RBC takeover of HSBC Canada approved by Competition Bureau

Instead, the report indicated RBC is absorbing a “a vigorous competitor and a material rival … in the offer of particular financial services,” but that “HSBC Canada’s competitive impact was limited when compared to other financial institutions.”

The bureau noted that HSBC Canada relied heavily on its global parent for funding and strategic direction, which “limited or constrained its competitiveness in Canada, and resulted in underinvestment or delays in product development, more limited product offerings, and a lag in digital offerings as compared to the major domestic banks.”

Nonetheless, the bureau found evidence of several instances when HSBC Canada’s lineup had influenced RBC’s offerings. RBC routinely monitored HSBC Canada’s interest rates, and there were “numerous examples” of customers citing HSBC Canada mortgage rates during negotiations with RBC, the report stated.

Further, “RBC strategic documents cited certain HSBC Canada product features, such as GIC redemption terms, transaction limits, features of foreign currency accounts, and international services, among others, as historically effective in drawing RBC clients to HSBC Canada,” the report stated.

However, this competition was limited. “The Bureau also found substantial evidence of major competitors such as RBC directly declining to match HSBC Canada rates, or developing strategies which reacted less directly to HSBC Canada offers, consistent with [that] bank’s more limited market presence.”

The report concluded that the loss of rivalry would primarily affect HSBC Canada customers of products such as mortgages and internationally focused accounts. Overall, though, HSBC Canada had minor competitive impact on other financial institutions.

The other areas in which the two banks have product overlap — credit cards, capital markets services and business financial services — would not see a substantial lessening or prevention of competition, the report said.

Specifically, the bureau predicted the post-merger market share of the merged firms would be below 35% in both the assessed personal financial services markets and the business financial services markets.

Documents reviewed by the bureau suggested RBC would close, consolidate or restructure branches if the deal is approved, but that such closures could happen regardless.

The report emphasized, however, that the documents “generally reinforced the competitive importance of local branch networks overall.” Further, “the [banks] viewed branch closures as a notable risk to competitiveness and market growth, and as a factor which could lead to material customer attrition.”

RBC has the largest branch network in the country.

In its report, the bureau observed that the financial services market in Canada overall remains very concentrated. Barriers to entry and expansion remain high, and include impediments to customer switching, the high cost of doing business, and the entrenched brand reputations of the existing banks.

However, those barriers “may be lower for capital markets, wealth management and advisory services, or other services distinct from deposit and loan operations,” the report stated.

Some had also pushed for the deal to be blocked because HSBC has been a leader in sustainable policies, such as a commitment last year to stop funding new oil and gas fields, while RBC has been criticized for its shortcomings on climate action.

The bureau found that RBC would still face incentives to respond in the area given increasing demand and significant competitive pressures.

The review considered a broad range of sources, including more than 1,500 submissions from Canadians.

The approval will be used in the Finance Minister’s decision-making process on whether to give the final greenlight for the deal to proceed.

In a statement, RBC welcomed the decision: “The Bureau’s conclusion that it has not identified Competition Act concerns in respect of our proposed acquisition of HSBC Canada followed an exhaustive review and a cooperative approach by RBC,” the bank said. “We are taking a similarly collaborative approach with the ongoing reviews by [the Office of the Superintendent of Financial Institutions] and the Minister of Finance.”

RBC first announced its proposed takeover of HSBC Canada in November 2022, with a price tag of $13.5 billion. HSBC Canada has said it expects the deal to close in the first quarter of 2024.

The bureau recommended against the proposed mergers of RBC with Bank of Montreal, and CIBC with Toronto-Dominion Bank, in 1998.