Natwest top pick to acquire TSB
British banking juggernaut Natwest Group has been pegged as the “most likely acquirer” of TSB Bank.
Natwest returned to private ownership last month, ending a nearly two-decade-long banking saga and setting the lender up for a deals spree.
The bank has purchased over £5bn worth of shares from the Treasury as part of its directed buyback program in the last four years, which now frees up bundles of capital for the lender.
“We think that this transaction makes the most sense for Natwest,” RBC analysts Pablo de la Torre Cuevas and Benjamin Toms said.
“Management has been the most open around potential merger and acquisition.”
Analysts said a sales transaction could reach £2.6bn, which would “not require Natwest to raise capital”.
Cuevas and Toms said the takeover would help Natwest “participate in UK consolidation, whilst increasing its market share in mortgages, where the bank is currently under weight.”
TSB Bank’s owners, Banco Sabadell, confirmed they had received expressions of interest over a potential takeover of their UK unit on Monday.
Sabadell said it “will assess any potential binding offer it may receive”.
TSB was previously owned by Lloyds Banking Group and was acquired by Sabadell in 2015 for £1.7bn.
Lloyds could be out of the running for a takeover due to “market share concerns”.
The Competition and Markets Authority (CMA) assesses merger and acquisition deals to ensure they don’t substantially lessen competition. Lloyds, as the largest retail bank in the UK, may face scrutiny that a takeover could make it too dominant.
But analysts noted the government’s ousting of Marcus Bokkerink, former head of the CMA, could “help facilitate UK deals, meaning that even Lloyds could kick the tyres on TSB.”
Natwest’s buying binge
Analysts said Natwest could afford the takeover through a £1.1bn reduction to buybacks and a marginal hit to its CET1 ratio, which indicates how well-capitalised and more likely to withstand financial stress.
Natwest booked £1.8bn in pre-tax profit for the first quarter of the year, surpassing the £1.6bn pencilled in by analysts.
A potential takeover would follow an £11bn bid by the group for Santander UK’s retail arm earlier this year, according to reports from the Financial Times.
Talks between the two lenders are no longer active, but should the takeover have gone ahead, it would have birthed the biggest banking deal since the financial crisis.
The bank kicked off its shopping spree last year after snapping up the majority of Sainsbury’s banking assets and purchasing Metro Bank’s £2.5bn residential mortgages portfolio.