Noah Zivitz

Managing Editor, BNN Bloomberg

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HSBC Holdings Plc confirmed Tuesday that it's considering selling its Canadian division.
 
“HSBC regularly reviews its businesses in all its markets. We are currently reviewing our strategic options with respect to our wholly owned subsidiary in Canada. Amongst the options being explored is a potential sale of HSBC Group’s 100 per cent equity stake in HSBC Bank Canada. HSBC Bank Canada is a very strong business and Canada’s leading international bank. The review is at an early stage and no decisions have been made,” a bank spokesperson said in an email to BNN Bloomberg.
 
Earlier, Sky News reported that a "multibillion pound" sale was being mulled and that HSBC had told investment bankers at JPMorgan Chase & Co. to suss out potential buyers.
 
According to HSBC's most recent annual report, its Canadian operations contributed US$768 million of pre-tax profit in 2021, which amounted to about four per cent of the bank's $18.9 billion in total profit for the year.

More recently, HSBC Bank Canada reported $490 million in pre-tax profit for the first half of this year, which was virtually unchanged from a year earlier as a $40-million expected credit loss from an aviation client masked growth elsewhere in the bank.

Nigel D’Souza, who covers the Canadian banks for Veritas Investment Research, said he thinks HSBC Canada could end up being sold for more than $7 billion and that each of the Big Six have reasons to not pursue a deal of that size.

In the cases of Bank of Montreal and Toronto-Dominion Bank, D’Souza told BNN Bloomberg via email “neither have the capital or capacity for this deal” since they’re already trying to close large takeovers in the United States. Similarly, he said neither Bank of Nova Scotia nor Canadian Imperial Bank of Commerce have the necessary excess capital. He said National Bank of Canada hasn’t given any indication it wants to aggressively expand beyond its home province. As for the country’s largest bank: D’Souza said Royal Bank of Canada “may be risk-averse given building recession risks and may not be willing to acquire a book of business underwritten by another bank.”

As such, D’Souza said he thinks HSBC Canada may need to be sold in parts to several buyers.

Gabriel Dechaine at National Bank of Canada Financial Markets stated in a report to clients Tuesday “it is hard to argue against [RBC] as the leading candidate” among the Big Six to buy HSBC Canada.

However, he suggested that the other banks would face a less daunting regulatory hurdle to doing this deal than what RBC would encounter.

Dechaine added that potential geographic expansion through HSBC’s B.C. footprint “could lead to more aggressive bidding than expected.”

He also said that HSBC Canada is unlikely to attract European or U.S. bidders, while the business could be attractive to a large Chinese bank.

Jonathan Tyce, a senior banking industry analyst at Bloomberg Intelligence, said in a reaction note that he thinks HSBC’s Canadian unit could fetch about US$10 billion in a sale, based on its equity and loan balance in the last fiscal year.

He added that a sum of that amount “would not be material” to HSBC’s strategy. 

HSBC has been under pressure from Ping An Insurance Group Co., its largest shareholder with an 8.3 per cent stake, to break itself up in an attempt to unlock value in its Asian operations. 

Ping An couldn’t immediately be reached for a comment on the possible sale of HSBC’s Canadian division.