See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/254371708

“The world's local bank”: HSBC’s expansion in the US, Canada and Mexico

Article in Latin American Business Review · September 2005

DOI: 10.1300/J140v05n04_03

CITATIONS READS
8 5,074

1 author:

Adrian E. Tschoegl
University of Pennsylvania
85 PUBLICATIONS 2,157 CITATIONS

SEE PROFILE

All content following this page was uploaded by Adrian E. Tschoegl on 11 February 2019.

The user has requested enhancement of the downloaded file.

 “The World’s Local Bank”:
HSBC’s Expansion
in the US, Canada and Mexico
Adrian E. Tschoegl

ABSTRACT. HSBC has built up a major retail banking presence in

Canada, the US, and Mexico. This strategy is unusual both in its concep-
tion and execution. HSBC has pursued its strategy through an aggressive
series of acquisitions, and its strategy in North America may prefigure
its strategy for Europe and South America. The evidence suggests that
HSBC first aimed to diversify out of Hong Kong and then to overcome
limits on domestic growth. HSBC’s continuing success will depend on
its ability to acquire and integrate its acquisitions, and to be better than
its local competitors at managing a multi-unit organization. [Article cop-
ies available for a fee from The Haworth Document Delivery Service: 1-800-
HAWORTH. E-mail address: <docdelivery@haworthpress.com> Website: <http://
www.HaworthPress.com> © 2004 by The Haworth Press, Inc. All rights reserved.]

RESUMEN. El HSBC se ha ido expandiendo, hasta convertirse en el

banco comercial con mayor presencia en Canadá, los Estados Unidos y
México. Esta estrategia es poco común, tanto en su concepción como en
su ejecución. El HSBC ha implementado esta estrategia a través de una
serie de adquisiciones agresivas, y a través de su estrategia en los

Adrian E. Tschoegl is Adjunct Associate Professor of Management, The Wharton

School, University of Pennsylvania, Philadelphia, PA 19104 (E-mail: tschoegl@alum.
mit.edu).
The author would like to thank L. Nachum for helpful comments on an earlier draft,
and this journal’s anonymous referees for their suggestions. Allison Gordon provided
editorial assistance.
Latin American Business Review, Vol. 5(4) 2004
Available online at http://www.haworthpress.com/web/LABR
© 2004 by The Haworth Press, Inc. All rights reserved.
doi:10.1300/J140v05n04_03 45
46 LATIN AMERICAN BUSINESS REVIEW

Estados Unidos se puede pronosticar la que utilizará en Europa y

América del Sur. Todo indica que el primer objetivo del HSBC consistió
en diversificarse fuera de Hong Kong y, a continuación, superar su
crecimiento doméstico. El continuado éxito del HSBC dependerá de su
habilidad en comprar e integrar sus adquisiciones, y de ser mejor que su
competencia local en la administración de una organización multi-
unidades.

RESUMO. O HSBC consolidou a sua presença como um grande banco de

varejo no Canadá, nos Estados Unidos e no México. Esta estratégia é
incomum tanto pela sua concepção quanto pela sua execução. O HSBC
perseguiu esta estratégia através de uma seqüência agressiva de aquisições,
e a sua estratégia na América do Norte parece ser a mesma para a Europa e
para a América do Sul. A evidência sugere que o HSBC pretendia, em
princípio, diversificar a sua atuação fora de Hong-Kong e, então, superar os
limites do crescimento doméstico. O seu sucesso contínuo dependerá da sua
habilidade em adquirir e integrar as suas aquisições, tornando-se melhor do
que os seus competidores locais na administração de uma organização com
múltiplas unidades.

KEYWORDS. HSBC, retail banking, North America

INTRODUCTION

In March 2002 HSBC launched a worldwide advertising campaign to

define the distinct personality of the Group’s brand and to introduce
HSBC as “the world’s local bank.” The slogan reflects the bank’s strat-
egy of being a retail commercial bank in the Far East, the Middle East,
the UK, Europe, North America and Latin America.
HSBC is one of the world’s largest banks with extensive interna-
tional operations. At the end of 2002 HSBC was the seventh largest
bank in the world, with total assets of US$759bn, third largest with Tier
1 capital of US$39bn, and second largest with a market capitalization of
US$133bn. The present strategy expands an earlier “one-third” strat-
egy, which called for operations equally spread among Asia, North
America, and the UK. HSBC began in Asia in 1865 and has been oper-
ating in South Asia and the Middle East for more than 45 years (see
HSBC’s corporate history below). North America is the subject of this
paper. Europe and Latin America (Appendix) represent the next steps.
 Adrian E. Tschoegl 47

In view of HSBC’s ambitions in Europe and South America, it may be

instructive to examine how HSBC has gone about building its presence in
North America, an effort that began earlier than its expansion into Europe
or South America and is more advanced. Currently HSBC Canada is the
seventh largest bank in Canada and the largest foreign bank. HSBC USA
is the largest foreign bank in the US and the 10th largest US bank overall.
In Mexico, when HSBC acquired Bital, the fifth largest bank in Mexico,
HSBC became the fourth largest foreign bank in the country. In 2002
HSBC Holdings merged its Canadian and US operations to create a North
American transnational bank. Currently though, HSBC Bank USA, with
assets of US$87bn, and HSBC Canada, with assets of C$34bn, remain
separate units that share some operating resources.
Furthermore, at a more abstract level, examining HSBC’s North Ameri-
can expansion can provide insight into theoretical issues in the area of for-
eign direct investment in banking, especially in retail banking. Williams
(1997) has a survey of the literature on the theory of FDI in banking that
emphasizes the internalization approach as the dominant paradigm, though
internalization does not deal well with retail banking beyond suggesting the
inference that superior management is a sufficient explanation. His more
recent work (Williams, 2002) emphasizes that banks follow their custom-
ers, but this too is limited in its power to explain FDI in retail banking, ex-
cept in cases of ethnic banking–banking to emigrants abroad.
The plan of this paper is unorthodox, but consistent with its purpose.
The paper follows the abduction model by building a detailed narrative
of HSBC’s North American expansion, and then analyzing the data to
see what explanations could be consistent with it (Guttman, 2004). This
reverses the usual convention of theory followed by data.
The paper’s methodology is that of historical research using publicly
available data. Almost all the information comes from the banks’ own
web sites, which carry capsule histories, press releases, annual reports,
and from press reports available on the Factiva and Lexis-Nexis data-
bases. Obviously, the various banking histories and scholarly articles
that the paper cites provide additional information.
We begin by discussing the activities of other major banks in the region
to establish that HSBC’s strategy to be a major retail bank in Canada, the
United States, and Mexico is unique. Next, we turn to an elucidation of
HSBC’s corporate history, which establishes the rationale for the origins of
the present strategy. We then examine separately the evolution of HSBC’s
presence in Canada, the United States, and Mexico. Lastly, having estab-
lished the facts, the paper then analyzes this information for what we can
learn from it.
48 LATIN AMERICAN BUSINESS REVIEW

