Call it the regulatory Olympics.
HSBC Holdings PLC HSBC-N is creating a way to score governments on how efficiently they regulate big banks and big deals, as it exits countries around the world to focus on customers in Asia and Britain.
The gold medal for scrutinizing HSBC’s departure goes to the Americans. The London-based bank announced plans to unload its U.S. branches in May, 2021. Nine months later, the politicians had signed off and the deal closed.
Brazil snags a silver. It took 11 months for HSBC to close a US$5.2-billion sale to a local bank, back in 2015. Then there’s Greece, currently in the running for bronze. It took 16 months for HSBC to get approval from politicians in Athens for a departure that concluded in July.
Can Canada win a place on the podium? We certainly aspire to efficiency. When HSBC announced plans to sell its 130 branches to Royal Bank of Canada last November for $13.5-billion, the two sides predicted the deal would close within 13 months. The transaction still requires approval from Finance Minister Chrystia Freeland.
And in Ottawa, the HSBC deal has become a political football.
In October – against a backdrop of consumer anger over the soaring cost of living – Conservative Leader Pierre Poilievre called on the government to block the largest bank takeover in the country’s history. In an interview with The Globe and Mail, he said the acquisition “would take out one potential upstart competitor who, if it stays in the market and doesn’t get bought, could fight for more market share by offering better products and services.”
Mr. Poilievere’s argument falls apart on its most basic point. HSBC has made its departure plans clear: If the government blocks RBC’s bid, HSBC is simply going to find another buyer among the country’s six largest banks.
In opposing the deal, Mr. Poilievre ignored the fact that the federal Competition Bureau, charged with protecting consumers, gave the RBC takeover its blessing in September.
The bureau realized HSBC controls less than 3 per cent of the domestic mortgage and deposit markets. Moving these clients to RBC, which has roughly 20-per-cent market share, doesn’t change the competitive dynamic.
Buying HSBC will make RBC a far stronger, more profitable bank. Building a national champion in financial services shouldn’t offend the leader of a historically pro-business political party. It’s also a reason for the regulator responsible ensuring banks stay solvent – the Office of the Superintendent of Financial Institutions – to approve the deal.
Political posturing and regulatory overreach have already slowed approval of landmark transactions that, in hindsight, were clearly going to close.
The two-year approval process for Rogers Communications Inc.’s takeover of Shaw Communications Inc. last a year longer than necessary. That transaction saw the Competition Bureau – meaning taxpayers – pay almost $13-million in legal costs to the two telecom companies after the court ruled the regulator’s arguments against the deal were “divorced from reality.”
While Canadian politician can take justifiable pride in letting the rule of law govern deals, our track record for keeping politics out of free markets is far from pristine. Prime Minister Stephen Harper’s Conservatives set a precedent by blocking BHP Billiton’s US$38-billion bid for Saskatchewan’s Potash Corp. Nixing a deal involving HSBC, a global bank, would send a message heard around the world.
For the sake of consumers, and Canada’s unwanted reputation as a place where politics gets in the way of getting stuff done, Ms. Freeland should ignore the opposition leader.
The Finance Minister can claim a spot on the podium in the regulatory Olympics by signing off on the HSBC takeover. Delaying a decision can only earn this government the dubious distinction of trailing jurisdictions such as Brazil and Greece when it comes to regulating key economic sectors.