HSBC exits Canada in C$13.5B deal

British bank HSBC (0005) said yesterday it had agreed to sell its business in Canada to Royal Bank of Canada for C$13.5 billion

(HK$77.8 billion) in cash.

The transaction is expected to be completed late next year and will result in a pretax gain of US$5.7 billion (HK$44.46 billion) for HSBC, including the recycling of about US$600 million in foreign currency translation reserve losses, the bank said.

Additionally, Royal Bank will buy all the preferred shares and the outstanding subordinated debt issued by HSBC's Canadian arm and by HSBC for about C$1.1 billion and C$1 billion respectively.

HSBC chief executive Noel Quinn said the bank made this decision after "a thorough review of the business" and after assessing the branch's low market share in Canada and HSBC's ability to invest in its expansion and growth within the country.

It still aims to reach a dividend payout ratio of 50 percent for 2023 and 2024, excluding the income from this deal, and reiterated that the policy to distribute surplus capital remains.

HSBC's board will consider the appropriate amount of extra surplus capital generated in this disposal to be returned by way of a one-off dividend, or share buybacks, with the distribution assumed to start from early 2024 after the deal.

The British lender said it keeps the target of a return on average tangible equity of at least 12 percent from 2023, without the gain from the disposal.

The sale comes as HSBC pursues a strategy of focusing its resources on its core markets, amid pressure from Ping An to improve its performance.

The deal enables Royal Bank to grab further market share, while adding 130 branches and more than 780,000 overall customers. Further, HSBC's common equity tier 1 ratio will be increased by an additional 130 basis points and over its existing capital plan after the transaction.