HSBC Divests Canadian Unit - Analyst Blog

HSBC Holdings Plc(HBC) has finally announced the sale of its Canadian retail brokerage business to National Bank Financial, a unit of National Bank of Canada (NA) for C$206 million ($208 million).

As per the terms of the deal, HSBC would refer clients with non-discretionary full service investment advisory needs to National Bank and both the banks will work together in offering services to mutual fund clients. Further, HSBC will have access to National Bank's retail brokerage network for equity and public offerings. The agreement, still subject to regulatory approvals, is expected to close by the end of this year.

As of August 31, 2011, HSBC advisory business had C$14.2 billion of assets under administration (AUA) and more than 120 investment advisers in 27 offices across Canada, with nearly 70% of its business in the provinces of Ontario and British Columbia.

With the completion the deal, National Bank's strategy to expand its footprints across Canada will be fulfilled. Additionally, the acquisition of HSBC's unit would boost National Bank's earnings by 3–5 cents for the next two years. The deal would also increase National Bank's AUA to C$80 billion and number of financial advisors to 1,060.

Earlier this month, HSBChadconfirmed that it is in talks with the potential acquirers regarding the sale of its Canadian retail brokerage business.

Among the foreign banks, HSBC has the largest presence in Canada. However, the sale does not include the company's online brokerage and trust services in Canada. HSBC would now focus on its commercial and retail banking units in Canada, including building out the institution side of the business, as well as adding staff to its investment counseling and trust services.

The 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 divesture of the Canadian retail brokerage business will not only bring long-term benefits for HSBC but also help the company concentrate on its emerging market strategy.

HSBC retains a Zacks #3 Rank, which translates into a short-term ‘Hold' rating.