TIDMHSBA
RNS Number : 9339H
HSBC Holdings PLC
29 November 2022
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Hong Kong Stock Code: 5
29 November 2022
HSBC AGREES TO SELL ITS BUSINESS IN CANADA
TO ROYAL BANK OF CANADA
-- Cash consideration of CA$13.5bn (US$10.1bn)
-- HSBC Group's estimated pre-tax gain of c.US$5.7bn
-- HSBC Group's CET1 ratio enhanced by additional c.130bps over and above existing capital plans
-- HSBC Board to proactively consider appropriate amount of additional surplus capital created by this Transaction
to be returned through a one-off dividend and/or share buybacks (in addition to any existing share buyback
programme)
HSBC Holdings plc (the 'Company') announces its wholly owned
subsidiary, HSBC Overseas Holdings (UK) Limited, has today entered
into an agreement to sell its banking business in Canada ('HSBC
Canada') to Royal Bank of Canada ('RBC'), subject to regulatory and
governmental approvals, (the 'Transaction').
RBC will acquire 100% of the issued common equity of HSBC Canada
for a base cash consideration of CA$13.5bn (US$10.1bn ([1]) ). In
addition, RBC will acquire all the preferred shares and the
outstanding subordinated debt issued by HSBC Canada and held by the
HSBC Group for approximately CA$1.1bn (US$0.8bn) and CA$1.0bn
(US$0.7bn), respectively. The Transaction is expected to complete
in late 2023.
Financial impacts of the Transaction on the HSBC Group
(consolidated basis) are currently expected to be (based on
financials as at 30 September 2022):
-- An estimated pre-tax gain for the Company of c.US$5.7bn ([2])
, inclusive of the recycling of c.US$0.6bn in foreign currency
translation reserve losses. The estimated pre-tax profit on the
sale will be recognised through a combination of the consolidation
of HSBC Canada's results into the Company's financial statements
(between the 30 June 2022 net asset reference date and until
completion), and the remaining gain on sale recognised at
completion. There would be no tax on the gain recognised at
completion.
-- As a consequence of the gain on sale and the disposal of the
HSBC Canada RWAs, the HSBC Group's CET1 ratio will be enhanced by
an additional c.130 bps over and above our existing capital plans
(based on HSBC Group RWAs of US$828bn and HSBC Canada RWAs on a PRA
basis of US$31bn).
We continue to target a return on average tangible equity of at
least 12% from 2023, excluding the gain on this Transaction. We
remain committed to this target post completion of the sale.
Our dividend approach for 2023 and 2024 remains a targeted
payout ratio of 50% excluding gains on disposal, and we reiterate
our ongoing policy to distribute surplus capital, where
appropriate. The Board will proactively consider opportunities for
organic growth and investment, and the appropriate amount of
additional surplus capital created as a consequence of this
Transaction to be returned by way of a one-off dividend and/or
share buybacks (in addition to any existing share buyback
programme). The current timing of any distributions related to this
Transaction is assumed to be from early 2024 onwards, following
completion.
The sale agreement follows a strategic review of HSBC Canada,
which is among Canada's premier international banks with more than
130 branches and over 780,000 retail and commercial customers. The
review considered HSBC Canada's relatively low market share and the
Group's ability to invest in HSBC Canada's expansion and growth in
the context of opportunities in other markets, and concluded that
the best course of action strategically for the HSBC Group and HSBC
Canada was to sell the business. The transaction will unlock
significant value for the HSBC Group.
Noel Quinn, CEO of HSBC Group, commented:
"HSBC Canada is a high performing and profitable bank, with
strong leadership and exceptional people. I am grateful to the
whole team for their hard work in supporting our clients over many
years. We decided to sell following a thorough review of the
business, which assessed its relative market position within the
Canadian market and its strategic fit within the HSBC portfolio,
and concluded that there was a material value upside from selling
the business.
"I am pleased that we have reached an agreement with RBC. The
deal makes strategic sense for both parties, and RBC will take the
business to the next level. We look forward to working closely with
RBC's leadership team to ensure a smooth transition for our clients
and colleagues. Our Group strategy is unchanged, and closing this
transaction will free up additional capital to invest in growing
our core businesses and to return to shareholders."
