20th Mar 2015 10:49
LONDON (Alliance News) - Spain's Banco de Sabadell SA has won the backing of Lloyds Banking Group PLC on the way to agreeing a GBP1.7 billion deal to buy TSB Banking Group PLC, likely to mark the end of TSB's brief life as a London listed company.
TSB, which was carved out of Lloyds and floated on the London Stock Exchange in June 2014, is valued at 340 pence per share under the deal, which was announced to the market on Friday morning.
The move was welcomed by Lloyds Chief Executive Antonio Horta-Osório, who was tasked with selling off the bank's holding in TSB by the end of 2015 in order to make good on a commitment made to the European Commission after the FTSE 100 bank required a government bailout during the financial crisis of 2007-09.
"This is a significant and positive step for the group and will enable us to meet our commitments to the European Commission, well ahead of its mandated deadline," Horta-Osório said in a statement Friday.
The full sale of Lloyds' stake, which is structured in the form of a sale and purchase agreement, irrevocable undertaking and a call option, means that Lloyds can net up to GBP850 million in cash for its 50% holding in TSB, although the bank expects to take a charge in connection with the deal.
Sabadell's purchase of TSB comes just over a decade since compatriot Banco Santander SA, the largest bank in Spain, began its expansion into the UK with the acquisition of Abbey National PLC in 2004. Sabadell, a Catalan commercial bank, employs more than 17,000 people in about 2,200 branches and describes itself as Spain's fifth largest banking group with assets amounting to EUR163 billion at the end of 2014.
Sabadell said it views TSB as a "robust competitor" in UK banking, a market which is dominated by the 'Big Four' of Barclays PLC, HSBC Holdings PLC, Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC. In the past three months, TSB has made it possible for brokers to sell its mortgage and remortgage products to customers, and wants to increase its share of deposits.
According to Sabadell, it has already held preliminary talks with Lloyds about moving TSB onto its technology platform, with Lloyds to pay GBP450 million toward that end. Lloyds said it will take a charge of about GBP640 million on the deal, with the bulk of that due to the technology platform payment.
The Spanish bank's pursuit of TSB comes under a strategy of diversifying away from its home country, which was hit hard by the popping of a real estate bubble and the failure of several lenders. Sabadell is launching an underwritten rights issue to raise EUR1.6 billion aimed at maintaining its capital position, meaning the offer is "not conditional" on the fundraising.
Acquiring TSB will give Sabadell access to a retail and small business bank with several million customers and more than 600 branches across England, Scotland and Wales, giving it a point from which it can develop a strategy to take on the big British high-street lenders.
Some financial analysts have seen TSB's branch network as a costly part of the business, but the debate around banks switching from bricks and mortar to websites and smart phones remains highly emotive, frequently drawing the attention of politicians who raise concerns about the implications for jobs and people who rely on the traditional bank branch.
On Friday, Sabadell said it doesn't envisage that it would "significantly change" TSB's branch network or staff numbers "in the short term" should the acquisition be completed.
"However, limited cost reductions may be undertaken as a consequence of TSB no longer being a public company. Sabadell may also adjust TSB's cost base after completion to reflect factors including market environment, financial performance and the pace of business development opportunities," Sabadell said.
"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," Josep Oliu Creus, Sabadell's chairman, said in a statement.
TSB Chief Executive Paul Pester, who is to remain in his role, alongside Chairman Will Samuel and Chief Financial Officer Darren Pope, said that Sabdell's offer is a "vote of confidence" in the bank.
"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," Pester said.
The acquisition requires approval from TSB's shareholders, UK and European regulators, but does not need the approval of Sabadell shareholders.
TSB shares were up 1.8% at 333.02 pence on Friday morning, while Lloyds shares were down by 0.2% at 79.38p.
In Spain, Sabadell shares were up 1.8% at EUR2.25.
By Samuel Agini; [email protected]; @samuelagini
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