Acquisition to position RBC as the bank of
choice for globally connected clients
- Addition of attractive client base and expanded international
banking capabilities
- Strong cultural fit and aligned approach to disciplined risk
management
- Strategic deployment of excess capital with attractive
financial returns
TORONTO, Nov. 29,
2022 /CNW/ - Royal Bank of Canada (TSX: RY) (NYSE: RY) today announced it
has entered into an agreement to acquire HSBC Bank Canada ("HSBC
Canada"), a premier Canadian personal and commercial bank focused
on globally connected clients.
Under the terms of the agreement, RBC will acquire 100% of the
common shares of HSBC Canada for an all-cash purchase price of
$13.5 billion. All of HSBC Canada's
earnings from June 30, 2022 through
close will accrue to RBC1.
"HSBC Canada offers the opportunity to add a complementary
business and client base in the market we know best and where we
can deliver strong returns and client value given our financial
strength and award-winning service," said Dave McKay, President & CEO, RBC. "This also
positions us as the bank of choice for commercial clients with
international needs, newcomers to Canada and affluent clients who need global
banking and wealth management capabilities. It will help us better
serve global clients looking to invest and grow in Canada."
"This acquisition builds on our core domestic retail
business and expands our international product capabilities,"
said Neil McLaughlin, Group Head,
Personal & Commercial Banking, RBC. "We look forward to
welcoming HSBC Canada's talented employees after the transaction
closes and supporting them as they continue to serve their clients.
With strong cultural and risk alignment and a shared focus on
client service, we can build together on HSBC Canada's leading
international products."
HSBC Canada has $134 billion in
assets as at September 30, 2022,
approximately 130 branches and 4,200 full-time equivalent
employees. Its commercial bank brings strong capabilities focused
on international business clients, including in liquidity
management, trade finance, global cash management and sustainable
finance. HSBC Canada's wealth and personal banking business serves
an affluent client base, with particular strength in meeting the
needs of international clients with connections to Canada. Its strong balance sheet includes a
well-diversified loan book and an attractive deposit base.
Clients to benefit from
industry-leading advice, convenience, digital capabilities and
value propositions
- Combining HSBC Canada's strength in international products with
RBC's breadth of capabilities will provide a best-in-class set of
solutions to help clients meet their financial goals, build their
wealth and grow their businesses.
- RBC remains committed to ensuring clients get the highest
value, competitive rates and best service.
- HSBC Canada clients will have access to the largest network of
branches and ATMs in Canada,
giving them exceptional convenience in their everyday banking.
- RBC consistently wins awards for customer service and
satisfaction, and offers an industry-leading digital banking
experience and rewards program.
RBC is a globally-recognized
Employer of Choice
- RBC has consistently high employee engagement and ranks among
the best workplaces in Canada2.
- RBC employs over 92,000 full-time and part-time employees
globally, including almost 65,000 full-time equivalent in
Canada.
- RBC is committed to offering an exceptional work experience and
competitive rewards package that inspires employees to achieve both
their life and career goals with RBC, including a full suite of
banking, retirement, savings and benefits programs alongside other
resources like flexible work options, learning and development
opportunities and well-being.
- Diversity & inclusion is core to RBC's Purpose; RBC has
repeatedly been recognized as one of Canada's Best Diversity Employers3
and plays an active leadership role in accelerating a more
inclusive future.
RBC and HSBC Canada share a strong
commitment to communities
- RBC plays a leadership role in community investment, with a
total contribution of more than $140
million globally in fiscal 2021. RBC donates 1% of its
Canadian net income before tax each year, helping our communities
grow with us.
- RBC has a strong focus on youth, climate, financial wellness
and diversity & inclusion, with the goal of building vibrant
and socially inclusive communities; this includes an investment of
$500 million dollars over 10
years4 in helping young Canadians prepare for the future
of work.
- RBC and HSBC Canada share a focus on sustainability. RBC is
committed to taking action in helping our clients transition to net
zero. RBC has committed to providing $500
billion in sustainable finance by 20255.
Acquisition highlights
The acquisition will enhance RBC's competitiveness on the global
stage without compromising Canadians' access to a competitive,
diverse market here at home.
The financial sector is highly competitive in Canada, with 50 banks and hundreds of credit
unions and fintechs competing to serve Canadians. HSBC Canada
accounts for around 2% of Canadian deposits and mortgages.
Under the terms of the agreement, RBC will acquire 100% of the
common shares of HSBC Canada for an all-cash purchase price of
$13.5 billion. All of HSBC Canada's
earnings from June 30, 2022 through
close will accrue to RBC6. The purchase price represents
a 9.4x multiple of HSBC Canada's estimated 2024 adjusted earnings
of $1.4 billion assuming fully
realized expense synergies. On this basis, the acquisition is
expected to be approximately 6% EPS accretive relative to 2024
consensus estimates for RBC7. This acquisition is
expected to have an Internal Rate of Return8 of 14% and
a marginal return on tangible common equity9 of 27%. RBC
expects its CET1 ratio10 to exceed 11.5% upon
close11.