OTHER BANKS WITH A NORTH AMERICAN

STRATEGY

No other banks from outside North America have embarked on any-

thing at all parallel to HSBC’s strategy in North America. There are sev-
eral banks that are expanding into retail banking in Latin America,
South East Asia, or the transition economies, but what is rare is any ma-
jor expansion into markets as developed and competitive as those of the
United States and Canada (Buch and DeLong, 2004).
Two Spanish banks, Santander Central Hispano (SCH) and Banco
Bilbao Vizcaya Argentaria (BBVA) have made major investments in
Mexico (Guillén and Tschoegl, 2000), but have not built up any retail
banking presence in either Canada or the US (except in Puerto Rico).
SCH acquired Banco Mexicano in 1997 and Banco Serfin in 1999, which
it then merged to create Banco Santander Serfin, the third largest bank in
Mexico. Starting in 1991, BBVA progressively acquired ownership of
Probursa, Banco Oriente, Banco Cremi, and in 2000, Bancomer. BBVA
Bancomer is now Mexico’s second largest bank.
Two Canadian banks (Bank of Montreal and Bank of Nova Scotia)
and one US bank (Citigroup) have taken some steps in the same direc-
tion, but of these, only Citigroup has built a strong presence in all three
markets. No Mexican bank has attempted anything similar.
The “Big 6” Canadian banks have in recent years emphasized the
North American region in their strategies (Darroch, 1999). Between
1983 and 1993 the assets of all six banks in Canada and the US in-
creased as a percentage of their total assets; the percentage was above
80 percent for two banks and above 90 percent for three. Only Bank of
Nova Scotia (Scotiabank) had a lower percentage (78 percent), and it
began the period with the lowest (63 percent). Part of the reason the
largest banks are emphasizing growth in North America is that the Ca-
nadian government has blocked any further mergers among them
(Bessler and Murtagh, 2002).
Bessler and Murtagh (2002) investigated stock market reaction to an-
nouncements of acquisitions by the six. The market generally welcomed
domestic cross-sector M&As and cross-border intra-sector M&As, but
excoriated cross-border cross-sector M&As. Interestingly, Piggott’s
(1994) ranking of the top banks in North America put Scotiabank (#23)
and Bank of Montreal (#25) as the most highly ranked Canadian banks,
and these two have been the most aggressive in their expansion.
Scotiabank was the fourth largest bank in Canada in terms of total as-
sets in 2000. It has no commercial banking subsidiary in the US. In 1993
 Adrian E. Tschoegl 49

Scotiabank acquired 8.5 percent of Grupo Financiero Inverlat, the sev-

enth largest bank in Mexico, and in 1996 received a management contract
from the government. Then, in 2000 Scotiabank increased its ownership
to 55 percent and took control of Inverlat. It is currently (2004) negotiat-
ing to buy the government’s remaining 36 percent stake.
Bank of Montreal (BoM) was the fifth largest bank in Canada in
terms of total assets in 2000. It operated in New York from 1818 to 1841
via appointed representatives and established an agency there in 1859
(Denison, 1967). Later, it also established a subsidiary. The branch that
it established in Chicago in 1861 was by 1914 the largest bank in Illinois
(Wilkins, 1989). As Schembri and Hawkins (1992) point out, Canadian
banks did well in the US, especially during banking crises, as depositors
saw them as safer than US banks. However, a change in Illinois law in
1921 forced BoM to restrict its activities, and the branch lost its pre-em-
inence to the point that in 1952 BoM downgraded it to a representative
office (Denison, 1967). The Bank of British North America (BBNA)
entered California in 1864. The California subsidiary became Bank of
Montreal (California) in 1918, when BBNA merged with Bank of Mon-
treal. Thus, when BoM purchased Harris Bank and Trust in Illinois in
1984, BoM already had subsidiaries in New York and California. In or-
der to comply with the International Banking Act (IBA; 1978), BoM
moved its home state to Illinois and converted its small California and
New York subsidiaries to non-depository trust banks (Tschoegl, 2002).
BOM followed the Harris acquisition with more purchases in the Chi-
cago area: Norris Bancorp (1987), Suburban Bancorp (1994), the Chi-
cago-area branches of Household Bank (1996), First National Bank of
Joliet (2000) including, most recently, Lakeland Community Bank
(2004), and New Lenox State Bank (2004). Harris has also acquired a
large number of small banks elsewhere in Illinois. In all, its retail bank-
ing subsidiaries in Illinois represent some 19 percent of BoM’s assets.
Most recently, BoM has started to target wealthy individuals. In 2000 it
bought two banks located in well-to-do neighborhoods: Village Bank in
Naples, Florida and Century Bank in Scottsdale, Arizona.
Bank of Montreal established a representative office in Mexico in
1960 and started working with Banco de Commercio (Bancomer), the
second largest of Mexico’s banks, in 1989. In 1995 Bank of Montreal
acquired 20 percent of Bancomer, but then chose not to increase its
stake. In 2001 it agreed to give up its shares in what is now Grupo
Financiero BBVA Bancomer to Spain’s BBVA.
Citigroup is the largest bank in the US. It first entered Canada in 1963 in
what came to be known as the Mercantile Bank affair (Vorstermans, 1978).
50 LATIN AMERICAN BUSINESS REVIEW

In 1953 Nationale Handelsbank, later a subsidiary of Rotterdamsche Bank,

which is now the RO in ABN AMRO, established Mercantile Bank in Can-
ada. In 1963 Citibank acquired 50 percent of Mercantile Bank, and in 1965 it
acquired the remaining 50 percent. This led to great concern in Canada over
the possibility of US encroachment leading to domination, which, in turn, led
to the 1967 revision of the Bank Act. The revision introduced a provision that
foreigners could own no more than 25 percentof a Canadian bank. In 1971
the Canadian government and Citibank agreed that over the next 10 years
Mercantile Bank would increase its capital in stages to bring Canadian own-
ership up to 75 percent. Mercantile achieved this goal by 1975 and by the
early 1980s had no ties to Citibank beyond residual ownership. In 1985 Na-
tional Bank of Canada, Canada’s sixth largest bank, acquired Mercantile
Bank.
Citibank continued to invest in Canada in a variety of ways. When
bank charters became available in 1981, Citibank gathered many of
these activities together to form Citibank Canada. By the end of 1982 it
was already the largest foreign bank in Canada and about 80 percent
larger than the next largest foreign bank (Banque National de Paris Can-
ada). Thereafter, it grew organically, though in 1986 Citibank Canada
did acquire Overseas Bank, which was quite small and concentrated on
Chinese and Asian markets. (Overseas Bank was a subsidiary of Over-
seas Trust Bank of Hong Kong, which had become insolvent.) Today
Citibank Canada, 40 percent the size of HSBC Canada, is the second
largest foreign bank, though it does not target the retail market.
In order to build up its Mexican operation, in 1997 Citibank acquired
Banca Confia and bid unsuccessfully for Banco Serfin. Then, in 2001
Citibank acquired Banco Nacional de Mexico (Banamex), into which it
consolidated both Banca Confia and Citibank of Mexico. Before BBVA
acquired Bancomer, Banamex was Mexico’s largest bank. Banamex’s
merger with Citibank’s other operations returned Banamex to the top
position.
Several Mexican banks have or have had retail operations in the US. In
1980 Banamex bought Community Bank of San Jose and Mexican-Ameri-
can Bank of San Diego, and in 1981 merged them to form California Com-
merce Bank, which is still small. In 1982 Bancomer acquired Grossmont
Bank, also in California, but received only two seats on the Board of Direc-
tors and treated the acquisition as more of a financial investment than a
strategic one. Grossmont went on to make two small acquisitions. In 1985
it acquired the deposits and other business of California Heritage Bank (est.
1974), which state regulators had seized, and in 1993 Grossmont took over
the deposits in seven branches when regulators closed the Bank of San
 Adrian E. Tschoegl 51

Diego (est. 1978). In 1995 an investor group including management and

the Simmons family, major shareholders in the Zions Bancorp of Utah,
bought Grossmont from Bancomer. Now that foreign banks own four out
of the five largest Mexican banks, one cannot expect Mexican banks to tar-
get the US market aggressively.

