Competition Bureau green-lights $13.5-billion RBC-HSBC Canada deal

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Royal Bank of Canada RY-T is a step closer to securing the biggest domestic banking deal on record after Canada’s Competition Bureau green-lit its takeover of HSBC Bank Canada.

The Competition Bureau said in a report to Finance Minister Chrystia Freeland on Friday that RBC’s $13.5-billion acquisition is unlikely to substantially harm competition.

“While certain evidence indicated that HSBC Canada was a vigorous competitor and a material rival to RBC in the offer of particular financial services, the Bureau found that HSBC Canada’s competitive impact was limited when compared to other financial institutions,” the Bureau said in the report.

In May, the Bureau launched a public consultation requesting comments on how the deal could prevent or lessen competition in financial services. It received more than 1,500 submissions from Canadians.

The Bureau said that it reviewed concentration in the sector, and found that market share changes after the proposed merger would not exceed the level where the Competition Commissioner would decide to challenge it.

“It does not appear that RBC will need to take any significant actions to meet Competition Bureau requirements,” and that its profit-growth estimates postmerger still stand, CIBC analyst Paul Holden said in a note to clients. RBC expects the deal to boost its earnings per share by 6 per cent, according to Mr. Holden.

He also said that there should not be “any significant hurdles” in securing further regulatory approvals, and the deal should close on time.

RBC expects the deal to close in the first calendar quarter of 2024. In response to questions during a call with reporters when the deal was announced, RBC chief executive officer Dave McKay said he would not be willing to divest some of HSBC Canada’s assets to win approval.

A bank merger at this scale in Canada has not happened in more than two decades since the federal government terminated two major combinations in the sector.

RBC, Canada’s largest bank, struck the deal in late November, clinching an acquisition that would bolster its dominance over its competitors by tens of billions of dollars in loans and deposits.

HSBC Bank Canada has 130 branches and 770,000 retail clients – of which 40 per cent are considered affluent – largely in Vancouver and Toronto. The merger 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.

HSBC Canada’s focus on commercial and mortgage lending prompted questions about concentration in the banking sector, which is dominated by the six large banks.

The deal still requires approval from key federal regulators, including the Office of the Superintendent of Financial Institutions and the federal Finance Minister, who has the final say.

In June, the federal Finance Department launched a public consultation on RBC’s proposed deal to take over British-based HSBC Holdings Plc’s Canadian arm in a rare move to collect information on how it could affect the country’s financial sector. It said that it will consider comments on how the deal could affect customers, as well as the stability, efficiency and integrity of the sector.

“We know that the Minister of Finance’s main priority is to protect the public interest and ensure the safety and soundness of Canada’s financial system, which is among the strongest and best regulated in the world,” RBC spokesperson Andrew McGrath said in an e-mail. “We strongly believe that this proposed acquisition supports that priority by keeping more of Canada’s financial sector under Canadian ownership while better connecting Canadians to the global economy.”