RBC expects to achieve approximately $740
million, or 55%, in fully realized annual pre-tax expense
synergies based on HSBC Canada's estimated 2024 non-interest
expense base, and incur total acquisition and integration costs of
approximately $1 billion. RBC will
purchase all of the existing preferred shares and subordinated debt
of HSBC Canada held directly or indirectly by HSBC Holdings plc at
par value.
Closing is expected by late 2023 subject to customary closing
conditions including regulatory approvals, obtained in the ordinary
course. All amounts are in Canadian dollars.
Conference call
RBC will host a conference call on Tuesday, November 29 at 9:00 am ET, followed by a question and answer
period for analysts. Please call between
8:50 and 8:55 am.
Participants:
Toll-free dial-in number (Canada/US):
1-866-696-5910
Local dial-in number: 416-340-2217
Participant passcode: 4431273#
Webcast
link:
https://www.rbc.com/investor-relations/events-and-presentations.html
Instant replay:
Toll-free dial-in number (Canada/US):
1-800-408-3053
Local dial-in number: 905-694-9451
Passcode:
7155475#
Advisors
RBC Capital Markets served as lead and primary financial advisor
with Blake, Cassels & Graydon LLP, Allen & Overy LLP, and
Wachtell, Lipton, Rosen & Katz
serving as legal counsel for this transaction. Goldman Sachs &
Co. LLC provided secondary financial advice on certain matters.
About RBC
Royal Bank of Canada is a
global financial institution with a purpose-driven, principles-led
approach to delivering leading performance. Our success comes from
the 92,000+ employees who leverage their imaginations and insights
to bring our vision, values and strategy to life so we can help our
clients thrive and communities prosper. As Canada's biggest bank and one of the largest
in the world, based on market capitalization, we have a diversified
business model with a focus on innovation and providing exceptional
experiences to our 17 million clients in Canada, the U.S. and 27 other countries. Learn
more at rbc.com.
We are proud to support a broad range of community initiatives
through donations, community investments and employee volunteer
activities. See how at rbc.com/community-social-impact.
Key performance and non-GAAP
measures
We use a variety of financial measures to evaluate our
performance and the impact of the proposed transaction as described
herein. In this press release we use certain key performance and
non-GAAP measures, including forward-looking non-GAAP measures,
that we believe provide useful information to investors. Readers
are cautioned that key performance measures and non-GAAP measures,
including EPS accretion and return on tangible common equity, do
not have any standardized meanings prescribed by GAAP, and
therefore may not be comparable to similar measures disclosed by
other financial institutions.
Certain of the forward-looking estimated adjusted results
presented in this document are based on analyst consensus estimates
of RBC's future adjusted results as indicated, and we caution that
the methodology applied by analysts to estimate those results may
not be consistent with RBC's methodology. The forward-looking
estimated results for HSBC Canada presented in this document are
based on RBC management's estimate of HSBC Canada's future
performance and we caution that these are preliminary estimates
based on due diligence and management projections.
Caution regarding forward-looking
statements
This press release contains forward-looking statements within
the meaning of certain securities laws, including the "safe
harbour" provisions of the United States Private Securities
Litigation Reform Act of 1995 and any applicable Canadian
securities legislation, with respect to RBC's and HSBC Canada's
financial performance, beliefs, plans, expectations, and estimates.
Forward-looking statements in this press release may include, but
are not limited to, statements with respect to the expected closing
of the proposed transaction, plans for the combined operations of
RBC and HSBC Canada, the financial, operational and capital impacts
of the proposed transaction, our strategies or future actions, and
our objectives and commitments. The forward-looking information
contained in this press release is presented for the purpose of
assisting the holders of our securities and financial analysts in
understanding the proposed transaction and may not be appropriate
for other purposes. Forward looking statements are typically
identified by words such as "believe", "expect", "foresee",
"forecast", "anticipate", "intend", "estimate", "goal", "commit",
"target", "objective", "plan" and "project" and similar expressions
of future or conditional verbs such as "will", "may", "might",
"should", "could" or "would".
By their very nature, forward-looking statements require us to
make assumptions and are subject to inherent risks and
uncertainties, which give rise to the possibility that our
predictions, forecasts, projections, expectations or conclusions
will not prove to be accurate, that our assumptions may not be
correct, that our financial performance, environmental & social
or other objectives, vision and strategic goals will not be
achieved, and that our actual results may differ materially from
such predictions, forecasts, projections, expectations or
conclusions.