1
HSBC’s CORPORATE HISTORY

A mixed group of local English and other merchants founded HSBC

in 1865 as a trade bank with headquarters in Hong Kong and branches in
Shanghai and London. To serve its owners, the bank quickly opened
more offices abroad in Calcutta and Yokohama (1867), Bombay
(1869), Manila (1875), San Francisco (1875), Singapore (1877), New
York (1880), Lyon (1881), Hamburg (1889), and elsewhere. Despite its
origins in Hong Kong, HSBC was always a British-run bank, or perhaps
even more accurately, Scottish-run (King, 1991).
The Second World War forced HSBC temporarily to move its head
office to London and to close some branches. After the war HSBC re-
turned to Hong Kong, where it became a pillar of the economy and a
major factor in Hong Kong’s reconstruction. HSBC then began to ex-
pand its regional presence; in 1959 it acquired Mercantile Bank of India
and British Bank of the Middle East, two British overseas banks (Jones,
1987 and 1993).
In the late 1970s HSBC became concerned about the fate of Hong
Kong, especially after the return of the Colony to the People’s Republic
of China, and its own survival. HSBC, therefore, formulated a strategy
to diversify out of Hong Kong. Its “one-third” strategy called for opera-
tions equally spread among Asia, North America, and the UK. (Re-
cently Standard Chartered Bank, which also depended heavily on Hong
Kong, also decided to diversify geographically. In 2000 it bought
Grindlays Bank, which operated in India, Pakistan, Bangladesh, and the
Middle East. Standard Chartered now earns about half its income from
operations outside Hong Kong.)
The “one-third” strategy had several strategic implications. First, it
meant that HSBC would have to expand into product markets that did
not have a Hong Kong connection. For instance, although it had a small
retail banking subsidiary in San Francisco serving the local Chinese and
Chinese-American community (see below), the community was too
small to permit the subsidiary to grow in order to provide the necessary
scale. Second, the strategy would require acquisitions, and those would
52 LATIN AMERICAN BUSINESS REVIEW

have to be of large banks. HSBC could not expect to grow organically to

the requisite size in the US and the UK over any reasonable horizon, as
doing so would require taking market share away from well-run
incumbent local banks.
HSBC’s first major step was the purchase in 1979 of 51 percent of
Marine Midland, a bank headquartered in Buffalo, New York (see be-
low). In 1975 Marine Midland had cut its dividend, and the US regula-
tory authorities were monitoring it because of the volume of its problem
loans in its London office. HSBC put in about US$300 million in new
equity, which helped improve Marine Midland’s capital position, and
bought other shares in the market.
The next step occurred in 1981, when HSBC wished to buy Royal
Bank of Scotland (in competition with Standard Chartered Bank), only
to have the UK government block its bid, nominally, on anti-trust
grounds. HSBC was finally able to move a little closer to its goal of a
third–UK–leg when it bought 15 percent of Midland Bank in 1987.
(Marine Midland was unrelated to Midland Bank of the UK until HSBC
bought the latter.) Midland Bank had bought Crocker National Bank in
California in 1980, but sold it to Wells Fargo in 1986 after suffering
spectacular losses due to Crocker’s losses on disastrous forays into the
Latin American sovereign debt market in the 1970s (Jones, 1993). At
the time that HSBC started to acquire Midland, Midland was in a highly
weakened state; however, the two banks had an agreement that HSBC
would not increase its holdings in Midland before the end of 1990. Even
so, the two worked together, rationalizing some holdings to remove
overlaps and swapping assets. Merger talks began in 1990, but the
banks broke them off saying that the time was not right, due in part to
the turmoil in world markets as a consequence of Iraq’s invasion of Ku-
wait. Finally, in 1992 HSBC fully acquired Midland. At that time,
Midland was the weakest of Britain’s so-called Big 4 banks.
The acquisitions of Marine Midland and Midland put HSBC well on
its way to achieving its “one-third” strategy. Both were major steps not
just because the banks HSBC bought were large, but because they were
large relative to HSBC. When HSBC started to acquire Marine Midland
Bank, HSBC had US$22bn in assets and Marine Midland US$15bn,
making Marine Midland more than two-thirds the size of HSBC. Even
more strikingly, when HSBC started to acquire Midland Bank, HSBC
had assets of US$106bn and Midland US$91bn, which made Midland
Bank 85 percent of HSBC’s size.
Rosenzweig (1994) has an insightful article on the difficulties that
arise when the foreign operation is large relative to the parent. The im-
 Adrian E. Tschoegl 53

plication is that, generally, only large parents can comfortably deal with
a large subsidiary. Still, HSBC succeeded, in part by permitting its ac-
quisitions an autonomy that it was not in a position to suppress. This
was consistent with HSBC’s tradition of organizing on a geographical
basis, and expecting country heads to make their own decisions, notify-
ing head office rather than seeking permission. Additionally, the acqui-
sition of Midland Bank probably had the effect of reinforcing the bank’s
British center of gravity after the skewing implicit in the acquisition of
Marine Midland.
In 1991 HSBC created HSBC Holdings to hold the Group’s banks
and in 1993 it transferred its headquarters from Hong Kong to London.
Currently, HSBC continues to build its global footprint.
HSBC’s strategy was both reactive and proactive. Faced with uncer-
tainty about its continued future in Hong Kong, it reacted by developing
a strategy to diversify away from Asia. The strategy it came up with was
proactive in that it involved acquiring major banks in developed coun-
tries. HSBC had major acquisitions before, but BBME and Mercantile
Bank both operated in the developing world, as did HSBC itself. In exe-
cuting its strategy first to establish its US and UK legs, and then to be-
come “The World’s Local Bank,” HSBC was both proactive in seeking
out acquisition targets and reactive in taking advantage of the opportu-
nities thrown up by deregulation and opening of markets.

2
HSBC IN CANADA

Until 1967 foreign banks could operate relatively freely in Canada

via branches or subsidiaries (Darroch, 1999). However, the nationalis-
tic concerns over Citibank’s acquisition of Mercantile Bank mentioned
above led to the passage of the 1967 Bank Act, which blocked foreign
banks from opening branches or maintaining banking subsidiaries.
Foreign banks continued to operate in Canada via “near banking” sub-
sidiaries that borrowed in the Canadian money market to lend locally, but
that did not fall under the provisions of the Bank Act. Consequently, the
foreign banks did not need to maintain reserves with the Bank of Canada,
with the result that they could lend at a 50 to 75 basis-point advantage
over Canadian banks. The foreign banks’ success, plus the desire of the
major Canadian banks to open access to Canada slightly so that they
themselves would not, on grounds of a lack of reciprocity, be blocked
from opening branches in countries such as Japan, led to amendment of
the Bank Act. Under the amendments, Canada authorized foreign banks
54 LATIN AMERICAN BUSINESS REVIEW

