Tony Shakesby, CFO of 328 Group and a business and finance specialist, looks into whether TSB will buy Co-Op Bank following its flotation TSB’s recent flotation has caused a storm in the business and finance industry, says Tony Shakesby, CFO of 328 Group. The company’s floatation of 35% of the business on the stock market priced it at 260 pence per share. This values the bank at £1.3bn – 80% of its net asset value. “Co-Op Group famously tried to buy-out TSB in 2012, and offered just £750 million. TSB was right to be cautious about selling-up,” says Tony Shakesby. “The negotiations fell apart sensationally when a billion-pound black hole was found on the Co-Op’s balance sheet. The question in the business and finance industry now is – will TSB turn the table and try to buy Co-Op bank?”
The bank’s 13% rise in share price shows that demand for shares in the business is incredibly high – and ten-times oversubscribed. “The stake-sale is split 30-70 between retail and institutional investors, respectfully,” says the 328 Group CFO. “This means that individual investors who secured shares will be eligible for the bonus of shares in twelve months should they retain the stake, and will receive £2000 worth of shares. “Long term, TSB will need to continue to sell itself as a ‘clean’ bank if it wants to continue its success. Many banks have followed suit since the financial crisis, branding themselves as simple and ethical – including the Co-Op Bank, which had ridden the storms of the last two years rather well.”
Tony Shakesby says that the government’s desire for a larger number of banking players in the retail sector will come to fruition. “These conditions make mergers and acquisitions within the market likely,” he adds.
TSB’s new look, along with the strength of Lloyds’ offerings now under its belt, makes it attractive. “In addition,” says the 328 Group boss, “the bank has wealth and popularity now on its side. Also, as part of its sale, Lloyds Banking Group has promised to offer it indemnity from future legal cases of bad behavior. There is also a pot of money to the tune of £450 million on the table, for TSB to pump into IT infrastructure and improvements in the future.
As any business will know, during big acquisitions, it is maintaining business-as-usual via IT routes that is key, and most expensive. “This indicates that, should TSB look to buy-out a competitor – adding to its ‘clean bank’ image and adhering to the government’s aspirations – it will be the best placed bank in the market, arguably, to do so. Smooth mergers are reliant on IT infrastructure. A take-over of the Co-Op bank would therefore be manageable,” explains Tony Shakesby. Many say that a Co-Op buy-out would be a perfect fit for TSB’s new place in the market. And now could be opportune timing. “It is 328 Group’s belief that now is a good time for a merger to take place. New business and finance institutions on the high street are growing in traction – Metro Bank, Virgin
Money and Marks and Spencer bank to name the main ones. It seems that the market is expecting for Co-Op to be bought by TSB and create a new super bank.” Lloyds TSB famously took-over HBOS in 2008, in a deal worth £12 billion. The deal made headlines as it ensured that the company would hold close to one-third of the UK’s mortgage and savings market. HBOS was valued at the time at 232p a share, put down to it being the country’s biggest mortgage lender owning 20% of the market. The buy-out came amidst the economical down-turn. It was rumored that the government played a big hand in pushing-through the TSB – HBOS deal, concerned that lenders and depositors had started to extract their credit from the bank. “There were growing concerns the boardroom of HBOS,” says Tony Shakesby, “that a fearful climate was emerging about its future and that a further funding crisis could result. The HBOS deal was a clever one, however, leading to less competition in the market and a reduced selection of lenders for consumers. It could happen again.”