High-street lender TSB (TSB) saw its stocks jump in value by almost a quarter today after Banco de Sabadell made an offer of 340p per share for the bank less than a year after its flotation.
In a market announcement the UK bank’s board said it would welcome the offer in the belief that the €9bn (£6.4bn) Spanish lender would boost both its retail growth and business with small and medium-sized companies. The deal would also help Lloyds Banking Group (LLOY) divest its stake in the business by the regulatory year-end deadline, a crucial stage in that bank’s recovery from its emergency rescue by the UK taxpayer during the financial crisis.
Sabadell has been attracted by an industry enlivened by the charge of the “challenger banks”, with Shawbrook Group announcing today its plans to list in April, following successful initial public offerings at Aldermore (ALD) this week, Virgin Money (VM) last November, and TSB last June.
The immediate market reaction suggested that TSB board and shareholders alike should bite Sabadell’s hand off at that offer price. But brokers raised questions about the cost synergies on offer, and what the Spanish lender can do that TSB cannot achieve alone, given its strong capital base and branch network. "To be a buyer, you have got to assume there is a counter offer," said Numis's Mike Trippitt. "I just think there is a low probability of that."
TSB has a well-known brand name, is one of the most well-capitalised banks in the UK with a core tier-one capital ratio of nearly 20 per cent, and posted consensus-beating pre-tax profit of £170m for last year. At the same time, it faces strong competitors. In January it re-entered the mortgage intermediary market, planning to sell £4bn worth of mortgages through this channel by 2017. By comparison, Virgin Money has 13,000 such corporate partners who provided it with business last year, and saw a resulting 12 per cent increase in its mortgage balances for the period.