to open so-called Schedule II subsidiaries, which, however, were subject

to a number of restrictions. Still, over time the government either did not
enforce discretionary restrictions or amended the restrictions. The adop-
tion of the North American Free Trade Agreement (NAFTA) in 1994 re-
sulted in further liberalization, including in 1999 the authorizing of
foreign banks to establish branches of the parent bank (Tickell, 2000).
In 1979 HSBC, partially in anticipation of the eventual opening of
the Canadian market to foreign banks, bought a company in Vancouver
that financed machinery and equipment for small companies operating
in British Columbia. When Canada authorized subsidiaries of foreign
banks in 1981, HSBC was in the first batch of eight banks to receive a
charter, and it used this subsidiary as the foundation for Hong Kong
Bank of Canada (HBC). HBC was the only subsidiary of a foreign bank
not to have its headquarters in Toronto.
Initially, HBC grew slowly. It had a few retail branches that focused
on Asian-Canadians, but its origins ensured that the major portion of the
bank’s business was commercial. It opened branches in major cities in
western Canada, Toronto and Montreal, but organic growth was insuffi-
cient for its plans. Therefore, HBC sought to grow by acquisition,
though its first three attempts were unsuccessful.
The fourth attempt, in 1986, succeeded. HBC’s major break occurred
when the Bank of British Columbia essentially failed. HBC stepped in,
acquiring C$2.6 billion in assets, a large base of stable retail deposits,
and 41 branches in British Columbia and Alberta. HBC immediately
jumped from being Canada’s 20th largest bank to being its 9th largest.
Two years later HBC acquired Midland Bank Canada. HSBC had
just taken a major shareholding in Midland Bank in the UK (see above),
and the two banks had begun to rationalize their operations. The acqui-
sition increased assets by C$472 million and gave HBC numerous new
corporate banking relationships in Eastern Canada.
Two years after that HBC acquired Lloyds Bank Canada, which itself
had acquired Continental Bank in 1986. The acquisition of Lloyds Can-
ada increased HBC’s assets by C$4.4 billion and added 53 branches
across Canada, mostly in Ontario and Quebec. These 53 branches dou-
bled HBC’s branch network and resulted in HBC’s network extending
to every province except Prince Edward Island. HBC went from being
the second-largest foreign bank in Canada to being the largest. Acquir-
ing Lloyds brought the number of branches in Quebec to eight and gave
HBC its first retail branches there. This brought with it the need to issue
all circulars and correspondence in French, when the bank was already
working in English and Cantonese.
 Adrian E. Tschoegl 55

Next, HBC acquired ANZ Bank Canada in 1993, making HBC the
7th largest bank in Canada. ANZ had acquired Grindlays Bank Canada
with its acquisition in 1984 of Grindlays Bank, a British overseas bank
(Merrett, 2002). By the early 1990s ANZ’s management was focusing
on expanding in the Asia-Pacific area and divesting extraneous opera-
tions. HBC simply combined ANZ’s branch with one of HBC’s pre-ex-
isting branches in Toronto.
In 1996 HBC acquired Barclays Bank Canada. Like HSBC, Barclays
had entered Canada in 1979. Barclays had developed a diversified but
modest range of activities that quickly made Barclays Canada the third
or fourth largest foreign bank. In 1985 Barclays bought the assets of
Wells Fargo Bank (Canada). Wells Fargo sold its operations in Alberta
(and in Florida) to Barclays as part of a re-focusing on its home market.
However, by the early 1990s Barclay Canada was losing money, which
forced it to close all its seven branches and retain only the Toronto head
office.
That same year HSBC transferred its branch in Portland (Oregon)
and its branch in Seattle to HBC. The transfer reflected the interests of
HBC’s West Coast customers; HSBC was very strong in processing
trade finance documents in Asia and HBC’s customer base was still
30-35 percent Asian, mainly immigrants from Hong Kong. This is a
community that values the international trading capability of its banks.
(Li et al. (2001) have an informative article on the (mostly Taiwanese)
Chinese community in Los Angeles and its banks.) Still, in 2003 HSBC
re-transferred the two branches to HSBC USA.
In 1998 HBC acquired National Westminster Bank Canada. In the fol-
lowing year HBC changed its name to HSBC Bank Canada, consistent
with the HSBC Group’s strategy of creating the global brand, HSBC.
HSBC Bank Canada then acquired Republic National Bank of New York
(Canada) as a consequence of HSBC’s 2000 acquisition of Republic Na-
tional Bank of New York (see below). This added C$1.4bn to HSBC
Bank Canada’s C$25.1bn in assets. Republic had grown, in part, by buy-
ing Bank Leumi Le Israel (Canada) in 1993, Bank Hapoalim (Canada) in
1994, and Israel Discount Bank of Canada in 1996.
Similarly, HSBC Bank Canada amalgamated CCF (Canada) in 2001,
when HSBC acquired its parent, CCF (Crédit Commercial de France).
In 1981 CCF had established a subsidiary that it sold to Société
Générale (Canada) in 1990, and had just returned in 2000. CCF had also
just bought Crédit Lyonnais (Canada), which was winding down its op-
erations. Consequently, both CCF (Canada) and Crédit Lyonnais (Can-
ada) were quite small.
56 LATIN AMERICAN BUSINESS REVIEW

In addition to acquiring banks, in the 1990s HSBC acquired a variety

of other firms in Canada to enable it to offer discount and full-service
stock brokering, securities trading and issuing, property and casualty in-
surance, trust banking, asset management and commercial credit. In
2000 HSBC Canada formed a 50-50 joint venture–Merrill Lynch HSBC
Canada (MLHSBC)–to which HSBC contributed its discount broker-
age subsidiary. This was part of an attempt at the creation of a multi-re-
gional alliance with Merrill Lynch. Still, two years later HSBC bought
out Merrill Lynch’s stake in MLHSBC.
In 2002 HSBC USA established a branch in Canada. By the end of
the year this had some C$37mn in assets, compared with the C$33bn in
HSBC Canada.
Lastly, in 2004 HSBC Canada acquired Intesa Bank Canada, the sub-
sidiary of Banca Intesa of Italy, together with its 11 branches and
C$1.1bn in assets. This was its 9th banking acquisition, all but the first of
which were of foreign banks. At the same time, HSBC Bank Canada sold
HSBC Canadian Direct Insurance Incorporated to Canadian Western
Bank.

HSBC IN THE US 3

Prior to 1978, regulation of the entry of foreign banks into the US was
a state responsibility (Tschoegl, 2001). Many states barred foreign
banks, but the largest–New York, California, Illinois, and some others–
did not. As a result, foreign banks could legally maintain operations in
several states, something generally forbidden to US banks. The IBA
(1978) restricted foreign banks to a commercial banking subsidiary in
only one state, though it allowed them to operate branches or agencies
elsewhere if the state in question permitted these. In 1991 Congress
passed the Foreign Bank Supervision and Enhancement Act (FBSEA)
to extend federal regulation over branches and agencies of foreign
banks. The Riegle-Neal Interstate Banking and Branching Efficiency
Act (1994), which took effect in 1997, allowed US and foreign banks to
branch interstate by consolidating out-of-state bank subsidiaries into a
branch network, or by acquiring banks or individual branches through
acquisition or merger. Lastly, in 1999 Congress passed the Financial
Services Modernization Act (also known as the Gramm-Leach-Bliley
Act–GLBA), which authorized the full affiliation of commercial bank-
ing with other financial services. This in effect repealed the Glass-
Steagall Act of 1933 by authorizing banks to register with the Federal
 Adrian E. Tschoegl 57

