Premium Essay

Hsbc & Peso Crisis Argentina

In: Business and Management

Submitted By rarivas
Words 4732
Pages 19
{draw:g} {draw:frame} INTRODUCTION G3 Consultants Inc. has been faced with the assignment of determining the feasibility for HSBC Holdings to invest more money into their Argentine subsidiary. Argentina is currently in the midst of a recession that has lastednearly 4 years. After considerable help from the IMF in an attempt to control impending foreign debt, a mix of Argentina’s political and monetary policies has resulted in the instability of the Argentine economy and the suspension of payments leading to an uncontrollable build up of national debt. The questionable sustainability of the Argentinean government has led to a freeze in the cash flow of foreign investors in the country, consequently placing HSBC as one of the main investors to decide whether or not to permanently cut its losses and fully pull out of Argentina or believe in Argentina’s historical economic climate and continue to invest in the hopes of an outstanding upside to the current crisis. G3 Consultants Inc.’s objective is to evaluate and analyze the crisis and provide HSBC Holdings with a recommended course of action. KEY ISSUES Fiscal Policy Convertibility Plan Structural Reform Throughout the 1990s, G3 Consultants Inc. identifies Argentina as a relatively closed economy based on several factors and with little control to implement the necessary structural reforms. Firstly, the country was fairly closed-off to tradeand while it did remove some barriers to direct and indirect trade, the structural reforms were not significant enough to promote substantial trade which could have earned foreign exchange to pay off the national debt. Secondly, the revaluation of the US dollar in the late 1990s and consequential effective revaluation of the peso required a significant devaluation of the peso and/or reduction in domestic prices and wages in order to...

Similar Documents

Premium Essay

Economic Crisis: Argentina and the Hsbc

...before trading in a foreign country” (Hamm, Cabaniss, & Deaton, 1990, Abstract). This paper will explore factors that contributed to the devaluation of the peso against the dollar, the affect it has on business opportunities for trade (importing and exporting), and the Argentina’s Government intervention to recovery. Additionally, this paper will illustrate the incompatibility between Argentina and the IMF (International Monterey Fund), and show the downfall of the IMF’s influence in Argentina. Furthermore, this paper will explain how the HSBC should maintain its status of investments and strategies in Argentina, and factors that should be monitored. Economic Crisis: Argentina and the HSBC Past to Present In the beginning of the 21st Century, Argentina’s economy prospered with a booming 5 percent annual growth rate over a three-year span; this economic phenomenon would not last. By the mid-21st century, Argentina was printing money to finance munificent benefits for workers, and protectionist measures were establishment. This intervention only led to poor productivity and crated a weakness in the structure of Argentina’s economy. During the 1980s, inflation became an epidemic that reached a high point (hyperinflation) twice and the collapse of two banks. Additionally, the people lost faith in the Argentina currency (peso), which led to shipping capital abroad and investing in the U.S. dollar (Daniels, Radebaugh, & Sullivan, 2011, pp. 333-334). Over the next......

Words: 1063 - Pages: 5

Free Essay

Banking on Argentina

...the Case Study  Profits at the global banking group HSBC have fallen after it made provisions of more than $1.1 billion to cover losses from the economic crisis in Argentina. The Argentine crisis accounted for $1.12 billion of the write-down - which was slightly higher than analysts had forecast. The figures were in line with analysts' expectations and this helped push shares in HSBC 59p higher to close at 837p. Last year Argentina descended into chaos as people protested against draconian policies introduced to try and avoid default on overseas debt and devaluation of the peso. Eventually the pressures became too strong, and Argentina defaulted on its debts and floated the peso against the dollar. HSBC took a $520m charge to cover losses stemming from the change in value of the peso, and a general provision of $600m for losses in Argentina. Concerns about HSBC's exposure to the crisis in Argentina came to the fore yesterday as it emerged that its investment banking arm was preparing to lower its profits forecast for the company. HSBC Group's 2001 results, notably the economic crisis in Argentina and the related devaluation of the peso by the government which forced HSBC to book a US$1.12 billion charge. Argentina has been a major disappointment foe HSBC and they have a very talented team and all the necessary elements for success in a stabilised economy to have a profitable business. Nevertheless, the situation in Argentina remains both fluid and disturbing. The Argentine......

