In wake of fraud allegations, RBC says it’s “very comfortable” with due diligence done on HSBC Canada’s mortgage portfolio

RBC’s executive team today expressed confidence in its due diligence of HSBC Canada’s mortgage portfolio during the $13.5-billion acquisition.

The question arose on today’s first-quarter earnings call in the wake of whistleblower allegations of a mortgage fraud scheme at HSBC Canada’s Greater Toronto operations prior to RBC’s acquisition of the bank.

The allegations were first reported by journalist Sam Cooper at The Bureau and have caught the attention of Simcoe North MP Adam Chambers, who is calling for an investigation of the allegations.

“[Going back] to the diligence we did at the inception of transaction, credit was a huge part of our focus there,” said Chief Risk Officer Graeme Hepworth.

“We brought a lot of people into the room on that from the risk management side and the business side to go very deep on their portfolios, [and] really understand their mortgage portfolio, their commercial portfolios,” he continued. “We did that from both an aggregate portfolio view as well as right down to reviewing and understanding the underwriting they did on sample portfolios there.”

Through that process, he said RBC’s team was “very comfortable” with the credit quality of the portfolio.

“If anything, it skews a little bit better than some of our portfolios. The nature of their retail client base is a fairly high net worth one and so that tends to skew well,” he added. “We felt really good about the diligence we did at the time. Obviously, we’ll get the full details…But I don’t think at this point in time we’ve seen anything that was new there that would cause us concern.”

RBC’s acquisition of HSBC’s Canadian unit cleared its final hurdle in December after receiving approval from Chrystia Freeland, Deputy Prime Minister and Minister of Finance. The deal is expected to close by March 28.