Analysis: As UK lender HSBC eyes sale of units in Canada, antitrust concerns loom


TORONTO, Oct 5 (Reuters) – As British lender HSBC Plc considers selling its Canadian unit, lawyers and analysts say the country’s banking market concentration could discourage big domestic banks from bidding, with the government having instructed the antitrust regulator to push for more competition.

A deal with HSBC would be the first major bank sale in a decade in Canada, one of the world’s most concentrated markets where the six major banks control around 80% of total assets, Reuters calculates, roughly double the saturation of the United States where the top five banks control 40%.

The market is so saturated that Canadian banks are expanding overseas to reduce their exposure and Canada’s Competition Bureau has been given more powers to prevent further concentration.

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The bidders most likely to have the fewest problems with antitrust regulators are smaller Canadian banks, analysts say, while a sale to a Chinese bank would have no antitrust issues but could be scuttled by security concerns. national security.

Reuters reported on Tuesday that HSBC has tapped JPMorgan Chase to manage a potential sale of Canada’s seventh-largest lender by assets to boost returns for the parent bank, as demanded by its largest shareholder.

HSBC’s Canadian unit could be valued between C$8 billion ($5.9 billion) and C$10 billion ($7.4 billion), according to analysts. It generated C$952 million in pre-tax profits in 2021, according to its annual report.

The universe of potential buyers could already be narrowed as some major Canadian lenders, including the Toronto-Dominion Bank (TD.TO) and Bank of Montreal (BMO.TO) are in the process of buying assets in the United States, a said James Shannan, senior equity analyst at Edward Jones.

“No bank in Canada appears to be a likely candidate for this deal,” Shannan said. He ruled out any offers from US-based banks, saying they had failed to expand into Canada due to high disclosure and capital adequacy requirements.

He said Royal Bank of Canada (RY.TO), the country’s largest lender, has the ability to complete the deal but may not be attracted to the mix of HSBC’s business.

Gabriel Dechaine, banking analyst at National Bank of Canada (NA.TO), said in a note that regulatory hurdles will be even higher for RBC than for other Canadian banks, although all would face competition issues.

RBC declined to comment, while TD and BMO did not respond to Reuters’ request for comment.


Smaller lenders such as National Bank of Canada (NA.TO) and some Chinese suitors are expected to show interest, analysts said.

Keefe, Bruyette & Woods said in a research note that HSBC’s footprint in Western Canada could give Montreal-based National Bank instant diversification.

National Bank, which has a market value of C$30.1 billion, declined to comment.

Dechaine said HSBC’s business could be attractive to a major Chinese bank. But national security issues could complicate the process.

“Perhaps the federal government would consider whether the acquisition of HSBC Canada by a Chinese-controlled buyer would allow the Chinese government access to the Canadian banking system,” said John F. Clifford, CEO of McMillan LLP.

“I can easily imagine the federal government diving very deep to assess potential safety and public interest issues.”

HSBC Bank Canada is the largest international player in Canada, with businesses in commercial banking, personal banking, investment banking and market services. Yet its assets of $120 billion in Canada are far smaller than those of the National Bank, the sixth largest in Canada, with assets of $387 billion Canadian.

Consumer advocates have long complained about high fees for everyday banking and would likely oppose further consolidation. The average monthly fee on a Canadian checking account is $11, compared to $7 in the United States, according to a Reuters analysis that excluded student accounts.

The Competition Bureau Canada said in an email to Reuters that if the federal Department of Finance in the public interest certifies a bank merger, there will be no possibility of litigation.

In 1998, the Government of Canada blocked RBC’s proposed acquisition of BMO and the merger of TD and CIBC on the grounds that the deal would lead to an unacceptable concentration of economic power.

Since then, the only major banking deal to be approved was Scotiabank’s C$3.1 billion purchase of Canadian online banking from ING Groep in 2012.

Nigel D’Souza, investment analyst at Veritas Investment Research, said HSBC was unlikely to find a single buyer who could pass the antitrust test.

“So I think the most likely outcome for the deal to actually go through is for HSBC’s assets to be broken up and distributed among several of the larger banks,” he added.

($1 = 1.3507 Canadian dollars)

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Reporting by Divya Rajagopal Writing by Denny Thomas Editing by David Gregorio

Our standards: The Thomson Reuters Trust Principles.


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