REPORT TITLE: - GLOBAL BANKS A

WORLD OF PAIN
NAME: KARAN MEHTA
STUDENT ID: 30120021
SUBMISSION DATE: 24-04-2015
COURSE CODE: BUMGT6958
LECTURER NAME: Dr. Tareq Rasul

EXECUTIVE SUMMARY
Global banks are cockling almost all over the world. Banks started in 60s and 70s
are worlds renowned banks. They have gone global and been investing into almost all
the countries. Every half-quarter a domestic bank emerges which starts business
globally and make huge profit out of it satisfying all the customer needs at the same
time.

TABLE OF CONTENT
EXECUTIVE SUMMARY

2
2

INTRODUCTION

MY OWN OPINION ON THE ARTICLE

CONCLUSION

REFRENCES

10

INTRODUCTION
Banks have emerged globally and are financing globally. Their main target is the
MNCs who got big business. Banks target these big firms in order to get huge return
out of them. Today every business, every building of house, starting of new business,
buying vehicle etc. starts with a good amount of investment for which each and every
individual tries to get a loan from the bank and are ready to pay huge interests. The
shareholders who have invested huge amount in these global banks are not getting

enough ROE out of it as its poor profits out there. Competition is going fierce day
after day as many new banks have been emerged in the 20s which have started to
emerge and go global and even the domestic banks are making more profits than that
of the Global banks.

The process by which business or any other organization develop international

influence or start operating on an international scale is known as globalization in
simple as I take this as example all of us are enjoying cinema and good music and
pornography which is almost common among youth irrespective of the country they
belong. Music, art and culture always thrive throughout the world so we could say
that music with latest trend and pornography embrace globalization adorn
globalization more keenly than any global bank does which actually came into
existence around 1980's like Golden Sachs which deals as a security firm to rich from
financial guns like HSBC etc. A few of them became native and many emerge who
started offering all types of financial help from bond signing to vehicle loans and also
contributed in the flow of currency internationally known as Global Banks. Some
adorn with skyscrapers, which too have an effective example of globalization in itself.
But this concept of global banks came into troubles when recession hit the world the
and return on equity were below what they expected resulting in the changing of the
policies of the world wide banks like JP MORGAN CHASE and Stuart Gulliver the
head of HSBC had Abandoned the financial targets which he set when joined as the
head of HSBC. Many were awaiting for the annual result from the federal reserve as
some have even shrined further all that because of the recession but the interesting
thing is that at that time domestic banks like Citi bank were really doing good which
no one has actually excepted so that was a surprise to which the global banks made
you think over their working policies and a wider picture came when only 6% of the
equity return has reported far less than what was expected and only single bank
managed to di this , which made every bank to think that there is a fear about the cost
if global reach in terms of regulation and complexity which could exceed the potential
benefits as they were already so devastating for global banks and it made them think
twice before investing .
Moreover, around twenty years ago the same thing seemed far rosier when capitalists
thought that globalization would prove a boom and lead to an explosive growth in
4

trade and capital flow. Few tried to capture the growth by investing in banking sector
like Deutsche bank which already had been active abroad for over a century and many
more reputed banks came into existence around 60's and 70's.
In 90's and 20's all of these firms starting expanding globally and performed complex
operations like trading finance and cash management. Some only focused on
investment like Deutsche and Stan chart some other like BNP built retail operations in
America and some banks with more flexibility like HSBC is doing everything for
everyone everywhere through lot of acquisition they have sold derivatives in New
Delhi and as well originated sub debt prime in Detroit.
It's been said that nothing is perfect in this system and has flows due to three prime
reasons: The first one and the most impactful is these giant firms probed hard to manage. They
failed to build common IT systems and let alone build a common culture like synergy
which has been elusive The global banks cost to income ratio bloated by the cost of
being in lots of countries have rarely been better than this of local banks due to which
these firms have often been tempted to make a fast buck. Citi bank made kamikaze
excursion into mortgage backed bonds In 2005 and they were greeted that they have
to do some extra to be in competition with the local banks.
Secondly the completion probed more cut throating than they expected in 20's as
many banks emerged with more opportunities than ever before and the Royal Bank of
Scotland become started with global eroding margins and soon after royal bank of
Scotland bought the ABN in a bid to rival the big network banks it promptly went bust
making an example that two cats together will not form a tiger. These giants also lost
market shares in Asia to so called regional banks and at the same time many regional
banks emerged like ICICI bank in India and ICBC bank in China.
Earlier mismanagement and fierce competition were problems before the crisis and
then the American government started to make strict rules to change the policies of
the banks as they started to watch over money laundering and they have to keep the
information of their customers customer. If they want to excess the Americans
finance system, which is essential as dollar is the worlds, most reserve currency and
huge fines were imposed for braking of the rules and regulations. Bank supervise have
5

