RBC faces challenge retaining HSBC Canada business clients before takeover deal closes

Open this photo in gallery:

Rival banks are targeting HSBC Bank Canada’s talent and corporate clients as the country’s seventh-largest lender begins an anticipated year-long wait for approval of a takeover by Royal Bank of Canada RY-T.

All six major domestic banks got a look at HSBC Canada’s operations during a two-month sales process that ended Tuesday with RBC’s announcement of a $13.5-billion acquisition. Headhunters and executives at rival lenders say the five banks that missed out on the big win are now fighting for a consolation prize, in the form of HSBC Canada employees and client relationships.

“We know that there were other financial institutions – not limited to the Big Six banks – who were looking at both the clients as well as the talent at HSBC Canada,” said Adam Dean, founder of recruiting and leadership advisory firm Dean Executive Search. ”That list of potential suitors is extensive and broad, and it’s nationwide.”

RBC paid a premium price for the Canadian arm of HSBC Holdings PLC because the division earns dependable profits – $717-million in net income last year – on the back of relatively affluent individual clients, along with its ability to link corporate Canada to HSBC’s global network.

RBC deal for HSBC Canada faces high regulatory, political hurdles

RBC-HSBC banking merger is a slide to monopoly – Canada should just say no

When it comes to retail operations, RBC head of personal and commercial banking Neil McLaughlin said the sales process revealed that HSBC Canada’s mortgage holders tend to be wealthier than RBC’s clients. He said RBC also found out 90 per cent of HSBC Canada’s customer relationship managers have been with the bank for five years or more, building deep ties with the bank’s 770,000 clients.

In capital markets, HSBC Canada ranks among the top dozen domestic players in commercial lending and debt capital markets, and the top 20 advisers on mergers and acquisitions, according to data service Refinitiv. This year, the bank advised on major transactions for public-sector pension plan PSP Investments, the Quebec government, insurer Sun Life Financial Inc. and engineering firm WSP Global Inc.

RBC places at or near the top of any ranking of Canadian banks, a cachet that some experts predict will entice many HSBC Canada employees and customers to wait patiently for the takeover to close. The two banks are also expected to roll out retention plans. Mr. Dean said: “Moving to RBC is a clear upgrade for anybody on the HSBC platform … I think RBC will be quite successful in retaining broad swaths of talent.”

However, that won’t stop rivals from using the insecurities that come with a takeover to try poaching from HSBC Canada. The most vulnerable employees and clients will likely be those who are with HSBC Canada because of its strong links to Asian and European markets. Mr. Dean said HSBC bankers in specialized finance roles will want to be assured they have similar responsibilities and compensation at RBC.

Rival banks are expected to lure HSBC Canada employees with signing bonuses, and land corporate clients by reducing fees and cutting interest rates on loans. One investment banker, whose employer bid on HSBC Canada, said his division calculates it can spend roughly $15-million to win over HSBC Canada employees and corporate customers and anticipates earning an additional $70-million of annual profit.

RBC started an charm offensive with HSBC Canada clients and employees the moment it announced the takeover. For retail customers, RBC chief executive Dave McKay talked up the bank’s loyalty programs, its vast ATM and branch network, and its global reach. For employees, he highlighted that RBC consistently ranks among the country’s best workplaces, and tried to allay layoff concerns by saying: “We have close to 6,000 open roles at RBC right now. So this is actually a talent acquisition opportunity for us.”

When it comes to corporate clients, RBC spokesperson Jeff Lanthier said: “Our ambition is to be the bank of choice for commercial clients with international needs.”

Consultants say one key to retaining talent in takeovers to move quickly to name new executive teams that include management from the bank that is being acquired. In a recent report on U.S. financial service mergers, consulting firm McKinsey said it is critical to give the target bank’s ”leaders a meaningful role in the new organization and secure their commitment to retain talent and engagement.”