Reserve as financial holding companies, which could serve for linking

commercial banks with securities firms, insurance firms, and merchant
banking.
HSBC’s first contact with the US occurred in 1865, when it ap-
pointed Bank of California in San Francisco as its agent. Then, in 1875
HSBC opened an agency there under its own name (King, 1991). HSBC
established its second agency in the US in New York in 1880. HSBC’s
agency in New York changed status to a branch (for a second time) in
1987.
In 1955 HSBC established the San Francisco-based Hong Kong
Bank of California. In 1970 HSBC bought Republic National Bank and
Trust and merged it with Hong Kong Bank of California, doubling the
size of the subsidiary. Still, the subsidiary was never successful and in
1972 it began selling its branches.
HSBC’s real growth in the US commenced in 1978-79, when it
bought 51 percent of Marine Midland Bank in New York. Although the
bank badly needed additional capital, HSBC’s purchase of Marine Mid-
land raised a number of issues with NY regulators; HSBC finessed the
issue by switching to a Federal charter (King, 1991). However, as a con-
dition of purchase, the Federal Reserve forced HSBC to sell Hong Kong
Bank of California. HSBC sold Hong Kong Bank of California to Cen-
tral Bank System of Oakland, which had long been interested in ex-
panding into San Francisco. To retain the bank’s ties to the local
Chinese community, Central Bank brought two local businessmen with
an ethnic Chinese background onto its Board of Directors.
In 1985 HSBC bought the branches and deposits of the failed Golden
Pacific National Bank in New York’s Chinatown and Queens. The
Comptroller of the Currency had closed the bank for “irregularities.” In
1986 HSBC acquired the assets of Global Union Bank, which had strong
ties to New York’s Chinatown community via its New York branch.
HSBC was able in 1987 to acquire the remaining 49 percent of Ma-
rine Midland (later HSBC USA), which then acquired a number of
smaller banks. In 1986 Marine Midland bought Westchester Federal
Savings Bank. Later, it bought United Northern Federal Savings Bank
(1995), the branches of East River Savings Bank (1996), and First Fed-
eral Savings and Loan of Rochester (1997).
In 1995 HSBC closed its agencies in San Francisco and Los Angeles
and its representative offices in Alhambra and Newport Beach. It trans-
ferred their business to a newly created joint venture, San Francisco-
based Wells Fargo HSBC Trade Bank, which provides trade finance
and international banking services. The joint venture is 60-40 Wells
58 LATIN AMERICAN BUSINESS REVIEW

Fargo-HSBC, though Wells owns 80 percent of the voting shares to

comply with the Federal Reserve Board’s definition of “controlling in-
terest” and to be able to supply services to the subsidiary at cost. HSBC
also has non-equity strategic alliances with Wells Fargo Bank (dating
back to 1989) and with Wachovia Corporation.
Although HSBC in the US has grown well beyond any ethnic bank-
ing niche, the bank has still kept an ethnic banking presence. In 1996
HSBC purchased Hang Seng Bank’s two branches in New York’s Chi-
natown. HSBC owns 61 percent of Hang Seng and the two branches
continued to operate under the Hang Seng name, but as part of HSBC
Bank USA. Lastly, in 1999 HSBC bought First Commercial Bank of
Philadelphia. This bank had two branches and catered to the local Asian
population. After the acquisition, HSBC closed one branch and now op-
erates the other under the HSBC name.
HSBC’s most recent major purchase, in 1999, was Republic National
Bank of New York. In the same transaction, HSBC bought Safra Re-
public Bank, a Luxembourg-domiciled bank specializing in private
banking. HSBC bought Republic and Safra from their owner, the
unique Edmond Safra (Weiss and Sandler, 1994), who died in a bizarre
incident later that year. The acquisition of Republic National Bank of
New York gave HSBC three branches in California, and eight branches
in Florida.
In its most recent acquisition, in 2002, HSBC acquired Household Fi-
nance (HFC), which provides consumer loans, credit cards, auto fi-
nance and credit insurance to over 50 million customers across the
USA, the UK and Canada. Founded in 1878, HFC in the US is the larg-
est independent consumer finance company, the second largest third-
party issuer of private label credit cards, eighth largest issuer of Master
Card and Visa credit cards and fourth largest provider of credit insur-
ance. In the UK and Ireland, HFC and its Beneficial subsidiary maintain
200 branches, through which they provide consumer loans, retail fi-
nance and credit cards. In Canada HFC has 110 branches in 10 prov-
inces.
In 2004 HSBC received permission from the Office of the Comptrol-
ler of the Currency to consolidate its US operations [HSBC Bank USA
and HSBC Bank & Trust Co. (Delaware), N.A.]. HSBC Bank USA
N.A. has its main office in Delaware but continues to manage opera-
tions from Buffalo and New York City. HSBC USA has continued to
open branches in Florida and California and also owns HSBC Panama.
HSBC Panama acquired 11 branches from Chase Manhattan Bank in
2002 and now has 15 branches, making it the largest foreign bank in the
 Adrian E. Tschoegl 59

country (Warf, 2002). (The second largest is Citibank Panama.) Cur-

rently, HSBC USA is the 10th largest bank holding company in the US
and accounts for about 8 percent of HSBC’s total assets.

HSBC IN MEXICO4

From the 1930s to the mid-1990s the only foreign bank in Mexico
was Citibank, whose branch, established in 1929, was grandfathered
when Mexico prohibited foreign banks from establishing any new
branches or subsidiaries, or acquiring Mexican banks. In 1982 the Mex-
ican government nationalized the banking system and subsequently
consolidated the 68 domestic banks into 18. In 1990 the government
started to liberalize, and then in 1991 and 1992 it privatized the banks
(Christopherson and Hovey, 1996). A period of “hyper competition”
apparently followed as the newly privatized banks sacrificed profitabil-
ity to gain market share and position (Gruben and McComb, 2003).
Banking law, however, limited foreign ownership to small positions.
The hyper competition left the banks vulnerable when the 1994 Peso
Crisis devastated the economy, and many banks ended up back in the
government’s hands. The subsequent 1995 banking reform reduced the
restrictions on foreign ownership. Now the Ministry of Finance and Pub-
lic Credit could allow foreign financial institutions to acquire a control-
ling interest in those banks whose capital represented less than 6 percent
of the total net capital of the Mexican banking industry (Palomares,
1999). In 1998 the Mexican Congress finally approved foreign owner-
ship of up to 100 percent in any Mexican bank.
Thus, in 1992 Santander (formerly BSCH) and Banco Comercial
Portugues (BCP) each acquired 8 percent of Banco Internacional (Bital)
in Mexico (Guillén and Tschoegl, 2000). In 1997 HSBC acquired 20
percent of Banco Serfin, Mexico’s third largest bank. In 1999 Santander
beat HSBC in a bid to acquire the remaining shares of Banco Serfin in a
government auction. At that time HSBC sold its 20 percent to then
BSCH.
In 2002 Santander bought BCP’s eight percent share in Bital and
built up its shareholding to 26 percent of the capital and 31 percent of
the voting capital. Shortly before Santander had started buying up its
stake, Bital had acquired Banco del Atlantico from the government. As
part of the deal it agreed to increase its capitalization. Ultimately this ne-
cessity forced it to find a buyer that would increase its capitalization.
60 LATIN AMERICAN BUSINESS REVIEW

In August HSBC wholly acquired the bank from the Berrondo family
(who owned 54 percent), Santander, and other shareholders. As part of its
agreement with the Mexican government, HSBC added another US$800
million into Bital to increase its capital.
Bital has the largest network of ATMs and branches of any Mexican
bank, though in branches alone it lags behind the two largest banks. It is
very much a retail bank and lacks a large wholesale business. A linear re-
gression of total assets on the number of employees and the number of
branches at the six largest banks shows Bital has the smallest amount of
assets, relative to the number of its branches and employees. (Santander-
Serfin has the highest.)

