- Unit would boost Sabadell earnings most among U.K. targets
- Spain's fifth-largest lender could add to its purchase of TSB
Banco de Sabadell SA should consider buying one of Royal Bank of Scotland Group Plc’s consumer lenders to strengthen its position in the U.K., according to Keefe, Bruyette & Woods.
RBS’s Williams & Glyn unit would be the most attractive among six small British banks Sabadell could look at, Hari Sivakumaran and Richard Smith wrote in a note to clients on Tuesday.
Sabadell, Spain’s fifth-largest lender, could be looking for another British deal after acquiring TSB Banking Group Plc in June to grow its U.K. operations to challenge Britain’s four largest banks, which together control as much as 80 percent of the market. The nation’s smaller “challenger” banks may have to merge with each other if they hope to compete.
“Our analysis shows that an acquisition of Williams & Glyn would be the most earnings-accretive deal” after three years, among six potential targets including billionaire Richard Branson’s Virgin Money Holdings UK Plc and J.C. Flowers & Co.-backed OneSavings Bank Plc, the analysts wrote. “Following completion of the TSB transaction in June, we can see the strategic appeal of acquiring another U.K. challenger bank.”
Buying Williams & Glyn would boost Sabadell’s earnings per share by 7 percent within three years and generate a return on investment of 12.9 percent, the analysts wrote. The bank would pay around 3.3 billion euros ($3.7 billion) and be able to extract synergies equivalent to 25 percent of costs, according to the note.
As it did with the TSB takeover, Sabadell could raise capital to fund the purchase, and would require as much as 2.8 billion euros, KBW said. Although the acquisition of TSB was completed in June, a full integration of its systems with Sabadell isn’t expected until the end of 2017.
RBS plans to sell shares in Williams & Glyn next year and dispose of it completely by the end of 2017 to meet European Union rules linked to its 45.5 billion-pound ($70 billion) bailout during the financial crisis. Lloyds Banking Group Plc, which was also forced by the EU to sell banking operations after needing taxpayer money, took TSB public last year before selling its remaining 50 percent stake to Sabadell.