HSBC Holdings’ wholly-owned subsidiary, HSBC Overseas Holdings (UK) Limited, entered into an agreement to sell its banking business in Canada (HSBC 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 C$13.5 billion ($10.1 billion). 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 C$1.1 billion ($800 million) and C$1 billion ($700 million), respectively. The transaction is expected to be completed in late 2023.
Financial impacts of the transaction on the HSBC Group (consolidated basis) are currently expected to be (based on financials as at Sept. 30):
- An estimated pre-tax gain for the company of $5.7 billion inclusive of the recycling of $600 million in foreign currency translation reserve losses. The estimated pre-tax profit on the sale will be recognized through a combination of the consolidation of HSBC Canada’s results into the company’s financial statements (between the June 30 net asset reference date and until completion) and the remaining gain on sale recognized at completion. There would be no tax on the gain recognized 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 130 basis points over and above its existing capital plans (based on HSBC Group RWAs of $828 billion and HSBC Canada RWAs on a PRA basis of $31 billion).
“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,” Noel Quinn, CEO of HSBC Group, 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.”