ANALYSIS

There are three aspects of HSBC’s North American expansion that

require comment. The first aspect is HSBC’s motivation. The second
aspect is the viability of the strategy itself, including the value of having
operations in adjacent countries. The third aspect is HSBC’s use of
acquisitions.
HSBC’s initial motivation for its acquiring retail banks in North
America and the UK was to diversify away from its home in Asia. After
it acquired Marine Midland Bank and Midland Bank, HSBC’s motiva-
tion may have changed subtly. It is becoming increasingly difficult for
banks that are large relative to their home markets to grow at home. In
many developed countries banking has become quite concentrated
(Marquez and Molyneux, 2002). In response, policymakers in these
countries have started to bar the banks from further domestic mergers
and acquisitions. Some recent failed attempts in Canada are a case in
point (Tickell, 2000). The only remaining possibility for growth then is
cross-border. Interestingly, each of the owners of the largest subsidiar-
ies of foreign banks in the US is disproportionately often the largest
bank in its own home country (Tschoegl, 2002 and 2004).
Assessing the viability of this strategy is the classic question of how a
foreign firm competes against local firms that do not face any liability of
foreignness (Zaheer, 1995), that is, costs that come from operating in a
foreign environment or at a distance. One issue then is whether having
operations in contiguous countries represents a competitive advantage.
Tschoegl (1987) and Dufey and Yeung (1993) have argued that
where markets are well developed and competitive, there is no reason to
expect foreign banks in general to be better than local banks at retail
 Adrian E. Tschoegl 61

banking. At the same time there is evidence for the existence of a liabil-
ity of foreignness vis-à-vis the foreign banks’ host-country competitors
(Parkhe and Miller, 2002). Of course, there is also evidence that sug-
gests that the liability is minimal (Nachum, 2003) or wanes over time
(Zaheer and Moskowitz, 1996). However, these last two studies exam-
ine the liability in the context of corporate and wholesale banking mar-
kets. The liability may be more salient in the retail markets, where
national differences between the home and host market are likely to be
more profound.
Demirgüç-Kunt and Huizinga (1999) and Claessens et al. (2001)
found that foreign banks tend to have higher margins and profits than
domestic banks in developing countries, but that the opposite holds in
industrial countries. Similarly, Dopico and Wilcox (2002) found that
foreign banks have a greater share in under-banked markets and a
smaller presence in mature markets. The implication is that one should
not expect much in the way of cross-border mergers in commercial
banking within developed regions.
There seems to be little benefit to a bank having retail operations in
adjacent countries, as retail banking appears to be a multi-domestic in-
dustry. Amel et al. (2004) reviewed the international evidence and
found little to suggest that mergers yield economies of scope or gains in
managerial efficiency. As far as economies of scale are concerned, size
in one country does not affect one’s operating costs or revenues in an-
other country. Hensel (2003) argues that larger banks with over-used
networks of branches could benefit from consolidating across borders
with smaller banks with under-used networks; the combining of the dis-
tribution channels would, he argues, yield cost efficiencies. However,
Hackethal (2001) finds no sign of scale economies. More critically, he
finds that Europe’s national markets differ vastly, even though the
banks themselves exhibit only minor differences in terms of efficiency
ratios and employees’ skill levels.
We can speculate that on the production side, differences in products
across markets and privacy laws appear to be limiting parents’ ability to
consolidate processing. As far as depositors are concerned, there seems
to be little value to having an account with a bank that operates in other
countries, especially now that travelers can draw cash from networked
automated transaction machines (ATMs). HSBC does have a service
for wealthy individuals–HSBC Premier–that provides for such cross-
border advantages as transfer of an individual’s credit rating when they
relocate, and some other services. However, these facilities are not
available to ordinary accounts. The literature on trade flows is instruc-
62 LATIN AMERICAN BUSINESS REVIEW

tive here; the evidence on NAFTA has shown that borders have a
substantial damping effect on trade flows (McCallum, 1995).
In North America HSBC is even poorly positioned to take advantage
of the one form of cross-border retail banking that is currently drawing
attention: remittance flows from Mexican workers in the US. Although
HSBC now has a strong presence in Mexico, it has almost no offices in
California or other US states with large populations of Mexican immi-
grants. By contrast, Bank of America, which is the largest bank in Cali-
fornia and is present in many other US states, in 2002, bought a 25
percent stake in Santander-Serfin, Santander’s subsidiary, which has
amalgamated Mexico’s oldest and third largest bank.
If there is little reason to believe that HSBC benefits from cross-bor-
der demand or production effects, what is left as a source of advantage?
One candidate is what Kindleberger (1969) has called “surplus manage-
rial resources.” When a bank such as HSBC can no longer grow at
home, it may find itself with a management team that is underemployed
in terms of the demands on its time. The bank may then choose to grow
abroad when it can combine these surplus resources with what Berger et
al. (2000) call a global advantage. Berger et al. argue that some US
banks succeed in the competition with local banks elsewhere in the
world simply by being better managed. In their survey of the literature
on productivity, Bartelsman and Doms (2000) draw several stylized les-
sons, among them that firms differ in their productivity and that this
difference may persist for years.
Obviously, not all US banks necessarily partake of the advantage of
better management and by contrast some non-US banks may. HSBC
may simply be one of these. As Nachum et al. (2001) point out, the com-
petitiveness of firms depends on the kind of assets that firms can trans-
fer internally from country to country, but that are difficult to transfer
from one firm to another, even within a country. Still, it is, unfortu-
nately, extremely difficult to measure an intangible asset as subtle and
hard to define as better management (Denrell, 2004), especially when,
as recent events have shown, stock market performance or accounting
measures are of doubtful reliability.
Lastly, there is the issue of growth by acquisition. Retail banking is
an industry made up of what Greve (2003) has called multiunit organi-
zations. That is, the industry consists of banks, which in turn consist of
units or modules, called branches, that do essentially the same thing, but
in different locations. In some cases a bank may group some of these
branches into a legally separate firm. When the parent owns the major-
ity of the shares of such a firm, it is a subsidiary. Alternatively, the par-
 Adrian E. Tschoegl 63

ent bank may grow by acquiring such a separate firm and dissolve the
legal entity, incorporating its branches. Furthermore, banks regularly
buy and sell branches among each other, suggesting that these are al-
most commodities, and that there is little in the way of unique routines
(Cohen et al., 1996) at the branch or unit level that create value for the
parent. This suggests that the global advantage must reside in the man-
agement of the bank itself, i.e., of the multi-unit organization, and not
within the branches or units themselves.
HSBC began its growth in North America by acquiring failed and
weak banks. In effect, shareholders lacking a comparative advantage
relative to HSBC, with respect to owning and governing given banks or
branches (Lichtenberg and Siegel, 1987), sold them to HSBC. Gener-
ally, growth by acquisition is difficult to execute and as a strategy it is
vulnerable to problems of over-reach due to managerial hubris (Roll,
1986; Baradwaj et al., 1992; Seth et al., 2000).
Peek et al. (1999) found that generally the US subsidiaries of foreign
banks have not done well. The poor performance of foreign bank sub-
sidiaries was a result of the foreign banks acquiring poorly performing
US banks and being unable to improve their performance sufficiently
within the period that the authors examined. (One cannot arrive at
strong conclusions from studies of the profitability of subsidiaries.
Banks transfer profits across borders (Demirgüç-Kunt and Huizinga,
2001), and foreign banks may prefer to book some business from their
headquarters (Peek and Rosengren, 2000).) Still, HSBC’s operations in
the US and Canada are survivors of a winnowing process that saw other
banks from Canada, Japan, the UK and the US sell their Canadian or US
subsidiaries, in some cases to HSBC. As Mitchell and Shaver (2003)
show with respect to firms in the US medical sector, firms differ in their
ability to absorb and manage business on a continuing basis. They use
the biological metaphor of predation and their evidence is consistent
with the idea that some predators are better able to target desirable prey
and better able to overpower the prey they target. HSBC appears to have
found that it is one such successful predator.
One may surmise that HSBC initially chose to acquire weak banks as
much out of necessity as design. For any given size, a profitable bank
will cost more than an unprofitable one, and to achieve its goal of
quickly diversifying, HSBC needed to acquire large banks. Now that
HSBC is one of the world’s largest banks, whether one measures by
market capitalization or total assets, it has more leeway.
64 LATIN AMERICAN BUSINESS REVIEW

