In this investigation I will explore HSBC and Lloyds approach to expansion. In this case, the term "expansion" will be referred to as increase in profit, market share, net assets and maybe amount of employees. Company Information Hypothesis I think that Lloyds grew more "effectively" during the first 3 year of merging with TSB. I will consider "To grow effectively" as "To expand without making losses, be more efficient with use of assets/employees, making more profit and decrease economies of scale. " Methodology What factors have driven growth?
There are many factors that can affect the growth of a firm. These factors are going to be analysed and evaluated in order to obtain answers to my title. One of the factors that should be investigated will be the state of the British economy. "The UK economy" by Geoff Riley, will provide full details as to the state of the British economy from 1990 - 2000 including inflation rates, GDP, interest rates, currency rates etc. When companies merge, they get a larger market share and a lot of publicity, which also affects their share prices. This is relevant to Lloyds TSB.
I am going to investigate when and how the merging affected its growth. What factors have constrained growth? Factors that can constrain growth include recession (again, state of the economy), legal difficulties, and so on. I will also look if and kinds of expansion plans have constrained their growth. How have expansion been financed? The sources of finance can be split into two categories: Internal - retained profit, cash reserves, sale of assets or force payment from debtors. External - sale of shares, loan capital, overdraft, sponsorship, venture capitalist funds
Are there any problems created by growth / merging? Dilution of stock could lead to companies having less control in their operations, so does rapid growth via sale of stock to obtain funding. This could be solved by writing contracts so that each company retains a certain level of control in their own sector. Year-By-Year Data Analysis (Calculations shown in appendix 7)  The UK Economy - According to (A. 3) The % change in real GDP increased with 2. 8% from 1994's successful increase by 4. 4%.
The increase in GDP was slightly above an average increase and had a probable impact on the economy and businesses and lead to more consumer spending and businesses starting to draw loans and take risks. Basically entrepreneurs and businessmen gained average confidence. This can be proved by looking at percentage of GDP spent (A. 4) or consumed by the population. A total of 63. 7% of the GDP had been consumed, the rest probably invested. HSBC - It seems like the "average improvement" on the UK economy lead to a slightly below average expansion of HSBC.
Their pre-tax profit (A.1) was 1900m. Looking at market capitalisation, HSBC was on 26081m Lloyds - Even though Lloyds TSB made i?? 1772m more pre-tax profit than HSBC in the same year, their market capitalisation was below HSBC's, at 16843m (A. 2).  The UK Economy - Real GDP grew again by 2. 8 % (A. 3), which means the national economy has improved yet again, making consumers more confident. This year 64. 3% of all GDP was consumed up and only 35. 7% invested. HSBC - their profit rose by 23. 23% and was still in lead over Lloyds TSB in terms of AMOUNT of Profit.
Their market capitalisation rose to i?? 34146m. Lloyds TSB - Although HSBC generated more profit, Lloyds had just merged with TSB and created Lloyds TSB. The percentage growth (A. 7) was 31. 84%, which shows that they managed to grow "more Efficiently" than HSBC. Their market capitalisation rose up to 22962m, which is a massive jump from 16843m.  The UK economy - On (A. 3) you can clearly again see that the GDP rose by 3. 5% which would probably boost the confidence for the next following year. The consumption of all GDP stayed on 64. 3%.
During the first quarter of 97, the consumer confidence figures rose pretty rapidly (A. 5) then slightly fell and during the second half of 97 it increased slowly. This could indicate that people were unsure if a fall in the economy would happen soon because of the continuous growth. HSBC - HSBC generated slightly more profit than their previous year (A. 7) with a 9% increase. Their market capitalisation had a pretty slight growth as well with about 6000m. Lloyds TSB - It seemed that as they merged they gained a lot more market share as they also gained TSB's MKT Capitalisation.
They generated 26% more profit than the previous year. Impressively their market capitalisation almost doubled from i?? 22962m to 42467m, which indicates that the merging paid off.  The UK economy - not as much action as the previous year, consumer confidence fell dramatically and real GDP only increased by 2. 2% (A. 3). HSBC - They made less profit than the previous year, and their performance was 19. 7% LESS than last year (A. 1). They managed to increase their market capitalisation, but by almost 2000m, which is very poor compared to the previous years.
Lloyds TSB - for the first time, Lloyds TSB managed to gain more market capitalisation than HSBC with an increase to 46478m (A. 2). although they performed worse than their previous year, it was only by 9%.  UK economy - I can only say that consumer confidence was not low and the economy seemed to be in a stationary moment. HSBC - A MASSIVE growth in market share. Almost doubled, having 72993m in mkt capitalisation (A. 1). Their profit increased by 24. 9 but there must have been a strategic more drawn by HSBC to gain the amount of Mkt capitalisation they got.
Lloyds TSB - a pretty stable growth in pre-tax profit, generating 20% more profit than the previous year. But this year, Lloyds TSB lost some market share down to 42412m, probably to HSBC. Conclusion The difference in approach between these two companies were that Lloyds and TSB merged wich is a form of expansion, while HSBC tried to expand strategically. I was right in my hypothesis that Lloyds TSB grew more "effectively" than HSBC during the first couple of years of merging. But HSBC managed to strike back and expand without merging or taking over.
The UK economy affected the firm's growth to an extent. A rather HIGH extent. The trend I managed to spot was as economy grew consumers were more confident, and they spent more, causing them to need money and that is good for the banks as they need people to take loans just to manage to survive and generate their own profit/success. But I have also proved that the economy was not the only factor. My example in this case is the year of 1999 where HSBC grew dramatically and gained a massive market capitalisation while the economy were in no extreme state. Evaluation
HSBC and Lloyds TSB didn't have any figures published from before 1995. They were available on order through Hemscott. com and "FinanceCity" but the time taken for delivery of figures was above my restricted time for this investigation. Therefore in "Year-By-Year Analysis", for 1995, I couldn't figure out to see if either of them had made a progress. I tried to organise an interview, and carry out other primary research, which could have helped me find out some specific details from managers and employees on why they thought they had expanded/constrained growth.
Sometimes the reason for constrained growth can be internal factors such as managerial conflict, poor leadership, employee illnesses/absence etc. Unfortunately none of the bank managers were willing to participate in an interview. 1999 is a year where I did not have figures for real GDP change. I proved that consumer demand was low but HSBC still managed to increase so dramatically. This is a case where interview, insider information or some sort of primary research could have been useful.