By Samuel Norman
Santander might have hoped its takeover of TSB would make waves across the banking industry, but analysts have dubbed it a more modest splash.
The deal, which is set to be worth 拢2.9bn when closed in 2026, will add TSB鈥檚 five million customers, 拢34bn in mortgages and 拢35bn in deposits to Santander鈥檚 portfolio as well as its 218 branches.
Numerous firms were speculated to be circling TSB as the UK鈥檚 banking giants looked to bulk up their competitive edge, but Santander managed to beat the pack.
But Benjamin Toms, financial analyst at RBC, said the acquisition was 鈥渞elatively small in the context of the UK market鈥 and would be more impactful for Santander than its peers.
Toms told City AM 鈥渁ll of the large UK banks will have taken a look at the TSB asset鈥.
Banco Sabadell, the Spanish owner of TSB, confirmed it had received interest in a takeover of the high street lender last month, with reports suggesting Barclays was among those mulling a bid.
Banking analyst John Cronin told City AM Barclays was bound to be 鈥渟ore that it didn鈥檛 manage to seal the deal鈥 but speculated pricing may have been the determining factor.
Barclays completed its 拢600m takeover of Tesco鈥檚 banking arm last year, which allowed it to return 拢700m to shareholders through an incremental share buyback.
Toms said: 鈥淏arclays are still busy integrating Tesco Bank, if they had also been successful in buying TSB, this would have come with additional execution risk and would have been a distraction for management in our view.鈥淢anagement has always been very clear that their number one priority is executing the current strategic plan.鈥
Chief executive CS Venkatakrishnan, known as Venkat, is halfway through his three-year overhaul on the lender which targets higher returns and less reliance on its investment banking arm.
The investment bank pocketed 拢3.9bn in the first quarter, accounting for over half of the firm鈥檚 total income.
Natwest was named as the 鈥渕ost likely acquirer鈥 by analysts as the banking giant eyes a deal spree after re-entering private ownership.
Toms said: 鈥淣atwest may be disappointed that they were not able to take this opportunity to increase their mortgage market share to be in line with deposits. But price is very important for the bank, and they showed good price discipline.鈥
The FTSE 100 lender ruled out a takeover last month, as reported by the Financial Times, leaving Barclays and Santander among those considering a formal offer.
Lloyds Banking Group, TSB鈥檚 previous owner, was expected to have ruled out a bid, due to its already dominant market share in the UK retail market.
Lloyds sold TSB to Sabadell in 2015 for 拢1.7bn, after it re-established TSB as a separate bank in 2013. This move came on the back of the 2008 financial crisis where Lloyds was rescued with a 拢20.3bn government bailout.
Ahead of the sale, the combined entity made up one of the UK鈥檚 largest retail banking groups.
Turmoil for TSB branches
Santander has been bullish with an overhaul of its branch network, which could lead to a drastic retreat of TSB on the high street.
The lender鈥檚 provisions for liabilities and charges jumped 69 per cent in the first-quarter to 拢140m. The bank said 拢42m was driven by 鈥渃harges relating to changes to our branch network鈥.
This came as the bank laid out plans to close 95 branches in June 2025 and launch a new community bankers scheme to provide areas with face-to-face support.
The takeover has sparked questions of a total removal of the TSB brand after Santander said it planned to 鈥渋ntegrate鈥 the firm into the wider group.
Mike Regnier, Santander UK鈥檚 chief, told the BBC: 鈥淲e tend to use the Santander brand on the high street around the world鈥.
鈥淭here鈥檚 still a number of hurdles for us to get over, approvals from the shareholders of Sabadell, approvals from the UK regulator. We should be able to create efficiency savings of about 13 per cent of the combined cost base Santander and TSB. That will probably come from a number of areas.鈥
Big six gear up for takeover frenzy
The latest iteration in UK banking consolidation indicates no slow down in the frenzy of takeovers, analysts told City AM.
The 鈥楤ig Six鈥 鈥 Barclays, Natwest, HSBC, Barclays, Santander, Nationwide 鈥 are expected to be the 鈥渁ctive鈥 in the next round of deals.
鈥淭here is probably more consolidation to come in the UK, with the next most likely transaction coming from one of the building societies,鈥 Toms said.
Nationwide鈥檚 blockbuster 拢2.9bn deal with Virgin Money marked the biggest banking takeover since the financial crisis.
The move signalled the building society鈥檚 entry into a riskier business banking market, as it sought to diversify its offering from interest-rate-sensitive savings and mortgages.
Toms added the increased spending from banks on tech, making up around 15 per cent of bases, was 鈥渋ncreasingly important鈥 when considering scale.
Moody鈥檚 analysts have suggested consolidation among the UK challenger banks as lenders seek exits due to competitive pressure as legacy firms look to beef up their tech.
But established fintech veterans such as Monzo and Revolut were 鈥渓ess likely鈥 to take part in the consolidation, with analysts citing 鈥渉igh valuations and limited lending franchises鈥.
Any major plays could attract the attention of the Competition and Markets Authority 鈥 the regulator which approves deals.
The CMA takes judgement on whether mergers and acquisitions reduce competition in different markets. The already dominant stance of banking giants in the industry could lead to heightened scrutiny of any potential larger deals.
But the watchdog is among 17 regulators the Labour government has asked to lay out proposals on how to ease business鈥 burden.
CMA chair Marcus Bokkerink was ousted in January in what was dubbed the 鈥渕ost overtly political鈥 regulatory intervention of recent year.
City analysts took the move as a clear signal of Chancellor Rachel Reeves鈥 approach to regulators.
But even more so, the move opened the door to looser scrutiny on blockbuster deals 鈥 a sentiment bound to be welcomed by the big banks.