Royal Bank of Canada to Acquire HSBC Canada; We See Good Cost Cuts and Some Client-Retention Risks

Royal Bank of Canada announced that it will acquire HSBC Canada, the Canadian operations of HSBC Group, for CAD 13.5 billion in cash. HSBC has been selling off some of its other foreign units over the years and it was known that HSBC Canada was on the block. We think it's clear that a domestic Canadian bank would be a more cost-efficient owner of this franchise, given clear opportunities for cost cutting. It is very hard for foreign banks to compete effectively in Canada and scale up in any significant way. This was clear to us as RBC plans to cut CAD 740 million of expenses, or roughly 55% of HSBC's estimated 2024 expense base.