Co-operative Bank in shock merger approach to rival lender TSB
The Co-operative Bank has made an audacious approach about a merger with TSB in a move that could trigger a fresh wave of consolidation among Britain’s mid-sized lenders.
Sky News has learnt that the Co-operative Bank contacted TSB’s Spanish owner, Banco Sabadell, earlier this month to gauge its appetite for a deal.
TSB’s Spanish owner has been approached about a sale of the UK lender.
It is understood to have said that it would be willing to pay in excess of £1bn for TSB.
City sources said this weekend that Sabadell had indicated that it was not keen to enter into formal discussions at this stage about a merger of what by some measures are the UK’s seventh-largest and eight-largest banks.
If it did materialise, a tie-up between two of the best-known brands in the sector would create a high street lender with more than 8m customers encompassing mortgages, current accounts, credit cards and savings products.
That would make the combined business larger by customer numbers than Virgin Money, which has approximately 6.5m customers, although it would be smaller than Virgin Money as measured by the size of its loan-book.
It would also remain far smaller than Lloyds Banking Group, NatWest Group, Barclays, HSBC Holdings and Santander UK in terms of market share and high street presence.
Nevertheless, the Co-operative Bank’s approach for TSB was described this weekend by one industry executive not connected to the prospective deal as a logical move.
The profitability of UK retail banks has been hampered since the aftermath of the 2008 financial crisis, with interest rates at historic lows for more than a decade.
Analysts have for years forecast a wave of corporate activity that would see mid-sized banks bulk up, although the combination of OneSavings Bank with Charter Court Financial Services and Virgin Money’s tie-up with CYBG have proved to be exceptions.
This week, a takeover of Sainsbury’s Bank by Centerbridge Partners, the US-based investor, fell apart after the supermarket group concluded that it would not deliver value to shareholders.
If the Co-operative Bank did succeed with a formal bid for TSB, it would be a deal laden with corporate irony.
In 2013, the Co-operative Bank’s bid to acquire the branch network which became TSB was left in ruins when the scale of its own financial crisis emerged.
The Co-operative Bank, which at the time was majority-owned by the Co-op Group, one of the UK’s biggest mutuals, was forced to turn to a group of American hedge funds in a £1.5bn rescue deal.
Its former chairman, Paul Flowers, was left humiliated by tabloid revelations about his private life that led to him being dubbed ‘the crystal methodist’, and prompted an overhaul of its leadership and ownership structure.
The ensuing eight years brought further turbulence for both the Co-operative Bank and TSB, however, with the former reliant on another bailout by investors in 2017.
TSB, meanwhile, was plunged into a storm of its own the following year when an IT systems calamity left millions of customers locked out of their accounts for days.
The incident came three years after Sabadell bought TSB from public investors and Lloyds Banking Group, its former parent.
TSB’s future has been the subject of intense speculation since last year when its Spanish owner signalled that it would be open to a sale.
The odds on a short-term deal diminished in the spring, however, when Sabadell indicated that it would delay an auction process.
News of the Co-operative Bank’s unsolicited approach to Sabadell is likely to trigger interest from other suitors for TSB, which operates nearly 300 branches.
It comes just weeks after TSB confirmed the appointment of Nick Prettejohn, a City veteran, as its new chairman.
The Co-operative Bank’s ability to propose a transaction of this scale underlines its recent recovery, having announced an underlying profit of nearly £13m for the first half of 2021.
It has itself been on the receiving end of takeover interest, although talks about a sale to Cerberus Capital Management, an often controversial investor, broke down last December.
A merger with TSB would almost certainly make a medium-term exit for both Sabadell and the Co-operative Bank’s owners easier to execute, potentially through a public share sale.
In April, two major investors – Bain Capital Credit and JC Flowers – took a 10% stake in the Co-operative Bank, which some analysts interpreted as a sign that it would become more proactive in its approach to industry consolidation.
The lender’s other shareholders include GoldenTree Asset Management and Silver Point Capital, two US-based hedge funds.
Credit Suisse is advising the Co-operative Bank, while Goldman Sachs has been retained by Sabadell to advise on the future of TSB.
A Sabadell spokesman said: “This is not a transaction that we wish to explore at this moment, as we have previously expressed publicly.”
The Co-operative Bank and TSB declined to comment.
An independent review of the water industry is to recommend sweeping changes to the way the sector is managed, including the potential replacement of Ofwat with a strengthened body combining economic and environmental regulation.
Former Bank of England governor Sir Jon Cunliffe will publish the findings of the Independent Water Commission on Monday, with stakeholders across the industry expecting significant changes to regulation to be at its heart.
The existing regulator Ofwat has been under fire from all sides in recent years amid rising public anger at levels of pollution and the financial management of water companies.
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Campaigners and politicians have accused Ofwat of failing to hold water operators to account, while the companies complain that its focus on keeping bills down has prevented appropriate investment in infrastructure.
In an interim report, published in June, Sir Jon identified the presence of multiple regulators with overlapping responsibilities as a key issue facing the industry.
While Ofwat is the economic regulator, the Environment Agency has responsibility for setting pollution standards, alongside the Drinking Water Inspectorate.
Sir Jon’s final report is expected to include a recommendation that the government consider a new regulator that combines Ofwat’s economic regulatory powers with the water-facing responsibilities currently managed by the EA.
In his interim report, Sir Jon said options for reform ranged from “rationalising” existing regulation to “fundamental, structural options for integrating regulatory remits and functions”.
