HSBC is presently focusing on its resources in core markets amidst pressure from Ping An Insurance Group to improve its performance
HSBC is to sell its Canadian business to the Royal Bank of Canada for $10.04 billion ($13.5 Canadian Dollars) in cash and expects a potential bumper payout for the shareholders in the coming days. The London-based bank is presently focusing on its resources in core markets amidst pressure from Ping An Insurance Group to improve its performance. The firm had built a global network of retail banking businesses and promoted itself as the world’s local bank has been cutting bids in recent years to improve the firm’s profits.
Chinese insurance company Ping An Insurance Group has been pushing the London-based bank to split off its Asian business to increase returns. Noel Quinn, Chief Executive stated that the company took the decision to put it up for sale following a review of the business. The company has evaluated its relative market position within the Canadian market and “its strategic fit within the HSBC portfolio”. The London-based bank said in October it was planning the sale of the Canadian unit as it looks to build up returns following pressure from Ping An, reports Reuter.
The transaction is expected to be completed by late 2023 and under the terms of the agreement, RBC will acquire 100% of the common shares of HSBC for an all-cash purchase. The British bank accounts for 2% of Canadian deposits and mortgages. The official statement released by the British Bank stated that RBC will acquire all the preferred shares and the outstanding subordinated debt issued by HSBC Canada and held by the HSBC Group for approximately CA$1.1bn (US$0.8bn) and CA$1.0bn (US$0.7bn), respectively.
The financial institution also said that it may return some of the proceeds for sale, expecting to receive a $5.7 billion pre-tax gain, to shareholders through a one-off dividend or buyback after the deal has closed. HSBC shares have increased up to 4% after the announcement marking the highest gain since November 7.
RBC expects to achieve approximately $740 million, 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 $1 billion. RBC will purchase all of the existing preferred shares and subordinated debt of HSBC Canada held directly or indirectly by HSBC Holdings plc at par value, according to the statement released by Royal Bank of Canada.
The purchase will be beneficial for RBC to have more shares in its home market. With the acquisition of HSBC, RCB will be able to add more than 750,000 commercial and retail customers in addition to including 130 branches. The sale of the financial institution to RBC might invite criticisms from Canada’s antitrust agency as Canada’s banking market is tight. The country’s top six lenders control around 80% of its total assets, reports Reuters.
HSBC is Canada’s seventh biggest bank with assets of around C$120 billion, and it gained C$480 million before tax as of June 30, based on its latest financial results. Experts had valued HSBC’s Canada business in the range of C$8 billion to C$10 billion.