Financial terms
Under the terms of the Share Purchase Agreement dated 29
November 2022, (the 'Agreement'), RBC will acquire 100% of the
issued common equity in HSBC Canada from HSBC Overseas Holdings
(UK) Limited, a wholly owned subsidiary of HSBC Holdings plc, for a
base cash consideration of CA$13.5bn (US$10.1bn ([3]) ). In
addition, RBC will acquire all the preferred shares and the
outstanding subordinated debt issued by HSBC Canada and held by the
HSBC Group at their closing par value (including accrued interest
and dividend entitlements), which as at 30 June 2022 were
approximately CA$1.1bn (US$0.8bn) and CA$1.0bn (US$0.7bn),
respectively. The base cash consideration for the issued common
equity is subject to a customary leakage adjustment. There will
also be an adjustment for additional equity capital contributions
made to HSBC Canada. As at 30 September 2022, the carrying value of
HSBC Canada attributable to ordinary shareholders recognised in the
Company's consolidated financial statements was US$3.4bn and the
total amount of the preferred shares and subordinated debt
outstanding were US$0.8bn and US$0.7bn respectively. Consideration
for the sale will be settled at completion in cash, currently
anticipated to be in late 2023, subject to regulatory and
governmental approvals and following completion of migration
steps.
The Board of Directors of the Company believes the terms of the
Transaction are fair and reasonable and in the interests of
shareholders as a whole. The financial terms and aggregate
contemplated consideration of the Transaction were arrived at after
arm's length negotiations and having taken into account the value
of the component elements of HSBC Canada and the reasons for the
sale set out below.
Financial impact of the Transaction
The sale would generate an estimated pre-tax gain for the
Company of c.US$5.7bn, inclusive of the recycling of c.US$0.6bn in
foreign currency translation reserve losses (as at 30 September
2022). The majority of the estimated pre-tax gain on sale is
expected to be recognised at completion, currently anticipated to
be in late 2023. There would be no tax on the gain recognised at
completion.
Under the terms of the Agreement, the HSBC Group will retain
control of HSBC Canada until completion and continue to make all
the ordinary course of business decisions, subject to certain
consent rights held by the Purchaser, therefore the results, assets
and liabilities of HSBC Canada will continue to be reported in the
Company's consolidated financial statements between the 30 June
2022 net asset reference date and completion of the Transaction.
The estimated pre-tax profit on the sale will be recognised through
a combination of the consolidation of HSBC Canada's results into
the Company's financial statements (between the net asset reference
date and until completion), and the remaining gain on sale
recognised at completion.
Amounts in US$ Estimated
P&L impact
Net asset value attributable to ordinary shareholders $3.6bn
as at 30 June 2022 (net asset reference date)(4)
--------------
Movements in net asset value since 30 June 2022(5) ($0.2bn)
--------------
Transferring net asset value attributable to ordinary $3.4bn
shareholders as at 30 September 2022 (6)
--------------
Cash consideration expected to be paid at completion(7) $10.1bn
--------------
$6.7bn
--------------
Other estimated P&L impacts (including transaction ($0.4bn)
costs and write-offs)
--------------
Group foreign currency reserves recycling(8) ($0.6bn)
--------------
Estimated total pre-tax gain on sale for HSBC $5.7bn
Group (9)
--------------
Estimated uplift in CET1 (based on HSBC's Group Approximately
and HSBC Canada's total RWAs at 30 September 2022)(10) 130 bps
--------------
(4) Net asset value as at 30 June 2022 converted at a CA$/US$
exchange rate of 0.7744.
(5) Includes total comprehensive income, foreign currency
translation impacts and the payment of dividends. In respect of
dividends, on 22 July 2022, HSBC Canada declared a second interim
dividend of CA$90m (US$68m) on HSBC Canada common shares in respect
of the financial year ending 31 December 2022 and CA$13m (US$10m)
of regular quarterly dividend for the third quarter of 2022 on all
series of outstanding HSBC Canada Class 1 preferred shares, both
payable to HSBC Holdings plc. Under the terms of the Agreement, no
other dividends on common shares will be declared or paid to HSBC
Holdings plc thereafter, whereas dividends attributable to
preference shares will continue to be paid.
(6) Net asset value as at 30 September 2022 converted at a
CA$/US$ exchange rate of 0.7292.
(7) Base consideration of CA$13.5bn converted at a CA$/US$
exchange rate of 0.7469 for 100% of the issued common equity in
HSBC Canada.
(8) The recycling of foreign currency translation reserves to
profit and loss has no incremental capital impact.
