TSB will remain 'the local bank'

26 March 2015   By Samantha Smith

TSB have agreed a £1.7 billion takeover deal with Spanish bank Sabadell, less than a year after the new bank was floated on the stock market.

tsb bank branch sign
Credit: Barry Barnes/Shutterstock.com

The deal is subject to approval by shareholders and UK and EU regulators.

But after that, it looks likely that Lloyds will sell the remaining 50% of their stake in the bank to Sabadell as well.

TSB say the deal would help them grow in retail terms - possibly increasing the number of branches and products offered - as well as giving them a shot at expanding into the small business market.

Lloyds-TSB to Lloyds and TSB

TSB came back into existence as a separate entity in September 2013, with 631 Lloyds TSB and Cheltenham & Gloucester branches being hived off and rebranded with the revived and modernised blue TSB livery.

It marked the beginning of the end of a 20 year association, started when Lloyds bought the former Trustee Savings Bank (TSB) in 1995.

But when the Government stepped in to save Lloyds in 2008, EU regulators said the £20 billion bailout could only happen if the banking group sold off TSB.

The start of the separation saw more than four million of the joint banks' customers moved across to the new TSB - with a sizeable number complaining that they were given little choice in which bank got custody of them in the split.

TSB then gained around half a million new customers in 2014 alone, in large part because of their high interest current account.

But despite accounting for 6% of the UK's bank branches, they still have just 4.3% of the UK's current accounts.

Both TSB and the Government, and some consumer organisations, have expressed hope that the takeover will enable the bank to increase levels of competition in British retail banking, dominated as it is by RBS, HSBC, Barclays - and Lloyds.

Where Sabadell come in

Under the EU conditions for the bailout, Lloyds must have sold off all of their stake in TSB by the end of 2015.

In 2013 they entered into talks with the Co-operative regarding the TSB side of the business, but when a black hole appeared in the Co-op's accounts the deal fell through.

So instead, last year Lloyds took the decision to float a large portion of TSB on the stock market. At first the plan was to sell 25% of the business, but demand for shares was so great that was increased to 38.5%.

Lloyds then released a further 11.5% of shares in September 2014, further reducing their stake in the new bank.

So right now, Lloyds still own 50% of TSB, which they must sell before the end of 2015.

But it looks like that shouldn't be a problem, as Sabadell have already committed to buying around 10% of that, with an "irrevocable undertaking" to buy the remaining 40% at some point in the near future.

For the time being, Sabadell are paying 340p per share, 30% more than they were floated for last June.

Who are Sabadell?

Recreating TSB cost Lloyds £2.6 billion. Included in that cost is an estimated £450 million payable to Sabadell to cover the cost of creating a new IT system for TSB.

At present TSB pay their old partner for the shared use of the Lloyds IT system. Once Sabadell have their own in place, they estimate the bank will save £160 million a year.

But Lloyds themselves have an interest in Sabadell. In 2013, they sold their Spanish retail banking arm to Sabadell for a 1.8% stake in the Spanish company, which they promised to retain for at least two years.

Sabadell are Spain's fifth largest bank, having doubled in size since 2007. A large proportion of their growth has been through acquiring other businesses - including Lloyds Bank's Miami network, and Natwest Spain.

They have more than 2,300 branches, 53 of which are outside Spain, and almost 6.5 million customers.

The TSB deal will give them their biggest foothold outside Spain, where growth continues to be sluggish.

How will this affect customers?

Since their reappearance on the British high street, TSB have been keen to highlight their differences from other banks.

Their website explains that they "don't do investment banking, overseas speculation or big corporate finance. We just serve individuals and local business customers".

Since news of the takeover came out, another page has appeared on the site, seeking to reassure people that it will continue to be business as usual and that they will remain a "local bank", investing only in local people, communities and businesses.

TSB boss Paul Pester says jobs and branches should be unaffected. He says the deal is about helping TSB do more of what it already does:

"This is about using the extra firepower that Sabadell brings to TSB to expand not only our retail presence but potentially get us into the small business market."

The Government seem hopeful that this will be the case too, with Economic Secretary to the Treasury Andrea Leadsom saying, "we particularly welcome Sabadell's focus on growing lending to smaller businesses."

And while TSB's high interest current account has gained plenty of attention - and customers - the rest of the bank's offerings seem pretty standard, something it's thought the takeover could change.

It's only speculation - but the suggestion of having the backing of such a major player could allow TSB to offer something more adventurous in terms of savings and ISAs.

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