Deal fever: Banking giants plot takeovers to ramp up market share
British banking is poised for a major shake-up as top names go on the hunt for fresh acquisitions.
Lenders have been scouting new deals that would send shockwaves across the industry.
Much of the prospective dealmaking involves London lender Shawbrook, whose private equity owners have been circling high street bank Metro.
Ahead of this, Shawbrook had eyed a £5bn merger with fintech veteran Starling and lodged a bid for Co-operative bank.
Meanwhile, owners of high street bank TSB Banco Sabadell said they have received expressions of interest for a takeover of the UK unit.
William Howlett, financials analyst at Quilter Cheviot, told City AM the latest takeover moves serve as a continuation of the “recent consolidation of the UK banking industry over the last couple of years.”
Howlett pointed to Nationwide’s £2.9bn takeover of Virgin Money and Barclays’ £600m swoop for Tesco Bank, both in the last year, as key indicators of the industry’s shift.
HSBC renewed its partnership with M&S banking arm last year, which allows the grocer to leverage its credit offering.
“We see scale as the primary motivation with larger entities better placed to absorb tech investment and regulatory demands,” he added.
Big Four to snap up competition
John Cronin, founder of Seapoint Insights, told City AM he expects the larger banks to be “active” in the new stream of merger and acquisitions.
The Big Four banks – Barclays, HSBC, Natwest, Lloyds – control 85 per cent of UK business accounts and 75 per cent of current accounts, according to Moneyfact.
Natwest has been pegged as the “most likely acquirer” of TSB by RBC analysts, who said the deal would “make the most sense”.
The banking juggernaut re-entered private ownership last month, which could be setting the firm up for a shopping spree as it takes the fight to domestic-focused rival and the UK’s largest retail bank Lloyds.
The firm lodged an £11bn bid for Santander UK’s retail arm earlier this year, as reported by the Financial Times.
Whilst talks are said to have fizzled out, should the deal have gone ahead it would have birthed the biggest banking deal since the financial crisis.
The bid followed Natwest snapping up the majority of Sainsbury’s lending assets and purchasing Metro Bank’s £2.5bn residential mortgages portfolio in 2024.
Tech in focus
Top lenders have scaled up their tech in the last year as they sought to modernise digital banking offers to compete with challengers.
Gautam Pillai, head of fintech research at Peel Hunt, told City AM legacy banks were in a tech “arms race” to compete with “better equipped” neobanks.
Because of this, Pillai said a “win-win” situation for both could include traditional banks partnering with challengers to leverage their modern capabilities.
“For traditional banks, it’s a way of protecting their clientele, otherwise, you go into a head to head fight with [neobanks].”
This may lead lenders to turn to M&A’s as a way to sidestep competing with challenger banks, and instead deploy their abilities across their own operations.
Cronin said: ”I see potential for consolidation within the mainstream, digital and specialist challenger bank space.”
An efficiency drive
Bank chiefs have put efficiency and streamlining operations at the forefront of new strategies.
HSBC’s boss Georges Elhedery is aiming to slash $3bn in restructuring efforts, meanwhile, Barclays’ chief CS Venkatkrishnan is eyeing £2bn of cut costs by 2026.
Howlett said “merged operations” would enable efficiencies including “right-sizing branch networks and spreading back-office costs over a larger asset base”.
He added “product diversification and better funding structures” would be “further motivation” to spur M&A’s citing the match of Metro and Shawbrook.
Metro secured 20,000 new personnel and 10,000 business current account openings in the first quarter of the year, pedalled by its lost-cost offering. Whereas Shawbrook’s loan book grew 16 per cent in the last year.
Howlett said these “natural synergies” fared well for combined operations.
Takeover fever booms in Europe
Whilst British giants circle TSB, the high street bank’s owner Banco Sabadell is fending off a hostile takeover.
The Spanish lender has rejected several offers from rival BBVA – Spain’s second largest bank.
This led to BBVA initiating a hostile takeover last May as the bank approached shareholders with a €12.2bn (£10.5bn) all-share merger proposal.
The Spanish government has intervened in the saga after previously opposing the takeover. In May, the government submitted a bill for review by cabinet ministers.
Meanwhile, Intesa Sanpaolo, one of Italy’s largest banks, has made plays to consolidate the Italian banking scene, which included a €4.9bn bid for rival UBI.