HSBC bank canada, the only foreign-based bank to have built a significant presence in Canada, has an aggressive strategy to increase its market share by expanding its brand across Canada and leveraging its global expertise.

As part of London-based HSBC Holdings PLC, Vancouver-based HSBC Bank’s competitive advantages in the Canadian marketplace lie in its expertise in global investment management and export/ import financing — the latter is a difficult area because risks change as goods move around the world — and global cash management. HSBC Bank customers in Canada can borrow on their goods in transit at very competitive rates and can make electronic payments in 76 countries.

HSBC Bank’s management system — its branches run independently and are empowered to make loan decisions — is another reason for its success in Canada, says chief operating officer Sean O’Sullivan, who is based in Toronto. (President and CEO Lindsay Gordon is based in Vancouver.)

“You can’t be too rules-based,” says O’Sullivan. “You have to listen, understand a customer’s needs and recognize when the formulas don’t work.”

The system also encourages cross-selling by keeping the assets being referred on the books of the referring office. This can entail a branch referring customers to HSBC Securities (Canada) Inc. , the bank’s full-service brokerage arm; or an HSBC investment advisor referring a customer to an HSBC branch for personal and/or business deposits; or an HSBC commercial banker referring a corporate client’s personal business to a colleague.

The goal of this strategy is to do the best thing for the customer while not penalizing the advisors and account managers who would no longer be handling those assets, says O’Sullivan.

Although cross-selling is a challenge because each subsidiary has its own culture, HSBC Bank does it as much “out of necessity as part of our strategy,” O’Sullivan says. “When you have lower brand awareness, you have to find ways to attract customers. One way is doing a better job executing cross-referrals.”

Another way, of course, is to improve that brand awareness, which HSBC Bank is working hard to accomplish. Already a major player in British Columbia, the bank is aggressively expanding in Ontario and Alberta. In the Greater Toronto Area, where it currently has 33 branches, it plans to open 20 new ones and relocate eight by the end of 2008; it also plans to add 10 in Alberta, where it has 11 locations. The bank currently has 170 offices, 126 branches and about 6,000 employees.

In addition to opening new branches, HSBC Bank has a major consumer advertising program underway that emphasizes its ability to look at investments from a different, global perspective. HSBC Group does a third of its business in North America, a third in Europe and a third in Asia.

Another strategy the bank uses to raise brand awareness with Canadians is sponsorships, both commercial and charitable. “We focus on education and the environment, on giving back to the community,” says O’Sullivan.

The bank would look at acquisition opportunities, and O’Sullivan is clear on what the bank wants: “We are interested in both cultural fit and business fit. Would acquiring the business allow us to move into or significantly improve our penetration in a desirable market? Does the business have a global outlook, respect for diversity of opinion and a culture of empowerment and high service levels?”

Although these strategies are aimed at helping HSBC Bank, which was established in 1981, become a stronger player in Canada, it isn’t doing too badly. It had $53.1 billion in assets as of June 30, making it the seventh-largest bank in Canada, with three times more assets than the No. 8 bank, Laurentian Bank of Canada ($17.1 billion in assets as of July 31). HSBC Bank had an excellent efficiency ratio (non-interest expenses as a percentage of revenue) of 52.8% in the first six months of 2006. Of the Big Six banks, only Bank of Nova Scotia, with an efficiency ratio of 54.4% for the nine months ended July 31, is in the same vicinity.

HSBC Bank’s net income before unusual or non-recurring items was up 13% in the first six months of 2006 to $246 million from $218 million, and revenue was also up 13%, to $865 million from $764 million in the same period a year earlier. There is no significant long-term debt.

@page_break@HSBC Bank’s 488.7 million voting common shares are all owned by HSBC Holdings. But there are two series of publicly traded non-voting preferred shares — Series C and D — that were trading in mid-September at about $26 a share on the Toronto Stock Exchange. Each series has seven million shares.

Here’s a closer look at HSBC Bank’s major operations:

> Personal Banking. HSBC Bank has a competitive advantage in immigrant communities in which its brand is already known. O’Sullivan refers to a Pakistani immigrant who had been a teller in Pakistan and got a job with HSBC Bank in Canada when he arrived about 10 years ago. Now he manages a branch in Brampton, Ont., which is predominantly composed of immigrants from India and Southeast Asia. The GTA attracts about 100,000 immigrants a year.