We caution readers not to place undue reliance on these
statements as a number of risk factors could cause our actual
results to differ materially from the expectations expressed in
such forward-looking statements. These factors – many of which are
beyond our control and the effects of which can be difficult to
predict – include, but are not limited to: the possibility that the
proposed transaction does not close when expected or at all because
of the occurrence of any event, change or other circumstances that
could give rise to the right of one or both of the parties to
terminate the proposed transaction, including because required
regulatory or other approvals and/or other conditions to closing
are not received or satisfied on a timely basis or at all or are
received subject to adverse conditions or requirements; the
possibility that the anticipated benefits from the proposed
transaction, such as being accretive to EPS, creating cross-sell
opportunities and growing our Canadian operations are not realized
in the time frame anticipated or at all as a result of changes in
general economic and market conditions, interest and exchange
rates, monetary policy, laws and regulations (including changes to
capital requirements) and their enforcement, and the degree of
competition in the geographic and business areas in which RBC and
HSBC Canada currently operate; the risk that any announcements
relating to the proposed combination could have adverse effects on
the market price of our shares; the possibility that the business
of RBC and HSBC Canada may not perform as expected or in a manner
consistent with historical performance; the ability to promptly and
effectively integrate HSBC Canada; our ability to achieve our
capital targets; our ability to cross-sell more products to
customers; reputational risks and the reaction of HSBC Canada's
customers and employees to the transaction; the possibility that
the transaction may be more expensive to complete than anticipated,
including as a result of unexpected factors or events; diversion of
management time on transaction-related issues; material adverse
changes in economic and industry conditions; general competitive,
economic, political and market conditions; changes in asset quality
and credit risk; the inability to sustain revenue and earnings
growth; inflation; customer borrowing, repayment, investment and
deposit practices; the impact, extent and timing of technological
changes; capital management activities; and those other factors
discussed in the risks sections and Impact of COVID-19 pandemic
section of our 2021 Annual Report and the Risk management section
of our Q3 2022 Report to Shareholders, and the factors discussed in
the Risk section and Impact of COVID-19 and our response section of
HSBC Canada's Annual Report and Accounts 2021 and the Risk section
of HSBC Canada's Third Quarter 2022 Interim Report all of which
outline certain key factors and risks that may affect our future
results and our ability to anticipate and effectively manage risks
arising from all of the foregoing factors.
We caution that the foregoing list of risk factors is not
exhaustive and other factors could also adversely affect our
results. When relying on our forward-looking statements to make
decisions with respect to us, investors and others should carefully
consider the foregoing factors and other uncertainties and
potential events. Material economic assumptions underlying the
forward-looking statements contained in this press release are set
out in the Economic, market and regulatory review and outlook
section and for each business segment under the Strategic
priorities and Outlook sections in our 2021 Annual Report, as
updated by the Economic, market and regulatory review and outlook
section of our Q3 2022 Report to Shareholders.
Assumptions about RBC's and HSBC Canada's current and expected
financial performance including balance sheet, income statement and
regulatory capital figures, expected capital availability for the
proposed transaction, expected closing date of the proposed
transaction, expected expense synergies (and timing to achieve),
integration and restructuring costs and process, alignment of
organizational responsibilities, estimated purchase price
accounting (including fair value and credit marks), foreign
exchange rates, our assumed terminal value multiple, and future
regulatory capital requirements, including the Office of the
Superintendent of Financial Institutions' announced Basel III
reforms effective in the second quarter of fiscal 2023, were
considered in making the forward-looking statements in this press
release including estimating the pro forma financial impacts to RBC
(i.e. the EPS accretion, internal rate of return to RBC, return on
tangible common equity) and the expected capital impact to RBC.
Any forward-looking statements contained in this document
represent the views of RBC only as of the date hereof. Except as
required by law, RBC does not undertake to update any
forward-looking statement, whether written or oral, that may be
made from time to time by us or on our behalf.
_____________________________
|
1 Excludes a $90 million dividend
paid by HSBC Canada in the third quarter of 2022.
|
2 Great
Place to Work Institute
|
3
Mediacorp
|
4 RBC
Future Launch started in 2017
|
5 Sustainable finance refers to
financial activities that take into account environmental, social
and governance factors.
|
6 Excludes a $90 million dividend
paid by HSBC Canada in the third quarter of 2022.
|
7 EPS
accretion (consensus) is a non-GAAP measure. EPS accretion
(consensus) metrics are calculated based on analyst expectations
for RBC's adjusted EPS, share buybacks and adjusted net income for
2024, as well as RBC management's estimates for HSBC Canada's
adjusted net income after tax. Adjusted net income after tax and
adjusted EPS are non-GAAP measures. Refer to the Key performance
and non-GAAP measures section.
|
8 The
Internal Rate of Return (IRR) is the discount rate that makes the
net present value (NPV) of all cash flows equal to zero in a
discounted cash flow analysis.
|
9 Return on tangible common equity is
a non-GAAP measure. Refer to the Key performance and non-GAAP
measures section.
|
10 CET1
is calculated based on OSFI's Capital Adequacy Requirements (CAR)
guideline.
|
11 Based on RBC's and HSBC Canada's
estimated balance sheets as of an assumed closing date of October
31, 2023, including transaction related impacts.
|
SOURCE Royal Bank of Canada