Investors who bought into TSB’s float last June at 260p will get a 31pc premium from the takeover. This is a scale of return that the bank could not hope to match as a standalone company, particularly with no dividend in sight until 2017 and the overhang from Lloyds Banking Group’s 40pc stake.
Questor has previously laid out the dangers lurking underneath TSB’s solid progress since its spin-off from Lloyds last summer. Despite chief Paul Pester saying that 2015 is the year the bank will “turn a corner on franchise lending” as the mortgage broker network brings in additional customers, the bank’s loan-to-deposit ratio is sluggish at 75.6pc.
Two-thirds of mortgages on TSB’s books are on a variable rate, and about half are interest-only, therefore at particular risk of a rising default rate as interest rates start to climb in the next year or two.
TSB is currently renting its IT systems from Lloyds at a cost of £100m a year, which is due to double in 2017 if it does not migrate to another system – such as the one used by Sabadell.
Meanwhile, political noise focused on fostering challenger banks, along with an ongoing competition probe into small business and current accounts, could create a tougher market in which TSB fights for customers, notwithstanding its ability to grab 7.9pc of all switching customers last quarter.
The management team have already said they support Sabadell’s £1.7bn offer to buy the bank. Lloyds has already sold 10pc to the Spanish bidder and pledged to use its remaining 40pc holding to back the deal, which reaches its first closing date on May 8.
The takeover must garner support from 75pc of shareholders before it can complete.
Given the myriad threats still facing the banking industry, Questor recommends that shareholders also accept the offer.