RBC's takeover of HSBC Canada means less competition, critics say

2023-12-23 00:12:53

The approved sale of HSBC’s Canadian operations to Royal Bank of Canada (RBC) would reduce competition in the mortgage market, laments a mortgage strategist critical of the transaction.

Robert McLister calls the Trudeau government’s approval of the transaction “a sad day for mortgage borrowers.”

He judges that HSBC Canada had a different approach from that of the big Canadian banks. He says the big banks regularly had fixed and variable interest rates 20 to 80 basis points higher.

HSBC Canada believed it could offset its lower rates by attracting “quality clients” who defaulted less and held more financial assets, Mr. McLister says.

“It was a lender that offered everyday low prices, which is extremely valuable in the Canadian market,” says the strategist, noting that it is difficult for smaller players in the financial sector to accumulate market share in Canada, where the big six banks are so dominant.

The sale of HSBC Canada to RBC for $13.5 billion cleared its final hurdle on Thursday, obtaining the green light from Finance Minister Chrystia Freeland. The minister cited the Competition Bureau’s finding, released in September, when she too approved the transaction, that the acquisition would not stifle competition in the mortgage market, which she said was “mostly driven by competition between the five largest banks”.

RBC President and CEO Dave McKay said in an interview Thursday that there is strong competition in the Canadian banking sector and that the deal would not diminish it “in any form.”

“There is enormous competition in the Canadian market. There are more than 50 banks, there are financial cooperatives in each province which compete fiercely, there are non-financial competitors. New competitors are constantly entering this sector,” he says.

Negociation power

For Canadians who had no intention of leaving their bank, “the main advantage of HSBC is that it offered borrowers arguments in their negotiations,” emphasizes Mr. McLister.

“I’ve spoken to countless clients over the years who went to the HSBC website, found a rate and then discussed it with their banker,” says the strategist. In general, the bank did not offer exactly the same rate, but was close enough to avoid losing their customer. »

HSBC said in a brief update Friday that it and RBC continue to make progress toward closing the transaction. The deal is expected to be officially finalized in the first quarter of 2024.

The approval of M^me Freeland has conditions for RBC, including that none of HSBC Canada’s 4,000 employees be laid off within six months of the closing date, or within two years for front-line staff. Banking services must continue to be provided in at least 33 HSBC branches for four years.