Spain’s Banco Sabadell in Talks to Buy Britain’s TSB Group
Spain’s Banco de Sabadell SA is in talks to buy British consumer lender TSB Banking Group Plc for 1.7 billion pounds ($2.5 billion), to expand outside an economy battered during Europe’s financial crisis.
Sabadell, Spain’s fifth-biggest bank, is proposing to pay 340 pence a share in cash, 29 percent more than TSB’s closing price on Wednesday. Lloyds Banking Group Plc, which owns 50 percent of TSB after taking it public in June, said it’s “minded” to accept an offer at that price, according to a statement. TSB shares jumped the most since the IPO.
Sabadell is pushing into an economy that last year grew at the fastest pace since 2007, fueling housing demand across the nation. That’s already helped bolster the earnings of Spanish competitor Banco Santander SA. A sale would also allow Lloyds to exit its holding in TSB in full before the end of 2015, a deadline set by European regulators after it received a government bailout during the financial crisis.
“TSB looked to be a cheap bank, it’s well capitalized with a good distribution network, and Sabadell seem to be fairly a similar businesses in their home market,” said Gary Greenwood, an analyst with Shore Capital Group Ltd. in Liverpool, England, who has a buy recommendation on the shares. “It’s also a great solution for Lloyds.”
TSB, Britain’s sixth-biggest lender by market value, was up 25.3 percent at 330.8 pence as of 11:46 a.m. in London. Sabadell slid the most in 14 years, and was down 9.3 percent at 2.26 euros in Madrid. Under U.K. takeover rules, the lender has until April 9 to reach an deal or pull out.
Analysts Surprised
Sabadell “has proven its capacity to conduct integrations but we wonder whether all the past acquisitions are really on track now,” David Vaamonde, bank analyst at MainFirst Bank in Madrid, said in a note to clients. The deal may also force the bank to raise capital, he said. “We would rather prefer to see Sabadell just focusing on Spain rather than conducting this sort of acquisition,” Vaamonde said.
Sabadell is paying about 4 percent more than the value of TSB’s net assets, according to analysts at Shore Capital. A counteroffer is unlikely because domestic competitors will be unable to get involved, they wrote in a note to clients.
Sabadell is seeking to expand further outside Spain after buying domestic lenders such as such as Caja de Ahorros del Mediterraneo during the country’s banking crisis, CEO Jaime Guardiola said in an interview last month. The lender raised capital in 2013 in a share sale and passed the European Central Bank’s health-check in October.
International Expansion
The Spanish bank is plotting to enter a market that has already benefited Santander, whose U.K. unit generated 1.6 billion euros of profit in 2014, the most among its 10 global divisions.
TSB has been taking customers from the four biggest lenders that together control as much as 80 percent of the U.K. market. The bank attracted 8.4 percent of all new and switching bank accounts in 2014, above its target of 6 percent. Chief Executive Officer Paul Pester told reporters last month he’s confident that the bank will be able to expand its loan book by 40 percent to 50 percent within five years of the IPO.
It’s still a minnow compared with Lloyds, Barclays Plc, Royal Bank of Scotland Group Plc and HSBC Holdings Plc, Britain’s so-called big four high street banks. TSB has about 4.6 million U.K. customers and 27.2 billion pounds of assets, compared with 30 million clients and 855 billion pounds of assets at Lloyds, Britain’s biggest mortgage lender.
TSB is also entitled to receive a 450 million-pound payment from Lloyds to help fund the separation of its computer systems to another bank’s operation.
That dowry “is a meaningful number relative to TSB’s market capitalization” and helps “provide immediate attractiveness to a potential acquirer,” Joseph Dickerson, a London-based analyst at Jefferies Group LLC, said in a note.
Source: Bloomberg – Spain’s Banco Sabadell in Talks to Buy Britain’s TSB Group
