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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.

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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.

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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.

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Thames Water investors to quit boards amid spectre of bailout

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Thames Water investors to quit boards amid spectre of bailout

Representatives of Thames Water’s multinational syndicate of shareholders are poised to quit as directors of its corporate entities after refusing to inject the billions of pounds of funding required to bail it out.

Sky News has learnt that a number of board members at companies connected to Kemble Water Finance, Thames’s parent, are expected to resign in the coming days.

City sources described the move as “the logical next step” after the owners of Britain’s biggest water utility said they would not commit more than £3bn to help upgrade its ageing infrastructure and shore up its debt-laden balance sheet.

A default on part of Thames Water‘s holding company debts last month has raised the prospect that the company is heading towards special administration, a form of insolvency that would effectively leave the government liable for managing a utility firm which serves nearly a quarter of Britain’s population.

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Thames Water under threat

Thames Water is owned by a group of sovereign wealth funds and pension funds from countries including Abu Dhabi, Australia, Britain, Canada and China.

A number of the investors are represented on boards which sit at various points in the group’s labyrinthine capital structure.

It was unclear on Wednesday whether Michael McNicholas, a representative of the giant Canadian pension fund Omers and who sits on the board of Thames Water Utilities Limited, was among those in the process of stepping down.

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Along with the rest of the privately owned water industry, Thames Water faces a crucial moment next month when Ofwat, the industry regulator, publishes its draft determination on companies’ five-year business plans.

The draft rulings will be subject to negotiation before final versions are published in December.

Thames Water and a spokesman for Kemble declined to comment.

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Royal Mail ‘minded’ to accept £3.5bn takeover proposal by Czech billionaire Daniel Kretinsky

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Royal Mail 'minded' to accept £3.5bn takeover proposal by Czech billionaire Daniel Kretinsky

The owner of Royal Mail has said it is “minded” to accept a revised takeover bid by Czech billionaire Daniel Kretinsky.

The latest offer from Mr Kretinsky’s investment firm EP Group values the Royal Mail parent company International Distribution Services (IDS) at £3.5bn.

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Mr Kretinsky’s firm already owns most of IDS as a 27.6% shareholder but wishes to buy the remaining shares.

An earlier offer of £3.20 a share had been rejected last month for being too low.

But now he has offered to pay £3.60 for each share. The day before the original offer was made a share in IDS cost £2.14.

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An extra shareholder pay out of 8 pence a share has been offered by EP Group, if the deal closes, as has a 2 pence per share payment to every stakeholder, expected to be paid in September.

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It would bring the total value of an IDS share to 73% more than it cost before the prospect of a buyout was raised.

‘Good value’

“Having considered the proposal, the board has indicated to EP Group that it would be minded to recommend an offer to IDS shareholders”, the IDS board said.

The price is “fair” and reflects the value of current growth plans, the IDS chairman said.

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Royal Mail could be allowed to deliver letters just three days per week, under a series of options outlined by the industry regulator.

Consideration was given by the board to the national significance of Royal Mail as the operator of the postal network.

“The board is particularly mindful of Royal Mail’s unique heritage and responsibilities as the designated universal service provider in the United Kingdom and a key part of national infrastructure”, it said.

In assessing the proposal, the board has also been very mindful of the impact on Royal Mail and GLS and their respective stakeholders and employees, as well as broader public interest factors”.

EP Group has until 29 May to advance or withdraw its takeover bid.

Who is Daniel Kretinsky?

There has already been scrutiny of Mr Kretinsky’s part ownership in the postal company but a government national security concerns review into his investment led to no intervention.

He also owns parts of West Ham Football Club and Sainsbury’s.

EP Group, which he controls, has financial interests in energy, logistics, and food retail.

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West has ‘good hand in China economic battlefield but it doesn’t have to be war’

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West has 'good hand in China economic battlefield but it doesn't have to be war'

The boss of the world’s biggest bank has told Sky News that Western economies have a “good hand” in the “economic battlefield” with China but declared it does not have to be war.

In a wide-ranging interview with Sky’s Wilfred Frost, chief executive and chairman of JPMorgan Chase Jamie Dimon said the West was going to have a “hard time” as long as China had close ties with Russia.

But he said it was well placed due to the resilience of their collective economies and long-standing partnerships, such as NATO.

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However, he warned of the dangers of fragmentation since Donald Trump, when US president, pulled out of the Trans-Pacific Partnership in 2017.

He also said that Joe Biden’s administration should have worked with allies over the effects of his Inflation Reduction Act.

The massive programme of incentives to bolster the green economy had the effect of taking investment out of Europe at a time when Russia’s war in Ukraine was dominating the agenda.

The bank boss warned too of a backlash from China over US tariffs against its electric cars and solar panels announced just this week, arguing that a joint approach from western powers over China more generally would carry more weight.

Mr Dimon, who has run JPMorgan since 2005 and is widely seen as the most influential boss of a financial services company in the United States, said: “We have competition with China.

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Why is the US taking aim at China?

“I think the American government is doing the right thing to fully engage. That doesn’t mean the Chinese are going to like everything we do just like we don’t like everything they do but it doesn’t have to be war, it can be tough competition and we should be prepared for that.”

“The most important thing”, he added, “is that we do it together”.

“They’re not an enemy, you know, but they’re competing. They want a different world than we want. And I think they want a different world than we want in the Western world… it’s worth fighting for.”

“We all made a little bit of mistake in how we kind of expected them after WTO (World Trade Organisation) to become more Western and things like that. It’s okay. Don’t cry over spilled milk,” he concluded.

Mr Dimon was speaking 24 hours after the US-based bank, which has 22,000 staff and a 200-year history in the UK market, announced £40m in new investments to help connect young people and underserved communities to economic opportunities.

They followed the opening of a new tech centre in Glasgow.

JPMorgan Chase – perhaps best-known in this country for its Chase retail division – is the biggest bank in the world by market value with a capitalisation of almost $600bn (£475bn).

Mr Dimon, who was initially critical of Brexit following the UK’s split from the EU, spoke of the bank’s continuing commitment to the country having called the future of its UK operations into question in 2021.

Asked about the looming election, he said that talks with Rishi Sunak and Sir Keir Starmer had left him in no doubt that both the Conservatives and Labour were “pro business”.

He described how growing economies benefits everybody as it allows for investment.

“Everybody I heard… Conservative and Labour, (is) talking about growing the economy, technology, research and developments, simplifying regulations, making it easier for people to start businesses and grow businesses, making sure schools educate… those policies work,” he said.

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