Royal Bank of Canada has agreed to buy the Canadian arm of the mutational bank HSBC for $13.5 billion in cash.
RBC chief executive Dave McKay said the deal provides an opportunity to add a complementary business and client base.
“This also positions us as the bank of choice for business clients with international needs, newcomers to Canada and affluent clients who need global banking and wealth management capabilities,” McKay said in a statement Tuesday.
“It will help us better serve global clients looking to invest and grow in Canada.”
130 offices in Canada
“The deal makes strategic sense for both parties and RBC will take the business to the next level,” HSBC Group Chief Executive Noel Quinn said in a statement.
“Our group strategy has not changed, and closing this transaction will free up additional capital to invest in the growth of our core businesses and return to shareholders.”
The Canadian arm of British-based HSBC has been put up for sale this year as the parent company has faced pressure from its main shareholder, China’s Ping An Insurance Group, to increase yields.
At more than $13 billion, the price makes the deal the most expensive ever for a Canadian bank to buy another Canadian bank, although the so-called Big Five routinely spend more than that on foreign acquisitions.
HSBC has had operations in Canada since 1981 and currently has approximately 130 branches, 4,200 employees, serving approximately 780,000 customers in Canada.
According to its most recent quarterly report, HSBC Canada had assets worth $125 billion at the end of June and posted operating income of more than $1.1 billion in the first half of this year. HSBC holds about two percent of all bank deposits and mortgages in Canada.
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Carl De Souza, an analyst at ratings agency DBRS Morningstar, says one of HSBC’s main attractions for Royal Bank is that the brand is so well-known around the world. With Canada’s immigration targets set to increase in the coming years, this gives RBC a head start on all these new clients.
“The proposed acquisition gives the bank the opportunity to be the bank of choice for newcomers and business customers with international needs,” he said in an interview. “They see a huge opportunity for newcomers.”
The deal is expected to close next year, pending regulatory and shareholder approval.
Because of the size of the merger, it needs approval from numerous government agencies, including the Competition Bureau, the Office of the Superintendent of Financial Institutions and the Department of Finance.
“In assessing a transaction, the Minister of Finance may take into account factors such as the rights and interests of consumers and business customers; the impact of the transaction on the level of competition in the sector; its consequences for the stability and transaction integrity. financial sector and public confidence in it,” the department said in a statement.