The English adventure of Sabadell

TSB has over 600 outlets in the UK, and holds assets of €30 billion. In launching the offer, Sabadell has reiterated its appetite for growth in new and alternative markets outside the traditional Spanish sphere of influence.

Sabadell is one of the oldest Spanish commercial banks. Founded in 1881, the company has remained loyal to its roots in Sabadell, Barcelona. After more than a century of organic growth, when the bank eschewed the opportunity to partake in mergers or risky investment strategies, the dawn of the new century has seen the bank embark on increasingly bold projects.

This has involved growth through acquisitions and mergers such as Herrero, Guipuzcoano, Atlántico, Urquijo, Gallego in Spain, and NatWest and Lloyds in the UK. They have also intervened in Spanish savings outfit CAM, as well as Mare Nostrum networks and Penedés, while they also have stakes in entities in Miami and Mexico. These acquisitions have allowed the bank to become the fifth largest lender in Spain.

The acquisition of TSB will require an investment of more than €2 billion, and will necessitate a capital increase of more than €1 billion. This explains the immediate loss of share value when the announcement was made last week.

The proposal has been well received in the UK, with TSB recognising that Sabadell has the potential to regenerate what is a classical business model. While TSB holds some notable assets, and has a strong capital base and liquidity, its projections in short-term statements have been poor in recent times.

The audacity of the move from the Spanish bank will be tested in the City, where several Spanish IBEX 35 companies- Telefónica, Ferrovial, Santander- have been successful in implementing sound long-term strategies. The case of Sabadell is a new one, with initial uncertainties outweighed by the prospect of improving TSB’s overall value. The aim will be to grow the profit and loss account of a bank whose business model has become increasingly out-dated.