Royal Bank of Canada will acquire 100% of the common shares of HSBC Bank Canada for C$13.5 billion in cash.
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. Based on this, the acquisition is expected to be roughly 6% EPS accretive relative to 2024 consensus estimates for Royal Bank.
All of HSBC Canada's earnings starting June 30 and through the close of the deal will accrue to the Royal Bank of Canada.
The acquisition is expected to have an internal rate of return of 14% and a marginal return on tangible common equity of 27%. RBC expects its common equity Tier 1 ratio to exceed 11.5% upon closing.
At announcement, S&P Global Market Intelligence calculates the deal value to be 291.20% of common equity, 304.05% of tangible common equity, 16.56% of deposits, 10.07% of assets and 17.65x earnings. The tangible book premium-to-deposits ratio is 11.12%.
HSBC Bank Canada has C$134 billion in assets as of Sept. 30, about 130 branches and 4,200 full-time equivalent employees. The company accounts for around 2% of Canadian deposits and mortgages, according to a press release.
RBC has more than 92,000 full-time and part-time employees globally, including almost 65,000 full-time equivalents in Canada.
HSBC Holdings PLC had been considering the sale of its Canadian unit for some time, but analysts said the company could struggle to profit from such a sale amid market volatility and macroeconomic risks.
RBC expects to achieve approximately C$740 million, or 55%, in fully realized annual pretax expense synergies, based on HSBC Canada's estimated 2024 noninterest expense base. It anticipates total acquisition and integration costs of approximately $1 billion.
RBC will purchase all of HSBC Canada's existing preferred shares and subordinated debt held directly or indirectly by HSBC Holdings PLC at par value.
The deal is expected to close in late 2023, subject to customary closing conditions and regulatory approvals.
RBC Capital Markets served as lead and primary financial adviser with Blake Cassels & Graydon LLP, Allen & Overy LLP, and Wachtell Lipton Rosen & Katz serving as legal counsel. Goldman Sachs & Co. LLC provided secondary financial advice on certain matters.
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