Canada’s largest bank is planning to become even bigger with a $13.5-billion offer to purchase the Canadian banking arm of HSBC.
The acquisition would see RBC, with 1,200 branches and $1.8 trillion in assets, acquire HSBC Canada’s 130 branches and $134 billion in assets. HSBC is currently the seventh largest bank in Canada.
On Tuesday, RBC CEO Dave McKay called the deal a “unique and once-in-a-generation opportunity to leverage all the investments we’ve already made in building a world-class retail and commercial bank in Canada.”
In the bank’s announcement, McKay outlined some of the benefits the acquisition would achieve, including “the opportunity to add a complementary business and client base in the market we know best…”
He also said the deal would position RBC as the “bank of choice for commercial clients with international needs, newcomers to Canada and affluent clients who need global banking and wealth management capabilities.“
Deal is still subject to regulatory approvals
The deal is expected to close by the end of 2023, assuming it receives all of the necessary regulatory approvals.
The Office of the Superintendent of Financial Institutions (OSFI), Canada’s banking regulator, will “administer the application process and provide a recommendation to the Minister of Finance,” according to a statement from the Department of Finance.
The Competition Bureau will also review the transaction under the Competition Act.
Under the Bank Act, all acquisitions and amalgamations in Canada’s banking sector are subject to approval by the Minister of Finance, who “must take into account all matters she considers relevant,” the statement continued.
This can include: “the rights and interests of consumers and business customers; the impact of the transaction on the level of competition in the sector; its consequences for the stability and integrity of the financial sector and public confidence in it.”
The Minister also has the authority to “impose any terms and conditions and to require any undertaking that she considers appropriate.”
RBC was a favourite contender for the deal
Ever since HSBC announced in early October that it was “exploring strategic options” for its Canadian subsidiary, analysts identified RBC as a leading contender for any such acquisition.
A report from National Bank of Canada highlighted RBC’s nearly $12 billion of excess capital above a CET 1 ratio of 11% as of the third quarter.
“According to July 2022 balance sheet filings with OSFI, HSBC Canada had just under $5 bln of common equity,” the report noted. “We could easily see a takeout multiple in excess of 2x this figure. On that basis, it is hard to argue against [RBC] as the leading candidate to make this acquisition.”
What it means for HSBC mortgages
On the mortgage side, it’s too early to tell what, if any, implications that deal might have on the broker channel.
Neither RBC nor HSBC Canada participate fully in the broker channel, however for the past two years HSBC Canada has had an exclusive partnership with DLC Group of Companies. The program has made HSBC mortgages available to the company’s network of over 8,000 agents.
HSBC is known for regularly undercutting the big banks when it comes to mortgage rates, with its advertised specials generally about 30 basis points lower compared to RBC’s special-offer rates.