking, Mortgages and Credit Industry Market Research, Statistics, Trends & Leading Companies. Plunkett Research Ltd. ROBERTS, R., & KYNASTON, D. (2015). The lion wakes: a modern history of HSBC. London, Profile Books. FITSELL, T., & WILLIAMS, R. (2007). HSBC's guide to cash and treasury management in Asia Pacific 2008. Hong Kong, PPP Co. Ltd. SURESH, P., & PAUL, J. (2010). Management of banking and financial services. Noida, India, Pearson. http://proquest.safaribooksonline.com/?fpi=9788131774984. Read More