HSBC is considering the sale of its Canadian business as part of a strategic review, a deal that could fetch upward of $10-billion as the British-based bank comes under pressure from its largest shareholder to boost its performance.
“We are currently reviewing our strategic options with respect to our wholly owned subsidiary in Canada,” HSBC HSBC-N spokesperson Sharon Wilks said in an e-mail. “Amongst the options being explored is a potential sale of HSBC Group’s 100-per-cent equity stake in HSBC Bank Canada.”
The Canadian arm of HSBC is the seventh-largest bank in the country, with $125-billion in assets and about $5-billion of common equity. Its strength in Canada is commercial lending, which accounted for nearly 40 per cent of operating income in the most recent quarter. But it is a full-service bank with wealth management and capital markets divisions, as well as retail branches from British Columbia to Quebec.
HSBC has been reviewing its strategy for months as its largest shareholder, Chinese insurance company Ping An, has pushed it to consider spinning off its Asian operations. Though HSBC is headquartered in Britain and has operations around the world, it makes the majority of its revenue in Asia.
The strategic review process to explore a possible sale was first reported by Britain’s Sky News.
HSBC has already cut back in other parts of the world and sold operations in markets including France and Brazil in recent years, as well as exiting mass-market banking in the United States. Instead, it aims to focus on regions where it has greater prospects for rapid growth.
The chief executive of the Canadian business, Linda Seymour, has previously characterized Canada as one of HSBC’s growth markets, poised for further investment. The Canadian arm of HSBC has been consistently profitable, generating $490-million of profit before taxes in the first half of 2022.
“HSBC Bank Canada is a very strong business and Canada’s leading international bank. The review is at an early stage and no decisions have been made,” Ms. Wilks said.
HSBC has hired JPMorgan Chase & Co. to explore a potential sale, according to a source with knowledge of the process. The Globe and Mail is not identifying the source because they were not authorized to disclose details about the internal review.
In 2021, Canada was the third-largest contributor to HSBC’s commercial banking profits, according to National Bank Financial Inc. analyst Gabriel Dechaine.
Because opportunities to acquire a large Canadian bank are rare, “we believe every Big Six bank would evaluate this asset,” Mr. Dechaine said in a note to clients on Tuesday. “However, not all are in an equal position to make a deal happen.”
The price for HSBC Canada would likely be relatively steep – perhaps $10-billion or more, according to Mr. Dechaine. Given that Royal Bank of Canada has about $12-billion of extra capital above regulatory minimums, “it is hard to argue against [RBC] as the leading candidate to make this acquisition,” he said.
Toronto-Dominion Bank and Bank of Montreal seem like unlikely suitors as both are working to close major deals in the U.S. that are consuming much of the excess capital they have on hand.
Bank of Nova Scotia, the country’s third-largest bank, is in the midst of a CEO succession set to take place Jan. 31, 2023. But the bank’s executives have been vocal about their desire to get stronger in B.C. – where HSBC has a large presence – and Quebec.
National Bank of Canada could show interest, but it would be a large deal for the Montreal-based bank – the purchase price could be equivalent to roughly a third of its current market capitalization.
Mr. Dechaine also noted that because RBC is already the country’s largest bank, other rivals “could face a lower regulatory hurdle” as they wouldn’t raise competition concerns as easily.
It is also possible that a foreign bank could buy HSBC Canada, although banks in the U.S. and Europe have largely been retrenching from foreign markets such as Canada. “If anything, we could see a large Chinese bank expressing interest,” Mr. Dechaine said. “Regulatory approvals, though, would be a challenge.”