Comment: Challenging M&A issue for banking industry

Spanish bank Sabadell is reportedly weighing up a takeover offer for the £13 billion‑plus mortgage portfolio held by nationalised banks Northern Rock and Bradford & Bingley.

Martin Flanagan. Picture: Fiona Hanson
Martin Flanagan. Picture: Fiona Hanson
Martin Flanagan. Picture: Fiona Hanson

There’s never a dull moment in the UK challenger bank sector, as shown by the Spaniards mounting a successful takeover earlier this year of the fledgling independent high street lender TSB, spun out of state-backed Lloyds Banking Group.

Then, just weeks ago, there were several stories that Sabadell’s appetite for acquisitions in the UK was not sated, and that it was running the rule over potential targets, most notably Clydesdale Bank.

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The word was the Spanish group was thinking of anticipating the planned demerger and flotation of Glasgow-based Clydesdale and its sister bank Yorkshire by its Australian owner at the end of this year. Now Northern Rock and Bradford & Bingley are said to be in Sabadell’s crosshairs. The bank has kept its own counsel as the speculation has swirled, but you can see why such scenarios are plausible.

Merger and acquisition activity in this country virtually has to be confined to the challenger sector (also including the likes of Virgin Money, Aldermore, Tesco Bank and Metro Bank).

The “big four” – HSBC, Lloyds, Barclays and Royal Bank of Scotland/NatWest – would obviously fall foul of the regulatory law of market shares if they made an even moderately meaningful move leading to UK banking industry consolidation.

And there is clearly no government appetite for bending the rules in such areas these days following the debacle that proved to be Lloyds’ rescue of HBOS back in the financial crash.

So the only game in town speculatively becomes: do the challenger banks have the strategic vision, financial wherewithal and corporate nerve to accelerate growth through acquisitions?

Or do the challengers feel that internally generated expansion is less draining of capital, less fraught with integration risk and less a diversion of management focus?

In terms of Sabadell’s mooted interest in the likes of Northern Rock and Clydesdale Bank specifically, the company has brought some of it upon itself through mixed messages.

Sabadell has been reported as saying it thinks it would take two years to integrate TSB, which many would read as ruling out further UK acquisitions because it has enough on its plate already.

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But at the time of the acquisition in March, its chief executive Jaime Guardiola Romojaro also said that the UK challenger bank remained unconsolidated, and that his group was in a position to grow (presumably with the platform created by TSB).

Ambiguity breeds speculation.

EU: Is old Labour’s indecision final?

The theme tune for Jeremy Corbyn’s radical new Labour regarding Britain’s European Union membership could be the hokey-cokey. “You put your left foot in, your left foot out...”

Jezza has apparently told different Labour shadow cabinet members such as Hilary Benn and Chuka Umunna different things about his stance. If his closest lieutenants are confused, what price the public?

Corbyn is routinely referred to as a euro-sceptic. But he has also talked about “not walking away” from Europe. You could forgive business being mystified on what it sees as a key issue.

On the plus side, politics is in danger of becoming entertainingly polarised for a spell.