HSBC sells $10 billion Canadian business to RBC, gets big dividend

  • Deal comes amid pressure from Chinese shareholders
  • Analysts hail ‘smart’ deal
  • Banks can return deal proceeds to shareholders

LONDON/TORONTO, Nov 29 (Reuters) – HSBC (HSBA.L) has agreed to sell its Canadian business to Royal Bank of Canada (RY.TO) for C$13.5 billion ($10 billion) in cash. ), which may bring substantial returns to shareholders in the future.

HSBC, which once billed itself as the world’s local bank and built a global retail banking network, has been cutting those businesses in recent years to try to boost profits.

The deal will help RBC strengthen its lead in one of the world’s most concentrated banking markets, where the top six lenders control about 80 percent of outstanding loans. RBC’s purchase price is 30 percent higher than what some analysts believe HSBC’s Canadian operations are worth.

The HSBC disposal has accelerated under pressure from its largest shareholder, Ping An Insurance Group, which has urged the bank to spin off its Asian operations to boost returns.

“Our decision to sell follows a comprehensive review of the business, assessing its relative market position in the Canadian market and its strategic fit within the HSBC portfolio,” said chief executive Noel Quinn.

HSBC said that after the transaction is completed, it may return part of the sale proceeds to shareholders through a one-time dividend or buyback from early 2024, and the bank is expected to receive a pre-tax gain of US$5.7 billion.

HSBC shares rose 4% after the announcement, while the benchmark FTSE 100 index (.FTSE) rose 0.7%. RBC shares fell as much as 1.6 percent in Toronto opening trade.

General market

Joe Dickerson, an analyst at Jefferies in London, said the big payout could go some way to placating shareholders angered by British regulators’ proposal to cut HSBC’s dividend in 2020.

“The deal looks very smart. Essentially, the business is worth more to RBC than to HSBC and the price reflects that,” said Ian Gordon, banking analyst at Investec.

The deal also repairs HSBC’s unusually weak capital position relative to its peers, Gordon said.

The acquisition will enable RBC to capture additional market share in its home market, adding 130 branches and more than 780,000 retail and business customers. If successful, it would be Canada’s first major banking merger in a decade.

HSBC said in October it was considering selling its Canadian unit as it looks to boost returns under pressure from Ping An.

Analysts have previously said further consolidation in Canada’s banking market would draw scrutiny from antitrust regulators.

Carl De Souza, senior vice president and head of Canadian banking at DBRS Morningstar North America FIG, told Reuters the big question about the deal is “how does regulatory approval look from a competition standpoint.”

“They may have to divest certain businesses as part of regulatory approval,” he added.

HSBC, Canada’s seventh-largest bank with assets of C$125 billion, posted a pre-tax profit of C$490 million as of June 30, according to its latest financial results. Analysts value HSBC’s Canadian business at between C$8 billion and C$10 billion.

HSBC hired JPMorgan Chase & Co (JPM.N) to advise on the sale, Reuters previously reported.

($1 = 1.3444 CAD)

Reporting by Iain Withers and Lawrence White in London and Pushkala Aripaka in Bengaluru; Editing by Sinead Cruise, Jane Merriman and Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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