HSBC to sell its Canadian business to RBC for CA$13.5bn in cash
HSBC Holdings plc announces its wholly owned subsidiary, HSBC Overseas Holdings (UK) Limited, has today entered into an agreement to sell its banking business in Canada to Royal Bank of Canada (RBC), subject to regulatory and governmental approvals.
RBC will acquire 100% of the issued common equity of HSBC Canada for a base cash consideration of CA$13.5 billion (US$10.1bn). In addition, 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 deal is expected to complete in late 2023.
Financial impacts of the Transaction on the HSBC Group (consolidated basis) are currently expected to be (based on financials as at 30 September 2022):
- An estimated pre-tax gain for the Company of c.US$5.7 billion, inclusive of the recycling of c.US$0.6bn in foreign currency translation reserve losses. The estimated pre-tax profit on the sale will be recognised through a combination of the consolidation of HSBC Canada’s results into the Company’s financial statements (between the 30 June 2022 net asset reference date and until completion), and the remaining gain on sale recognised at completion. There would be no tax on the gain recognised at completion.
- As a consequence of the gain on sale and the disposal of the HSBC Canada RWAs, the HSBC Group’s CET1 ratio will be enhanced by an additional c.130 bps over and above our existing capital plans (based on HSBC Group RWAs of US$828bn and HSBC Canada RWAs on a PRA basis of US$31bn).
The sale agreement follows a strategic review of HSBC Canada, which is among Canada’s premier international banks with more than 130 branches and over 780,000 retail and commercial customers. The review considered HSBC Canada’s relatively low market share and the Group’s ability to invest in HSBC Canada’s expansion and growth in the context of opportunities in other markets, and concluded that the best course of action strategically for the HSBC Group and HSBC Canada was to sell the business. The transaction will unlock significant value for the HSBC Group.
Noel Quinn, CEO of HSBC Group, commented:
“HSBC Canada is a high performing and profitable bank, with strong leadership and exceptional people. I am grateful to the whole team for their hard work in supporting our clients over many years. We decided to sell following a thorough review of the business, which assessed its relative market position within the Canadian market and its strategic fit within the HSBC portfolio, and concluded that there was a material value upside from selling the business.
“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.”