Words: 2039 - Pages: 9

Premium Essay

Hsbc

...Bus 162 Team 7: HSBC in China 1. How has HSBC adapted its global strategy to operate in China, both before and after China’s WTO accession? Answer: Prior to the WTO accession negotiations, China’s banking industry operated as a cog in China’s centrally planned economy. The banks adhered to directed lending practices from the government and in turn created some of China’s most successful enterprises, but also supported thousands of other inefficient and unprofitable stateowned enterprises. This practice left state commercial banks with massive amounts of debt that was largely unrecoverable and hordes of nonperforming loans. In 1865, HSBC was founded to finance the growing trade between Europe, India, and China. HSBC rapidly expanded by opening agencies and branches across the globe, but maintained a distinct focus on China and the Asia-Pacific region. By the 1880s, the bank issued banknotes and held government funds in Hong Kong, and also helped manage British government accounts in China, Japan, Penang, and Singapore. After World War I and II, HSBC turned to dramatic expansion through acquisitions and alliances in order to diversify. The bank moved its headquarters in 1993 to London from Hong Kong and continued its global acquisition strategy. In December 2001, China finally acceded to the World Trade Organization (WTO). A number of policies were immediately implemented such as foreign banks were allowed to conduct foreign currency business without any market access......

Words: 1308 - Pages: 6

Free Essay

Servicios Bancarios En Argentina

...SERVICIOS BANCARIOS EN ARGENTINA NASHARY BATISTA 090709 1. ¿Cuáles fueron los principales factores que ocasionaron la caída del valor del peso frente al dólar? Los factores fueron que, después de que Argentina se encontraba en un momento económico y tenía su moneda a la par del dólar, cuando la crisis en México y Brasil comenzó Argentina ya no pudo competir con ellos debido a su vinculo con el dólar, el dólar se fortaleció más; Argentina tuvo que devaluar su moneda; aumentó el pago de tasas de interés; el retiro masivo de dólares en los bancos debido a que fijaron el peso a la mitad del dólar terminaron por ocasionar la crisis. 2. ¿Cuál ha sido la experiencia de Argentina con el FMI? ¿El FMI ha sido de alguna ayuda o no? En mi opinión ha sido mala, ya que al principio no accedió a ayudarles a menos que establecieran ciertos cambios en sus políticas; al final le otorgo un préstamo pero no les sirvió del todo, así que pienso que no ha sido de mucha ayuda. 3. ¿Cómo ha afectado la caída del valor del peso las oportunidades de negocios para las empresas que fusionan en Argentina y para la exportación e importación? Pues lamentablemente no pueden competir con los precios de los productos de otros países, como Brasil, que es su principal socio. 4. ¿Debe HSBC invertir más dinero en sus operaciones de Argentina? ¿Qué factores deben vigilar mientras toman la decisión? Pienso que no, HSBC se negó a seguir inyectando más capital en Argentina y aunque al......

Words: 290 - Pages: 2

Free Essay

Argentina Debt Crisis

...Is Argentina a good bet for HSBC, or should they shut down operations and invest more aggressively in fast growing china? The year 2001 was disastrous for HSBC. It lost over $1.1 billion due to Argentina's economic problems compared to their profit in previous year of $324. It was forced to rethink loans and to decide if the political and economic instability in Argentina was worth the risk of continuing operations there. The company managed to beat the financial crisis of 2007-2009 only by raising additional capital from shareholders, offering high-quality products and services to customers, and increasing operating income. Because HSBC is one of “the ten largest banks in terms of overall market share in foreign-exchange trading,” it did not have to obtain a government bailout to stay in business. In spite of this, Argentina is still a small market compared to faster-growing nations in Asia, so the firm should be very careful in its decision to remain in the country. Even former chief executive Keith Whitson agreed that the company should not continue to invest in Argentina, one reason being the devaluing of the peso. In addition to it, the rigid government policies make it a country that is very volatile to crisis, which is not good for HSBC. It is apparent that HSBC is controlling neither money market nor the fiscal policy. They are just doing business and becoming the victims of situation. HSBC should continue to be cautious in its approach to increased investment in......

