When Royal Bank of Canada RY-T closed its acquisition of HSBC Bank Canada, the largest domestic banking takeover on record, it had to move billions of dollars of customer money and data off HSBC’s platforms and onto its own in a single weekend – an unusual technological feat that helped it to win the $13.5-billion auction for the highly coveted business.
Typically, when two banks merge, the acquirer spends several months adapting the acquired company’s products, services, employees and customers to its own businesses before fully moving them onto its platforms and shuttering the former brand. And often, the buyer scoops up the target’s technology.
But for this transaction, HSBC Canada’s technology systems were owned and operated by its British parent company, which wanted to keep its proprietary technology. And so RBC agreed to move billions of dollars and streams of customers and employee data from HSBC’s system onto its own all at once.
RBC closed the financial transaction on March 29, and immediately started transferring data.
“There was no other choice. If you wanted to buy the bank, you had to close and convert. And that was a big part of the agreement that we came to 18 months ago,” RBC chief executive officer Dave McKay said in an interview.
“We were one of the only banks that could handle this complexity, given the size of our technology operation. We heard other competitors couldn’t take this on – they just couldn’t take on the technology complexity and weren’t serious bidders.”
To prepare for the complex closing, RBC ran five test sessions – which Mr. McKay called “dress rehearsals” – to practise moving mass amounts of data while evading cybersecurity threats and data leaks. During the actual event, over the Easter long weekend, a few thousand employees split 12-hour shifts to work through the 12,000 technical steps required to migrate HSBC’s customers and employees in bulk.
RBC added more than 780,000 clients, of which 40 per cent are considered affluent, to its base of 17 million customers, and 4,000 employees to its work force of 90,000.
The bank was able to do this largely in-house because of its investments in technology in recent years. “We don’t outsource much,” RBC group head of technology and operations Bruce Ross said. “We’ve invested in data scientists, cloud engineers, our Borealis investments, cybersecurity investments and our digital teams that can build things for us.” (Borealis AI is RBC’s artificial intelligence research institute.)
Although RBC won the auction for HSBC in late 2022, Federal Finance Minister Chrystia Freeland didn’t green light the deal until December of last year. This meant RBC was unable to access much of HSBC’s data until three months before the deal closed, including its employee roles and functions. That short window before closing only amplified the degree of difficulty.
“The structure of the deal is unique,” said Peter Sidebottom, managing director at Accenture, which advised RBC on the deal. “Doing a ‘legal day one’ and a ‘client day one,’ which essentially means that you’re signing the legal documents and making the payment and taking control of the assets – including all of the colleagues and the clients in the same 48 hour period – was unprecedented. There were little to no comps to pull from around the world to say, ‘This is the playbook and how you do it.’ ”
When HSBC Holdings PLC put its Canadian subsidiary up for sale in 2022, the deal attracted interest from Canada’s Big Six banks. As Canada’s seventh-largest lender, HSBC Canada was the most significant takeover opportunity since the Canadian government made it more difficult to complete bank acquisitions more than two decades ago.
The nearest competitor to the Big Six banks is now EQ Bank, a digital banking challenger.
To get Ottawa’s blessing, RBC had to commit to several conditions, including that it maintain a minimum number of HSBC branches, finance affordable-housing projects and keep certain HSBC employees for at least six months.
RBC is still figuring out how the smaller bank’s employees fit into a larger organization. The two banks have different levels of hierarchy, making it challenging to translate an employee’s position at HSBC into a similar role at RBC. For HSBC employees, the moves could appear to be steps up or down.
“There’s definitely not a one size fits all,” RBC group head of personal and commercial banking Neil McLaughlin said. “For the most part it matches, and there’s a few things we think we’ll iron out over time.”
In some cases, HSBC executives have already taken over newly combined teams, such as a commercial real estate unit. RBC heard from customers that their long-standing relationships with HSBC representatives were a key reason they will bank with their new lender, Mr. McLaughlin said.
HSBC Canada’s client base is concentrated in British Columbia and Ontario, and more than half of its retail and commercial clients have global banking needs, which means the acquisition moves RBC into products and services that it has not offered before, including multicurrency accounts that allow customers to save money in foreign currencies and trade on international exchanges. With its commercial clients, HSBC specialized in trade and supply-chain finance. The acquisition also bolsters RBC’s expertise in those industries.
But cost-cutting is also an important element of the transaction, and RBC has said it expects to save money by trimming 55 per cent of HSBC Canada’s expenses, or about $740-million annually, within two years – some of which will stem from savings on technology infrastructure. RBC estimates the deal will boost its earnings per share by 6 per cent in 2024.
The transaction faced a delay as it moved through regulatory approvals, pushing the closing date from late 2023 to the end of March. In January, RBC updated its financial expectations, anticipating pretax acquisition and integration costs of about $1.5-billion, up from its initial estimate of $1-billion.
Last year, RBC and its peers cut jobs to temper rising expenses. Mr. McKay said the bank eased back on hiring, leaving roles vacant to make space for the incoming HSBC employees.
