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After years of being a UK banking also-ran, TSB is suddenly the most popular lender at the party. The British high street bank, carved out of Lloyds Banking Group more than a decade ago, has taken on a crucial role in two separate multibillion-pound takeover battles.
In one, TSB is the target. Santander agreed to buy the bank from parent Sabadell for £2.7bn on Tuesday, seeing off competition from Barclays. But Sabadell is also a target of a hostile bid from Spanish rival BBVA, an approach that looks challenged now that Sabadell has agreed to sell its UK trophy.
For Santander chair Ana Botín, there are clear benefits to snagging TSB. The Spanish bank would vault HSBC to become the UK’s third-largest current account provider, and have a shot at passing NatWest as the country’s third-largest mortgage lender — banishing doubts about whether Santander’s UK business is too small to compete.
Nor should her shareholders be too troubled. The £2.7bn price tag looks generous compared to TSB’s tangible book value of about £1.8bn, but the similarity of Santander UK and TSB’s operations should lead to big cost savings. Santander thinks it can trim the equivalent of half TSB’s 2024 operating expenses each year, and lift its return on tangible equity to 16 per cent by 2028, from 11 per cent last year.
For Barclays, which has been trying to grow its UK business, missing out is a double blow: in addition to bidding for TSB, it had previously considered an approach for Santander UK, so Santander’s decision to double down on the UK takes out two potential expansion routes. After Nationwide’s £2.9bn takeover of Virgin Money last year, there are not many mid-sized targets left.
BBVA, meanwhile, is a bit stuck. It would have to increase its offer for the whole of Sabadell by a significant sum to succeed, but it does not have much leeway to do so. Sabadell’s shareholders were already due to receive the bulk of the benefits of a combination. The Spanish government says the two wouldn’t be allowed to integrate their operations for three years, making the deal even less attractive.
Sabadell shareholders have a choice: they get to vote on the Santander deal, and can tender their shares to BBVA. It’s hard to see why they would turn Botín down, since a €2.5bn chunk of the proceeds will come their way as a dividend. Conversely, it’s not obvious they would accept BBVA’s offer, since its value is comfortably below Sabadell’s current share price.
It’s not all bad for BBVA chair Carlos Torres Vila, even though he has pinned his reputation on winning Sabadell. Better to climb down than to force through a deal that hurts his own shareholders. Besides, if the logic of putting BBVA together with Sabadell’s Spanish business makes sense now, it will later — and after TSB has been set free, it would be a much simpler proposition for his own shareholders too.