By Ian Bickis in Toronto
Royal Bank of Canada has agreed to pay $13.5-billion in cash for HSBC Bank Canada in what is the largest domestic banking deal on record.
The acquisition, at a scale not seen in Canada in decades, would secure RBC's spot as the country's largest bank as it looks to establish itself as the hub for a more globalized clientele.
"It's a unique, once-in-a-generation opportunity to leverage all the investments we've already made in building a world-class retail and commercial bank," said chief executive Dave McKay on an analyst call.
The deal will see it take over about $134 billion in HSBC assets including a significant mortgage book, but RBC sees it more as a way to add to its client base. That includes the commercial side as well as wealthy clients and newcomers.
"That we're bringing in, first and foremost, commercial banking capability, globally connected clients, trade finance and multi-currency accounts, and preferential access to the next generation of clients," said McKay.
The bank expects to achieve cost savings of about $740 million for 2024, or about 55 per cent of HSBC Canada's current expense base, through a combination of integrating technology, closures among the 130 branches, and job cuts.
Neil McLaughlin, group head of personal and commercial banking at RBC, said there will be reductions but the bank does hope to absorb many of the 4,200 current HSBC Canada employees.
"There are obviously places we will not require the same number of FTE (full-time equivalent jobs) to service the combined client base. We have looked at that, and we feel very strongly that the number of open jobs we have across our business, and looking at where those FTE's are, we'll be able to welcome those employees in."
The deal will require approval from the Office of the Superintendent of Financial Institutions, the Competition Bureau, and the Ministry of Finance, but McKay said that as HSBC Canada has a market share of two per cent or less, he doesn't see areas of concern.
"We are not aware of any areas where the bureau is likely to have concern," said McKay. "This is still a relatively small bank by market share."
RBC expects the deal to close by late 2023 subject to closing conditions and regulatory approval.
Global banking giant HSBC Holdings PLC said earlier this year that it was reviewing strategic options for its Canadian subsidiary including the possible sale of the operations.
HSBC Group chief executive Noel Quinn said the bank decided to sell the Canadian business after a thorough review that concluded that there was a material value upside from selling.
"The deal makes strategic sense for both parties, and RBC will take the business to the next level," Quinn said in a statement.
"Our group strategy is unchanged, and closing this transaction will free up additional capital to invest in growing our core businesses and to return to shareholders."
The last time Canada's banking industry saw a deal of this scale was TD Bank Group's acquisition of Canada Trust in 1999 for about $8 billion, which is the equivalent of about $13.1 billion adjusted for inflation.
TD made the deal after the federal government blocked proposed mergers between RBC and Bank of Montreal as well as between TD and CIBC in 1998, which established a convention that mergers between the Big Five banks would not be allowed to go ahead.
This report by The Canadian Press was first published Nov. 29, 2022.
Banner image via The Canadian Press
