TIDM88DB
RNS Number : 1234I
Royal Bank of Canada
30 November 2022
RBC to strengthen premium Canadian business with agreement to
acquire HSBC Canada
Acquisition to position RBC as the bank of choice for globally
connected clients
-- Addition of attractive client base and expanded international banking capabilities
-- Strong cultural fit and aligned approach to disciplined risk management
-- Strategic deployment of excess capital with attractive financial returns
TORONTO, November 29, 2022 - Royal Bank of Canada (RY on TSX and
NYSE) today announced it has entered into an agreement to acquire
HSBC Bank Canada ("HSBC Canada"), a premier Canadian personal and
commercial bank focused on globally connected clients.
Under the terms of the agreement, RBC will acquire 100% of the
common shares of HSBC Canada for an all-cash purchase price of
$13.5 billion. All of HSBC Canada's earnings from June 30, 2022
through close will accrue to RBC[1].
"HSBC Canada offers the opportunity to add a complementary
business and client base in the market we know best and where we
can deliver strong returns and client value given our financial
strength and award-winning service, " said Dave McKay, President
& CEO, RBC. "This also positions us as the bank of choice for
commercial clients with international needs, newcomers to Canada
and affluent clients who need global banking and wealth management
capabilities. It will help us better serve global clients looking
to invest and grow in Canada. "
"This acquisition builds on our core domestic retail business
and expands our international product capabilities, " said Neil
McLaughlin, Group Head, Personal & Commercial Banking, RBC. "We
look forward to welcoming HSBC Canada's talented employees after
the transaction closes and supporting them as they continue to
serve their clients. With strong cultural and risk alignment and a
shared focus on client service, we can build together on HSBC
Canada's leading international products."
HSBC Canada has $134 billion in assets as at September 30, 2022,
approximately 130 branches and 4,200 full-time equivalent
employees. Its commercial bank brings strong capabilities focused
on international business clients, including in liquidity
management, trade finance, global cash management and sustainable
finance. HSBC Canada's wealth and personal banking business serves
an affluent client base, with particular strength in meeting the
needs of international clients with connections to Canada. Its
strong balance sheet includes a well-diversified loan book and an
attractive deposit base.
Clients to benefit from industry-leading advice, convenience,
digital capabilities and value propositions
-- Combining HSBC Canada's strength in international products
with RBC's breadth of capabilities will provide a best-in-class set
of solutions to help clients meet their financial goals, build
their wealth and grow their businesses.
-- RBC remains committed to ensuring clients get the highest
value, competitive rates and best service.
-- HSBC Canada clients will have access to the largest network
of branches and ATMs in Canada, giving them exceptional convenience
in their everyday banking.
-- RBC consistently wins awards for customer service and
satisfaction, and offers an industry-leading digital banking
experience and rewards program.
RBC is a globally-recognized Employer of Choice
-- RBC has consistently high employee engagement and ranks among
the best workplaces in Canada [2] .
-- RBC employs over 92,000 full-time and part-time employees
globally, including almost 65,000 full-time equivalent in
Canada.
-- RBC is committed to offering an exceptional work experience
and competitive rewards package that inspires employees to achieve
both their life and career goals with RBC, including a full suite
of banking, retirement, savings and benefits programs alongside
other resources like flexible work options, learning and
development opportunities and well-being.
-- Diversity & inclusion is core to RBC's Purpose; RBC has
repeatedly been recognized as one of Canada's Best Diversity
Employers[3] and plays an active leadership role in accelerating a
more inclusive future.
RBC and HSBC Canada share a strong commitment to communities
-- RBC plays a leadership role in community investment, with a
total contribution of more than $140 million globally in fiscal
2021. RBC donates 1% of its Canadian net income before tax each
year, helping our communities grow with us.
-- RBC has a strong focus on youth, climate, financial wellness
and diversity & inclusion, with the goal of building vibrant
and socially inclusive communities; this includes an investment of
$500 million dollars over 10 years[4] in helping young Canadians
prepare for the future of work.
-- RBC and HSBC Canada share a focus on sustainability. RBC is
committed to taking action in helping our clients transition to net
zero. RBC has committed to providing $500 billion in sustainable
finance by 2025[5].
Acquisition highlights
The acquisition will enhance RBC's competitiveness on the global
stage without compromising Canadians' access to a competitive,
diverse market here at home.
The financial sector is highly competitive in Canada, with 50
banks and hundreds of credit unions and fintechs competing to serve
Canadians. HSBC Canada accounts for around 2% of Canadian deposits
and mortgages.
Under the terms of the agreement, RBC will acquire 100% of the
common shares of HSBC Canada for an all-cash purchase price of
$13.5 billion. All of HSBC Canada's earnings from June 30, 2022
through close will accrue to RBC[6]. 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. On this
basis, the acquisition is expected to be approximately 6% EPS
accretive relative to 2024 consensus estimates for RBC[7]. This
acquisition is expected to have an Internal Rate of Return[8] of
14% and a marginal return on tangible common equity[9] of 27%. RBC
expects its CET1 ratio[10] to exceed 11.5% upon close[11].
