RBC gets the all-clear to swallow up HSBC

RBC is getting some last-minute, $13.5 billion shopping wrapped up before the holidays.

What happened: After a year of a regulatory kerfuffle surrounding the biggest proposed bank merger in Canadian history, RBC finally received the go-ahead from the federal government to acquire HSBC’s Canadian operations. 

  • RBC had previously said it expected to cut HSBC’s costs by 55%, likely including layoffs, cutting services and closing branches in areas with too many locations.
  • To move forward with the deal, RBC will have to create over 1,100 jobs across Canada and keep 33 of HSBC’s 130 branches open for at least four years.

Zoom out: RBC will also have to finance building ~25,000 affordable homes for $7 billion, as well as offer more lending for people turning single-family homes into multifamily buildings.

Catch-up: The Big Six banks were all interested when HSBC announced it would exit the Canadian market, but RBC offered the most capital to scoop up HSBC’s enticing client base of affluent newcomers — and its profitable commercial and mortgage lending businesses.

  • The Competition Bureau approved the deal last month, but the House of Commons finance committee suggested less competition could lead to higher banking costs. 

Why it matters: RBC is already Canada’s biggest bank, but the deal extends its lead even further — HSBC held $134 billion in loans and deposits when the deal was struck. With less competitive pressure, RBC will have more power to raise fees and the costs of its services.

Zoom out: Roughly 4% of newcomers to Canada bank with HSBC, and it’s among the top choices for those from China. Given that Canada plans to welcome 485,000 immigrants next year alone and that Canadians rarely switch banks, aiming for that business is a quicker path to new clients.—JK