Royal Bank of Canada is set to close its CA$13.5 billion ($10 billion) all-cash acquisition of HSBC Canada in the first quarter of next year as the bank works through its integration plans.
The acquisition will give RBC’s clients access to HSBC’s trade finance and cash management capabilities and create additional cross-selling opportunities for the bank, a bank release stated. HSBC will be absorbed by RBC once regulators approve the deal.
“We’re well on our way to coding the technology side of this with our HSBC partners,” RBC Chief Executive David McKay said during the earnings call today, noting that the integration of HSBC will not impact RBC’s operations apart from the guidance provided in the earnings.
RBC expects to spend $737 million on acquisition and integration costs to its operations along with close to $114 million on the combined entity’s information technology setup in 2024, according to the release.
BIGGER PICTURE: Apart from the acquisition, RBC invested in technology “to support strong client-driven growth” throughout its fourth quarter, which ended Oct. 31, according to the company’s earnings report, released today.
“Our strategic investments in technology and the client experience for the past several years mean we are well positioned to continue creating value,” McKay said. “We’re also currently investing in technology to further modernize our infrastructure including the FX trading arm of our macro business.”
Those technology investments contributed to the bank’s increased non-interested expenses, which grew 12.9% year over year to $5.9 billion, according to the report.
WHY IT MATTERS: The global banking industry has seen a flurry of M&A activity in the last two quarters, including:
- The $5.5 billion Cape Cod 5 Bank merger with $1.5 billion Fidelity Bank in September to create the $7 billion Mutual Bank;
- The sale of Citi’s wealth business in China to HSBC in October for $3.6 billion;
- The sale of Citi’s Indonesia operations to United Overseas Bank this month for $1.1 billion; and
- The PacWest Bancorp merger with Banc of California in July to form a new $36 billion entity.
Mergers are expected to continue through the end of the year as banks struggle to gain and hold on to deposits, James White, general manager of banking at software-as-a-service provider Total Expert, previously told Bank Automation News.
BY THE NUMBERS: In Q4, RBC reported;
- Total revenue of $9.5 billion, up 3.6% YoY;
- Net income of $3 billion, up 6.4 billion YoY; and
- Total full-time employees were essentially unchanged YoY at 91,398.
NOTEWORTHY: Similar to other industry players, RBC is trimming its physical footprint. As of Oct. 31, RBC had 1,247 branches, a reduction of 1.8% YoY, according to the company’s earnings reports.
Lloyds Bank, NatWest and Deutsche Bank have all reduced their footprints on the heels of rising digital banking adoption.
MARKET REACTION: Shares of RBC [NYSE: RY] were down 3.52% from market open to $90.04 at market close today. RBC has a market capitalization of $126 billion.
Editors Note: All figures have been converted to U.S. Dollar.
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