New owner targeting £160m of cuts

TSB has Spanish eyes for Sabadell as £1.7bn deal agreed

Paul Pester 2TSB has agreed to be acquired by Spanish lender Banco Sabadell in a deal which brings its short-lived independence to an end.

The £1.7 billion takeover is also likely to lead to some cuts as the back office platforms are merged. Sabadell has identified £160 million of savings over three years.

Sabadell has acquired 9.99% in TSB from Lloyds which has agreed to sell the remaining 40.01% holding to Spain’s fifth biggest bank.

The 340p per share deal values TSB at £1.7 billion and represents a 4% premium to the closing price of 327p per share last night and 29% to the closing price of 264.1p on 11 March, the last trading day before the joint announcement. It is 31% than the 260p price put on the shares when TSB was floated last June. 

TSB was carved out of Lloyds as a condition of the latter receiving £20 billion of taxpayers support in 2009. It includes the mortgage businesses Cheltenham & Gloucester and Edinburgh-based Intelligent Finance.

Sabadell said it would raise £1 billion to help fund the deal.

Paul Pester, chief executive of TSB (pictured), will remain in post. Sabadell said it expects to “support and accelerate” TSB’s retail growth strategy and accelerate the expansion of TSB’s presence in the SME sector.

TSB, which has 8,700 employees, has made determined efforts to establish itself as a challenger bank based on the 6% share of UK branches gifted from the break-up with Lloyds.

It has already attracted 8.4% of all new and switching UK personal bank accounts opening in 2014. It is also well-capitalised.

Sabadell said there will be “potential for savings” to be made through the expected full migration of the IT transitional services currently provided by Lloyds onto Sabadell’s proprietary Proteo technology platform.

In particular the Spanish bank said “substantial savings” will be derived from IT optimisation benefits. It says this amounts to approximately £160m per annum on a pre-tax basis, and are anticipated in the third full year after completion of the offer.

Lloyds will provide £450m in support to deliver the migration of the IT transitional services currently provided by Lloyds onto Sabadell’s platform.

Commenting on the offer, Josep Oliu Creus, chairman of Sabadell, said: “We see the UK as an attractive market with a strong regulatory framework, sound macroeconomic fundamentals and exciting prospects for growth.  TSB is a well-established brand which shares our culture of focusing on our customers and local communities.  We believe that our experience of growing SME lending, our resilient and tested IT platform and our commitment to innovation will speed up TSB’s expansion so that it fulfils its potential as a strong and effective challenger to the traditional UK banks, without any of their legacy issues.”

Will Samuel, chairman of TSB, said: “Since the IPO, TSB has pursued a strategy focused on growing its share of personal current accounts, accelerating asset growth through re-entering the intermediary mortgage channel and providing the kind of banking that people want. The offer from Sabadell represents a significant endorsement of TSB’s progress since its IPO and provides TSB shareholders the opportunity to receive today in cash the value that would otherwise be unlocked over time as TSB executes its strategy.”

Paul Pester, chief executive of TSB, said: “Since its launch on high streets across Britain in September 2013, TSB has been successful in attracting new customers and establishing itself as Britain’s challenger bank.  Today’s offer by Sabadell to acquire TSB is a real vote of confidence in TSB, our 8,700 employees and the straightforward, transparent approach we’re bringing to banking in the UK.

“With the support of Sabadell, TSB will benefit from the full capabilities the wider group will have to offer enabling us to accelerate our competitive capabilities even further.  I’m looking forward to working with Sabadell to continue to bring great banking to consumers across Britain, accelerate the expansion of our services to business customers and to continue to bring more competition to UK banking.”

 >> Terry Murden: Does the deal signal the failure of the banking shake-up?

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