COF Capital One Financial Corporation

On Tuesday, HSBC Holdings Plc (HBC) confirmed that the company is in talks with the potential acquirers regarding the sale of its Canadian retail brokerage business, which employs 120 advisors.

Late last month, Reuters had reported about the possible sale of HSBC’s Canadian retail brokerage business, which manages about C$16 billion ($16.3 billion) in investors' money. However, at that time the company had refused to acknowledge the same.

Among the foreign banks, HSBC has the largest presence in Canada. So, the sale of its retail brokerage business would be significant with respect to foreign companies’ confidence in the Canadian market. However, the possible sale would not include the company’s online brokerage and trust services in Canada, the company asserted.

As the Canadian market is highly consolidated, the chance to expand through merger and acquisitions is limited for the banks. So, the HSBC unit should be lucrative to all the financially-sound Canadian banks.

Although, the company declined to reveal the names of the potential buyers, the business has drawn interest from National Bank Financial, a unit of National Bank of Canada (NA). National Bank is one of largest six banks in Canada without any notable foreign exposure. Given National’s location and expansion capacity, it seems to be most suitable buyer for the HSBC unit.

The proposed sale of the Canadian unit is in sync with HSBC’s long-term strategy to reduce costs up to $3.5 billion through worldwide restructuring by 2013 and cut back retail banking.

Earlier in August, Capital One Financial Corporation (COF) had announced a definitive agreement to buy HSBC’s U.S. credit card business for $32.7 billion. The deal will help HSBC reap an estimated post-tax gain of $2.4 billion.

The divestiture of the Canadian retail brokerage business should bring long-term benefits for both HSBC and the acquirer. While after selling the unit, HSBC will be able to concentrate on its emerging market strategy, the acquirer would be able to expand in the highly-consolidated Canadian market.

HSBC retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.

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