Sabadell, TSB Agree to Takeover Terms -- 2nd Update

By Ian Walker and David Román 

Banco de Sabadell SA on Friday confirmed terms of a GBP1.7 billion ($2.54 billion) takeover of TSB Banking Group PLC and said it would launch a rights issue to maintain its capital levels.

The two banks said last week that they were talking about a possible deal and said Friday that both sides had agreed to the terms of the 340 pence a share takeover.

Lloyds Banking Group PLC, TSB's largest shareholder, said it would sell a 9.99% stake in TSB to Sabadell and has agreed to accept the Spanish bank's offer for its remaining 40% shareholding.

Banco Sabadell, a midsize Spanish lender with a limited footprint outside its home country, said in a separate statement it would raise EUR1.6 billion ($1.71 billion) in a rights issue to maintain its common equity tier 1 capital ratio, a measure of financial strength, following the deal. It added that the TSB takeover wasn't conditional on the fundraising.

The Spanish bank said the takeover would allow it to enter what it believes is an attractive U.K. banking market and that it expects to support and accelerate TSB's growth. As well as offering growth opportunities, Sabadell also thinks it can achieve cost savings in areas such as IT.

TSB was part of Lloyds until June, when Lloyds floated a minority stake at 260 pence a share. The TSB sale was a condition of state aid received by part state-owned Lloyds in the financial crisis. Under European rules Lloyds must sell its entire stake in TSB by the end of the year.

TSB, a relative minnow in the U.K. banking market, has been promoted by U.K. politicians as a " challenger bank" to help break the U.K.'s highly concentrated banking market.

However, TSB only controls around 4% of the U.K.'s checking accounts, raising questions over whether it can gain enough scale to take on local retail giants including Royal Bank of Scotland Group PLC and Barclays PLC. U.K. competition authorities are currently considering whether the checking-account market is too concentrated in the hands of a few banks.

Write to Ian Walker at [e-mail]

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