In this file photo taken on August 3, 2020, a HSBC logo is pictured on a wall outside a branch of the bank in central London. DANIEL LEAL AFP LONDON HSBC has agreed to sell its business in Canada to Royal Bank of Canada for $13.5 billion, or $10.04 billion, in cash, paving the way for a potential bumper payout for shareholders later in the line.
HSBC, which once billed itself as the world's largest bank and built a global network of retail banking businesses, has been cutting back in recent years in a bid to improve profits.
After a thorough review of the business, Chief Executive Noel Quinn said that they decided to sell after a thorough review of the business, which assessed its relative market position within the Canadian market and its strategic fit within the HSBC portfolio.
After the deal has been completed, HSBC said it could return some of the proceeds of the sale, expected to net the bank a $5.7 billion pre-tax gain, via a one-off dividend or buyback from early 2024 onwards.
Joe Dickerson, an analyst at Jefferies in London, said that it could be a way to appease shareholders who were incensed by the bank curtailing dividends in 2020, at the suggestion of British regulators.
Following the announcement, HSBC's shares rose 4 percent against a benchmark FTSE 100 index, up 0.7 percent.
The transaction looks very sensible. The business is worth more to RBC than it is to HSBC, and the price is reflected, said Ian Gordon, banking analyst at Investec.
Gordon said that the deal repaires an uncharacteristically weak capital position relative to HSBC's peers.
The acquisition will allow RBC to take more market share in its home market, adding 130 branches and more than 780,000 retail and commercial customers. If successful, it will be the first big banking merger in Canada in a decade.
HSBC was Canada's seventh biggest bank with assets of C $125 billion and earned C $490 million before tax as of June 30, according to its latest financial results. Analysts had valued HSBC Canada's business in the range of C $8 billion to C $10 billion.
The sale to RBC is expected to attract scrutiny from Canada's antitrust agency, as the country's banking market is heavily concentrated, with the top six lenders controlling about 80 percent of the total assets, based on Reuters calculations.
READ MORE: HSBC raises profitability goal and seeks to rebuff call for break-ups.
JP Morgan was hired by HSBC to advise on the sale.