HSBC Holdings PLC is in talks to vend its Canadian retail brokerage business, Reuters reported on Monday, keeping sources undisclosed. This initiative is part of the company’s long-term strategy to reduce costs of up to $3.5 billion through worldwide restructuring by 2013 and cut back retail banking.
HSBC’s Canadian retail brokerage manages about C$16 billion ($16.3 billion) in investors' money. However, according to an HSBC spokeswoman, the company did not disclose the value of the Canadian unit.
Among the foreign banks, HSBC has the largest presence in Canada. So the sale of its retail brokerage business would be significant with respect to foreign companies’ confidence in the Canadian market.
Moreover, last week, Bank of America Corp. (BAC - Analyst Report) agreed to sell its Canadian credit-card unit to Toronto-Dominion Bank (TD - Snapshot Report) for $7.6 billion.
As the Canadian market is highly consolidated, the chance to expand through merger and acquisitions is limited for the banks. So, the HSBC unit should be lucrative to all the financially sound Canadian banks.
According to the source, although potential bidders for HSBC’s unit have not been formally named, the business has drawn interest from National Bank of Canada . National Bank is one of largest six banks in Canada without any notable foreign exposure.Give National’s location and expansion capacity, it seems to be most suitable suitor for the HSBC unit.
Earlier this month, Capital One Financial Corporation (COF - Analyst Report) announced a definitive agreement to buy HSBC’s U.S. credit card business for $32.7 billion. HSBC was trying to sell the unit since the middle of this year. The deal will help HSBC to earn an estimated post-tax gain of $2.4 billion.
The divesture of the Canadian retail brokerage businessshould bring long-term benefits for both HSBC and the acquirer. While after selling the unit HSBC will be able to concentrate on its emerging market strategy, the acquirer would be able to expand in the highly consolidated Canadian market.
HSBC retains a Zacks #4 Rank, which implies a short-term Sell rating.