Last week, Royal Bank of Canada's $13.5 billion deal to buy HSBC Canada received regulatory approval, with some conditions attached.
Neil McLaughlin, head of personal and commercial banking at RBC, said the Canadian mortgage market has 43 lenders and the competition is "extremely fierce". HSBC Canada, Canada's seventh-largest bank, is not one of the biggest players, he said.
"They only have an average market share of about 2 percent," he said. "From that point of view, it hasn't really changed to any extent······ This level of competition is very beneficial for Canada. ”
Canada's finance minister, Chrystia Freeland, set out a series of conditions in her December 21 approval, including job protection, retention of at least 33 HSBC branches, a transition plan for existing customers, and a commitment to provide billions of dollars in financing for affordable housing.
Canada's antitrust regulator, the Competition Bureau, approved the proposal in September, noting in a report to the Treasury Secretary that the acquisition would not result in a "significant reduction or impediment of competition."
The acquisition of HSBC Bank of Canada was first announced in November 2022. It is the largest acquisition in Royal Bank's history, giving it the opportunity to leverage HSBC's $120 billion in assets to expand its domestic business, which includes wealth management, personal and commercial banking.
Mortgage experts are quick to point out that despite HSBC's limited market share, the foreign bank has played a key role in reducing borrowing costs by offering low-cost loans.
"HSBC's often leading mortgage rates may soon be a thing of the past," said Rob McLister, a mortgage analyst, "and borrowers' wallets will suffer." ”
Mr McLister said HSBC's low daily interest rates were a key benchmark in mortgage negotiations, making the upstart a thorn in the side of the big banks. Without it, prime mortgage borrowers will have to fend for themselves on the "opaque interest rates" of the big six banks.
He said HSBC was the only challenger to the big six banks, with low enough uninsured financing costs and a willingness to advertise very low interest rates.
"At that point, the majority of HSBC's mortgage customers will be swallowed up by the big banks, and the remaining lenders will be rejoicing at the prospect of improved margins because there are fewer competitors," McLister said. "
Meanwhile, mortgage broker Ron Butler said he doesn't expect RBC to become more rate-competitive after the acquisition.
"Royal Bank of Canada is Canada's largest residential mortgage lender and growing," Butler said. ”
Mr McLaughlin said the federal treasurer's approval of the deal was significant for RBC and a good milestone for both institutions.
Royal Bank of Canada CEO Dave McKay said in a press release that the acquisition will "bring more of Canada's financial sector to Canadian-owned" and bring more Canadians into the global economy by combining the strength and scale of Royal Bank of Canada with the international banking capabilities and financial products that HSBC Canada is known for.
"The acquisition of HSBC Canada is good for both Canadians and Canadians," McKay said. "
The transaction is expected to close in the first quarter of 2024.