How did HSBC and Lloyds TSB differ in their approach to expansion during the past 5 years and in what way were their expansions affected by the UK economy?

University Degree Business and Administrative studies

Introduction

Hypothesis

Methodology

Year-By-Year Data Analysis

Conclusion

Evaluation

Appendices

Introduction

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.

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)

[1995]

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 £1772m more pre-tax profit than HSBC in the same year, their market capitalisation was below HSBC’s, at £16843m (A.2).

[1996]

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 ...