A customer walks out from an HSBC branch Bank on Spadina Avenue in Toronto, on Nov. 29, 2022.Duane Cole/The Globe and Mail
Ottawa has given the go-ahead to Royal Bank of Canada’s RY-T $13.5-billion takeover of Britain-based HSBC Holdings PLC’s Canadian subsidiary, with the bank agreeing to several commitments to close the deal.
Finance Minister Chrystia Freeland gave the final word on the acquisition Thursday night, and her stamp of approval seals the biggest domestic banking deal on record.
To secure the federal government’s approval, RBC has agreed to a number of terms, including maintaining jobs in the short term and financing affordable-housing projects.
In Canada, HSBC employs about 4,000 people and provides banking services to around 780,000 clients.
“Protecting these jobs, maintaining the services provided to Canadians, and expanding consumers’ access to competitive banking services were central considerations in the government’s decision,” the Department of Finance said in a press release late Thursday.
The federal government required that RBC establish a new global banking hub in Vancouver with more than 1,000 jobs and create about 440 net-new jobs in British Columbia. The bank also agreed to increase the work force at its client operations centre in Winnipeg by 10 per cent, creating 100 new jobs.
The lender must continue to provide banking services at a minimum of 33 HSBC branches, as well as all ATMs in these branches, for four years. It will waive certain fees for HSBC clients, including for transferring mortgages to RBC, international money transfers by non-business clients, and premium accounts for 18 months.
RBC committed to providing $7-billion in financing for affordable-housing construction across Canada, to build about 25,000 new homes. It will also provide additional retail lending support for redeveloping single-family homes into multi-family homes, and maintain Mandarin and Cantonese banking services at HSBC branch locations.
“We have enormous capabilities in the HSBC commercial sales force and the branch sales force and service lines, and therefore making those commitments is good for the customer, good for the franchise and ensuring a smooth transition, so we contemplated that as we spoke with HSBC,” RBC chief executive officer Dave McKay said in an interview.
“As we think about the commitments we made, whether it’s a community donation, an investment in affordable housing or working with HSBC employees, it’s consistent with how we saw making the transition,” he said.
He added that there is typically “significant attrition” in front-line businesses, and that HSBC employees will have the opportunity to explore different career paths at RBC, such as technology, operations and other roles at the hub in Vancouver.
A bank amalgamation at this scale in Canada has not happened in more than two decades since the federal government terminated two major prospective deals in the sector.
Canada’s largest bank struck the deal last November, securing a prize that would bolster its dominance over its competitors by tens of billions of dollars in loans and deposits. HSBC was the seventh-largest bank in the country.
With the acquisition, the nearest competitor to the Big Six banks is now the digital challenger EQ Bank.
HSBC announced plans to sell its Canadian subsidiary in October, 2022, as part of a broader move to divest from certain markets globally, prompting a wave of interest from rival banks.
The Canadian subsidiary has 130 branches and 780,000 retail clients – of which 40 per cent are considered affluent – largely in Vancouver and Toronto. The acquisition also gives RBC the opportunity to expand its international products and services as it competes for commercial clients that operate globally, newcomers to Canada and affluent clients.
The deal received its first approval in September when the Competition Bureau backed the transaction. Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, also had no objections to the transaction and recommended approving the sale, the Department of Finance said Thursday.
In November, the House of Commons finance committee recommended that Ms. Freeland reject the deal, arguing that it would harm affordability and competition in Canada’s banking sector. Each of the six opposition party members on the committee voted to call on the government to block the agreement, while the six Liberals abstained.
“It’s been a year since we proposed the transaction and it has gone through extensive reviews by the Competition Bureau, the regulator, and the Finance Department and the minister,” Mr. McKay said.
“We welcome the approval and we look forward to bringing these two great institutions together.”
HSBC put itself up for sale last year after shuttering its operations in other countries, including Brazil, France and the United States, to reallocate resources to areas where it has greater growth opportunities.
The British bank said in a statement Thursday that it chose RBC as the buyer in part because it had the “capacity to get the transition done in a timely way and minimizing disruption to our clients,” as well as the lender’s interest in how HSBC’s business and talent align strategically with its own.
“The reality is that HSBC Canada only has a market share of around 2 per cent, and we cannot prioritize the investment needed to grow it further,” HSBC CEO Noel Quinn said in a statement Thursday.
“It is therefore in the best interests of HSBC Canada’s customers that the bank becomes part of RBC, which will be able to take it to the next level.”