Financial News

  • 21 July 2014, 21:19

Newly-Listed TSB Says Yes To £1.4bn UKAR Bid

TSB Banking Group, the UK's seventh-biggest lender, is plotting an audacious takeover bid for a £1.5bn taxpayer-owned mortgage portfolio just weeks after floating on the London Stock Exchange.

Sky News has learnt that TSB's chief executive Paul Pester has expressed an interest in acquiring the residential loan book from UK Asset Resolution, the Government's 'bad bank', which was put up for sale last month.

The move is designed to accelerate TSB's expansion at a time when its growth prospects are expected to be hampered by a continuing period of low interest rates.

The bank, which has 631 branches and about 4.5m customers, has pledged to distinguish itself from competitors by shunning investment banking activities and reforming the way it pays top executives.

News of TSB's interest in the UKAR loan-book comes the day after Britain's competition watchdog said it was minded to order a full investigation into the personal current account and small business banking sectors amid signs that both were insufficiently competitive.

TSB continues to be majority-owned by Lloyds Banking Group, the country's biggest high street lender, which is itself 25%-owned by UK taxpayers.

Lloyds sold 38.5% of TSB in last month's flotation for 260p-a-share, and is supposed to offload the remainder by the end of next year to comply with European state aid rules.

TSB's flotation is likely to pave the way for a string of initial public offerings (IPOs) by so-called challenger banks during the next year, with Aldermore, Shawbrook and Virgin Money all examining moves to go public.

TSB was originally going to be sold to the Co-operative Group prior to the emergence of a £1.5bn black hole on the mutually owned bank's balance sheet.

The UKAR mortgage auction represents the first such transaction since July 2012, when UKAR agreed the sale of £465m of Northern Rock Asset Management (NRAM) loans to Virgin Money.

The proceeds of that sale were used to repay part of NRAM's loan from the Government, which enabled it to stave off outright collapse in 2008.

News of the latest sale process was revealed by Sky News on the same day that UKAR trumpeted its return to the taxpayer of roughly a quarter of the nearly £50bn it borrowed six years ago.

The state-owned organisation subsequently confirmed the intention to sell the mortgage portfolio, saying in a statement last month: "The completion of any sale will not affect the terms and conditions of the mortgages sold, and the continued fair treatment of customers will be a key consideration for UKAR in assessing the merits of a sale.

"The proposed sale is in line with UKAR's strategy and is part of the orderly wind-down of the closed mortgage books of both B&B and NRAM. UKAR will only complete the transaction if the sale price achieved represents value to the taxpayer."

Richard Banks, UKAR chief executive, said its financial results represented "good progress" but warned that a rise in interest rates would be a significant obstacle for many of its 467,000 customers.

TSB, shares in which closed on Friday at 284.75p, giving it a value of just over £1.4bn, declined to comment.

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