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36 Seiten, Note: 2.1
Santander group is a Spanish bank centered on Banco Santander which is being around from 1857. It has been founded mostly in family ownership and now being broadened to become a global bank. In terms of market value, it is the largest bank in Euro zone and also a leading bank in terms of market capitalization. Santander Group entered into UK through the acquisition of Abbey National plc approved by the courts in November 2004. In 2008 it has also acquired Alliance & Leicester and Bradford & Bingley savings business. Alliance & Leicester plc transferred to Santander UK in January 2009. Abbey Bradford & Bingley and Alliance & Leicester rebranded as Santander UK (Santander.co.uk, 2015). The bank offers a wide range of corporate, business personal, personal accounts including credit products, mortgages, savings and investments. It provides online banking services, including mobile apps. Santander also provides mortgages for Intermediaries through a division of Santander UK plc which is used by the brokers.
The bank is approved by the Prudential Regulation Authority. It is regulated through the Prudential Regulation Authority as well as by the Financial Conduct Authority. It is a member of the UK Payments Administration, Financial Services Compensation Scheme, Bankers' Automated Clearing Services (BACS), the Cheque and Credit Clearing Company, the Faster Payments Service, the British Bankers' Association and the (CHAPS) which is stand for Clearing House Automated Payment System (Annual report, 2014). The reason for the research on Santander UK plc is that the banking is an industry always attracts me to research because it is my desired place to work and I have chosen Santander because of its robust financial performance over the past few years. Since the global recession in 2008 many banks have been limiting their activities and closing down their branches, but Santander has been continuing to expand their business. Moreover, I want to utilize my knowledge and skills I have gained during my MSc program especially Business Analysis, Financial Management and Corporate reporting modules. Some of my favorite theories and models I can implement very well during research on Santander.
The aim of this report is to analyses the financial performances of Santander UK plc to investigate the reasons behind their consistent performance over the last few years whereas other banks and financial institutions are suffering to maintain their profit margin. Primary objective of this report is to:
1. Critical analysis of financial performance of Santander bank from 2012 to 2014 and comparison with HSBC bank.
2. Analysis of the strategic position that is leading to robust financial performance.
3. Critical analysis of its CSR policy and how this affecting their performance.
The research is to take a comparative financial analysis of Santander UK and HSBC UK, to do so we require to undertake certain financial and ratio analysis. The basis of this is trying to establish how well Santander bank is performing than HSBC. Financial analysis is an important part of process of developing a business plan and then monitoring the success of the plan. (Johnson et al. 2011) Ratios reflect the actual assets liabilities and efficiency of the company. This also reflects the financial performance of the company and its ability to meet its financial obligations (Bagad, 2008). There are many different ratios to utilize the basis such as liquidity and profitability. See appendix A for the ratios to be utilized.
However, even though financial analysis is carried out to determine the financial and operating strengths and weakness of the company, there are some inherent limitations of financial and ratios analysis. According to (Smullen, 1995) ratio analysis involves a degree of subjectivity. He also mentioned that it is the study of historical data which is only a tool for analysis and not a substitute for analysis and the reliability depends on the data available in the financial statement. Berry (1999) mentioned that financial analysis is influenced by the application of accounting concept and convention in preparing financial statements. Smullen (1995) concludes that it is misleading by changes in accounting procedures of a company and its results be differently interpreted by different users. Traditional financial analyses are used extensively in accessing the acceptability of different options. However, Johnson et al. (2011) stated that there are three considerations need to be kept in mind when carrying out a financial analysis for the purpose of strategy evaluation.
- Firstly, the problem of uncertainty: be wary of the apparent thoroughness of the various approaches to financial analysis. Most were developed for the purpose of investment appraisal. Therefore, they focus on discrete projects where the additional cash inflow and outflow can be predicted with relative certainty.
- Secondly, the problem of specificity: financial appraisal tends to focus on direct tangible costs and benefits rather than the strategy more broadly. However, it is often very difficult to identify such costs and benefits or the cash flows specific to a proposed strategy, since it may not be possible to isolate them from other ongoing business activities. Moreover, such costs and benefits may have spillover effects. For example, a new product may look unprofitable as a single project, but it might make strategic sense by enhancing the market acceptability of the other product in the portfolio of a company.
