Why did Santander buy TSB?
Santander might have hoped its takeover of TSB would make waves across the banking industry, but analysts have dubbed it a more modest splash.
The deal, which is set to be worth £2.9bn when closed in 2026, will add TSB’s five million customers, £34bn in mortgages and £35bn in deposits to Santander’s portfolio as well as its 218 branches.
Numerous firms were speculated to be circling TSB as the UK’s banking giants looked to bulk up their competitive edge, but Santander managed to beat the pack.
But Benjamin Toms, financial analyst at RBC, said the acquisition was “relatively small in the context of the UK market” and would be more impactful for Santander than its peers.
Toms told Morning Wire “all of the large UK banks will have taken a look at the TSB asset”.
Banco Sabadell, the Spanish owner of TSB, confirmed it had received interest in a takeover of the high street lender last month, with reports suggesting Barclays was among those mulling a bid.
Banking analyst John Cronin told Morning Wire Barclays was bound to be “sore that it didn’t manage to seal the deal” but speculated pricing may have been the determining factor.
Barclays completed its £600m takeover of Tesco’s banking arm last year, which allowed it to return £700m to shareholders through an incremental share buyback.
Toms said: “Barclays are still busy integrating Tesco Bank, if they had also been successful in buying TSB, this would have come with additional execution risk and would have been a distraction for management in our view.
“Management has always been very clear that their number one priority is executing the current strategic plan.”
Chief executive CS Venkatakrishnan, known as Venkat, is halfway through his three-year overhaul on the lender which targets higher returns and less reliance on its investment banking arm.
The investment bank pocketed £3.9bn in the first quarter, accounting for over half of the firm’s total income.
Natwest was named as the “most likely acquirer” by analysts as the banking giant eyes a deal spree after re-entering private ownership.
Toms said: “Natwest may be disappointed that they were not able to take this opportunity to increase their mortgage market share to be in line with deposits. But price is very important for the bank, and they showed good price discipline.”
The FTSE 100 lender ruled out a takeover last month, as reported by the Financial Times, leaving Barclays and Santander among those considering a formal offer.
Lloyds Banking Group, TSB’s previous owner, was expected to have ruled out a bid, due to its already dominant market share in the UK retail market.
Lloyds sold TSB to Sabadell in 2015 for £1.7bn, after it re-established TSB as a separate bank in 2013. This move came on the back of the 2008 financial crisis where Lloyds was rescued with a £20.3bn government bailout.
Ahead of the sale, the combined entity made up one of the UK’s largest retail banking groups.
Turmoil for TSB branches
Santander has been bullish with an overhaul of its branch network, which could lead to a drastic retreat of TSB on the high street.
The lender’s provisions for liabilities and charges jumped 69 per cent in the first-quarter to £140m. The bank said £42m was driven by “charges relating to changes to our branch network”.
This came as the bank laid out plans to close 95 branches in June 2025 and launch a new community bankers scheme to provide areas with face-to-face support.
The takeover has sparked questions of a total removal of the TSB brand after Santander said it planned to “integrate” the firm into the wider group.
Mike Regnier, Santander UK’s chief, told the BBC: “We tend to use the Santander brand on the high street around the world”.
“There’s still a number of hurdles for us to get over, approvals from the shareholders of Sabadell, approvals from the UK regulator. We should be able to create efficiency savings of about 13 per cent of the combined cost base Santander and TSB. That will probably come from a number of areas.”
Big six gear up for takeover frenzy
The latest iteration in UK banking consolidation indicates no slow down in the frenzy of takeovers, analysts told Morning Wire.
The ‘Big Six’ – Barclays, Natwest, HSBC, Barclays, Santander, Nationwide – are expected to be the “active” in the next round of deals.
“There is probably more consolidation to come in the UK, with the next most likely transaction coming from one of the building societies,” Toms said.
Nationwide’s blockbuster £2.9bn deal with Virgin Money marked the biggest banking takeover since the financial crisis.
The move signalled the building society’s entry into a riskier business banking market, as it sought to diversify its offering from interest-rate-sensitive savings and mortgages.
Toms added the increased spending from banks on tech, making up around 15 per cent of bases, was “increasingly important” when considering scale.
Moody’s analysts have suggested consolidation among the UK challenger banks as lenders seek exits due to competitive pressure as legacy firms look to beef up their tech.
But established fintech veterans such as Monzo and Revolut were “less likely” to take part in the consolidation, with analysts citing “high valuations and limited lending franchises”.
Any major plays could attract the attention of the Competition and Markets Authority – the regulator which approves deals.
The CMA takes judgement on whether mergers and acquisitions reduce competition in different markets. The already dominant stance of banking giants in the industry could lead to heightened scrutiny of any potential larger deals.
But the watchdog is among 17 regulators the Labour government has asked to lay out proposals on how to ease business’ burden.
CMA chair Marcus Bokkerink was ousted in January in what was dubbed the “most overtly political” regulatory intervention of recent year.
City analysts took the move as a clear signal of Chancellor Rachel Reeves’ approach to regulators.
But even more so, the move opened the door to looser scrutiny on blockbuster deals – a sentiment bound to be welcomed by the big banks.