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HSBC Closes Sale of Canada Business to Royal Bank of Canada

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HSBC Holdings (HSBC - Free Report) has completed the divestiture of its Canada unit to Royal Bank of Canada (RY - Free Report) for C$13.5 billion. The deal, announced in November 2022, will lead to an estimated gain on sale of $4.9 billion in the first quarter of 2024.

The transaction, which received Canadian regulatory approvals in December 2023, had been under intense scrutiny for its potential impact on competition in the country. The acquisition is expected to bolster RY's position in a market where the top six banks control around 80% of banking assets. The consent was conditioned on several steps to be taken by RY following the completion of the deal, which will make the company a banking behemoth in Canada.

Noel Quinn, CEO of HSBC, said, “Completing this deal is another important milestone in HSBC’s transformation, and it will provide capital that will enable us to grow our core businesses.”

Further, HSBC intends to announce a special dividend of 21 cents per share together with first-quarter 2024 results on Apr 30. This will be in addition to any proposed interim dividend and is expected to be paid in June 2024 if approved.

As a result of the gain on sale, the disposal of HSBC Canada RWAs and the recognition of the special dividend, the HSBC’s CET1 ratio is projected to be enhanced by 0.7 percentage points.

The divestiture is part of HSBC’s business restructuring initiative, under which it is exiting several markets across the globe. In February, the company announced a deal to sell its Armenian unit to reallocate capital to higher-growth markets. The company has already exited the United States, France, New Zealand and Greece retail banking businesses. It is in the process of fully exiting Russia as it has received the approval for the same.

Meanwhile, HSBC is pivoting its business toward the Asia region. In sync with this, in October 2023, the company announced a deal to acquire Citigroup's (C - Free Report) retail wealth management business in China. As a result of the sale, C will transfer assets under management and deposits worth approximately $3.6 billion (as of August 2023) and the associated wealth customers in 11 major cities to HSBC Bank China.

Moreover, HSBC re-launched its private banking business in India after eight years. Further, in 2022, the company acquired 100% of the issued share capital of AXA Insurance in Singapore and L&T Investment Management Limited.

Over the past year, shares of HSBC on the NYSE have rallied 13.3%, underperforming the industry’s growth of 21.9%.

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Currently, HSBC carries a Zacks Rank #4 (Sell).

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