National Bank of Canada is buying HSBC Bank Canada's retail brokerage, confirming reports last week that the two were in the final stages of negotiations.
National Bank will pay $206-million in cash to HSBC in exchange for a business that has $14.2-billion in assets under administration and 120 investment advisers.
Seventy per cent of HSBC’s retail business is also centred in Ontario and British Columbia, which is a key factor in National Bank’s purchase. The Big Six bank is based in Quebec and has had difficulty gaining traction outside of its home province, which is something chief executive officer Louis Vachon touched on in the announcement.
"Through this acquisition, we are reaffirming our commitment to grow our wealth management distribution network across Canada,” he said. “HSBC Securities Full Service Investment Advisory Business, with particular strength outside of Quebec, complements well our existing network.”
The deal with HSBC comes on the heels of National Bank’s purchase of Wellington West Holdings Inc., which had a large retail brokerage. Wellington West was headquartered in Winnipeg.
To win the HSBC unit, National Bank Financial had to bid against Richardson GMP, which was the only other firm invited to bid.
The news that HSBC was looking to sell its retail brokerage was first reported in August, and the bank confirmed the sale process in a formal statement in early September. Although this statement was brief, sources say HSBC has been looking to sell the unit because it had been dwindling and some of the firm's biggest brokers had already jumped ship to other Bay Street brokerages. And those who stayed had limited resources because HSBC's investment bank doesn't have much in the way of Canadian equity or credit research to offer.
National’s acquisitions come at a time when banks and brokerages have been seeking to build out their wealth management platforms. Increased regulation, a legacy of the financial crisis, has required financial institutions to carry more capital for riskier lines of business. That has made lower-risk businesses, including wealth management and advisory services, attractive areas for growth. Those businesses also provide banks with fees that aren't nearly as volatile as investment banking advisory fees or trading revenues.
After the HSBC deal closes, National will have $80-billion in assets under administration and just over 1,000 investment advisers.