Historical Backdrop

We now briefly review international developments for each global bank from a historical perspective. Specifically, our attempt is to shed light on some of the earliest examples of foreign expansion by each institution⁷.

By far the earliest of the three banks to begin international operations was HSBC.

However, an important question remains with respect to how HSBC‘s international should

7 For the sake of clarity, we keep each bank‘s name in unison with all previously mentioned terminology although the actual name of each institution over the course of these developments may have been different.

Assets By Region HSBC Citbank Santander BBVA Standard

Chartered UniCredit Paribas

North America 426,916 0 89,652 63,345 0 0 0

Latin America 126,681 128,074 339,983 168,181 0 0 0

Western Europe 376,971 0 538,373 0 0 825,431 596,243

Emerging Europe 0 21,072 17,933 0 0 186,731 25,822

Asia 704,693 115,925 0 0 209,472 0 0

Middle East & Africa 7,787 0 0 0 0 0 7,934

Total 1,643,048 265,071 985,941 231,526 209,472 1,012,162 629,999

0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000

HSBC Citbank Santander BBVA Standard

Chartered

UniCredit Paribas

Middle East &

Africa Asia

Emerging Europe Western Europe

Latin America

North America

In USD Million, Source: The Banker, 2011

Please note Turkey is included within Emerging Europe, and Puerto Rico within Latin America.

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be defined. HSBC was originally founded as a British bank in Hong Kong. Furthermore, Jones (1990) deemed HSBC a British bank ―on the grounds that its senior management has, from the 1860s to the present day, consisted of United Kingdom citizens, that for long periods of its shareholding was held in the United Kingdom‖ (p. 7). So while on the surface, the question over HSBC‘s ‗nationality‘ have been worthy of discussion, it is probably safe to conclude HSBC has, throughout its long history, been a British bank. To be fair, HSBC officially claimed its domicile in the United Kingdom only in 1991, so we do acknowledge its deep familiarity with Hong Kong. While it may be difficult to argue a bank could have more than one home market, primarily, we treat markets aside from the UK and Hong Kong as foreign markets for HSBC.

HSBC established a number of offices outside of Hong Kong immediately after its founding in 1865. Beginning by establishing offices in Shanghai and then London months later, early on HSBC focused mostly on financing trade (Jones, 1990, p. 138). However, HSBC‘s international acquisitions started in earnest only after the Second World War. In 1955 HSBC created a subsidiary in California, and consolidated two other banks under their control, Mercantile Bank of India and British Bank of The Middle East, in 1959 and 1960 respectively (Jones, 1990, p. 138). Actually, the acquisition of Mercantile Bank of India transferred to HSBC a presence in various Southeast Asian nations while British Bank of The Middle East allowed them a presence in many Middle Eastern countries.

Citibank‘s foreign expansion began slightly later than HSBC. The Federal Reserve Act of 1913 permitted American banking institutions to establish foreign branches, allowing Citibank to begin expanding in the early part of the 20^th century. Initially, Citibank‘s international branch expansion started as the result of a number of domestic customer‘s foreign expansion. Corporations (such as US Steel and DuPont) required financial services in foreign countries, especially South American branches which was where Citibank (then referred to as National City) began opening a number of branches in the mid-1910s (Cleveland & Huertas, 1985). Starting with Argentina, Citibank would later open branches in Brazil (Rio de Janeiro, Sao Paulo, and Bahia), Uruguay, Cuba, and Chile.

Perhaps more interesting was Citibank‘s own admission they did not think foreign

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expansion would be lucrative, but decided to go ahead anyways in order to prevent competitor financial institutions from encroaching on their customer base (Cleveland &

Huertas, 1985, pp. 78-79).

Fortunately, for Citibank, that initial expectation turned out to be wrong. Managing to turn profits, Citibank later acquired The International Banking Corporation, through which they gained a huge foothold in the Asian markets of China, Japan, Singapore, and The Philippines. Later, in 1916 Citibank expanded into Europe, hoping to take the place of German banks that had been active before the First World War. By 1917 Citibank had thirty-five foreign branches, and had the most wide-reaching international presence of any American bank providing services including foreign trade finance, international branch banking for foreign and domestic residents, and foreign exchange trading.

Even as early as the 1910s, Citibank had ambitions to grow its retail segment, and in particular they had wanted to pursue investment and security banking services on the retail level (Cleveland & Huertas, 1985, pp. 85-87). Thus the idea of Citibank expanding its retail banking services internationally is at least a century old. In the 1920s, and years immediately following, Citibank‘s initial foreign expansion however were quite challenging and Citibank actually ―considered closing the bank‘s entire foreign branch system‖, but eventually ―chose to stay abroad, and the decision would set it apart from other U.S. banks for many years to come‖ (Cleveland & Huertas, 1985, p. 121).

Contrastingly Santander‘s history is significantly shorter than the previous two banks. As Guillen and Tschoegl (2008) point out, ―[a]mong banks from countries with a history of colonization, the Spanish banks were latecomers to internationalization‖ (p. 76).

In fact, Santander did not even open its first representative offices in another country until the 1950s, and only after which did it begin international banking operations. Similar to Citibank, preliminary efforts were concentrated in Latin America ―mostly to establish a presence that would enable it [Santander] to serve its domestic customers with their dealings in the region‖ (Guillen & Tschoegl, 2008, p. 77). Though, Santander may have had an eye towards establishing a limited retail banking presence.

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The earliest international forays included establishing representative offices in Cuba in 1951, Mexico in 1956, Venezuela in 1957, Argentina in 1960, and Peru in 1965.

Santander‘s first ever foreign acquisition came in 1963 when it acquired the Argentinean bank, Banco el Hogar Argentino (Guillen & Tschoegl, 2008). Later, in 1967, Santander would acquire two more Argentinean banks, but eventually lost all operations in that country to Peron‘s nationalization of the banking system. In 1966 Santander purchased a subsidiary in Panama, and later established a branch in El Salvador.

The acquisition process continued into the 1970s and the very early 1980s.

Santander made investments towards acquiring a bank in The Dominican Republic in 1976, Banco Condal Dominicano. In 1977, Santander established a subsidiary in Costa Rica and acquired Banco Inmobilario in Guatemala. In 1979, Santander entered Uruguay, Chile, and achieved a 20 percent stake in an Ecuadorian bank. In 1982, Santander purchased an insolvent Chilean bank and later merged it into its preexisting Chilean operations, and later did the same thing in Uruguay. Notably, acquisitions in the Brazilian and Mexican banking systems are missing from this period due to local regulations prohibiting foreign entry in both of Latin America‘s biggest economies.

Perhaps somewhat ironically, Mexico‘s 1982 sovereign default set off a series of divestments by Santander in Latin America. Santander divested from the Domincan Republic in 1985, Ecuador and Guatemala in 1986, closed Salvadorian operations and disposed its Costa Rican subsidiary in 1987, and sold its Panamanian and Argentinean subsidiaries in 1992 (Guillen & Tschoegl, 2008)⁸. In the end, Santander kept just two retail banking operations via banks in Chile and Uruguay. Essentially, Santander‘s internationalization can be broken down into two phases. The first took place from the 1950s until the Latin American debt crisis, which was the impetus for reversing Santander‘s focus on the region. The second wave, occurring in the form much more recent acquisitions (roughly from the mid90s until present), and is coincidentally the period we discuss in more detail below.

8 Though Santander kept a representative office and an investment banking practice in Argentina.

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