Why TSB/Sabadell is no Abbey National/Santander


When
news of the Sabadell, the Catalan bank, bid for TSB broke it was inevitable
that parallels with the 2004 acquisition of Abbey National by Santander would
be drawn. After all both banks are Spanish, have global footprints despite
having started out as regional banks and are run by family dynasties.

However
the two situations and players are quite different.
Abbey
National having made the transition from building society (savings &
loans/community bank) to listed bank, at the time of the acquisition was
struggling to decide what its role in the banking market was to be. With its
launch of co-branded branches/coffee shops with Costa Coffee and its
partnership with Safeway, the supermarket, it was not clear to its customers
what it was. Santander came along to change all that.

Through
its close relationship with RBS, including non-executive director roles, Santander
had been observing the UK retail banking market for some time and understood
the opportunities that were there.

Banking platform was
key to Santander business case

The
case that Santander made for Abbey National was that as leading global retail
bank with a strong track record in successfully managing integrations and a
world class technology platform that had been at the core of all their acquisitions,
Santander could significantly reduce the costs of running Abbey National by
replacing Abbey’s multiple banking systems with Santander’s Partenon banking
platform, implementing Santander’s  best
practice retail banking processes and Santander’s formidable disciplined approach
to cost management.


It is interesting to
note that despite Santander’s assertion that the Partenon platform would be
able to work for the UK market it took far longer and was more expensive to
implement than originally envisaged.

Santander
is quite unique in that as part of its journey from a small regional bank to
one of the world’s largest banks IT has been at the heart of everything that
they do and they even have their own IT company, Produban. Santander has set
out not only to be a world class bank but also a world class IT company.

The
situations for both TSB and Sabadell are quite different from that of Abbey and
Santander.
TSB
has a very clear idea of the role that it wants to play in the UK retail
banking market. It has strong leadership. As a result of the EU forced
separation from its majority shareholder, Lloyds Banking Group, TSB is sitting
with an infrastructure and balance sheet too big for the customer base and
products that it currently serves. It is also using a legacy set of IT systems
that Lloyds Banking Group runs for it. TSB has two main requirements that it
needs to fulfil. Firstly it needs a significant increase in its customer base
particularly in terms of lending to be able to make a profit. Secondly it needs
a modern, agile IT platform that will both be able to deliver the fantastic customer
experience that is so core to its strategy and at a significantly reduced cost
than it is charged by Lloyds Banking Group today.

Sabadell
due to its lack of a presence in the UK market will not directly bring the
increase in the customer base or the additional lending, that a UK merger could
bring TSB. Sabadell does not have its own IT company neither does it have a
track record of building a modern banking system to manage businesses in
multiple countries.

What
it does bring is excellence in the application of digital. Under the leadership
of Pol Navarro, Head of Digital Transformation at Sabadell the bank has been a
pioneer in digital banking and has demonstrated how banks can embrace digital. This
is certainly something that TSB would want to exploit.

In
addition Sabadell would bring to TSB deep experience in business banking
something that inevitably TSB will need to offer to both meet it customer needs
but also its shareholders’ profitability requirements.
Should
Sabadell complete on the acquisition of TSB then Lloyds Banking Group will pay
it £450m to assist it in getting TSB off the legacy Lloyds platforms. Should Sabadell
get this then it should use this as a significant down payment to replace its group
wide banking platforms, starting with the UK with a new platform architected
for the digital age – agile enough to be able to quickly adapt to the
inevitable and continuous changes in the financial services industry.

A
Sabadell/TSB tie up would be good for Lloyds Banking Group (and UK tax payers
since they are still shareholders), however the case for the deal going ahead
is nowhere as easy to make as it was for the acquisition of Abbey National.

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