Unlock the Editor’s Digest free of charge
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
There is nothing like dusting off a well-thumbed technique. BBVA has resurrected plans for Spanish consolidation with a proposal for Sabadell. The mixture would create the nation’s second-largest financial institution value greater than €70bn. With Sabadell’s power in SMEs, the pair’s home share of total lending will rise to about one-fifth. An even bigger slice of the Spanish market suits with BBVA’s want to cut back its reliance on rising markets resembling Mexico.
That logic is basically unchanged since 2020, and BBVA’s earlier try to purchase Sabadell. Disagreements over pricing scuppered that deal. This time, a knockout 50 per cent premium to Sabadell’s three-month undisturbed worth ought to imply much less friction.
If the deal goes forward, one query is what this implies for TSB, the once-troubled UK financial institution that Sabadell acquired in 2015. The British financial institution has been on and off the marketplace for years, after an IT catastrophe in 2018 despatched prices hovering. BBVA has mentioned TSB would add to its “global scale”. Regardless, the UK financial institution can be an odd match for its broader technique.
BBVA offered its US belongings again in 2020, spurred on by a scarcity of scale in that market and good valuations for US regional banks. That disposal additionally boosted BBVA’s share of rising market earnings, about two-thirds of its complete final yr.
Shifting that blend again in direction of developed markets and higher stability needs to be mirrored in a decrease value of fairness. A stronger place in Spain would match that purpose.
But TSB is among the smaller UK challenger banks failing to make an impression in a market the place greater upstarts are additionally struggling to dent the established order. It has put its IT and regulatory points behind it. But it’s nonetheless subscale, have been BBVA to wish to generate some UK development. TSB’s market share in mortgages is simply 2 per cent, or half that of Virgin Money.
A sale makes extra sense. TSB is likely to be value £1.6bn at a a number of of 0.85 occasions tangible e book worth, thinks Mediobanca’s Andrea Filtri. That might cowl the 0.3 share level hit to capital that BBVA expects from this deal, with some change.
Finding a purchaser is likely to be powerful. The massive 4 UK banks would wrestle with regulators and politicians alike. In the meantime, another may very well be Atom Bank, the struggling UK digital financial institution that counts BBVA as its largest shareholder. The Spanish financial institution put new capital into Atom final yr. Putting the 2 collectively would possibly enchantment, whereas BBVA seems to be for an exit.
Either approach, BBVA appears an unlikely candidate to be a part of the UK’s long-term banking future.
andrew.whiffin@ft.com