On March 28 of 2024, HSBC holdings announced that they had completed the sale of their Canadian branch HSBC Bank Canada to RBC (Royal Bank of Canada).
This particular sale was one of the most monumental in the history of both branches, resulting in a predicted increase in revenue of as much as $4.9 billion in the first quarter of 2024.
The deal was a long-time in the making, dating back to November 2022. HSBC said in a statement that ‘the sale followed a strategic review which evaluated the company’s low Canadian market share and its ability to invest in HSBC Canada’s growth and expansion in other markets’.
The acquisition, which cost $13.5 billion, marked the end of HSBC Canada as a stand-alone entity, while also ushering in a new era of banking with a noticeable shift within Canada’s financial sector.
But now that the dust has settled upon the sale, what exactly does this monumental purchase mean for RBC, the banking sector, and the economy in general?
Who is RBC?
RBC, or the Royal Bank of Canada, are one the largest banks in Canada, as well as being one of the largest in the world based upon market capitalization.
The bank has been recognized as one of the most lucrative and successful in the country, having scooped numerous awards, including ‘Retail Banker of the Year’ from the RBI (Retail Banker International).
Due the bank’s vast size, it employs close to 100,000 people across the nation, who serve close to 20 million clients across Canada, the US, and the rest of the world as well.
The bank, which has its HQ in Toronto and head office in Montreal, is close to two centuries old, having been founded way back in 1864 in Halifax, Nova Scotia. Initially the bank was known as the ‘Merchant’s Bank of Halifax’ and would finance the Caribbean Import/Export businesses, along with the fishing and timber industries.
In 1901, to reflect the bank’s expansion into the west, and its growth and clientele, the bank was officially renamed to the Royal Bank of Canada (RBC).
Who is HSBC?
HSBC is a UK-based bank which was founded in 1865 following Hong Kong in China, being established as a Crown Colony. In 1991 HSBC Holdings PLC was established in London which is currently the present parent legal entity.
HSBC stands for the Hongkong and Shanghai Banking Corporation and has its HQ in London, England. The company is a British universal bank and financial services group and by total assets, is the largest Europe-based organization of its kind.
RBC Acquires HSBC Bank Canada
Earlier in the first quarter of 2024, HSBC Bank Canada was acquired by RBC for a reported $13.5 billion.
On Monday April 1, 2024, HSBC Canada branches reopened as RBC banks. Despite the date, this was no April Fool’s prank. In fact, quite the opposite. The merger was the largest in the history of RBC and came about despite strong opposition from environmental groups, anti-monopoly groups, and strong conservative opposition concerned with the potential for higher fees for existing HSBC customers.
The sale, described as a ‘once-in-a-generation opportunity’ came about as a way of providing Canadian citizens with an enhanced banking experience, while simultaneously strengthening communities and providing better value for clients.
The sale resulted in an estimated gain of $4.9 billion in the first quarter of 2024, while also boosting RBC’s position on the global stage.
The acquisition was particularly noteworthy for being the largest of its kind. In fact, the last time such a merger was attempted was in the early parts of the 1990s, when RBC attempted to acquire the Bank of Montreal (BMO). Ultimately, that bid was blocked by regulators, which makes their purchase of HSBC three decades later all the more impressive.
RBC Commitments
Back in December 2023, as part of the acquisition, RBC announced a number of commitments to Canadians and investments across the nation, particularly in British Columbia as that is where the majority of HSBC Canada employees were residing.
A few of these commitments include:
- Increasing their Canadian Workforce across a multitude of different sectors
- Donating 1% of Canadian net income before tax each year
- Increasing their client operations and advice center teams
- Committing $5 million over the course of five years in support of Manitoba’s agricultural and agri-processing sector
- Providing HSBC Canada clients with access to the largest network of ATMs and branches in Canada
What This Means for the Economy
When Canada’s largest bank (RBC) purchased Canada’s 7th largest bank (HSBC Canada) a lot of questions were raised surrounding the economic impacts of this acquisition.
First and foremost, this was considered to be a solid purchase on the part of RBC due in part to the new clientele they would obtain. The average HSBC client was slightly wealthier than the average RBC client. Obviously, this was promising for RBC.
Furthermore, with the acquisition, RBC were able to cut out around 50 – 55% of expected expense base.
As far as RBC stock is concerned, business analysts and financial experts have the stock valued fairly. Despite a brief dip following the merger, the stock has steadily risen and is currently trading just shy of its all-time high, as of August 2024. This tells you that the transition has been fairly smooth, with minimal impact to the stock.
Just before the deal was closed, there was concern that the merger would result in higher banking fees for customers who used to bank with HSBC. HSBC had a reputation for offering competitive mortgage rates. They would often give customers some flexibility when it came to competitive rates, helping them to retain more custom. The main concern was that, due to less competition, RBC would not be able to be as flexible when it came to mortgage rates, especially in the wake of rising interest rates to curb inflation.
One potential benefit is the fact that the merger means more branches across B.C. Before the merger, RBC had 170 in B.C. Afterwards, that number increased to 199. That number is gradually decreasing, with plans to reduce that figure to 180. Even so, that’s an additional 10 branches available to clients in B.C alone. The main concern is that some HSBC branches located close to RBC branches will be at the highest risk of closure, for obvious reasons.
One of RBC’s commitments was to provide $7 billion in financing for the construction of affordable housing across the nation. Alternatively, they would provide enough capital in order to allow developers to construct 25,000 new homes across the region. Of that capital, around $2 billion will be allotted to developers across B.C.
A slightly negative aspect, especially for former HSBC customers is that, despite two banks essentially becoming one, customers will have fewer currency options in terms of checking and savings accounts.
