RBC to Acquire HSBC Bank Canada

Only a month after HSBC had first announced that it was considering the sale of its Canadian division, RBC has entered into an agreement to buy HSBC Bank Canada for a staggering $13.5 billion (CAD).

RBC to Buy HSBC Canada for $13.5 Billion

Despite being a global bank, HSBC has been exiting many markets recently, and Canada is set to become the next on that list. Unlike in some markets, HSBC Bank Canada has been overwhelmingly profitable, having earned some $717,000,000 (CAD) in net income in 2021.

As for the reason for HSBC Bank Canada’s sale, it’s largely believed to be due to pressure from HSBC’s largest shareholder, Ping An. Ping An has publicly announced its wishes for HSBC to focus more on its operations in Asia and to move farther away from its operations in Western countries.

Despite being headquartered in London, HSBC makes two-thirds of its income in Hong Kong and the rest of Asia, and frosty political relations are believed to have put HSBC’s global operations in a troublesome spot.

Indeed, as a whole, HSBC appears to be cutting costs and shirking their international presence, given their recent sales in France, the United States, and Greece.

Early rumours had quoted HSBC Bank Canada’s sale at around $9 billion, and potentially less given the uncertainty over federal competition concerns and the limited potential to recoup the acquisition price through cost-cutting. 

Throughout the last month, RBC was seen as an early favourite to purchase HSBC Bank Canada, given their large cash reserves compared to Canada’s other banks. For example, TD is already spending $14.7 billion (USD) to acquire two American institutions, and BMO is spending $16.3 billion (USD) to purchase California-based Bank of the West. 

As for the Big 5 Canadian banks, Scotiabank has the lowest capital ratio, which limits its cash reserves, and CIBC is looking to grow internationally more than domestically at the moment. National Bank would be a potential fit to increase their presence outside of Quebec, but they likely don’t have enough cash to purchase HSBC Bank Canada, and could only do so by teaming up with other partners.

Therefore, it comes as no surprise that RBC has struck the deal to acquire HSBC Bank Canada for a whopping $13.5 billion, representing 9.4 times HSBC Bank Canada’s projected 2024 net earnings. As part…