DBRS Morningstar Maintains HSBC Bank Canada’s Under Review With Positive Implications Status

DBRS Limited (DBRS Morningstar) maintained the Under Review with Positive Implications status on all credit ratings of HSBC Bank Canada (HSBC Canada). The credit ratings were placed under review following the November 29, 2022, announcement that HSBC Canada’s parent, HSBC Holdings plc (rated AA (low) with a Stable trend by DBRS Morningstar), entered into an agreement to sell its banking operations in Canada to the Royal Bank of Canada (RBC; rated AA (high) with a Stable trend by DBRS Morningstar) for $13.5 billion.

KEY CREDIT RATING CONSIDERATIONS
The Under Review with Positive Implications status continues to reflect DBRS Morningstar’s view that HSBC Canada will benefit from being acquired by RBC, a more highly rated financial institution. After the completion of the transaction, the Support Assessment (SA) designation of SA1 will be maintained but its long-term ratings will be driven by those of RBC. DBRS Morningstar expects to resolve the Under Review status following the closing of the transaction, which is now expected in calendar Q1 2024.

On September 1, 2023, the Competition Bureau of Canada (the Bureau) issued its report and finding of no competition concerns regarding the proposed sale. The transaction is still awaiting final approval from the Office of the Superintendent of Financial Institutions and the Minister of Finance.

Despite the findings from the Bureau, the deal continues to face political pressure with federal opposition leader, Pierre Poilievre, calling for the government to block the move and the House of Commons finance committee also urging rejection of the acquisition. At this time, however, DBRS Morningstar still expects the transaction to close in calendar Q1 2024 as previously indicated.

CREDIT RATING DRIVERS
If the transaction closes, HSBC Canada’s credit ratings would likely be equalized with the credit ratings of RBC. If the acquisition does not close, the credit ratings would likely be confirmed with Stable trends.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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 (July 4, 2023) https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 22, 2023) https://www.dbrsmorningstar.com/research/415978/global-methodology-for-rating-banks-and-banking-organisations. In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023) https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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 credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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