By Ketki Saxena
Investing.com -- It’s settled: after a bidding process that began in early October and which saw interest from all of the country’s big six banks, HSBC Bank Canada will be acquired by RBC (TSX:RY).
RBC will pay $13.5 billion in cash, a multiple of 9.4 times the 2024 earnings estimated from HSBC Canada.
It is the largest deal ever reached between two domestic banks in the country and would secure RBC’s spot as the country’s largest bank in Canada. HSBC Canada has $134 billion of assets as of Sep. 30, with about 130 branches and 4,200 full-time staff.
RBC will incur acquisition and integration costs of $ 1 billion as a result of the deal. RBC will also purchase HSBC’s preferred shares and subordinated debt for a total of about $2.1 billion. As part of the agreement, all of HSBC Canada’s earnings from June 30 until the deal closes would accrue to RBC.
RBC expects to achieve cost savings of about $740 million pre-tax for 2024, or about 55% of HSBC Canada’s current expense base. The bank expects to achieve these cost savings through a combination of integrating technology, closures among the 130 branches, and job cuts.
“HSBC Canada offers the opportunity to add a complementary business and client base in the market we know best,” said RBC’s chief executive officer, Dave McKay, in a news release. “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.”
Noel Quinn, CEO of HSBC Group noted, “The deal makes strategic sense for both parties, and RBC will take the business to the next level.”
The deal still requires regulatory approval from the Office of the Superintendent of Financial Institutions, the Competition Bureau, as well as the Ministry of Finance. RBC executives remain unconcerned about competition concerns, given HSBC’s Canada’s 2% market share in the country.
“We are not aware of any areas where the bureau is likely to have concerns,” said McKay. “This is still a relatively small bank by market share.”
The banks expect the transaction would close late in 2023.