The UK-based HSBC Holdings PLC (GB:HSBA) has moved a step closer to selling its Canadian operations to the banking giant Royal Bank of Canada (NYSE:RY). In the latest development, yesterday, the federal Minister of Finance in Canada approved the acquisition deal valued at $10.2 billion.
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The deal was announced in November 2022 and is contingent upon RBC safeguarding HSBC’s employees in the country and waiving mortgage transfer fees for HSBC clients, among others. Post this approval, both banks will collaborate to ensure a seamless transition for HSBC Canada’s clients and employees to RBC.
The deal is expected to be finalized in the first quarter of 2024.
HSBC’s Shrinking Global Presence
HSBC’s decision to exit the Canadian market aligns with its strategy of reducing its global footprint to concentrate on opportunities in Asia. The bank, once known for its vast global retail network, has been strategically reducing its operations in recent years to enhance profitability.
Such divestments have gained momentum under pressure from HSBC’s largest shareholder, Ping An Insurance Group, which has advocated for the separation of the bank’s Asian business for higher returns.
HSBC operates over 130 branches in Canada, serving 780,000 customers. However, it captured only less than 2% of the market share. This sale provides HSBC an opportunity to focus on markets with higher growth potential.
Post-Deal Benefits
Following the deal, HSBC Group anticipates an estimated pre-tax gain of around $5.7 billion. The common equity tier 1 ratio is expected to grow by 130 basis points, surpassing existing capital plans. HSBC intends to pay a special dividend of $0.21 per share from the proceeds, with the potential distribution slated for the first half of 2024.
The bank approved a dividend of $0.10 per share in its third-quarter results for FY23, released in October.
For RBC, the deal represents its largest-ever acquisition and will further strengthen its dominance in the domestic market.
Is HSBC Holdings a Good Stock to Buy?
According to TipRanks, HSBA stock has received a Moderate Buy consensus rating based on seven Buys, four Holds, and one Sell recommendation. The HSBC share price target is 798.60p, which is 27% above the current trading level.