(9) The Company's existing 50% dividend pay-out ratio approach
will exclude any reported gain on sale from this transaction,
recognised through a combination of the consolidation of HSBC
Canada's results into the Company's financial statements (between
the net asset reference date and until completion), and the
remaining gain on sale recognised at completion.
(10) Estimated HSBC Group consolidated common equity tier 1
capital ratio over and above existing capital plans impact
calculated using financial statements dated 30 September 2022 and
therefore may be impacted by circumstances arising between this
date and the date of completion of the Transaction. Estimated
impacts are computed based on direct transaction profit and loss
impacts and related RWAs.
At completion, it is estimated that the sale of HSBC Canada
would reduce RWAs at an HSBC Group consolidated level under UK
regulatory rules by up to US$31bn based on 30 September 2022
figures. The HSBC Group has a consolidated CET1 ratio of 13.4% as
at 30 September 2022. The impact of the pre-tax profit (excluding
the foreign currency translation reserve recycling which has no
impact on CET1) together with the reduction in RWAs, would be
expected to lead to an estimated increase in the HSBC Group
consolidated common equity tier 1 capital ratio of approximately
130 basis points over and above existing capital plans (based on
HSBC Group capital and RWAs at 30 September 2022). The estimated
impact is computed based solely on direct transaction profit and
loss impacts and related RWAs.
The Group intends to hedge the Transaction cash proceeds from a
currency perspective to minimise the retranslation risk of the US$
equivalent of CA$13.5bn on completion. This hedging may lead to a
temporary increase in Group RWAs of up to c.US$10bn with an
associated temporary reduction in the Group CET1 ratio by up to
c.20bps (based on RWAs of US$828.3bn as at 30 September 2022) and
some limited income statement volatility until the Transaction
completes, at which point the hedging and associated RWAs will
cease to exist.
Further information
As at 31 December 2021, the value of the gross assets of HSBC
Canada was US$94.6bn, including US$54.2bn of customer loans
balances and the value of the net assets of HSBC Canada was
US$5.4bn. The business also had customer deposit balance of
US$58.1bn. HSBC Canada generated US$1.51bn and US$1.77bn of
revenues, incurred US$0.96bn and US$1.04bn of operating expenses,
and recognised a US$0.24bn and US$(0.04)bn charge/(release) for
expected credit losses, during the financial years ended 31
December 2020, and 2021, respectively. The profit before tax for
HSBC Canada for the financial years ended 31 December 2020 and 31
December 2021 was US$0.30bn and US$0.76bn respectively. The profit
after tax for HSBC Canada for the financial years ended 31 December
2020 and 31 December 2021 was US$0.23bn and US$0.57bn respectively,
converted at the prevailing exchange rates of the respective
periods. As at 31 December 2021, HSBC Canada reported RWAs (on a
PRA basis) of US$30.3bn.
Linda Seymour is the Chief Executive Officer and Daniel
Hankinson is the Chief Financial Officer of HSBC Canada.
J.P. Morgan Cazenove and HSBC Global Banking acted as financial
advisers to the Company in connection with the Transaction.
The Transaction is being treated as a Class 2 transaction for
the purposes of the UK Financial Conduct Authority's Listing Rules
and, in view of a cap on the overall consideration for the
Transaction to be included in the Agreement, as a disclosable
transaction under the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited (the 'Hong Kong Listing
Rules').
To the best of the knowledge, information and belief of the
Directors of the Company having made all reasonable enquiries, the
Purchaser and its ultimate beneficial owners are third parties
independent of the Company and its connected persons (as defined
under the Hong Kong Listing Rules).
This announcement is released by HSBC Holdings plc and contains
information that qualified as inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014 as it forms part of the
domestic law of the United Kingdom by virtue of the European Union
(Withdrawal Agreement) Act 2018 ('UK MAR'), encompassing
information relating to the Transaction described above.
Miscellaneous
The Board of Directors of HSBC Holdings plc as at the date of
this announcement comprises: Mark Tucker*, Noel Quinn, Geraldine
Buckingham , Rachel Duan , Carolyn Julie Fairbairn , James Anthony
Forese , Steven Guggenheimer , José Antonio Meade Kuribreña ,
Eileen K Murray , David Nish , Ewen Stevenson and Jackson Tai .
* Non-executive Group Chairman
Independent non-executive Director
For and on behalf of
HSBC Holdings plc
Aileen Taylor
HSBC Group Company Secretary and Chief Governance Officer
This announcement contains both historical and forward-looking
statements. All statements other than statements of historical fact
are, or may be deemed to be, forward-looking statements.