Words: 489 - Pages: 2

Premium Essay

Hsbc in China

...Banking Corporation (HSBC) was founded to meet the demand for local banking facilities in Hong Kong and on the China coast. The increasing and frequent trade was undertaken between Europe, India, and China, which contributes to the extension of the bank. HSBC now is one of the world’s largest banks with extensive international operations. Although the bank rapidly expanded across the globe, HSBC retained a clear focus on China market. In view of these changes of HSBC’s China strategy, it may be instructive to examine how banking environment and police of China changed over the years. Upon China’s accession to the WTO, foreign bank were allowed to enter China’s bank sector. HSBC seized the tremendous opportunity to strengthen its presence in China. This essay will begin by examining the evolution of HSBC’s Strategy in pre-WTO and post-WTO China. Next, It turned to analyse the impetus to these changes of HSBC’ China strategy. In the following part, this essay will introduced the background of HSBC expanding in China’s rural areas and evaluated this strategy from advantages and disadvantages aspects. Having presented the HSBC’s presence and strategy in China, the paper then analyses HSBC’s operating in other emerging markets with the evidence from India and Argentina. Moreover, the data and facts will be provided to evaluate the operation of HSBC during the recent world economic crisis. The further research about the reasons that Asian was identified by HSBC for future......

Words: 2009 - Pages: 9

Premium Essay

Hsbc in China, International Business Strategy Analysis

...HSBC in China Case Analyses from Luthans & Doh, In-depth Integrative Case 4.1 Chander ZHU Dec. 2014                                                                                                                                           IBS_HSBC in China   Hong Kong and Shanghai Banking Corporation was founded to finance the growing trade between Europe, India and China in Hong Kong March 1865 and month later in Shanghai. (King, 1987) With its longtime settled in China, HSBC is already member of top tier financial institutions operating in the biggest emerging market and been the largest foreign banking group in China. This essay is aiming to exam the strategy of HSBC revolution over the years in China, meanwhile to illustrate the HSBC’s strategy changed before and after China’s accession to the WTO. Then, the strategy of HSBC’s expands in China’s rural areas will be mentioned with both evaluation of advantages and disadvantages. Following, the strategy of HSBC on how to enter and operate in the other emerging markets will be discussed in terms of successful cases and setbacks. Finally, the influence from world economic crisis on HSBC and future potential opportunities for HSBC will definitely be focused on. Before the WTO accession in 2001, China’s banking......

Words: 2141 - Pages: 9

Premium Essay

The Financial and Banking System of Argentina

...The Financial and Banking System of: Argentina Presented In Partial Fulfillments of the Course Requirements for FIN 4634 International Banking Prepared for: Marcos A. Kerbel Participating Adjunct Professor Department of Finance & Real Estate Florida International University Miami, Florida Prepared by: 11/30/2014 November/30/ 2014 The Financial and Banking System of: Argentina I. Table of Contents 2 II. Geography 4 III. History of the Country 6 IV. The Country's Financial System a. Historical Overview 10 b. Present Monetary Laws and Regulations 11 c. Types of Financial Institutions operating in the country 12 d. The Central Bank 12-13 e. Bank Regulation 13 f. Commercial Banks Operating in the country 15 1. Commercial 15-16 2. Savings & Mortgage Banks 17 3. Other Financial firms 17 V. Country’s Balance of Payment and Balance of Trade- Principal Sources of Exports, Imports, investments, and funds transfers, etc. 18 VI. Foreign Reserves 19 VII. Current Situation of the country's currency 20 VIII. Risk those banks in the selected country face- such Currency, Political, Regulatory, Crime, etc. 20 IX. What is the Country doing about Preventing, Detecting and Eradicating Money Laundering and Terrorist Financing? 21 X. Important Bank Failures and......

