TSB's small shareholders to cash in from £1.7bn Banco Sabadell takeover

The Barcelona banking group - Spain’s fifth biggest - said it could pay 340p a share in cash deal

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The Independent Online

Thousands of small investors in TSB are set for a windfall after Spain’s Banco Sabadell said it was it was considering a £1.7bn takeover of the challenger bank.

The two banks are discussing a 340p a share cash deal compared with the 260p at which TSB was floated by Lloyds last June.

Some 60,000 private investors netted an instant paper profit on TSB’s market debut. But if they held on they will now receive a return of 30 per cent on their money.

A deal would also count as a huge win for Lloyds, which still holds 50 per cent of the shares and has to be rid of them by the end of the year. The EU required the spin-off of TSB  as the price for the billions of pounds of taxpayers’ money Lloyds received, which it said violated rules banning state aid to industry.

Barcelona based Sabadell group is Spain’s fifth biggest and is looking to diversify its earnings away from its Catalan and Spanish heartlands, which are only now starting to recover from a brutal recession.

It has close links to Lloyds and is thought to have discussed its intentions with the latter before being referred to TSB. Talks then got under way between the banks’ two chairmen Josep Oliu Creus and TSB’s Will Samuel before their chief executives were brought in.

The talks have been ongoing for two weeks but have moved quickly. Lloyds also said it was “minded to accept an offer at this price if it is made”.

Lloyds’ £850m share of the proceeds would bring the total sale price of TSB to around £1.5bn. That is twice what was it was expected to have made through the collapsed sale to Co-op Bank.

Lloyds holds a 1.8 per cent stake in the Sabadell after the latter bought its Spanish assets in 2013.

Ian Gordon, an analyst at Investec, said the proposed deal represented “an unexpected proposal that makes total sense”.

Sabadell’s investors were less pleased. Its shares fell by nearly 6 per cent.

Approval from regulators UK, which have been keen to see the emergence of new entrants to challenge the big four of RBS, Barclays, HSBC and Lloyds, will still have to be secured.

Sabadell could use TSB as a vehicle for further deals if it gains their approval. TSB had itself held talks with small business bank Aldermore before the latter’s stock market flotation. It is understood that Sabadell has modelled its approach to the UK on that of its rival Santander’s.

TSB said in a statement: “Based on preliminary discussions, the Board of TSB believes that Sabadell could support and accelerate TSB’s retail growth strategy and accelerate the expansion of TSB’s presence in the SME sector.

“Sabadell recognises the achievement of TSB’s management and employees and would continue to operate TSB as a robust competitor in the UK banking market.”

Sabadell Bank: The Colombian connection

Think Spanish banks and many assume that the whole sector is in trouble after lending money cheaply to fund all sorts of hairbrained construction projects before the crash.

Sabadell is, however, one of a number of Spanish banks that has emerged from the financial crisis in good shape, despite two recent rights issues worth more than €2bn (£1.4bn).

Spain’s fifth biggest bank by assets is listed in Madrid but is headquartered in Barcelona and has done deals with TSB’s former parent Lloyds before. In 2013, Sabadell bought Lloyds’ Spanish banking operations for a little more than €100m.

In February 2012, and again in September 2013, the lender held dilutive rights issues in an effort to shore up its balance sheet, largely against losses in the property sector.

It raised €913m in the initial offering after taking over the bailed out savings bank Caja de Ahorros del Mediterráneo, a Costa Blanca-based lender that collapsed after heavily financing the construction of holiday homes. Eighteen months later, Sabadell came back to the market to raise €1.4bn as a provision against its own bad loans and after regulatory changes weakened its capital position.

Following the capital raising, the bank’s largest shareholder became Jaime Gilinski, a Colombian banker who, for a nominal fee, bought the Colombian assets of BCCI when it collapsed in 1991. He is thought to have invested about $500m in Sabadell.

Like other Spanish banks, Sabadell is increasingly eager to look outside Spain for business. It is thought that the bank has been encouraged by the foothold its bigger domestic rival, Santander, has gained in the UK market since its acquisitions of Abbey National and the Alliance and Leicester.

Indeed, TSB is only part of the strategy to diversify away Spanish markets. Since 2000, Sabadell has bought nine other financial institutions, some in the US.

As Sabadell seeks to buy TSB, others Spanish banks are also looking for overseas investments. CaixaBank, which is also based in Catalonia, is involved in a takeover battle for Portugal’s BPI while Banco Popular, has believed to be bidding for Citigroup businesses in Latin America.

The 134-year-old Sabadell reported profits of €371.7m last year and, despite the financial crisis, it has doubled in size since 2007.

Alistair Dawber