HSBC Holdings, through its wholly owned subsidiary HSBC Overseas Holdings (UK), has agreed to divest its banking business in Canada to Royal Bank of Canada (RBC).
Under the terms of the agreement, RBC will acquire all the issued common equity of HSBC Canada for a cash consideration of CA$13.5bn ($10.1bn), subject to regulatory approvals.
In addition, the Canadian lender will also purchase all the preferred shares and the outstanding subordinated debt issued by HSBC Canada and held by the HSBC Group for C$1.1bn and C$1.0bn, respectively.
The transaction is expected to complete in late 2023, subject to receipt of regulatory and governmental approvals, and completion of migration steps.
HSBC Group CEO Noel Quinn said: “I am pleased that we have reached an agreement with RBC. The deal makes strategic sense for both parties, and RBC will take the business to the next level.
“We look forward to working closely with RBC’s leadership team to ensure a smooth transition for our clients and colleagues.
“Our Group strategy is unchanged, and closing this transaction will free up additional capital to invest in growing our core businesses and to return to shareholders.”
The agreement follows a strategic review of HSBC Canada, which concluded that selling the business would be the best action.
HSBC Canada is one of the premier global banks with more than 130 branches and around 780,000 retail and commercial customers, and $134bn in assets as of 30 September 2022.
HSBC said that its Board of Directors believes the transaction are fair and reasonable, and is in the interests of shareholders.
According to RBC, the combination of HSBC Canada’s products with its capabilities will help clients meet their financial goals, build their wealth, and grow their businesses.
The acquisition will have an Internal Rate of Return of 14% and a marginal return on tangible common equity of 27%, with RBC’s CET1 ratio expected to increase beyond 11.5%.
RBC personal and commercial banking head Neil McLaughlin said: “This acquisition builds on our core domestic retail business and expands our international product capabilities.
“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.”
