TSB looks an odd fit for BBVA’s Spanish acquisition


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There is nothing like dusting off a well-thumbed strategy. BBVA has resurrected plans for Spanish consolidation with an offer for Sabadell. The combination would create the country’s second-largest bank worth more than €70bn. With Sabadell’s strength in SMEs, the pair’s domestic share of overall lending will rise to about one-fifth. A bigger slice of the Spanish market fits with BBVA’s desire to reduce its reliance on emerging markets such as Mexico. 

That logic is largely unchanged since 2020, and BBVA’s previous attempt to buy Sabadell. Disagreements over pricing scuppered that deal. This time, a knockout 50 per cent premium to Sabadell’s three-month undisturbed price should mean less friction.

If the deal goes ahead, one question is what this means for TSB, the once-troubled UK bank that Sabadell acquired in 2015. The British bank has been on and off the market for years, after an IT disaster in 2018 sent costs soaring. BBVA has said TSB would add to its “global scale”. Regardless, the UK bank would be an odd fit for its broader strategy.

Column chart of Share of profits (%) showing Sabadell lowers BBVA's EM reliance

BBVA sold its US assets back in 2020, spurred on by a lack of scale in that market and good valuations for US regional banks. That disposal also boosted BBVA’s share of emerging market earnings, about two-thirds of its total last year.

Shifting that mix back towards developed markets and greater stability should be reflected in a lower cost of equity. A stronger position in Spain would fit that aim.

But TSB is one of the smaller UK challenger banks failing to make an impact in a market where bigger upstarts are also struggling to dent the status quo. It has put its IT and regulatory issues behind it. But it is still subscale, were BBVA to want to generate some UK growth. TSB’s market share in mortgages is just 2 per cent, or half that of Virgin Money.

A sale makes more sense. TSB might be worth £1.6bn at a multiple of 0.85 times tangible book value, thinks Mediobanca’s Andrea Filtri. That could cover the 0.3 percentage point hit to capital that BBVA expects from this deal, with some change.

Finding a buyer might be tough. The big four UK banks would struggle with regulators and politicians alike. In the meantime, an alternative could be Atom Bank, the struggling UK digital bank that counts BBVA as its largest shareholder. The Spanish bank put new capital into Atom last year. Putting the two together might appeal, while BBVA looks for an exit.

Either way, BBVA seems an unlikely candidate to be part of the UK’s long-term banking future.

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