First Look With Surveillance: Fed Rates, China Unrest
Royal Bank of Canada is bulking up in a big way after striking a deal to buy HSBC’s Canadian operations, essentially snapping up the nation’s seventh-largest financial institution after it was put on the auction block earlier this fall. RBC will pay a total cash consideration of $13.5 billion for HSBC Canada (it’ll also pay out a total of $2.1 billion for outstanding preferred shares and subordinated debt, but we’re getting into the weeds here.) Now, RBC was the only Canadian bank with the financial firepower to pull of this deal, just based on excess capital at its disposal, but the headline figure is still eye-popping. Late last month, Scotiabank analyst Meny Grauman pegged a reasonable valuation for HSBC Canada in the $8 billion to $10 billion range, though he did note it could fetch a materially-higher price if a bidding war were to erupt. It’s easily the largest domestic bank takeover in recent memory, dwarfing TD’s $8-billion deal for Canada Trust way back in 2000, not to mention Scotia’s $3.1-billion acquisition of ING Direct about a decade ago (though it should be noted that the big six have been making waves south of the border with larger deals than this.) The acquisition is expected to close late next year, subject to regulatory approvals.
SCOTIA KICKS OFF Q4 BANK EARNINGS WITH MIXED RESULTS
Sticking with financials, it was something of a mixed bag from Scotiabank as it kicked off the fourth-quarter earnings season for the big six. Adjusted earnings per share topped estimates in the quarter - $2.06 vs the expected $2.01 – but the bank missed on the top line amid an “uncertain and volatile” operating environment. Provisions for credit losses – basically, cash set aside to cover loans that could potentially sour – rose more than 200 per cent to $529 million in the quarter. Back to that beat for a moment, to close out on a high note – Scotia’s domestic retail banking business proved resilient in the quarter, with revenue rising 11 per cent to hit $3.13 billion.
MORE PROBLEMS FOR TC ENERGY’S COASTAL GASLINK
It looks like the headaches over the Coastal Gaslink pipeline are continuing at TC Energy. The company says it now expects a “material increase” in project costs and subsequent funding requirements, in no small part due to higher labour costs and a shortage of skilled workers. The company says it will provide an updated capital cost estimate early in the new year to account for those irritants, but it’s far from the first time it will revise its view – the company announced earlier this year that the cost of the massive pipeline, which will feed liquefied natural gas to the west coast, had soared some 70 per cent to $11.2 billion.
SUNCOR COMMITS TO KEEPING PETRO-CANADA
Suncor is sticking to its guns, announcing it intends to keep its Petro-Canada retail fuel business in spite of pressure from activist investor Elliott Investment Management. The oil sands giant says it will work on improving the unit rather than selling it, which was one of the outcomes Elliott was seeking when it began agitating for change at the firm. Petro-Canada likely wouldn’t have come cheap for any potential buyer – back when Elliott kicked off its campaign, Credit Suisse analyst Manav Gupta pegged the value of the division at as much as $11.2 billion, given its prominent position in the retail fuel market (the chain accounts for some 18 per cent of retail fuel sales in Canada.) Suncor’s been making some significant changes since Elliott first launched its push for an overhaul, including seeing the departure of CEO Mark Little in July after another fatality at Suncor’s operations.
CANADIAN ECONOMY KEEPS ON CHUGGING
The domestic economy grew at a 2.9 per cent annualized pace in the third quarter, easily surpassing the average economist estimate for 1.5 per cent annualized growth. Now, while that headline number does look pretty robust, it does represent a slowdown from the 3.2 per cent pace in the second quarter, which could reflect the early impact of higher interest rates on the Canadian economy. Exports were the main driver in the quarter, up 8.6 per cent, though we did see a slowdown in domestic demand, with household consumption falling one per cent – its first decline since the second quarter of last year.
OTHER NOTABLE STORIES
- Shaw Communications says it remains “optimistic” on its ability to clinch regulatory approval for the $20 billion sale to Rogers Communications.
- NetJets has ordered four Bombardier Global 8000 aircraft, running at a list price of $312 million.
- Newly reinstalled Disney CEO Bob Iger is pouring cold water on any speculation he will sell the Mouse House to Apple, reportedly telling employees he has no intention to sell to the Cupertino giant.
- Organigram’s third quarter revenue surged 83 per cent as the pot purveyor increased market share.
- Tim Hortons parent company Restaurant Brands International has struck a franchising deal with McWin to expand the footprint of its Burger King and Popeyes banners in Eastern Europe.
- Notable data: Real GDP (Q3) and Monthly Real GDP (Sept), S&P CoreLogic Case-Shiller Home Price Index, US Conference Board Consumer Confidence Index
- Notable earnings: Scotiabank, Shaw Communications