- Finally, the assumptions: financial analysis is only good as good as the assumptions built into the analysis. If assumptions about sales levels or costs are misguided, for instance, then the value of the analysis is reduced and even misleading. This is one reason why sensitivity testing based on variations of assumptions is important.
My research has included SWOT analysis to investigate the current strategic position of Santander which is leading to strong financial performance of the bank. Johnson et al. (2011) stated that it can be helpful to identify the key issues arising from an analysis of the business environment and the capabilities of an organization to gain an overall picture of its strategic position. This summarizes the strengths, weakness, opportunities and threats likely to impact on strategy development that arise from analysis.
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Table 1: Elements of SWOT analysis (Johnson et al. 2011).1
This can also be advantageous as a ground against which to assess future course of action and generate strategic options. Birkin (2012) states that it helps to identify core competences and how a company creates synergy between its resources and capabilities in order to help its strategic planning. SWOT can assist nucleus discussion on future options as well the extent to which an organization is capable of supporting its strategies. Although SWOT analysis can be powerful tool if used correctly, it also suffers from some drawbacks. One of these is that it is not an end in itself but more part of a process. It can provide useful signposts for the company but, as with all tools of analysis, it will supply the strategic decisions. Henry (2011) mention that very long lists are produced by SWOT analysis where each of them accords the same weighting, when indeed not all weaknesses and strengths those are facing the company will be weighted the same. He also mentioned that weaknesses and strengths may not be easily converted into opportunities and threats. Moreover, Borrini-Feyerabend (2007) stated that SWOT analysis is very ambiguous where the same factors may be categorized as both weakness and strengths together, further the same factor might also be a threat and an opportunity.
My study also involves critical analysis of CSR policy of Santander UK by using Carroll’s CSR Pyramid (Carroll, 1991). CSR is the company’s obligation across all of its activities to all of its stakeholders with the purpose of achieving development which is sustainable in environmental, social and economic dimensions (ACCA, 2015). I have found this as important strategic tools because different layers in the pyramid helps to identify different types of obligations that society expect from the bank and it will also help to demonstrate level of CSR policy of Santander bank.
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Table 2: Responsibilities of an organization under Carroll's CSR Pyramid2
However, Huniche and Pedersen (2006) argue that Carroll’s pyramid does not address the conflict of interests that occurs when two or more responsibilities confronts one another. It also does not address sufficiently the pressure placed upon the company to be profitable. I like to see particular article by (Van Beurden and Gössling, 2008) about CSR initiative to the profitability. It is particularly important because it crystallize the idea and fact that CSR is not only necessarily costly, but it can also boost the bottom line profitability. Orlitzky et al. (2008) stated that company’s human resource management can be enhanced by positive CSR practices. A company can easily attract talented employees with established reputations as good places to work. Employees’ commitments are very strong to the organizations where they exercise positive CSR practices and ethical values. Moreover, employees will have greater job satisfaction with those organizations. Work satisfaction and the active engagement of the employee will lead to not only cost savings but growth opportunities as well. They also mentioned that organizations can demonstrate to all of their stakeholders that they are committed to meet their demands at organizations by practicing positive CSR policies and maintaining ethical values. Potential lenders and investors will recognize those companies as less risky and safe place to invest. Customers may also take into account the factors like how the trial patients have been treated (responsibly or not) and it may affect their choice of which company’s products to use. On the other hand, Johnson et al. (2011) mentioned that the advantages of having and implementing CSR in the interest of by the companies are many and no means exhaustive. These could lead to enhanced corporate image and brand value, enhancement of job satisfaction and loyalty of employee, good foot-printing with public authorities, governance and general public. However, Milton Friedman argued that companies do not have responsibilities only people have responsibilities. Managers in charge of the organization are responsible to the owner of the business, by whom they are employed (Anon, 2014). He also argued that the social responsibility model is politically collectivist in nature and deplores the possibility that collectivism should be extended any further than absolutely necessary in free society. It is also argued that Cost of social action is passed on to consumers and CSR decreases competitiveness of the company. Proponents of the CSR argue that the only responsibility of the business is to make profits and provide for the interests of shareholders. It is for the government to enact through regulation and legislation, the restrictions which society chooses to force on business in their pursuit of economic efficiency. Organization should meet these minimum obligations but no more. Expecting companies to exercise social duties beyond this can be extreme case and undermining the authority of government (Johnson et al., 2011).