Words: 5202 - Pages: 21

Premium Essay

Hsbc in China

...Corporation (HSBC) was founded in Hong Kong and Shanghai in order to finance the growing trade between China and Europe. HSBC has it’s headquarter in London and enriches an international network which comprises around 6,200 offices in 74 countries and territories (HSBC, 2013). For decades, HSBC has grown and adapted to conquer the difficulties in China’s revolution and economic crises and now becomes the largest foreign bank in China. This essay combines core module theories and empirical case study to analyze HSBC’s strategy. In the first part, this essay will demonstrate how the strategy of HSBC changed, and compare the strategies before and after the accession to the WTO. The second part will discuss advantages and disadvantages of concentrating on rural areas and emerging markets. The influence of financial crisis, future opportunities as well as threats will be analyzed at last. 1. HSBC’ strategy and China accession to the WTO 1.1. The reason for changing strategy Down the decades, HSBC’s has grown and adapted their strategy from localization to globalization for China in order to react to the changes of economic reform and financial liberalization. HSBC differentiates its strategy from those competitors by describing the unique characteristics which is ‘The world’s local bank.’ Due to this position and strategy, HSBC is involved directly and indirectly in China's modern economic development and reform. HSBC’s strategy in China changed for several reasons. First,......

Words: 2079 - Pages: 9

Premium Essay

Chinese Yuan Biliteral Currency Swap Agreements

...signed the RMB Bilteral Swap Ageeement with PBoC with total facilities of over ¥2.7 trillion. These agreements tell us that China decided to increase the role of RMB in the world currency market. 2007: Creation of Dim Sum bonds and offshore RMB bond market The dim sum bond market generally refers to RMB-denominated bonds issued in Hong Kong. The majority of dim sum bond are denominated in CNH, but some are linked to CNY (but paid in USD). In July 2007, dim sum bonds worth a total of US$657 million were issued for the first time by China Development Bank. These financial assets were issued to foreign investors in renminbi, rather than the local currency. In June 2009, China allowed Financial Institutions in Hong Kong to issue dim sum bonds. HSBC was the first FI that issued RMB Bond (dim sum bond). In August 2010, McDonald was the first corporate that issued dim sum bonds. In October, the Asian Development Bank (ADB) raised a ¥1.2bn 10-year bond, and...

Words: 4016 - Pages: 17

Premium Essay

Fdi in Emerging Market

...FOREIGN DIRECT INVESTMENT IN EMERGING MARKET COUNTRIES Report of the Working Group of the Capital Markets Consultative Group September 2003 This report reflects the views of private sector participants in a working group examining the determinants, trends and prospects of foreign direct investment (FDI) in emerging market countries. The views expressed should not be attributed to the staff and management of HSBC, members of the CMCG, the International Monetary Fund, and the World Bank. -2- Contents Page Main Findings ..........................................................................................................................3 I. II. III. Introduction....................................................................................................................10 Overview of FDI in EMCs.............................................................................................14 Motivation, Location, and Decision-Making.................................................................15 A. Motivation ...............................................................................................................15 B. Locational Determinants of FDI..............................................................................16 C. Decision-Making .....................................................................................................19 Financing, Global Conditions, and Managing FDI Risks................................................

Words: 20451 - Pages: 82

Premium Essay

International Finance

...Sixth Edition INTERNATIONAL FINANCIAL MANAGEMENT Cheol S. Eun Bruce G. Resnick International Financial Management Sixth Edition The McGraw-Hill/Irwin Series in Finance, Insurance, and Real Estate Stephen A. Ross Franco Modigliani Professor of Finance and Economics Sloan School of Management Massachusetts Institute of Technology Consulting Editor FINANCIAL MANAGEMENT Adair Excel Applications for Corporate Finance First Edition Block, Hirt, and Danielsen Foundations of Financial Management Fourteenth Edition Brealey, Myers, and Allen Principles of Corporate Finance Tenth Edition Brealey, Myers, and Allen Principles of Corporate Finance, Concise Second Edition Brealey, Myers, and Marcus Fundamentals of Corporate Finance Sixth Edition Brooks FinGame Online 5.0 Bruner Case Studies in Finance: Managing for Corporate Value Creation Sixth Edition Chew The New Corporate Finance: Where Theory Meets Practice Third Edition Cornett, Adair, and Nofsinger Finance: Applications and Theory First Edition Cornett, Adair, and Nofsinger Finance: M Book First Edition DeMello Cases in Finance Second Edition Grinblatt (editor) Stephen A. Ross, Mentor: Influence through Generations Grinblatt and Titman Financial Markets and Corporate Strategy Second Edition Higgins Analysis for Financial Management Ninth Edition Kellison Theory of Interest Third Edition Kester, Ruback, and Tufano Case Problems in Finance Twelfth Edition Ross, Westerfield, and Jaffe Corporate Finance Ninth......

