Hsbc Case Study
1) What problem did HSBC face in this case? What management, technology, and organization factors were responsible for the problem? Did HSBC management correctly identify the problem?
HSBC Holding, with headquarters in London, is one of the world's biggest and most successful banks. Like many others, the bank ran into problems during the global financial crisis of the late 2000s due in large part to its heavy exposure to the U.S. subprime mortgage market. HSBC not only originated mortgages, but was also buying subprime loans from other sources to increase its revenue. Many of these loans didn’t even require any down payment and were given to quite a “risky” category of borrowers with blemished credit histories. In some cases borrowers only had to state their income and job position without any verification. By 2007 this risky lending technique turned to be a major problem. As home values started to go down, interest rates were increasing and many borrowers with adjustable-rate mortgages were no longer able to make their payments. They ended up owing more than the actual value of their homes, and thus, defaulted on the mortgage. As the number of delinquent loans grew rapidly, HSBC started to lose its profit.
Several management, technology and organization factors contributed to the aforementioned problems. First of all, the tools HSBC was using to predict borrowers’ performance were not quite reliable. Buying second-lien loans, the bank entrusted verification of customers’ credibility to third parties. Data on subprime borrowers were often scarce, and the FICO scores didn’t distinguish between loans with or without a down payment. HSBC executives underestimated the risk of investing in complex mortgage securities. All this indicates a poor decision making and management within the company. The bank’s risk management systems were based on too optimistic assumptions about what might go wrong, and, thus failed to predict the upcoming issues.
2) HSBC had
HSBC Holding, with headquarters in London, is one of the world's biggest and most successful banks. Like many others, the bank ran into problems during the global financial crisis of the late 2000s due in large part to its heavy exposure to the U.S. subprime mortgage market. HSBC not only originated mortgages, but was also buying subprime loans from other sources to increase its revenue. Many of these loans didn’t even require any down payment and were given to quite a “risky” category of borrowers with blemished credit histories. In some cases borrowers only had to state their income and job position without any verification. By 2007 this risky lending technique turned to be a major problem. As home values started to go down, interest rates were increasing and many borrowers with adjustable-rate mortgages were no longer able to make their payments. They ended up owing more than the actual value of their homes, and thus, defaulted on the mortgage. As the number of delinquent loans grew rapidly, HSBC started to lose its profit.
Several management, technology and organization factors contributed to the aforementioned problems. First of all, the tools HSBC was using to predict borrowers’ performance were not quite reliable. Buying second-lien loans, the bank entrusted verification of customers’ credibility to third parties. Data on subprime borrowers were often scarce, and the FICO scores didn’t distinguish between loans with or without a down payment. HSBC executives underestimated the risk of investing in complex mortgage securities. All this indicates a poor decision making and management within the company. The bank’s risk management systems were based on too optimistic assumptions about what might go wrong, and, thus failed to predict the upcoming issues.
2) HSBC had