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HSBC sells Canadian business to Royal Bank of Canada

Wednesday 30 November 2022 10:54 CET | News

HSBC Holdings’s subsidiary HSBC Overseas has entered into an agreement to sell its banking business in Canada to Royal Bank of Canada, subject to regulatory and governmental approvals.

 

Royal Bank of Canada (RBC) is set to acquire 100% of the issued common equity of HSBC Canada for a base cash consideration of USD 10.1 billion. Additionally, RBC will acquire all the preferred shares and the outstanding subordinated debt issued by HSBC Canada and held by the HSBC Group for approximately USD 0.8 billion and USD 0.7 billion, respectively. The transaction is expected to complete in late 2023.

 

HSBC Holdings’s subsidiary HSBC Overseas has entered into an agreement to sell its banking business in Canada to Royal Bank of Canada, subject to regulatory and governmental approvals.

 

 

Context and financial impacts of the transaction on the HSBC Group

The sale agreement was preceded by a strategic review of HSBC Canada, which is reportedly considered among the country’s premier international banks with more than 130 branches and over 780,000 retail and commercial customers. The review considered HSBC Canada’s relatively low market share and the Group’s ability to invest in HSBC Canada’s expansion and growth in the context of opportunities in other markets. According to the official press release, the conclusions of the assessment pointed to the fact that the best course of action strategically for the HSBC Group and HSBC Canada was to sell the business. The transaction will unlock significant value for the HSBC Group.

An estimated pre-tax gain for HSBC Group amount to c. USD 5.7 billion. This figure includes the recycling of c. USD 0.6 billion in foreign currency translation reserve losses. The estimated pre-tax profit on the sale is set to be recognised through the consolidation of HSBC Canada’s results into the Company’s financial statements the remaining gain on sale recognised at completion. There would be no tax on the gain recognised at completion.

As a consequence of the gain on sale and the disposal of the HSBC Canada RWAs, the HSBC Group’s CET1 ratio will be enhanced by an additional c. 130 bps over and above our existing capital plans (based on HSBC Group RWAs of USD 828 billion and HSBC Canada RWAs on a PRA basis of USD 31 billion).

What HSBC Canada was worth, at the end of 2021

As at 31 December 2021, the value of the gross assets of HSBC Canada was USD 94.6 billion, including USD 54.2 billion of customer loans balances and the value of the net assets of HSBC Canada was USD 5.4 billion. The business also had customer deposit balance of USD 58.1 billion. HSBC Canada generated USD 1.51 billion and USD 1.77 billion of revenues, incurred USD 0.96 billion and USD 1.04 billion of operating expenses, and recognised a USD 0.24 billion and USD (0.04) billion charge/(release) for expected credit losses, during the financial years ended 31 December 2020, and 2021, respectively. The profit after tax for HSBC Canada for the financial years ended 31 December 2020 and 31 December 2021 was USD 0.23 billion and USD 0.57 billion respectively, converted at the prevailing exchange rates of the respective periods

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Keywords: acquisition, banks, banking, online banking, central bank
Categories: Banking & Fintech
Companies: Bank of Canada, HSBC
Countries: Canada
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Banking & Fintech

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