RBC expects to achieve approximately $740 million, or 55%, in
fully realized annual pre-tax expense synergies based on HSBC
Canada's estimated 2024 non-interest expense base, and incur total
acquisition and integration costs of approximately $1 billion. RBC
will purchase all of the existing preferred shares and subordinated
debt of HSBC Canada held directly or indirectly by HSBC Holdings
plc at par value.
Closing is expected by late 2023 subject to customary closing
conditions including regulatory approvals, obtained in the ordinary
course. All amounts are in Canadian dollars.
Conference call
RBC will host a conference call on Tuesday, November 29 at 9:00
am ET, followed by a question and answer period for analysts.
Please call between 8:50 and 8:55 am.
Participants:
Toll-free dial-in number (Canada/US): 1-866-696-5910
Local dial-in number: 416-340-2217
Participant passcode: 4431273#
Webcast link:
https://www.rbc.com/investor-relations/events-and-presentations.html
Instant replay:
Toll-free dial-in number (Canada/US): 1-800-408-3053
Local dial-in number: 905-694-9451
Passcode: 7155475#
Advisors
RBC Capital Markets served as lead and primary financial advisor
with Blake, Cassels & Graydon LLP, Allen & Overy LLP, and
Wachtell, Lipton, Rosen & Katz serving as legal counsel for
this transaction. Goldman Sachs & Co. LLC provided secondary
financial advice on certain matters.
About RBC
Royal Bank of Canada is a global financial institution with a
purpose-driven, principles-led approach to delivering leading
performance. Our success comes from the 92,000+ employees who
leverage their imaginations and insights to bring our vision,
values and strategy to life so we can help our clients thrive and
communities prosper. As Canada's biggest bank and one of the
largest in the world, based on market capitalization, we have a
diversified business model with a focus on innovation and providing
exceptional experiences to our 17 million clients in Canada, the
U.S. and 27 other countries. Learn more at rbc.com.
We are proud to support a broad range of community initiatives
through donations, community investments and employee volunteer
activities. See how at rbc.com/community-social-impact.
________________________
Key performance and non-GAAP measures
We use a variety of financial measures to evaluate our
performance and the impact of the proposed transaction as described
herein. In this press release we use certain key performance and
non-GAAP measures, including forward-looking non-GAAP measures,
that we believe provide useful information to investors. Readers
are cautioned that key performance measures and non-GAAP measures,
including EPS accretion and return on tangible common equity, do
not have any standardized meanings prescribed by GAAP, and
therefore may not be comparable to similar measures disclosed by
other financial institutions.
Certain of the forward-looking estimated adjusted results
presented in this document are based on analyst consensus estimates
of RBC's future adjusted results as indicated, and we caution that
the methodology applied by analysts to estimate those results may
not be consistent with RBC's methodology. The forward-looking
estimated results for HSBC Canada presented in this document are
based on RBC management's estimate of HSBC Canada's future
performance and we caution that these are preliminary estimates
based on due diligence and management projections.
Caution regarding forward-looking statements
This press release contains forward-looking statements within
the meaning of certain securities laws, including the "safe
harbour" provisions of the United States Private Securities
Litigation Reform Act of 1995 and any applicable Canadian
securities legislation, with respect to RBC's and HSBC Canada's
financial performance, beliefs, plans, expectations, and estimates.
Forward-looking statements in this press release may include, but
are not limited to, statements with respect to the expected closing
of the proposed transaction, plans for the combined operations of
RBC and HSBC Canada, the financial, operational and capital impacts
of the proposed transaction, our strategies or future actions, and
our objectives and commitments. The forward-looking information
contained in this press release is presented for the purpose of
assisting the holders of our securities and financial analysts in
understanding the proposed transaction and may not be appropriate
for other purposes. Forward looking statements are typically
identified by words such as "believe", "expect", "foresee",
"forecast", "anticipate", "intend", "estimate", "goal", "commit",
"target", "objective", "plan" and "project" and similar expressions
of future or conditional verbs such as "will", "may", "might",
"should", "could" or "would".
By their very nature, forward-looking statements require us to
make assumptions and are subject to inherent risks and
uncertainties, which give rise to the possibility that our
predictions, forecasts, projections, expectations or conclusions
will not prove to be accurate, that our assumptions may not be
correct, that our financial performance, environmental & social
or other objectives, vision and strategic goals will not be
achieved, and that our actual results may differ materially from
such predictions, forecasts, projections, expectations or
conclusions.
