Royal Bank To Acquire HSBC Canada For $13.5 Billion In All-Cash Deal

The banking sector in Canada is set to get a bit more narrow for Canadians. Royal Bank of Canada (TSX: RY) this morning revealed it will be acquiring HSBC Bank Canada in an all-cash transaction.

HSBC Canada reportedly has $134 billion in assets as of the quarter ended September 30, 2022, with 4,200 employees servicing 130 branch locations. The firm offers both commercial and personal banking services, with a focus on international business clients and “affluent” personal clients. HSBC currently holds 2% of the Canadian market in deposits and mortgages.

The purchase is expected to improve RBC’s competitiveness in terms of international banking capabilities.

The arrangement will see the personal and commercial bank acquired for total consideration of $13.5 billion, which is to be paid in cash. The bank has indicated that the purchase is expected to provide an internal rate of return of 14%, with the purchase price said to be 9.4x HSBC Canada’s estimated 2024 adjusted earnings of $1.4 billion.

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Acquisition and integration costs meanwhile are anticipated to amount to $1.0 billion, with $740 million in annual pre-tax expense synergies reportedly already found. Closing of the transaction is expected to occur in late 2023, however earnings from June 30, 2022, will accrue to RBC.

Royal Bank of Canada last traded at $133.21 on the TSX.

Information for this briefing was found via Sedar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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