HSBC (LON:HSBA) shares climbed over 4 per cent in London to their highest in two months after the UK-based bank said it would sell its Canadian business to Royal Bank of Canada (RBC). RBC will pay CAD 13.5 billion for HSBC Canada’s common stock, plus another CAD 2.1B ($1 = CAD 1.3456) for its outstanding preferred stock and subordinated debt.

The said deal is the latest move by the bank to withdraw from its global ambitions for improving profitability under pressure from its largest shareholder, Chinese insurance giant Ping An. The deal is likely to bring HSBC a pretax gain of some USD 5.7B, adjusted for foreign exchange losses, and improve its core tier 1 capital ratio by 130 basis points.

HSBC repeated that its target of paying out 50 per cent of profits in shareholder returns doesn’t include gains from disposals. The HSBC’s capital level improvement should make more money available for shareholder returns – albeit only from 2024, given that the bank said the deal is expected to close in late 2023.

HSBC Canada has over 780,000 retail and commercial customers and more than 130 branches with risk-weighted assets of USD 31B at the end of 2021. However, it has never threatened to break open the dominance of the big Canadian banks such as the Bank of Montreal, Toronto Dominion, and RBC. The costs of growing the business to a point where it would have more pricing power to widen its profit margins were thus considered too high.