This part is concerned with what types of data I have used in my research. The data for any research activities can be collected from two sources which are primary and secondary. Some research can be based on purely primary or secondary and some can be mixture of primary and secondary. What sources of data need to use totally depends on the ability, scope, time and power of researchers. Primary data is the data which is collected by an investigator from the original sources. Reviere, Rebecca, (1996) mentioned that primary data is the originally collected information that is obtained from institution of organization directly. On the other hand, Singh et al. (1996) stated that primary data is the original information gathered first hand by fieldwork such as assessing, measuring, counting, interviewing, taking photograph, sketch mapping. Secondary data have already been collected by the individuals or some agencies and which are now available in unpublished of published records. Singh et al. (1996) stated that the data which are obtained from sources other than the source of primary data is called primary data. On the other hand, Reviere and Rebecca (1996) stated that secondary data are the information from sources which are published, and these were obtained by someone else, for instance, text books, census data, local newspapers, planning documents, websites, directories and photographs. Even though primary data are very powerful and strong methods of gathering information, but I have done my whole research on secondary data such as books and articles related with my research. Moreover, I have obtained all the financial information from the Osiris and the website of Santander bank. I have chosen secondary sources of data because as a student I could not manage sufficient information from the primary sources because of the two constraints. Firstly, the cost of data collection, primary data are much more expensive than secondary data because there need to have a dealing of market involvement where the expenditure of making and carrying out the research might be very high. And as a student it was not possible to afford such amount of expenditure. Secondly, Primary sources of data are much more time consuming than secondary data. Primary sources of information such as interviewing need huge amount of time but we have done our study under tremendous time pressure. We had to study lots of other modules on the same time. Therefore, I found it very appropriate and relevant to finish my project on secondary data. However, as my data is purely based on secondary data, I may have the following limitations.
- Appropriateness is questionable: even though secondary data might provide a researcher with vast amount of information; however, quantity is not synonymous of aptness. The reason for this is that it has been gathered to fulfill the requirement of a different research objectives and questions.
- Absence of appropriate control over the quality of data. Although some official institutions and government can often be a guarantee of quality data, however it is not always happened. Therefore, there is a risk that the collected may contain wrong information as there may not have any accountable person or institution for the misleading information ( Saunders, 2009).
- Another limitation of secondary data is that the accuracy of secondary data is not known, and data may be outdated as well which may also be misleading for a researcher.
Even though secondary data have some inherent limitation, but I have tried to collect information from reliable sources such as company’s annual report. I have also kept in mind that the company may be biased in providing information. Therefore, I have verified my information with some published renowned newspapers, some books and articles.
Analysis and Research
Financial Ratio analysis allows the researcher to make a considerable decision or a considerable opinion about the performance of one company against another. To the basis of this I have included all of the relevant formulas in Appendix 2 and I have also included the calculations of the ratios in Appendix 1 and the research will now set to make general financial assessment how Santander is performing over the HSBC over the past three years.
Profitability ratios determines the organization’s ability to deliver profits where profit very essential for providing funds for investment in the business and giving the investors’ return, they required. Profitability ratios provide many different measures of the favorable outcome of the organization at generating profits. The mostly common ratios for profitability are Profit margin, return on capital employed, return on shareholders’ funds and return on asset.
Gross profit margin demonstrates the gross profit obtained on sales where cost of goods sold is considered but it doesn’t include any other cost. Johnson et al (2011) stated that the only way to increase the profitability of an organization is to maximize the revenue and control costs of operation as much as possible. The performance of Santander in cost control and maximizing revenue is better than HSBC. This is evidenced by the profit margin of both banks. Since 2013 to 2014 Santander has achieved 10.43% increase in gross profit margin and on the other hand HSBC suffered 20.4% reduction during 2012 to 2014. This can be demonstrated by following graph.
1 Expatriate Foundation. (2015). SWOT analysis tool for HR business partners [digital image]. Retrieved from https://expatriatefoundation.org/course/swot-analysis-tool-hr-business-partners-shrm/
2 Nalband and Kelabi (2014). Redesigning Carroll’s CSR pyramid model [digital image]. Retrieved from http://www.joams.com/uploadfile/2014/0217/20140217024434433.pdf
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