However, the bank is also targeting Canadian-born customers by offering no-fee access to ATMs in Canada through Bank of Montreal ATMs, and around the world using HSBC ATMs. HSBC Bank’s Oakville, Ont., branch, near a new Whole Foods Market organic grocery store, is located in a very affluent area of mostly Canadian-born residents.

> Wealth Management. The bank’s brokerage arm, HSBC Securities, has 150 advisors and is actively recruiting to bring that number to more than 170 in the next year. To attract advisors, the company is emphasizing the global breadth and depth of its products and research, as well as the cross-selling arrangement with the bank’s branches. In many cases, HSBC Securities offices are located adjacent to a bank branch for customers’ convenience and to facilitate cross-selling. There are also investment counsellors at its global investment-management company, HSBC Investments (Canada) Ltd. , and they are adding to that talent pool.

As of June 30, HSBC Securities’ retail assets under management were $16.3 billion, which includes assets from HSBC InvestDirect and $3.3 billion from HSBC Investments. The latter manages $2.6 billion in its 27 no-load mutual funds; $500 million of the $800 million in HSBC wrap products; and $1.7 billion for corporate and institutional clients.

In addition, through HSBC Insur-ance Agency (Canada) Inc. HSBC Bank offers life insurance in B.C., Alberta, Saskatchewan, Ontario and Quebec.

Combined, personal banking, wealth management and life insurance contributed $102 million to HSBC Bank’s 2005 net income of $470 million.

Not included in these numbers is consumer lending through HSBC Finance Corp. Canada, which is a wholly owned subsidiary of U.S.-based HSBC Finance Corp. , which in turn acquired Household Finance Corp. in 2002. However, HSBC Finance Canada does report to Gordon, and there are joint initiatives between the finance arm and the bank, such as HSBC Auto Finance.

> Commercial Banking. This is the company’s bread and butter, domestically and around the world. In Canada, the bank focuses on small and mid-market segments that benefit best from HSBC’s strong service culture and trade finance expertise, says O’Sullivan. It is the No. 1 trade bank in the country, as measured by market share in import and export letters of credit.

Overall, HSBC has an 8% share of the Canadian commercial market, which accounts for about 50% of the bank’s earnings. O’Sullivan expects that to continue. Generally, customers are first attracted by the company’s trade financing; but many eventually sign on for the cash-management services as well.

The expansion into Ontario and Alberta is aimed at this customer group, which includes small businesses, a market segment that O’Sullivan says is underserved. HSBC divides the small-business sector into companies with $1 million-$20 million in revenue and micro-firms with less than $1 million.

For small companies, the flexibility that comes with the empowerment of branches is very attractive, as they may have trouble qualifying for loans at the big banks.

HSBC Bank also has private companies with billions of dollars in revenue on its commercial roster. These firms don’t need investment banking and financial market trading services, but they like HSBC’s trade finance and cash-management services. And these commercial clients’ managers and employees are an important source of cross-selling.

HSBC recently launched a global commercial banking campaign having the slogan: “We value the difference in business.” This is “a natural extension of our ‘world’s local bank’” identity,” says O’Sullivan.

In 2007, the bank will introduce new payment and cash-management products tailored for this segment and further streamline its processes so it is even easier for customers to deal with the bank.

> Corporate, Investment Banking And Markets. This segment contributed $116 million to earnings in 2005. HSBC Bank focuses on wholesale clients with global exposure, offering a full suite of capital markets, lending and trading products. There are about 100 customers, which are attracted by the global cash-management system and who may then entrust HSBC with their investment banking and financial market requirements. The expansion here is based on selling more services to existing customers and attracting new ones.

HSBC Securities is a primary dealer in government bonds and is included in more than 50 corporate medium-term note programs.

It is building a mergers and acquisitions business focused on advising Canadian companies that are targeting international assets and assisting global clients that are shopping in Canada. It has had 10 M&A mandates so far in 2006, including having acted for Phelps Dodge Corp. in its unsuccessful attempt to acquire Inco Ltd.

HSBC Bank has also participated in 81 equity market deals from January through August, leveraging its securities arm’s retail distribution network. IE