The inspiration behind the founding of the bank was Thomas Sutherland, a Scot who was then working for the Peninsular and Oriental Steam Navigation Company. He realised that there was considerable demand for local banking facilities in Hong Kong and on the China coast, and he helped to establish the bank which opened in Hong Kong in March 1865 and in Shanghai a month later.
Soon after its formation, the bank began opening branches to expand the services it could offer customers. Although that network reached as far as Europe and North America, the emphasis was on building up representation in China and the rest of the Asia-Pacific region. HSBC was a pioneer of modern banking practices in a number of countries – for instance, in 1888 it was the first bank to be established in Thailand, where it printed the country's first banknotes.
From the outset trade finance was a strong feature of the local and international business of the bank, an expertise that has been recognised throughout its history. Bullion, exchange, merchant banking and note issuing also played an important part. In 1874, the bank handled China's first public loan and thereafter issued most of China's public loans.
By the end of the century, after a strong period of growth and success under the leadership of Thomas Jackson (chief manager for most of that period from 1876 to 1902), the bank was the foremost financial institution in Asia.
Challenges and change
The 20th century saw challenges and change for HSBC. In the early years of the 20th century, HSBC widened the scope of its activities in the East. It became increasingly involved in the issuing of loans to national governments, especially in China, to finance modernisation and internal infrastructure projects such as railway building. The First World War brought disruption and dislocation to many businesses, but the 1920s saw a return to prosperity in the East as new industries were developed and trade in commodities such as rubber and tin soared. The bank's new head office in Hong Kong (1935) and the new buildings at major branches such as Bangkok (1921), Manila (1922) and Shanghai (1923) reflected this confidence.
The 1930s ushered in an era of uncertainty with economic recession and political turmoil in many of the bank's markets. In the Second World War, the majority of the bank's staff in the East became prisoners of war as the enemy advanced through Asia. The bank survived under the new leadership of Arthur Morse, and through its prudent policy of building up large reserves in peace time. At the end of the war, HSBC took on a key role in the reconstruction of the Hong Kong economy. Its support for the skills of newcomers to Hong Kong was especially vital to the upsurge in manufacturing in this period.
In other markets, however, HSBC needed to make major readjustments. Most of the mainland offices in China were closed between 1949 and 1955, leaving only the Shanghai office to continue its long and eventful service. These changes carried the risk that the bank was over-concentrating its interests in Hong Kong. The bank addressed this concern by diversifying through a series of alliances and acquisitions. The purchases of the Mercantile Bank and the British Bank of the Middle East in 1959 took HSBC into new pastures, and the formation of a merchant banking arm in 1972 extended its range of services. By the 1970s the bank had firmly developed a policy of expansion by acquisition or formation of subsidiaries with their own identities and expertise.
Making of the modern HSBC
In the later years of the 20th century HSBC moved from an important regional bank to one of the world's leading financial services organisations. This transition was achieved by a number of steps.
By the late 1970s HSBC's management had conceived the strategy of the 'three-legged stool' with the legs of the stool representing the three markets of the Asia-Pacific region, the USA and the UK. In the 1980s, the purchase of Marine Midland Bank in the USA represented the acquisition of the second leg of the stool. HSBC then sought a similar purchase in the UK. The initial target was the Royal Bank of Scotland but after this acquisition failed, attention turned to Midland Bank and a 14.9 per cent stake was taken in 1987. After creating a new holding company, HSBC Holdings plc in 1991, HSBC then made a recommended offer for full ownership of Midland in July 1992. The third leg was in place. As a result of the formation of the new holding company and the acquisition of Midland Bank, HSBC became headquartered in London.
HSBC continued to grow through a number of acquisitions across the globe. In November 1998, HSBC announced the adoption of a unified brand, using HSBC and the hexagon symbol everywhere it operated, with the aim of enhancing recognition of HSBC by customers, shareholders and staff throughout the world.
In the 21st century, HSBC has renewed its focus on its birthplace, growing its business in China both organically and through a series of strategic partnerships. HSBC's diversification and its core values of financial strength and stability have stood it in good stead in the recent global turbulence in economies and markets, and it remains well placed to deal with an uncertain world.