HSBC has agreed to sell its Canadian business to Royal Bank of Canada for $10bn, as the lender scales back its global network outside Asia amid pressure from its largest investor to break up.
Shares in HSBC climbed almost 5 per cent on the news of the deal, with the bank saying it may return some proceeds to investors.
The transaction hands RBC 130 branches and more than 780,000 retail and commercial customers. The deal, if approved by regulators, would bolster the position of RBC, which is already Canada’s largest lender by assets.
“Following a thorough review of the business, which assessed its relative position within the Canadian market and its strategic fit within the HSBC portfolio, [we] concluded that there was a material value upside from selling the business,” said HSBC chief executive Noel Quinn. “The deal makes strategic sense for both parties.”
Quinn and chair Mark Tucker are facing sustained pressure from HSBC’s largest shareholder, Chinese insurer Ping An, to split its Asian and western operations. Ping An has been critical of years of poor performance, persistently high costs and a flagging share price, arguing that the bank can no longer effectively operate straddling east and west in an era of tense US-China geopolitics.
The Canada sale follows similar exits of lossmaking consumer operations in France and the US. HSBC took a $3bn hit when it sold its French retail network to Cerberus for €1 last year.
The transaction is expected to be completed in late 2023 and the board plans to “proactively” consider how much surplus capital created through this transaction will be returned to investors via a one-off dividend, share buybacks or a combination of the two.
“This transaction is a clear positive for HSBC,” said Jefferies analyst Joseph Dickerson. “The company will recycle the related gains back to shareholders. The related shareholder repatriation may serve to appease those investors still frustrated that dividends were curtailed in early 2020.”
During the early phase of the Covid-19 pandemic, regulators in the UK and EU banned banks from paying dividends to conserve capital. This infuriated HSBC’s Asian shareholders — from small individual holders to Ping An itself — which had come to rely on the regular payments for income.
HSBC has since restored a dividend, but at a much lower level.
RBC’s acquisition of the business, which was the sixth-biggest bank in the country with assets of C$134bn — marks the first big domestic deal in Canada in a decade.
RBC chief executive Dave McKay said the transaction “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”.
Because of competition concerns in Canada’s highly concentrated banking market, most lenders have preferred expansion in the US. Last year BNP Paribas agreed to sell its San Francisco-based Bank of the West to Bank of Montreal for $16.3bn.