The Canadian unit of HSBC Holdings PLC has become the queen of the ball on Bay Street, as the country’s financial services heavyweights debate whether they want to go even bigger by taking advantage of HSBC’s announcement earlier this month that it is open to the sale of its Canadian assets.
Each of the big six banks had an initial meeting with HSBC to discuss the possibility of acquiring HSBC Bank Canada, which ranks behind them as the seventh largest lender, The Globe and Mail reported this week, citing two unnamed people who , according to the newspaper had knowledge of the process.
However, although each lender is extremely profitable, not all banks are well placed to win the hand of the British financial giant, leading to a debate over who is most likely to win, assuming HSBC chooses to win. make a sale.
Bank of Nova Scotia analyst Meny Grauman released a report Oct. 21 that as things stand, the only Canadian bank currently able to absorb the potential $10 billion price tag is the Royal Bank of Canada, the country’s largest lender. “Other banks would need to raise significant capital to fund this transaction,” Grauman wrote.
Grauman and fellow analyst Felix Fang speculated that the Toronto-Dominion Bank could do just that by selling its roughly $24 billion stake in Charles Schwab Corp. However, they wondered if TD would be motivated to make a big acquisition, given that it is growing. its footprint in the United States through its purchase of First Horizon for US$13 billion in February. The same goes for the Bank of Montreal, which caused a sensation at the end of last year with its $16.3 billion acquisition of the Bank of the West activities of BNP Paribas SA.
Of course, while Royal Bank may be best positioned to acquire HSBC Bank Canada, that doesn’t mean CEO Dave McKay will be motivated to do so. His bank already has a leading position in the Canadian market and may therefore decide that there is little to be gained from adding HSBC’s assets to its portfolio. There might also be antitrust issues he would prefer to avoid.
The bank that could stand to gain the most from buying HSBC’s Canadian assets is also the one that could have the most difficulty raising funds, Grauman and Fang wrote. Montreal-based National Bank of Canada, which they described as a “super-regional” lender, has the most to gain strategically as it could expand its reach in Western Canada, particularly in Colombia. British, they said. However, Scotiabank analysts estimate that National Bank would need to raise $8.9 billion in equity to complete a deal, which is a lot for a company with a market capitalization of $30 billion.
The Globe shared speculation that National Bank could team up with a partner to help with the costs. The Globe also reported that Bay Street expects a two-round auction and first bids are expected shortly.
Nigel D’Souza, financial services analyst at Toronto-based Veritas Investment Research, also listed Royal Bank as the likeliest winner of an HSBC Canada auction, although macroeconomic headwinds and the growing pace recession risks could make this a difficult time for Canada’s largest. bank to make this move.
HSBC Canada is expected to release its results in the early morning hours of October 25, providing more financial details on what financial services companies pursuing the Canadian segment could gain from its acquisition.
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