Royal Bank of Canada HSBC has agreed to pay $13.5 billion in cash for Bank of Canada, the largest domestic banking deal on record.
The acquisition, on a scale not seen in Canada in decades, will secure RBC’s place as the country’s largest bank as it seeks to position itself as a hub for more global customers.
“This is a unique opportunity, a once in a generation opportunity to leverage all the investments we’ve already made in building a world-class retail and commercial bank,” Chief Executive Officer Dave McKay said on an analyst call.
The deal would acquire 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. This includes the business side as well as wealthy clients and newcomers.
“We are bringing, first and foremost, commercial banking efficiencies, globally connected customers, trade finance and multi-currency accounts, and preferential access to the next generation of customers,” McKay said.
The bank expects to achieve cost savings of approximately $740 million for 2024, or approximately 55 per cent of HSBC Canada’s current expense base, through a combination of integrated technology, closures among 130 branches, and job cuts.
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Neil McLaughlin, group head of personal and commercial banking at RBC, said there would be cuts but the bank expects to absorb many of the 4,200 existing HSBC Canada employees.
“There are clearly places where we will not need the same number of FTEs (full-time equivalent jobs) to serve the combined customer base. We’ve looked at that, and we feel very strongly that the more open jobs we have across our business, and given where those FTEs are, we’ll be able to welcome those employees.
The deal would require approval from the Office of the Superintendent of Financial Institutions, the Competition Bureau and the Ministry of Finance, but Mackay said that since HSBC Canada’s market share is two per cent or less, he does not see areas of it. Worry
“We are not aware of any areas where the bureau is likely to be of concern,” McKay said. “It’s still a relatively small bank by market share.”
RBC expects the deal to close by the end of 2023, subject to closing conditions and regulatory approvals.
“For greater clarity, in assessing a transaction, the Finance Minister may take into account such factors as the rights and interests of consumers and business customers; the effect 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 Finance Minister is empowered to impose any terms and conditions and require any undertaking that she considers appropriate,” the Finance Department said in a statement on Tuesday.
Global banking giant HSBC Holdings Plc said earlier this year it was reviewing strategic options for its Canadian subsidiary, including a possible sale of operations.
HSBC Group Chief Executive Officer Noel Quinn said the bank decided to sell the Canadian business after a thorough review concluded there was physical value upside from the sale.
“The deal makes strategic sense for both parties, and will take the RBC business to the next level,” Quinn said in a statement.
“Our Group strategy remains unchanged, and the closing of this transaction will free up additional capital to grow our core businesses and return to shareholders.”
The last time the Canadian banking industry saw a deal of this scale was when TD Bank Group acquired Canada Trust in 1999 for about $8 billion, which is equivalent to about $13.1 billion adjusted for inflation.
TD struck the deal after the federal government blocked proposed mergers between RBC and the Bank of Montreal as well as TD and CIBC in 1998, which established a convention that did not allow mergers between the Big Five banks to proceed. Will go
With files from Global News
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