Canada’s largest bank, Royal Bank of Canada (RBC), has entered into an agreement to acquire HSBC Bank Canada (“HSBC Canada”), a premier personal and commercial bank focused on globally connected clients.

Under the terms of the purchase, RBC will acquire 100% of the common shares of HSBC Canada for an all-cash purchase price of C$13.5bn ($10.1bn). All of HSBC Canada’s earnings from June 30, 2022 up to acquiring will also fall to RBC.

“HSBC Canada offers the opportunity to add a complementary business and client base in the market we know best and where we can deliver strong returns and client value given our financial strength and award-winning service,” said Dave McKay, President & CEO, RBC.

“This also positions us as the bank of choice for commercial clients with international needs, newcomers to Canada and affluent clients who need global banking and wealth management capabilities. It will help us better serve global clients looking to invest and grow in Canada”, McKay added.

Expanding international products

By acquiring HSBC Canada, RBC expects to achieve about C$740m ($549m), or 55%, in fully realized annual pre-tax expense synergies based on HSBC Canada’s estimated 2024 non-interest expense base, and incur total acquisition and integration costs of approximately C$1bn ($742,4m).

“This acquisition builds on our core domestic retail business and expands our international product capabilities,” said Neil McLaughlin, Group Head, Personal & Commercial Banking, RBC. “We look forward to welcoming HSBC Canada’s talented employees after the transaction closes and supporting them as they continue to serve their clients. With strong cultural and risk alignment and a shared focus on client service, we can build together on HSBC Canada’s leading international products.”

Commenting on the purchase Gabriel Dechaine, analyst at National Bank of Canada, thought the purchase price was about 30 % higher than his team expected.

“The transaction is, of course, subject to regulatory approvals,” Dechaine said in a note on November 29. “A big question facing (RBC)’s pursuit of HSBC Canada is feedback from the Competition Bureau. We estimate (RBC) will be increasing its current 21% domestic market share in loans and deposits by about 200 (basis points) each.”

And John Aiken, senior analyst and head of research at Barclays Bank PLC, called the deal a “once in a generation acquisition in Canadian retail banking” regarding its coming significance to RBC’s earnings and profitability.

C$134bn in assets

As of September 30, 2022, HSBC Canada had C$134bn ($99.5bn) in assets, approximately 130 branches and 4,200 full-time equivalent employees. Its banking segment held up to about 2% of Canadian deposits and mortgages.

RBC employs over 92,000 full-time and part-time employees globally, including almost 65,000 full-time equivalent in Canada.

Linda Seymour, president and chief executive officer at HSBC Canada, said in a LinkedIn post: “For now, there is no change. Our clients will continue to receive the products and services that they have come to rely on. All terms of their agreements stay the same and there is no change to how we will provide service.”

The deal is expected to close by late 2023 if the regulators give the transaction the green light.