RBC says HSBC deal won’t change mortgage landscape, experts unsure

Mortgage experts still skeptical that HSBC’s low-rate offerings will survive takeover

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Canada’s largest bank says the country’s mortgage market will not change significantly in the wake of its acquisition of HSBC Holdings Plc.’s operations here, but industry watchers aren’t as sure.

Last week, Royal Bank of Canada‘s $13.5 billion deal to take over HSBC Canada won regulatory approval, with some strings attached.

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Neil McLaughlin, the head of personal and commercial banking at RBC, said Canada’s mortgage market is “exceptionally competitive” with 43 lenders. HSBC Canada, the country’s seventh-largest bank, is not one of the largest players, he said.

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“They only, on average, have about two per cent market share,” he said. “From that perspective, it doesn’t really change the landscape to any material degree…. Canada is very well served by just that level of competition.”

Finance Minister Chrystia Freeland’s Dec. 21 approval came with a number of conditions, which include job protections, keeping at least 33 of HSBC’s branches, transition plans for existing clients and a commitment to offer billions in financing for affordable housing.

The Competition Bureau, Canada’s antitrust watchdog, gave its approval in September, stating in a report to the finance minister that the union wouldn’t result in a “substantial lessening or prevention of competition.”

The deal to buy HSBC Canada was first announced in November 2022. It represents the largest acquisition in Royal Bank’s history, giving it the chance to expand its domestic operations with HSBC’s $120 billion in assets, which include wealth management, personal and commercial banking.

Mortgage experts, however, have been quick to point out that even though HSBC’s market share was limited, the foreign-owned bank played a key role in reducing borrowing costs through its low-cost offerings.

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“HSBC’s often-leading advertised mortgage rates may soon fade into history,” said mortgage analyst Rob McLister. “Borrowers’ wallets are gonna feel this one.”

HSBC’s often-leading advertised mortgage rates may soon fade into history

Rob McLister

McLister said HSBC’s low everyday rates were a crucial benchmark for mortgage negotiators, making the upstart a thorn in sides of the bigger banks. Without it, super-prime mortgage borrowers will be left to fend for themselves with “non-transparent rates” from the Big Six banks.

HSBC was the one Big Six challenger with low enough uninsured funding costs and the will to advertise rock-bottom rates, he said.

“Most of HSBC’s mortgage customers will then be gobbled up by the golden lion, and remaining lenders will rub their hands with glee at the prospect of plumper profit margins,” McLister said.

Mortgage broker Ron Butler, meanwhile, said he does not expect RBC will become more rate competitive in the wake of the takeover.

“RBC is the biggest residential mortgage operation in Canada and they just got bigger,” Butler said.

McLaughlin said the federal finance minister’s approval of the deal was “substantial” to RBC and a good milestone for the two organizations.

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He said RBC is looking forward to adding HSBC’s products and services, some of which it currently doesn’t offer, to the bank’s shelves. These include products around foreign currencies such as savings accounts in multiple currencies and the ability to facilitate the movement of money internationally.

In a news release, RBC chief executive Dave McKay said the acquisition will “keep more of Canada’s financial sector under Canadian ownership” and also allow more Canadians to access the global economy by combining the strength and scale of RBC with the international banking capabilities and financial products that HSBC Canada is known for.

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“The acquisition of HSBC Canada is good for the country and Canadians,” McKay said.

The transaction is expected to close in the first quarter of 2024.

With files from Bloomberg

• Email: dpaglinawan@postmedia.com

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