🤝 Someone Just Bought HSBC Canada

This is The Level Ups. Modern business news for the future business leader (in plain-Jane English).

Today:

• HSBC Canada is sold (see who bought it below).

• Full breakdown.

• What’s next? For you and your business.

Let’s get into it.

Estimated reading time: 2 minutes & 45 seconds.

RBC Is The Buyer:

Six weeks ago, I covered how HSBC Canada was up for sale.

This is one of those moments when I have to eat my words. I thought it wouldn’t go through, and it did. But, I was also clear that the only way it could go through was if another major bank bought it (which happened).

First, it’s important to note that the deal’s not “done” yet. Because it’s such a big sale, government bodies have to finalize the transaction.

The Competition Bureau, the Office of the Superintendent of Financial Institutions and the Department of Finance will be looking at the deal.

The deal comes after immense pressure on the British bank from its largest shareholder, Chinese insurance company Ping An.

The Breakdown:

So, let’s break down the deal and why it’s interesting.

Starting with HSBC:

• It’s currently the 7th largest bank in Canada by assets.

• Most of their operations are in British Columbia after purchasing the Bank of British Columbia in 1986.

• Leader in banking for Canadian immigrants with its newcomer program.

• According to last year's annual report, Canada accounted for about 4% of HSBC’s pretax profit and 3% of its global customer accounts.

• Canada is the third largest contributor to commercial banking profits ($490M last year).

• Comes with 130 branches and 4,200 full-time employees.

The sale price? $13.5B.

To be clear, that price tag is very high. Bloomberg calls it “jarring,” and for good reason.

RBC is trying to tell its investors to focus on the Profits/Earnings numbers, which make the sale 9.5x earnings, but I’m not convinced.

Why? Because of the most interesting part of this sale.

It’s an all-cash deal. That’s right, RBC had $13.5B in cash to spend. Sounds like they’re making a lot of money off us, aren’t they?

HSBC just got the best deal they could have ever hoped for.

What’s Next?

Some things may change if the deal passes the review (which it might not).

It’s too soon to tell, but I’ll throw out a few safe bets.

• RBC has to make that money back. Expect more aggressive lending. Not sure how they’ll do it with the recession, but something’s coming.

• They will ramp up the newcomer program. It’s one of the more appealing aspects of HSBC Canada (Canada has huge immigration targets). Much of this transition is a bet on immigration.

• I feel like a warning is in order. It’s possible that RBC will look to ramp up digital banking with this move (meaning fewer tellers and active branches).

HSBC is also known for aggressively giving out loans. It’s too soon to tell if that will change (RBC is not as aggressive).

But if it does, many HSBC customers may face very different terms on mortgages and other products.

If you’re an HSBC customer, take note. It could go either way. Perhaps they’re desperate to make that money back, and you’ll get a better deal, or they’ll tighten up. Can’t hurt to keep your options open.

But don't rush. The deal will take at least a year to go through.

What Else?

Whoever did this deal at JP Morgan completed the largest banking deal in Canadian history.

It’s also the best deal their client (HSBC) could have ever hoped for.

Other Chinese companies in a difficult position with the situation in the Chinese economy could look at this and see an opportunity to sell. It’s not like HSBC’s desperation hurt them in any way, given the sale price.

Lastly, while we’re in a recession, the big players clearly aren’t scared to make big moves.

This is big news for Canadian banking. Hope you liked the breakdown.

Thanks for reading!

Darwin