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Mortgage experts are still skeptical that HSBC's low-interest offerings will survive the takeover
Published on December 29, 2023 • Last updated 13 hours ago • 3 minutes reading time
HSBC Holdings Plc. Signage outside a bank branch in Toronto's financial district. Photo by Brent Lewin/Bloomberg Files
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Canada's largest bank says the country's mortgage market won't change much after it takes over HSBC Holdings Plc.'s operations here, but industry observers aren't so sure.
Last week, Royal Bank of Canada's $13.5 billion deal to acquire HSBC Canada received regulatory approval, but it came with some conditions attached.
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Neil McLaughlin, head of retail and commercial banking at RBC, said Canada's mortgage market is “extraordinarily competitive” with 43 lenders. HSBC Canada, the country's seventh-largest bank, is not one of the biggest players, he said.
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“They only have about a 2 percent market share on average,” he said. “From that perspective, it doesn’t really change the landscape in any significant way…. Canada is very well served by this level of competition.”
Finance Minister Chrystia Freeland's approval on December 21 was subject to a number of conditions, including job protections, the retention of at least 33 HSBC branches, transition plans for existing customers and a commitment to offer billions in financing for affordable housing.
The Competition Bureau, Canada's antitrust regulator, gave its approval in September, saying in a report to the finance minister that the union would not result in a “significant restriction or prevention of competition.”
The deal to purchase HSBC Canada was first announced in November 2022. It represents the largest acquisition in Royal Bank's history and gives it the chance to expand its domestic business with HSBC's $120 billion in assets, including wealth management, personal and commercial banking.
However, mortgage experts were quick to point out that while HSBC had a limited market share, the foreign-owned bank played a key role in reducing borrowing costs through its low-cost offerings.
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“HSBC’s often-touted-best mortgage rates could soon be consigned to history,” said mortgage analyst Rob McLister. “Borrowers’ wallets will take a hit.”
HSBC's often promoted mortgage rates could soon fade into history
Rob McLister
McLister said HSBC's low overnight interest rates were a key benchmark for mortgage negotiators and made the upstart a thorn in the side of larger banks. Without them, super prime mortgage borrowers would be left to their own devices with the “non-transparent interest rates” offered by the Big Six banks.
HSBC is the only Big Six challenger with sufficiently low uninsured funding costs and a willingness to offer rock-bottom interest rates, he said.
“Most of HSBC’s mortgage customers will then be gobbled up by the golden lion and the remaining lenders will be rubbing their hands in delight at the prospect of higher profit margins,” McLister said.
Mortgage broker Ron Butler, meanwhile, said he doesn't expect RBC to become more competitive following the acquisition.
“RBC is the largest residential mortgage company in Canada and they just got bigger,” Butler said.
McLaughlin said the federal finance minister's approval of the deal was “essential” for RBC and a good milestone for the two organizations.
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He said RBC looks forward to adding HSBC's products and services, some of which are not currently offered, to the bank's shelves. These include foreign currency-related products such as multi-currency savings accounts and the ability to facilitate international money transfers.
In a press release, RBC Chief Executive Officer Dave McKay said the acquisition will “keep a larger portion of Canada's financial sector Canadian-owned” and will also allow more Canadians to access the global economy by combining RBC's strength and scale with the international banking and financial sectors Financial capabilities combined are 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
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