The field of contenders to acquire HSBC Bank Canada is narrowing, with at least two major Canadian banks now out of the running.
National Bank of Canada NA-T is no longer in the bidding for the Canadian arm of British firm HSBC Holdings Inc., according to two sources familiar with the process. The Canadian Imperial Bank of Commerce CM-T is also excluded from the process, said a third source with direct knowledge of the bank’s position.
Bank of Montreal BMO-T is among the banks still suing HSBC Canada – a prized asset that could fetch more than $10 billion in sales – according to a fourth source with knowledge of BMO’s participation in the auction.
The Globe and Mail does not identify the sources as they are not authorized to discuss the confidential bidding process.
Spokespersons for HSBC, BMO, National Bank and CIBC declined to comment.
HSBC confirmed in early October that it was considering selling its Canadian unit, a profitable business with strong roots in commercial banking and a large presence in British Columbia and Ontario. Canada’s six largest banks held preliminary meetings to launch the tires on HSBC Canada, and the auction process moved quickly. The Globe reported that first-round bids were due late last week.
HSBC Canada would offer a buyer a significant increase in scale in the Canadian banking market. But a potential deal is fraught with pitfalls, some of them related to the sheer size of the deal. There are also potential political issues related to competition in an already concentrated banking market.
At the start of the auction, CIBC and National Bank were seen by some analysts as having some of the most compelling strategic reasons to buy HSBC Canada, even though each would have had to raise billions of dollars to meet the purchase price. . As the fifth and sixth largest banks in the country respectively, the two institutions might have seen the acquisition of HSBC Canada as a unique opportunity to close the gap between them and biggest rivals. And the two banks would likely have presented fewer competition problems than their more dominant competitors.
For National Bank, which is considered a “super-regional” bank with a stronghold in Quebec, a deal would have dramatically expanded its reach in Western Canada. And last week, Scotia Capital Inc. analyst Meny Grauman wrote in a note to clients that CIBC had “a compelling strategic case to complete this transaction, particularly when it comes to increasing its commercial market share.
But when CIBC chief executive Victor Dodig was asked about the sale of HSBC at a meeting of hundreds of his bank’s top executives on Thursday, he suggested preserving capital is important in the current climate of market uncertainty and that the bank’s priority is still organic growth, according to a fifth source with direct knowledge of the meeting.
Analysts have identified Royal Bank of Canada RY-T, the country’s largest bank, as a clear favorite, as it is the only Canadian lender that may have enough excess capital to buy HSBC Canada in cash, without raising money. additional funds. Toronto-Dominion Bank TD-T and Bank of Nova Scotia BNS-T could also be contenders, although both companies face hurdles on the way to a deal.
TD is still working on two major acquisitions in the United States. It pays US$13.4 billion to buy First Horizon Corp. and buys New York-based investment bank Cowen Inc. for US$1.3 billion. But TD may sell part of its US$16 billion stake in Charles Schwab Corp. SCHW-N to raise funds.
Scotiabank is in the midst of a CEO succession that has stunned Bay Street by elevating a candidate from outside the banking industry. The change of direction won’t officially take place until early next year. But the bank’s executives have expressed a desire to strengthen its presence in British Columbia, where HSBC already doing a lot of business.
The fact that the largest of the big Canadian banks is likely still in contention for HSBC Canada, while the smallest of the Big Six is dropping out, will only sharpen questions about how the government might react to a merger.
If RBC or TD acquired HSBC Canada, the deal would increase their share of bank deposits in Canada to 24% or 21% respectively. That would be higher than the market share created by a notional merger between National Bank and Scotiabank, BMO or CIBC – the type of deal that is widely seen as a political no-start because the federal banking regulator considers that the big six systemically important banks for Canada.
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