Santander has reached an agreemenet to acquire UK lender TSB from Banco Sabadell for £2.65 billion in an all-cash transaction.
The offloading of TSB comes as the Spanish bank seeks off a hostile takeover by neighbouring bank BBVA.
Sabadell acquired TSB in 2015 for £1.7 billion. The UK lender has about five million customers in the UK and reported pre-tax profits of £285mn on income of £1.14 billion last year, with total assets of £46.1 billion at the end of 2024.
A botched upgrade to Sabadell's core banking system in the wake of the takeover resulted in a meltdown of TSB's IT systems, leaving users out in the cold for months.
The deal puts paid to rumours that Santander was about to exit its presence in the UK market.
Santander UK serves approximately 14 million active customers, including 7 million digital customers, through various channels such as a 444 branch network, telephone, mobile, and online banking.
The bank faces a number of immediate challenges, including a potential £250 million redress bill for misselling car financing loans, declining mortgage sales and concerns about regulatory constraints, particularly the UK's ring-fencing rules.
The acqusition of TSB gives the bank a leg up in the mortgage market, making the combined entity the second largest bank in the country by personal current account balances and number four in mortgages. TSB currently has a two percent market share in the UK's mortage industry, with a £34 billion loan book.
When combined, the two banks would serve nearly 28 million retail and business customers nationwide.
The transaction is expected to generate cost synergies of 13% of the combined business’s cost base, equivalent to at least £400 million pre-tax, with the majority realised by 2027. Santander expects to incur £520 million of pre-tax restructuring costs during 2026 and 2027.
By integrating technology across Santander UK and TSB, Santander expects to unlock substantial operational efficiencies and support long-term profitability through a simplified, scalable digital banking model, with cuts to the branch network to avoid duplication across the high street.
TSB has 175 branches in the UK and 5,000 employees while Santander has around 349 banks, but it has been shutting branches, saying more customers want to do their banking digitally.
Ana Botín, Banco Santander’s executive chair, says: “The acquisition of TSB represents a continuing strategic commitment to our customers in the UK, offering a compelling opportunity that is financially attractive to our shareholders and aligned with Santander’s long-term objectives. It strengthens our franchise in a core market through the acquisition of a low-risk and complementary business that adds to our diversification.
"The transaction will accelerate our path to greater profitability in the UK and helps achieve a return on tangible equity of 16% by 2028."