He is understood to have discussed the implications of fundamental reform with senior figures in industry and government in the last week as he finalised his report.
Environment Secretary Steve Reed is expected to launch a consultation on the proposals following publication of the commission report.
The commission is also expected to recommend a “major shift” in the model of economic regulation, which currently relies on econometric modelling, to a supervisory approach that takes more account of individual company circumstances.
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How water can teach Labour a much-needed lesson
On Monday, the government’s long-awaited review into the UK’s water industry will finally report.
The expectation is that it will recommend sweeping changes – including the abolition of the regulator, Ofwat.
But frustrated customers of the water companies could rightly complain that the process of taking on this failing sector and its regulator has been slow and ineffective.
They may be forgiven for going further and suggesting that how Labour has dealt with water is symbolic of their inability to make an impact across many areas of public life, leaving many of their voters disappointed.
This is an industry that has been visibly and rapidly declining for decades, with the illegal sewage dumping and rotting pipes in stark contrast with the vast salaries and bonuses paid out to their executives.
It doesn’t take a review to see what’s gone wrong. Most informed members of the public could explain what has happened in a matter of minutes.
And yet, despite 14 years in opposition with plenty of time to put together a radical plan, a review is exactly what the government decided on before taking on Ofwat.
Month after month, they were asked if they believed the water industry regulator was fit for purpose despite the obvious disintegration on their watch. Every time the answer was ‘yes’.
As in so many areas of government, Labour, instead of acting, needed someone else to make the decision for them, meaning that it has taken over a year to come to the simple conclusion that the regulator is in fact, not fit for purpose.
As they enter their second year in office, maybe this can provide a lesson they desperately need to learn if they want to turn around their fortunes.
That bold decisions do not require months of review, endless consultations, or outside experts to endlessly analyse the problem.
They just need to get on with it. Voters will thank them.
Sir Jon has said the water industry requires long-term strategic planning and stability in order to make it attractive to “low-risk, low-return investors”.
The water industry has long complained that the current model, in which companies are benchmarked against a notional model operator, and penalised for failing to hit financial and environmental standards, risks a “doom loop”.
Thames Water, currently battling to complete an equity process to avoid falling into special administration, has said the imposition of huge fines for failing to meet pollution standards is one of the reasons it is in financial distress.
Publication of the Independent Commission report comes after the Environment Agency published figures showing that serious pollution incidents increased by 60% in 2024, and as Thames Water imposes a hosepipe ban on 15m customers.
Ofwat, Water UK and the Department for the Environment all declined to comment.
The first Post Office Capture conviction is to be sent to the Court of Appeal, Sky News understands, in a “breakthrough” moment in the IT scandal.
The Criminal Cases Review Commission (CCRC) has decided to refer the case of sub-postmistress Patricia Owen, who was convicted in 1998 of theft.
Mrs Owen was found guilty by a jury based on evidence from the faulty IT software Capture, which was used in 2,500 branches between 1992 and 1999, before the Horizon Post Office scandal.
Pat Owen, pictured here with her husband David, always maintained her innocence but died in 2003 with a criminal record
It comes after Sky News revealed that a damning report into Capture, which could help overturn criminal convictions, had been unearthed after nearly 30 years.
The decision to refer the first-ever Capture case to the Court of Appeal has been made on the grounds that Mrs Owen’s prosecution was an “abuse of process”.
The development has been described by victims’ lawyer Neil Hudgell as “hugely pivotal”.
“The Court of Appeal don’t receive that many referrals that start at the CCRC, and most get turned away, so it’s a very high bar to even get cases from the CCRC to the Court of Appeal…”
“I think it will be a real shot in the arm to all the other Capture victims who are waiting for their cases to be determined by the CCRC.”
Mr Hudgell described the report found earlier this year – written by computer experts in 1998 and highly critical of Capture – as “significantly tipping the balance”.
Lawyer Neil Hudgell says development is ‘hugely pivotal’
Sky News found that the Post Office knew about the report at the time and continued to prosecute sub-postmasters based on Capture evidence.
Pat Owen always maintained her innocence but died in 2003 with a criminal record before the wider Post Office scandal came to light.
Her daughter Juliet Shardlow said she cried when she heard the news that her mother’s case would be referred to the Court of Appeal.
“I feel angry that she is not here because she died before her time… we will be there – we will be sitting there in that front row.
“I can’t put it into words because it’s still all a shock that we are where we are and that later this year, or next year, we might have what we set out to get… justice for her.”
Juliet Shardlow is seeking justice for her mother
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The CCRC is currently investigating 30 cases potentially related to the Capture software system.
Twenty-seven of those cases are now assigned to case review managers and under “active review”, with a further three cases in the preparatory stages.
The CCRC has described a “challenge” over determining “whether cases involved the use of Capture at the time of the alleged offences”.
In a letter written to Liam Byrne, chair of the Business and Trade Committee, and seen by Sky News, it said that information the Post Office has provided “does not, in most cases, show whether it was installed and in operation at the time of the alleged offending”.
It also mentioned that the Post Office is reviewing “a significant amount of data which may contain further information”.
A Post Office spokesperson said: “While it is not appropriate for us to comment on specific cases, we have been very concerned about the reported problems relating to the use of the Capture software, and we are sincerely sorry for past failings that have caused suffering to postmasters.
“We are determined that past wrongs are put right and continue to support the government’s work in this area as well as fully co-operate with the Criminal Cases Review Commission.”
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