Words: 186186 - Pages: 745

Premium Essay

The Economist

...Mexico and the United States The rise of Mexico In this special report • • • • • • • • •   From darkness, dawn   »Señores, start your engines   Bureaucrats and backhanders     A glimmer of hope     The gain before the pain     Stretching the safety net     The ebbing Mexican wave     The other American dream     The 31 banana republics     Sources & acknowledgements   Reprints   America needs to look again at its increasingly important neighbour Nov 24th 2012 | from the print edition NEXT week the leaders of North America’s two most populous countries are due to meet for a neighbourly chat in Washington, DC. The re-elected Barack Obama and Mexico’s president-elect, Enrique Peña Nieto, have plenty to talk about: Mexico is changing in ways that will profoundly affect its big northern neighbour, and unless America rethinks its outdated picture of life across the border, both countries risk forgoing the benefits promised by Mexico’s rise. The White House does not spend much time looking south. During six hours of televised campaign debates this year, neither Mr Obama nor his vice-president mentioned Mexico directly. That is extraordinary. One in ten Mexican citizens lives in the United States. Include their American-born descendants and you have about 33m people (or around a tenth of America’s population). And Mexico itself is more than the bloody appendix of American imaginations. In terms of GDP it ranks just ahead of South Korea. In 2011 the Mexican economy grew......

Words: 13319 - Pages: 54

Free Essay

Mercado de Valores Uruguayo

...Adecuación de la Ley 16.749 17 2.2.3 Decreto 344/96: Reglamentación de la Ley 16.749 17 2.2.4 Ley 16.774: Fondos de Inversión 19 2.2.5 Decreto 146/997: Sobre Calificadoras de Riesgo 20 2.2.6 Ley 17.523: Fondo de estabilidad del sistema bancario 20 2.2.7 Ley 17.555: Reactivación económica 21 2.2.8 Ley 17.703: Normas sobre Fideicomisos 21 2.2.9 Recopilación de Normas del BCU 21 CAPÍTULO III: 27 ANÁLISIS DE LA EVOLUCIÓN HISTÓRICA DEL MERCADO DE VALORES DEL URUGUAY 27 3.1 Primer Período (1925 – 1975): 27 3.2 Segundo Período (1976 – 1996) 32 3.3 Tercer Período (1997 – 2007) 47 3.4 Actualidad del Mercado de Valores 59 3.4.1 Período Enero – Junio 2008 59 3.4.2 Crisis Financiera 2008 64 3.5 Caso Práctico: 66 CAPÍTULO...

Words: 54345 - Pages: 218

Premium Essay

Introduction to Global Marketing

...The Global Economic Crisis I n his 1997 book One World, Ready or Not, William Greider described the United States as “the buyer of last resort.” Greider explained that, for many years, the United States was the only nation that was willing to absorb production surpluses exported by companies in Europe, Asia, and Latin America. Greider asked: “Who will buy the surpluses when the United States cannot?” The conventional wisdom has long held that strong spending by consumers in other nations would keep the world economy humming. However, by 2008, Greider’s question was taking on a new urgency and the conventional wisdom was being tested. An economic crisis that had its roots in lax subprime mortgage lending practices began to spread around the globe. In the United States, where the crisis began, economic misery was widespread: The housing market collapsed, real estate values plummeted, credit tightened, and job growth slowed (see Exhibit 2-1). As the price of oil passed the $100 per barrel benchmark, the average price of a gallon of gasoline rose to $4. American consumers were, indeed, less willing and less able to buy. However, the crisis was not confined to the United States alone. Consumer-goods exporters in Asia, which Exhibit 2-1: The bursting of the global real estate bubble was only one aspect of the worst recession in decades. The ripple effects from the economic turmoil were felt around the world. In 2007, just before the onset of the crisis, Mexico’s Cemex......

Words: 24814 - Pages: 100