imposed high capital standards on global banks and side by side there is tough
completion from the regional banks plus from their fellow banks in a race to become
reputed in the world. Banking made the situation even worse and that's the reason
why now global banking no longer appears convincing and to overcome the hefty loss
they are left with one option to increase the interest rates and the other would be to
decline competition which would allow them to raise their prices and the withdrawals
of second tire banks which could further help but at last the only thing we may reduce
from the global banking concept is that is a complex procedure and it is not an easy
job to build common prototype for the banks and for the different countries. In the
same scenario they need the equity to maintain the healthy flow of capital that's why
they seems to be bleeding silently as majority of banks saw a downfall in returns
which they were excepting below because of that their rising high standard and tight
completion also engulfs the big firms apart of it. Other evil is recession, which has to
put a great impact in the pathetic condition of global banks. (TheEconomist,2015)

My own opinion on the article all over is:The article all-together focuses that the global banks have been questioned in multiple
ways. Firstly, its telling about its sheer quality as of now its difficult to manage and
let the costs go down. On the other hand there is fierce competition from the other big
and domestic rivals, as well who are beneficing from other specialty has also proven
fierce. Due to strict regulations and the standards of the Capital following the
financial crises have made an additional cost. The article tells us that HSBC spent
$2.4 billion on their compliance in 2014 and the global banks have to maintain an
upper level as compared to their domestic match.
Many of these global banks are not able to give back enough returns to their
shareholders. The poor profits to the shareholders is taking away the business and
they have started to invest in other business or have started to open big firms rather
than investing into these big global banks. Some banks like Goldman Sachs deal only
in financial hubs like Hong Kong and Singapore. These banks have established their
branches in multiple firms. Many of these big bans have started to break now as well
as partnering with other big firms and even selling the business in order to sustain into
the market for a longer period of time. Moreover, the domestic banks have started to

make more profit out of their categorized class. The company report tells us the bestcase ROE of banks and the actual ROE in the graph shown in the article.
All of these big banks have their eye on big MNCs, as they need heavy amount of
investment for manufacturing, trading of bulk goods, opening of new business or
firms onto which the banks already have their eye. All these banks work at different
places all together; Like in Australia you wont find some global banks that already
are growing in Asian countries. Some banks emerged in 20s, which have led to fierce
competition around the Globe, and even the domestic banks have started to cross their
borders in order to capture the global market. JP Morgan and other big firms are
looking for boosting profits year after year and at the same time cut the cost as
competition is going down due to which they have got a chance to increase their
prices. Competition never slows down as now days Chinese banks have started to
expand globally which can even create an immense pressure onto the already emerged
global banks.

CONCLUSION
The global banks in regards for doing business all over the world should first of all
target the customers expectation and try to expand in one individual area rather than
expanding worldwide creating troubles for customers and no profits for the
shareholders or else soon they will loose all the market which they have set up. Global
banks are getting down now a days due to cut throat competition and complex
handling at the global level.

REFRENCES
The Economist,. (2015). A world of pain. Retrieved 24 April
2015, from http://www.economist.com/news/finance-andeconomics/21645807-giants-global-finance-are-trouble-worldpain