Forward-looking statements may be identified by the use of terms
such as 'expects,' 'targets,' 'believes,' 'seeks,' 'estimates,'
'may,' 'intends,' 'plan,' 'will,' 'should,' 'potential,'
'reasonably possible', 'anticipates,' 'project', or 'continue',
variation of these words, the negative thereof or similar
expressions or comparable terminology. HSBC has based the
forward-looking statements on current plans, information, data,
estimates, expectations and projections about, among other things,
results of operations, financial condition, prospects, strategies
and future events, and therefore undue reliance should not be
placed on them. These forward-looking statements are subject to
risks, uncertainties and assumptions about us, as described under
'Cautionary statement regarding forward-looking statements'
contained in the HSBC Holdings plc Annual Report on Form 20-F for
the year ended 31 December 2021, filed with the SEC on 24 February
2022 (the '2021 Form 20-F') and in other reports on Form 6-K
furnished to or filed with the SEC subsequent to the 2021 Form 20-F
('Subsequent Form 6-Ks'). HSBC undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. In light of
these risks, uncertainties and assumptions, the forward-looking
events discussed herein might not occur. Investors are cautioned
not to place undue reliance on any forward-looking statements,
which speak only as of their dates. No representation or warranty
is made as to the achievement or reasonableness of and no reliance
should be placed on such forward-looking statements. Additional
information, including information on factors which may affect the
HSBC Group's business, is contained in the 2021 Form 20-F and
Subsequent Form 6-Ks.
Media enquiries to:
UK - Kirsten Smart +44 7725 733 311 pressoffice@hsbc.com
Canada - Sharon Wilks +1 647 388 1202 sharon_wilks@hsbc.ca
Investor enquiries to:
Richard O'Connor +44 (0)20 7991 6590
investorrelations@hsbc.com
Supplementary information
J.P. Morgan Securities plc, which conducts its UK investment
banking business as J.P. Morgan Cazenove ('J.P. Morgan Cazenove'),
and which is authorised in the United Kingdom by the Prudential
Regulation Authority (the 'PRA') and regulated by the PRA and the
Financial Conduct Authority, is acting as financial adviser
exclusively for HSBC Holdings plc and no one else in connection
with the Potential Transaction and will not regard any other person
as its client in relation to the Potential Transaction and will not
be responsible to anyone other than HSBC Holdings plc for providing
the protections afforded to clients of J.P. Morgan Cazenove or its
affiliates, nor for providing advice in relation to the Potential
Transaction or any other matter or arrangement referred to
herein.
HSBC Bank plc ('HSBC'), which is authorised by the Prudential
Regulation Authority and regulated in the United Kingdom by the
Financial Conduct Authority and the Prudential Regulation
Authority, is acting as financial adviser to HSBC Holdings plc and
no one else in connection with the matters described in this
Announcement and will not be responsible to anyone other than HSBC
Holdings plc for providing the protections afforded to clients of
HSBC, or for providing advice in connection with the matters
referred to herein. Neither HSBC nor any of its group undertakings
or affiliates owes or accepts any duty, liability or responsibility
whatsoever (whether direct or indirect, whether in contract, in
tort, under statute or otherwise) to any person who is not a client
of HSBC in connection with this Announcement or any matter referred
to herein.
Notes to editors:
1. HSBC Holdings plc
HSBC Holdings plc, the parent company of HSBC, is headquartered
in London. HSBC serves customers worldwide from offices in 63
countries and territories in its geographical regions: Europe,
Asia, North America, Latin America, and Middle East and North
Africa. With assets of US$2,992bn at 30 September 2022, HSBC is one
of the world's largest banking and financial services
organisations.
The head office of HSBC Canada is located at 885 West Georgia
Street, Vancouver, British Columbia, Canada V6C 3E9.
2. About RBC
Royal Bank of Canada is one of Canada's biggest banks, and among
the largest in the world based on market capitalisation. It has
over 92,000 employees serving 17m clients in Canada, the US and 27
other countries. It is one of North America's leading diversified
financial services companies, and provides personal and commercial
banking, wealth management, insurance, investor services and
capital markets products and services on a global basis.
[1] Converted at a CA$/US$ exchange rate of 0.7469.
[2] The majority of the gain on sale of c.US$5.7bn will be
recognised on completion, reduced by earnings recognised by the
HSBC Group in the period to completion.
[3] Converted at a CA$/US$ exchange rate of 0.7469
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