CONCLUSION

HSBC’s expansion in North America provides a case study in the

evolving processes of global competition and their impact on the
changing organizational structure of business. HSBC has pursued a
strategy that is unique in terms of its focus on retail banking in the re-
gion. The advance in North America is simply an older and more fully
developed part of HSBC’s current thrust attempt to establish itself as
“the world’s local bank.” This attempt to create a global brand cover-
ing local banking is a striking example of the interplay of globalizing
and localizing forces in the world economy, in this case in a service in-
dustry.
HSBC has pursued its strategy through a program of opportunistic
acquisitions, generally of failed or ailing banks but also of sound banks.
The short-run viability of the strategy depends on HSBC’s ability to im-
prove its acquisitions. If retail banking remains a multi-domestic indus-
try, the long-run viability of the strategy will depend primarily on
HSBC’s ability to be better than most of its local competitors at manag-
ing a multi-unit organization and only secondarily, if at all, on any bene-
fits arising from its retail banking operations in contiguous but separate
markets.
Currently, several foreign banks are building up retail banking
presences in different regions of the world. Austrian and Italian
banks are actively acquiring banks in Eastern Europe. Singaporean
banks are doing likewise in Southeast Asia, and various foreign
banks are building up their retail banking presence in South Amer-
ica. For the managements of all these banks, HSBC’s progress in
North America provides a model and benchmark against which to as-
sess their own strategies.

NOTES
1. This section draws on the references cited in the text and HSBC’s website, www.
hsbc.co.uk.
2. This section draws heavily on HSBC Canada’s website, www.hsbc.ca, and for in-
formation on bank mergers from the Canada Payments Association.
3. This section draws on HSBC USA’s website, http://www.us.hsbc.com, and press
reports.
4. This section draws primarily on press reports.
 Adrian E. Tschoegl 65

BIBLIOGRAPHY
Amel, D., Barnes, C., Panetta, F., & Salleo, C. (2004). “Consolidation and efficiency in
the financial sector: A review of the international evidence,” Journal of Banking
and Finance, Vol. 28, No. 10, pp. 2493-2519.
Baradwaj, B.G., Dubofsky, D., & Fraser, D.R. (1992). “Bidder Returns in Interstate and
Intrastate Bank Acquisitions,” Journal of Financial Services Research, Vol. 5, No. 3,
pp. 261-73.
Bartelsman, E.J., & Doms, M. (2000). “Understanding Productivity: Lessons from Lon-
gitudinal Studies,” Journal of Economic Literature, Vol. 38, No. 3, pp. 569-594.
Berger, A., DeYoung, R., Genay, H. & Udell, G. (2000). “Globalization of financial in-
stitutions: Evidence from cross-border banking performance,” Brookings-Wharton
Papers on Financial Service, Vol. 3.
Bessler, W., & Murtagh, J. (2002). “The Stock Market Reaction to Cross-Border Acquisi-
tions of Financial Services Firms: An Analysis of Canadian Banks,” Journal of Interna-
tional, Financial Markets: Institutions and Money, Vol. 12, No. 4-5, pp. 419-440.
Buch, C.M. & DeLong, G. (2004). “Cross-border bank mergers: What lures the rare
animal?” Journal of Banking and Finance, Vol. 28, No. 9, pp. 2077-2102.
Carvalho, F.J.C. de. (2002). “The recent Expansion of Foreign Banks in Brazil: The
first results,” Latin American Business Review Vol. 3, No. 4, pp. 93-119.
Christopherson, S. & Hovey, R. (1996). “ ‘Fast money’: Financial exclusion in the Mexican
economic adjustment model,” Environment and Planning A, Vol. 28, pp. 1157-1177.
Cohen, M.D., Burkhart, R., Dosi, G., Egidi, M., Marengo, L., Warglien, M., & Winter,
S. (1996). “Routines and other recurring action patterns of organizations: Contem-
porary research issues,” Industrial and Corporate Change, Vol. 5, pp. 653-698.
Darroch, J.L. (1999). “Canadian Banking Strategy in North America,” in Haar, J., &
Dandapani, K. (Editors), Banking in North America: NAFTA and Beyond. New
York: Pergamon, pp. 81-101.
De Paula, L.F.R. (2002). “Expansion Strategies of European Banks to Brazil and their
Impacts on the Brazilian Banking Sector,” Latin American Business Review, Vol. 3,
No. 4, pp. 59-91.
Demirgüç-Kunt, A., & Huizinga, H. (1999). “Determinants of Commercial Bank Inter-
est Margins and Profitability: Some International Evidence,” World Bank Eco-
nomic Review, Vol. 13, No. 2, pp. 379-408.
Demirgüç-Kunt, A. & Huizinga, H. (2001). “The Taxation of Domestic and Foreign
Banking,” Journal of Public Economics, Vol. 79, pp. 429-453.
Denison, M. (1967). Canada’s First Bank: A History of the Bank of Montreal. New
York: Dodd, Mead.
Denrell, J. (2004). “Random Walks and Sustained Competitive Advantage,” Manage-
ment Science, Vol. 50, No. 7, pp. 922-934.
Dopico, L.G., & Wilcox, J.A. (2002). “Openness, profit opportunities and foreign
banking,” Journal of Financial Markets: Institutions and Money, Vol. 12, No. 4-5,
pp. 299-320.
Dufey, G., & Yeung, B. (1993). “The Impact of EC 92 on European Banking,” Journal
of Financial Management, Vol. 2, No. 3-4, pp. 11-31.
66 LATIN AMERICAN BUSINESS REVIEW

Garcia-Cantera, J., Faucher, S., Montoro, F., & Molina, L. (2002). Foreign Financial
Institutions in Latin America. Salomon Smith Barney.
Greve, H.R. (2003). “Why are there so many multiunit organizations?” Strategic Orga-
nization, Vol. 1, No. 1, pp. 109-115.
Gruben, W.C., & McComb, R.P. (2003). “Privatization, Competition, and Super Com-
petition in the Mexican Commercial Banking System,” Journal of Banking and Fi-
nance, Vol. 27, pp. 229-249.
Guillén, M., & Tschoegl, A.E. (2000). “The Internationalization of Retail Banking:
The Case of the Spanish Banks in Latin America,” Transnational Corporations,
Vol. 9, No. 3, pp. 63-97.
Guttman, B.S. (2004). “The real method of scientific discovery,” Skeptical Inquirer
Vol. 28, No. 1, pp. 1-2.
Hackethal, A. (2001). “Strategic Groups in European Commercial Banking,” German
Economic Association of Business Administration DP01-19.
Hensel, N.D. (2003). “Strategic Management of Cost Efficiencies in Networks: Cross-
Country Evidence on European Branch Banking,” European Financial Manage-
ment, Vol. 9, No. 3, pp. 331-360.
Kindleberger, C.P. (1969). American Business Abroad. New Haven, CT: Yale Univer-
sity Press.
King, F.H.H. (1991). The History of the Hong Kong and Shanghai Banking Corpora-
tion. London: Cambridge University Press.
Jones, G. (1987). Banking and Oil: The History of the British Bank of the Middle East.
Cambridge: Cambridge University Press.
Jones, G. (1993). British Multinational Banking 1830-1990. London: Oxford Univer-
sity Press.
Lande, M., Mindreau, M., & Lande, M. (1999). “NAFTA and Financial Services: Im-
plications for Banks,” in Haar, J., & Dandapani, K. (Editors), Banking in North
America: NAFTA and Beyond. New York: Pergamon, pp. 32-52.
Li, W., Y. Zhou, G. Dymski and M. Chee (2001). “Banking on social capital in the era
of globalization: Chinese ethnobanks in Los Angeles.” Environment and Planning
A, Vol. 33, pp. 1923-1948.
Lichtenberg F.R., & Siegel, D. (1987). “Productivity and Changes in Ownership of Man-
ufacturing Plants,” Brookings Papers on Economic Activity, Vol. 3, pp. 643-73.
Ibanez, D.M., & Moyneux, P. (2002). “Financial Restructuring in European Banking
and Foreign Expansion,” Latin American Business Review, Vol. 3, No. 4, pp. 19-57.
McCallum, J. (1995). “National Borders Matter: Canada-U.S. Regional Trade Pat-
terns,” American Economic Review, Vol. 85, No. 3, pp. 615-623.
Merrett, D.T. (2002). “The internationalization of Australian banks,” Journal of Inter-
national Financial Markets: Institutions and Money, Vol. 12, No. 4-5, pp. 377-397.
Mitchell, W. & Shaver, M. (2003). “Who buys what? How integration capability af-
fects acquisition incidence and target choice,” Strategic Organization, Vol. 1,
No. 2, pp. 171-201.
Nachum, L. (2003). “Liability of Foreignness in Global Competition? Financial Ser-
vice MNEs in the City of London,” Strategic Management Journal, Vol. 24, No. 12,
pp. 1187-1208.
 Adrian E. Tschoegl 67

