TSB unlikely to attract big banks desperate to grow

As a takeover approach for TSB is expected to kick off a long-awaited consolidation of Britain’s mid-tier banks, the question is not so much who but why.

The players are fairly evident. The 175-branch TSB, acquired by Banco Sabadell for £1.7bn in 2015, could be made available to allow the Spanish bank to focus on fighting a £9bn hostile bid from its domestic rival BBVA.

Barclays and Spain’s Santander are among the bidders considering an offer. NatWest, free of its Treasury shackles after the British government sold its remaining stake last month, has ruled itself out.

Elsewhere, Metro Bank is said to be attracting interest spearheaded by Pollen Street Capital, part-owner of Shawbrook Bank, which had previously approached Metro with a proposal to merge. Other potential banking targets include Shawbrook itself and Starling Bank.

Given that these players are substantially smaller than Britain’s big five of HSBC, Barclays, Lloyds, NatWest and Santander, it may be suggested that the UK’s banking scene is far less ripe for consolidation than other key markets.

In the US, for example, there were still more than 4,500 banking groups at the end of last year – well down from a peak of about 25,000 but still more than any other nation relative to its population.

UK banks are finding it particularly challenging to identify growth opportunities.

NatWest has beaten a retreat from its past as an operator of US banks during its days as Royal Bank of Scotland.

Barclays is said to be targeting organic growth and Lloyds would face competition issues in acquiring a mortgage or retail bank the size of TSB.

HSBC, meanwhile, is focusing increasingly on its Asian operations.

As a result, the playing field for bank bidders for TSB and its smaller rivals is likely to be restricted to private equity companies and the one or two larger UK banking groups in a position to exploit the available synergies.

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