2nd Jul 2025 13:17
(Alliance News) - Banco Santander SA on Tuesday said it will acquire British high street lender TSB Banking Group PLC from Banco de Sabadell SA in a GBP2.65 billion all-cash deal.
The move strengthens the Madrid-based lender's position in the UK retail market, as Sabadell itself faces a takeover attempt from Spanish rival Banco Bilbao Vizcaya Argentaria SA.
The acquisition, subject to regulatory and Sabadell shareholder approval, will see TSB integrated into Santander UK, making it the third-largest UK bank by personal current account balances.
Santander UK is the product of Santander's acquisition of UK mortgage lender Abbey National in 2004. It also includes the former Bradford & Bingley and Alliance & Leicester. TSB was sold by Lloyds Banking Group PLC to Sabadell GBP1.7 billion in 2015.
Completion of the TSB acquisition by Santander is expected in the first quarter of 2026.
Santander said the deal values TSB at five times projected 2026 earnings and 1.45 times tangible book value as of March 31. It expects a return on invested capital above 20% and cost synergies of at least GBP400 million, or 13% of the combined group's cost base.
"This strengthens our franchise in a core market through the acquisition of a low-risk and complementary business," said Santander Executive Chair Ana Botín. "The transaction will accelerate our path to greater profitability in the UK."
TSB serves approximately 5 million UK customers and holds GBP34 billion in mortgages, representing around 2% of the UK market share, and GBP35 billion in deposits. The combination will create a lender serving nearly 28 million UK retail and business customers.
Citi Research analysts described the transaction as "somewhat surprising", given earlier murmurs this year that Santander might exit the UK. "The agreed price (1.45x 1Q25 tangible book value) suggests Santander shareholders might be losing some of the value of the targeted synergies to Sabadell shareholders," they wrote.
However, Citi noted that the 53% "ambitious" cost synergy target set by management relative to TSB's 2024 cost base enables Santander to hit its 20% return on investment threshold. The financial impact at group level is "not much of a game changer", they said, calculating around 0.5% earnings per share accretion by 2028. Citi maintains a 'buy' rating on Santander shares.
As Citi researchers suggested, the move underscores Santander's renewed commitment to the UK market, coming just months after the Financial Times reported in May that the bank had earlier in the year rejected a GBP11 billion takeover approach from NatWest Group PLC for its UK operations.
Santander had deemed the offer too low and has since signalled its intention to invest further in its core regions following the partial sale of its 49% stake in Santander Bank Polska SA for EUR7 billion in late April.
Citi analysts noted that, following earlier speculation about a potential exit from the UK market, it is "somewhat surprising that Santander chose to allocate 50bps of FL CET1 (roughly half of the capital freed up from the disposal of a 49% stake in Santander Poland) for TSB, Sabadell's underperforming subsidiary."
According to the FT, the acquisition of TSB followed a competitive bidding process in which Barclays PLC also submitted a formal offer for the Sabadell-owned lender.
The FT reported that Sabadell launched the process after receiving unsolicited interest in TSB, with the move seen in part as a tactic to fend off a hostile EUR11 billion takeover bid from BBVA.
Santander anticipates the deal will lift its UK return on tangible equity to 16% by 2028, up from 11% in 2024. Earnings per share should rise from year one and grow by about 4% by 2028.
The deal is expected to consume 50 basis points of CET1 capital but will not impact the group's share buyback targets or dividend policy.
The transaction comes as Sabadell faces its own transformation, with Spain's government recently approving BBVA's bid to buy Sabadell, provided the two banks operate independently for three years.
BBVA launched its EUR11 billion tilt for Sabadell in May 2024, with the European Central Bank giving its green light in September that year, and Spain's competition authority granted approval under certain conditions in April. The deal will now be put to a vote by Sabadell shareholders for their approval.
If successful, BBVA's acquisition would create Spain's second-largest bank by assets, capable of challenging market leader Santander, and rivalling pan-European banking groups such as HSBC Holdings PLC and BNP Paribas SA.
Nick Sherrard, managing director of innovation network Label Sessions, said the TSB deal "accelerates [Santander's] growth" and called it "a smart next step in building a more successful UK operation."
Shares in Santander were up 2.8% at EUR7.16 in Madrid on Wednesday afternoon, giving it a market capitalisation of EUR106.64 billion. Sabadell shares were up 4.9% to EUR2.83 for a market capitalisation of EUR15.02 billion.
By Eva Castanedo, Alliance News reporter
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