Who will pick up TSB as banks circle?

Times

10 hours ago

A decade after TSB was snapped up by Banco Sabadell, the British high street bank may change hands again.
The news last week that the Spanish lender, which itself is trying to fend off a hostile bid from domestic rival BBVA, had been approached by unnamed suitors for its UK business has fuelled a wave of City speculation about which bank might seek to bolster its market position through a deal for TSB.
A takeover would add to the tide of consolidation that has swept the British financial sector since early last year, after Nationwide Building Society struck a £2.9 billion deal to buy Virgin Money UK, and Coventry Building Society clinched a £780 million deal for Co-operative Bank. NatWest also bought the bulk of Sainsbury's banking business and Barclays acquired the majority of Tesco's financial services division.
In TSB there is the prospect of buying a venerable name although it is not a particularly big player.
The Sabadell-owned group can trace its roots to 1810 and was acquired by Lloyds in 1995. It was spun off onto the stock market as a standalone business in 2014 but was bought by Sabadell the following year for £1.7 billion.
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A catastrophic technology meltdown at TSB in 2018, when Sabadell sought to move its UK business onto its own IT systems, meant its ownership has been far from straightforward. Significant investment was required to clear up the mess. TSB began paying dividends to its parent in 2023, however, when it declared a £50 million distribution in respect of 2022. The following year it paid £120 million and in February it said it was returning £300 million to its parent, as its surplus capital has grown.
It is still small relative to Britain's four biggest banks: Barclays, HSBC, Lloyds and NatWest.
TSB had £46.1 billion of assets as of the end of December, with loans and advances totalling £36.3 billion and deposits amounting to almost £35.1 billion. For context, Lloyds, which is Britain's biggest domestic lender, had a £459.9 billion loan book and deposits of £482.7 billion at the same time.
Analysts reckon that TSB's share of the UK's mortgage market is 2 per cent. That compares with Lloyds, the leader in home loans with 18.9 per cent of the market, and Nationwide which, following the Virgin deal, overtook NatWest to become the second-largest mortgage provider with a 15.8 per cent market position, according to research by RBC Capital Markets, the stockbroker.
Spanish giant Santander, which is the UK's fifth-largest retail bank, is known to be considering a bid for TSB. It has a record of dealmaking in Britain, having built its presence here through its £9 billion purchase of Abbey National in 2004 and its acquisitions of Alliance & Leicester and the savings business of Bradford & Bingley during the 2008 financial crisis.
A bid by Lloyds seems remote: it already has a dominant position in the UK so a tilt at TSB would probably face resistance from the Competition & Markets Authority.
Benjamin Toms, an RBC analyst, told clients last week that he reckoned NatWest was 'the most likely acquirer' of TSB because a deal would bolster its position in mortgages, where it is 'under-penetrated' with a 12.6 per cent market share. He estimated that TSB could fetch about £2.6 billion and NatWest could pay this in cash.
However NatWest has since signalled it is unlikely to bid, with Paul Thwaite, its chief executive, telling The Times in an interview that 'adding a couple of percentage points to market share is not an existential issue'.
Of the big players, that leaves HSBC and Barclays. Expanding in Britain is a priority for CS Venkatakrishnan, the Barclays group chief executive, who, under a three-year turnaround plan unveiled in February 2024, aims to deploy an extra £30 billion of risk-weighted assets (RWAs) in the UK. Its deal for Tesco Bank has already contributed £7 billion towards this target. TSB's RWAs stood at just over £11 billion at the end of last year.
For HSBC, which has about 8 per cent of the UK mortgage market and a vast business in Asia, there are likely to be fewer competition concerns at the CMA but it is unclear whether the relatively incremental benefit of buying TSB is worth the potential headache of integrating it. These hazards were laid bare by the IT catastrophe Sabadell suffered with TSB seven years ago. Any suitor for the business will be wary of being embroiled in a similar debacle.
Still, while much of the speculation has focused on the big high street banks, a successful bid could instead come from the mutuals industry, with Bloomberg reporting last week that Yorkshire Building Society is examining a tilt at TSB. The mutuals are increasingly active, as the recent deals for Virgin and Co-op Bank have shown. Yorkshire said in its last annual report that its gross residential mortgage market share in 2024 was 3.8 per cent, so acquiring TSB would help it move the dial.