We caution readers not to place undue reliance on these
statements as a number of risk factors could cause our actual
results to differ materially from the expectations expressed in
such forward-looking statements. These factors - many of which are
beyond our control and the effects of which can be difficult to
predict - include, but are not limited to: the possibility that the
proposed transaction does not close when expected or at all because
of the occurrence of any event, change or other circumstances that
could give rise to the right of one or both of the parties to
terminate the proposed transaction, including because required
regulatory or other approvals and/or other conditions to closing
are not received or satisfied on a
timely basis or at all or are received subject to adverse
conditions or requirements; the possibility that the anticipated
benefits from the proposed transaction, such as being accretive to
EPS, creating cross-sell opportunities and growing our Canadian
operations are not realized in the time frame anticipated or at all
as a result of changes in general economic and market conditions,
interest and exchange rates, monetary policy, laws and regulations
(including changes to capital requirements) and their enforcement,
and the degree of competition in the geographic and business areas
in which RBC and HSBC Canada currently operate; the risk that any
announcements relating to the proposed combination could have
adverse effects on the market price of our shares; the possibility
that the business of RBC and HSBC Canada may not perform as
expected or in a manner consistent with historical performance; the
ability to promptly and effectively integrate HSBC Canada; our
ability to achieve our capital targets; our ability to cross-sell
more products to customers; reputational risks and the reaction of
HSBC Canada's customers and employees to the transaction; the
possibility that the transaction may be more expensive to complete
than anticipated, including as a result of unexpected factors or
events; diversion of management time on transaction-related issues;
material adverse changes in economic and industry conditions;
general competitive, economic, political and market conditions;
changes in asset quality and credit risk; the inability to sustain
revenue and earnings growth; inflation; customer borrowing,
repayment, investment and deposit practices; the impact, extent and
timing of technological changes; capital management activities; and
those other factors discussed in the risks sections and Impact of
COVID-19 pandemic section of our 2021 Annual Report and the Risk
management section of our Q3 2022 Report to Shareholders, and the
factors discussed in the Risk section and Impact of COVID-19 and
our response section of HSBC Canada's Annual Report and Accounts
2021 and the Risk section of HSBC Canada's Third Quarter 2022
Interim Report all of which outline certain key factors and risks
that may affect our future results and our ability to anticipate
and effectively manage risks arising from all of the foregoing
factors.
We caution that the foregoing list of risk factors is not
exhaustive and other factors could also adversely affect our
results. When relying on our forward-looking statements to make
decisions with respect to us, investors and others should carefully
consider the foregoing factors and other uncertainties and
potential events. Material economic assumptions underlying the
forward-looking statements contained in this press release are set
out in the Economic, market and regulatory review and outlook
section and for each business segment under the Strategic
priorities and Outlook sections in our 2021 Annual Report, as
updated by the Economic, market and regulatory review and outlook
section of our Q3 2022 Report to Shareholders.
Assumptions about RBC's and HSBC Canada's current and expected
financial performance including balance sheet, income statement and
regulatory capital figures, expected capital availability for the
proposed transaction, expected closing date of the proposed
transaction, expected expense synergies (and timing to achieve),
integration and restructuring costs and process, alignment of
organizational responsibilities, estimated purchase price
accounting (including fair value and credit marks), foreign
exchange rates, our assumed terminal value multiple, and future
regulatory capital requirements, including the Office of the
Superintendent of Financial Institutions' announced Basel III
reforms effective in the second quarter of fiscal 2023, were
considered in making the forward-looking statements in this press
release including estimating the pro forma financial impacts to RBC
(i.e. the EPS accretion, internal rate of return to RBC, return on
tangible common equity) and the expected capital impact to RBC.
Any forward-looking statements contained in this document
represent the views of RBC only as of the date hereof. Except as
required by law, RBC does not undertake to update any
forward-looking statement, whether written or oral, that may be
made from time to time by us or on our behalf.
- 30 -
Media Relations Contact
Jeff Lanthier, jeff.lanthier@rbc.com , 416-903-7388
Investor Relations Contacts
Asim Imran, Vice President, Head of Investor Relations,
asim.imran@rbc.com , 416-955-7804
Marco Giurleo, Senior Director, Investor Relations,
marco.giurleo@rbc.com , 437-239-5374
[1] Excludes a $90 million dividend paid by HSBC Canada in the
third quarter of 2022.
[2] Great Place to Work Institute
[3] Mediacorp
[4] RBC Future Launch started in 2017
[5] Sustainable finance refers to financial activities that take
into account environmental, social and governance factors.
[6] Excludes a $90 million dividend paid by HSBC Canada in the
third quarter of 2022.
[7] EPS accretion (consensus) is a non-GAAP measure. EPS
accretion (consensus) metrics are calculated based on analyst
expectations for RBC's adjusted EPS, share buybacks and adjusted
net income for 2024, as well as RBC management's estimates for HSBC
Canada's adjusted net income after tax. Adjusted net income after
tax and adjusted EPS are non-GAAP measures. Refer to the Key
performance and non-GAAP measures section.
[8] The Internal Rate of Return (IRR) is the discount rate that
makes the net present value (NPV) of all cash flows equal to zero
in a discounted cash flow analysis.
[9] Return on tangible common equity is a non-GAAP measure.
Refer to the Key performance and non-GAAP measures section.
[10] CET1 is calculated based on OSFI's Capital Adequacy
Requirements (CAR) guideline.
[11] Based on RBC's and HSBC Canada's estimated balance sheets
as of an assumed closing date of October 31, 2023, including
transaction related impacts.
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