Co-op Bank’s offer on TSB to drive further consolidation

Earlier this year, its owner said TSB is a “key part of Sabadell’s strategic plan”, as it announced a contribution of € 43million (£ 36million) to Sabadell in the third quarter , against a loss of 76 million euros a year ago. The profits also flowed back to Co-op Bank, which could finally become the customer.

But, although apparently recovered, both failed in their mission to shake up the sector.

When TSB parted ways with Lloyds in 2013, Lloyds boss Antonio Horta-Osorio said he “had all the prerequisites to be a very strong challenger on the main street” because he “didn’t have to. “toxic assets, no legacy issues and very high capital ratios.” Lloyds and its big rival banks Barclays, NatWest and HSBC are not threatened, however.

Instead, the challengers caused their own problems.

Co-op Bank, like most midsize lenders, knows it needs scale to gain a foothold in the game, but talks about consolidating the industry have never taken off. Agreements that were under consideration almost a decade ago are still ongoing.

Takeover advisers believe that may finally be about to change.

“I think higher interest rates would lead to more transactions,” says Nick O’Donnell, partner at the law firm Bird & Bird. “The sudden surge in profits from rising rates would bring animal spirits back into the industry’s M&A market. “

City analysts agree. “The prospect of a UK rate hike can only spur additional interest in private equity in the banking space, where further consolidation looks likely,” Jefferies analysts said after the announcement of TSB’s offer.

The government does not want the challenger banks to give up. Rishi Sunak gave the industry a boost in budget confidence last week, pledging to improve competition and no longer impose a tax surcharge unless banks adopt an annual allocation of £ 100million.

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