HSBC sale to RBC ‘a sad day for Canadian mortgage consumers,’ expert says

The rubber-stamped sale of HSBC’s Canadian operations to Royal Bank will lessen competition on mortgage rates, says one analyst who touted the bank’s key role in lowering borrowing costs through its presence in Canada.

Mortgage strategist Robert McLister called it “a sad day for Canadian mortgage consumers.”

He said HSBC had a different model than the major banks in advertising Canada’s lowest and most transparent uninsured mortgage rates. He said the larger banks were regularly 20 to 80-plus basis points higher on fixed and variable rates.

HSBC Canada felt it could offset the impact of lower rates by attracting “well-qualified customers” who defaulted less and had more non-mortgage assets, McLister said.

“They were an everyday low-price lender, which is extremely valuable in the Canadian market,” McLister added, noting the difficulty for smaller financial players in amassing market share in Canada where the Big Six banks are so dominant.

HSBC gave borrowers ‘leverage’

HSBC Canada’s sale to RBC for $13.5 billion passed its final hurdle on Thursday with the approval of Finance Minister Chrystia Freeland. The minister cited the Competition Bureau’s finding in September, when it also granted approval for the deal, that the acquisition would not stifle competition for mortgage rates, which it said “were most frequently driven by competition from Big Five Banks.”

RBC chief executive Dave McKay also said in an interview Thursday that there is extensive competition in Canadian banking and that the deal would not lessen that in “any shape or form.”

“There’s enormous competition in the Canadian marketplace. There’s over 50 banks, there’s credit unions in every province that compete hard, there’s non-financial competitors. There’s new competitors entering this space all the time,” he said.

But McLister said that for Canadians who count one of the big banks as their preferred lender, the “key benefit of HSBC was the gift it gave borrowers in leverage.”

“I’ve spoken to countless customers over the years that would go to the HSBC website, they would find a rate, they would take it to their bank, and generally, the bank would not match the rate, but it would get close enough so that the customer didn’t have to leave the bank or go elsewhere,” McLister said.

HSBC said in a brief update Friday that it and RBC continue to make progress on implementation of the transaction following the federal approval. The deal is expected to officially close in the first quarter of 2024.

Chief executive Noel Quinn said although HSBC has had a presence in Canada for many years, “the reality is that HSBC Canada only has a market share of around two per cent and we cannot prioritize the investment needed to grow it further.”

“It is therefore in the best interests of HSBC Canada’s customers that the bank becomes part of RBC which will be able to take it to the next level,” he said in a statement.

Conditions on RBC

Freeland’s approval carries conditions for RBC, including that none of HSBC…

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