Nachum, L., Jones, G.G., & Dunning, J.H. (2001). “The international competitiveness
of the UK and its multinational enterprises,” Structural Change and Economic De-
velopment, Vol. 12, pp. 277-294.
Palomares, C. (1999). “The Globalization of Financial Services: Implications for Com-
petition in the North American Market,” in Haar, J. & Dandapani, K. (Editors), Bank-
ing in North America: NAFTA and Beyond. New York: Pergamon, pp. 119-144.
Parkhe, A. & Miller, S. (2002). “Is there a liability of foreignness in global banking?
An empirical test of US banks’ X-efficiency,” Strategic Management Journal, Vol.
23, No. 1, pp. 55-75.
Peek, J., & Rosengren, E.S. (2000). “Implications of the Globalization of the Banking
Sector: The Latin American Experience,” New England Economic Review, pp. 45-62.
Peek, J., & Rosengren, E.S., & Kasirye, F. (1999). “The poor performance of foreign
bank subsidiaries: Were the problems acquired or created?” Journal of Banking and
Finance, Vol. 23, pp. 579-604.
Piggott, C. (1994). “The Americans bounce back,” Euromoney.
Roll, R. (1986). “The Hubris Hypothesis of Corporate Takeovers,” Journal of Busi-
ness, Vol. 59, No. 2, pp. 197-216.
Rosenzweig, P.M. (1994). “The New ‘American Challenge’: Foreign Multinationals in
the United States,” California Management Review, Vol. 36, No. 3, pp. 107-123.
Schembri, L.L., & Hawkins, J.A. (1992). “The Role of Canadian Chartered Banks in
the US Banking Crises, 1870-1914,” in Marchildon, G.P. & McDowall, D. (Edi-
tors), Canadian Multinationals and International Finance. London: Frank Cass.
Seth, A., Song, K.P., & Pettit, R. (2000). “Synergy, Managerialism or Hubris? An Em-
pirical Examination of Motives for Foreign Acquisitions of US Firms,” Journal of
International Business Studies, Vol. 31, No. 3, pp. 387-405.
Tickell, A. (2000). “Global Rhetorics, National Politics: Pursuing Bank Mergers in
Canada,” Antipode, Vol. 32, No. 2, pp. 152-175.
Tschoegl, A.E. (1987). “International Retail Banking as a Strategy: An Assessment”
Journal of International Business Studies, Vol. 19, No. 3, pp. 67-88.
Tschoegl, A.E. (2001). “Foreign banks in the United States since World War II: A use-
ful fringe,” in Jones, G., & Gálvez-Muñoz, L. (Editors), Managing Foreign Busi-
ness in the US. London: Routledge, pp. 149-168.
Tschoegl, A.E. (2002). “FDI and Internationalization: Evidence from US Subsidiar-
ies of Foreign Banks,” Journal of International Business Studies, Vol. 33, No. 4,
pp. 805-815.
Tschoegl, A.E. (2004). “Who owns the Major US Subsidiaries of Foreign Banks? A
Note,” Journal of International Financial Markets: Institutions and Money, Vol. 14,
No. 3, pp. 255-266.
Vorstermans, J.J. (1978). The Canadian Banking System: Past, Present and Future.
Société Universitaire Européenne de Recherches Financières, monograph 21 A.
Warff, B. (2002). “Tailored for Panama: Offshore Banking at the Crossroads of the
Americas,” Geografiska Annaler, Vol. 84 B, No. 1, pp. 33-47.
Weiss, G. & Sandler, N. (1994). “The mystery man of finance: Inside the world of bil-
lionaire banker Edmond Safra,” Business Week 7, pp. 98-105.
Wilkins, M. (1989). The History of Foreign Investment in the United States to 1914.
Cambridge, MA: Harvard University Press.
 68 LATIN AMERICAN BUSINESS REVIEW

Williams, B. (1997). “Positive Theories of Multinational Banking: Eclectic Theory ver-

sus Internalisation Theory,” Journal of Economic Surveys, Vol. 11, No. 1, pp. 71-100.
Williams, B. (2002). “The Defensive Expansion Approach to Multinational Banking:
Evidence to Date,” Financial Markets, Institutions & Instruments, Vol. 11, No. 2,
pp. 127-203.
Zaheer, S. & Mosakowski, E. (1996). “The Dynamics of the Liability of Foreignness:
A Global Study of Survival in Financial Services,” Strategic Management Journal,
Vol. 18, No. 6, pp. 439-64.

APPENDIX

HSBC in Europe and South America

Europe: In 2000 HSBC bought CCF (originally Crédit Commercial de France) in

the largest cross-border bank merger in Europe to date. Although HSBC has many
operations throughout Continental Europe, the acquisition represents HSBC’s first
foray into creating a retail presence there, and CCF is now the HSBC Group’s main
platform for developing euro zone business. Since HSBC acquired CCF, CCF has
acquired Banque Pelletier, Banque Hervet, Banque Dewaay, and branches from
Banque Worms. It also has increased its stake in the private bank, Bank Eurofin, to
84 percent and has acquired other financial services companies. In Switzerland,
HSBC has integrated CCF’s subsidiaries–CCF (Suisse) and CCF-Handelsfinanz
Bank–into HSBC Guyerzeller, HSBC’s Swiss subsidiary. At the same time, in several
countries such as Malta and Egypt, HSBC has sold CCF’s subsidiaries rather than in-
tegrate them into HSBC’s existing operations.

South America: In addition to its purchase of Banco Internacional (Bital) in

Mexico, HSBC has bought major banks in Argentina and Brazil, though it has with-
drawn from a probe into Chile. When HSBC acquired Midland Bank (see below), it
acquired a 30 percent stake in Banco Roberts that Midland Bank had bought in
1987; in 1997 HSBC increased its share to 100 percent. In the same year HSBC ac-
quired Banco Bamerindus do Brasil. So far foreign banks in general have not been
as successful in Brazil (de Paula, 2002; Cardim de Carvalho, 2002) as elsewhere in
Latin America. For instance, in December 2002 foreign banks had effective control
of 28 per cent of banking system assets in Brazil, versus 58, 60, 81, 51, and 40 in
Argentina, Chile, Mexico, Peru, and Venezuela (Garcia-Cantera et al., 2002).

View publication stats