Royal Bank of Canada has agreed to buy the Canadian arm of multinational bank HSBC for $13.5 billion in cash.
The deal will see RBC take over about $134 billion in HSBC assets including a significant mortgage book.
The acquisition is at a scale not seen in Canada in decades.
The decision taken by HSBC to quit the Canadian market is the biggest developing in the banking sector of the country since 2012 when ING solid its operations to bank of Nova Scotia for $2.2 billion. It is also the latest attempt by HSBC to cutting down on their retail banking businesses to increase profit.
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.
RBC is the country’s largest bank and looks to establish itself as the hub for a more globalized clientele. That includes the commercial side as well as wealthy clients and newcomers.
HSBC Canada was a profitable bank and has a healthy mix of commercial and affluent wealth clients, all of which are generally complementary to RBC’s capabilities and will help the bank gain additional share. However, the “globally connected” nature of HSBC’s clients and the fact that these clients had chosen HSBC in the first place make us wonder if there is not some retention risk as RBC takes over. Managing this retention risk will be key, in our view. RBC highlighted the ability to use some of HSBC’s technology and products to add more global capabilities to the existing RBC product pool, along with a partnership with HSBC Global, however, we see retention and execution risks nonetheless.