Royal Bank of Canada is on target to fully integrate HSBC Canada into its operations within the next two years.
The $1.4 trillion bank expects to save CA$740 million ($541 million) once the merger is completed, according to the bank’s earnings report for its fiscal second quarter ending April 30. The bank closed its acquisition of HSBC Canada on March 28.
Nearly 60% of the savings, which includes IT spend, will be realized by March 2025, the earnings report stated.
“When we undertook this transaction and announced it 18 months ago, that was a long approval journey, and we had to plan a buffer for our capital and make sure that we could close this transaction as we articulate on a cash basis without having to do an equity raise,” Chief Executive David McKay said during today’s earnings call.
The acquisition of HSBC has given RBC “a lot of organic growth” and RBC aims to deepen its relationships with HSBC customers for cross-selling opportunities and use HSBC’s global cash management and trade financing tools for added services for its business banking suite, McKay said. HSBC Canada will be absorbed by RBC once the merger is complete, according to RBC’s March 28 release.
Through the acquisition, RBC added 780,000 clients from HSBC Canada, and about $54.8 billion in loans and relation-based deposits to the bank’s balance sheet, McKay said.
Since the acquisition closed, HSBC Canada has reported $37.3 million in losses, McKay said.
THE BIG PICTURE: RBC and its peers Scotiabank, TD Bank and National Bank of Canada are exercising cost controls.
National Bank of Canada reported net income of $663 million, up 9% year over year, and non-interest expense of $447 million, up 4% YoY in its May 29 earnings report for the fiscal second quarter ending April 30.
“We remain disciplined around expense management,” Chief Financial Officer Marie Chantal Gingras said during the bank’s earnings call. “Higher expenses from variable compensation and a temporary overlap in occupancy costs as we transition to our new head office also lowered earnings for this segment in the second quarter.”
National Bank of Canada reported an efficiency ratio of 54.1% during the quarter, compared to 55.2% in Q2 2023, according to its earnings report.
RBC, meanwhile, reported an efficiency ratio of 58.7% in Q2, compared to 59.5% during the same period last year, according to its earnings report.
BY THE NUMBERS: In Q2, RBC reported:
- $6 billion in non-interest expense, up 12% YoY;
- 9.6 million active digital users, up 10% YoY;
- $10.3 billion in revenue, up 13% YoY; and
- $4.8 billion in net-interest income, up 10% YoY.
NOTEWORTHY: RBC continues to invest in anti-money laundering capabilities. The bank was fined $5.5 million last year by Canadian watchdog Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) for failure to report suspicious transactions and failure to provide information in the prescribed form, according to a Dec. 5, 2023, FINTRAC release.
“We continue to invest in our AML systems and the overall ecosystem,” Chief Risk Officer Graeme Hepworth said during the earnings call. “We do collaborate around that, [and] we do invest in technology and AI helps us protect the system.”
FUTURE LOOK: RBC continues to invest in AI beyond retail banking and risk management, McKay said.
“We’re using the power of AI to help financial advisors identify and act on new opportunities to provide even more value to clients,” he said. “In capital markets, we are seeing continued success with Aiden, our well-established AI-powered trading platform.”
RBC is exploring HSBC’s existing AML infrastructure and talent to integrate into RBC operations, Hepworth said.
Editor’s note: All amounts have been converted to U.S. dollars.
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