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HSBC Bank Canada reported a 29-per-cent increase in third-quarter profit compared to the same period last year, as total profit for its parent company, HSBC Holdings PLC, beat analysts’ expectations.

The Canadian unit’s solid performance, a result of rising income from each of its main business lines, comes at an opportune moment for Britain-based HSBC. The bank is running an auction process that could lead to a sale of HSBC Canada, a profitable subsidiary that analysts estimate could fetch as much as $10-billion. A first round of bids was due Friday, according to two sources familiar with the process, after rivals took a closer look at the bank’s data.

The Globe and Mail is not identifying the sources because they were not authorized to discuss the process.

HSBC Canada is Canada’s seventh largest bank, and it is expected to draw interest from each of its six larger rivals. It is a rare asset, and would be the largest domestic bank acquisition in decades. But a potential deal is fraught with complexities because of the sheer size of the transaction, as well as political considerations related to competition in the banking industry.

In the quarter that ended Sept. 30, HSBC Canada reported profit of $206-million, or 38 cents a share, compared with $159-million, or 29 cents a share, in the same quarter last year.

Profit before income tax was $298-million, up 27 per cent, while costs increased by just $2-million, or 0.6 per cent.

In the commercial banking division, which is HSBC’s largest business in Canada, operating income was up 15 per cent year over year to $308-million, helped in part by rising interest rates that have boosted interest income. In wealth management and personal banking, operating income was $270-million, up 27 per cent.

HSBC Canada took a $42-million charge because of an increase in expected credit losses as its macroeconomic outlook soured, compared with a charge of $3-million a year earlier.

Total profit before taxes for HSBC Holdings PLC, the parent company, was US$3.1-billion, after a US$2.4-billion impairment charge related to the sale of its retail banking business in France. The bank’s adjusted profit before tax, which excluded the charge, was US$6.5-billion – higher than analysts had expected.

In early October, HSBC confirmed it is considering selling the Canadian unit as it sharpens its focus on Asia, under pressure from its largest shareholder, the Chinese insurance company Ping An. That presents a once-in-a-generation opportunity for rival banks to scale up their profitable domestic businesses, and each of Canada’s Big Six banks has held preliminary meetings with HSBC about a possible deal, according to the two sources.

“All of this interest stems from the fact that HSBC Canada is big enough to matter in a market that is already highly consolidated,” said Meny Grauman, an analyst at Scotia Capital Inc., in a note to clients last week.

Royal Bank of Canada is in the strongest position to strike a deal from a purely financial standpoint. It is the lone Canadian bank “with the excess capital to do a $10-billion deal today,” Mr. Grauman said. “The other banks would need to raise significant amounts of capital in order to fund this transaction.”

But other, smaller banks among the Big Six – such as National Bank of Canada and Canadian Imperial Bank of Commerce – may attempt to land HSBC Canada in order to close their size gaps with rivals. For National Bank, the deal would significantly expand its reach into Western Canada. For CIBC, it would boost the institution’s share of the commercial banking market.

If a domestic bank acquires HSBC Canada, the deal would require government approval, including sign-off from the Competition Bureau. RBC’s share of domestic deposits – a key measure of market share – would grow to 24 per cent from 21 per cent if it acquires HSBC Bank, according to Mr. Grauman. “We do not believe that market concentration is a real issue, and we look to other sectors in Canada as a guide on that,” he said.