DBRS Limited (DBRS Morningstar) placed the ratings of HSBC Bank Canada (HSBC Canada or the Bank), including its Long-Term Issuer Rating of A (high), Under Review with Positive Implications following its announced sale to the Royal Bank of Canada (RBC; rated AA (high) with a Stable trend by DBRS Morningstar). The ratings action follows the announcement that HSBC Canada’s parent, HSBC Holdings plc (the Group; rated AA (low) with a Stable trend by DBRS Morningstar), has entered into an agreement to sell its banking operations in Canada to RBC, subject to regulatory and governmental approvals.
KEY RATING CONSIDERATIONS
The Under Review with Positive Implications designation reflects DBRS Morningstar’s view that HSBC Canada will benefit from being acquired by RBC, a more highly rated financial institution.
RBC is set to acquire 100% of the issued common equity of HSBC Canada for a cash consideration of $13.5 billion. In addition, RBC will acquire all the preferred shares and the outstanding subordinated debt issued by HSBC Canada and held by the Group for approximately $1.1 billion and $1.0 billion, respectively. The sale is expected to close in late 2023, at which time DBRS Morningstar expects to resolve the review.
If the transaction closes, HSBC Canada’s ratings would likely be equalized with the ratings of RBC. If the acquisition does not close, the trend would likely revert back to Stable.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Rating actions on HSBC Canada are likely to have an impact on this rating. ESG factors that have a significant or relevant effect on the credit analysis of HSBC Holdings plc are discussed separately at https://www.dbrsmorningstar.com/issuers/6184.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 23, 2022; https://www.dbrsmorningstar.com/research/398692). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings, https://www.dbrsmorningstar.com/research/396929 (May 17, 2022) in its consideration of ESG factors.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com.
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