Lloyds and the City love it – but is TSB's takeover good for us too?

Outlook

Around 15 years ago a regional banking group arrived in the big league with a bang. That bank was Royal Bank of Scotland, and its takeover of NatWest transformed the sleepy Edinburgh business into a global player.

History has proved that the approval of their merger was an unmitigated disaster for this country, for its banking industry, for the thousands of employees who were shredded by the Fred (Goodwin) along the way, and for the hundreds of thousands of customers who keep getting locked out of their accounts as a consequence of the two banks’ flawed integration.

Have we learnt any lessons? Well that’s open to question now, isn’t it? The issue has come to the fore because another regional lender – Spain’s Banco Sabadell – has just had its own transformational deal involving a big British bank approved by Britain’s banking regulators. Perhaps that should read “biggish”. The recently resurrected TSB is no NatWet. But that doesn’t mean we shouldn’t be concerned.

Sabadell has been growing rapidly by acquisition in its home market, but this is its first big overseas deal. We are told it has modelled its plans on the globe-trotting mission of its rival Banco Santander, and that would appear to be an eminently sensible move given the latter’s success. But these are very different times, and what worked for one may not work for the other.

The deal is surely a good one for TSB’s shareholders. With an infrastructure set up to deal with a business twice its size, TSB arguably needed a deal and had been sizing up targets. Sabadell’s intervention relieves its shareholders of the risk of TSB overpaying for something not very good, and provides them with a chunky exit premium to boot. Lloyds Banking Group loves the deal, which has relieved it of the risks associated with floating off its remaining stake in TSB – as it had been told to do by the European Union.

The transaction is also a winner with the City and its advisory community, which has generated an impressive haul of fees. One of its members remarked to me that London’s financial community has done what it does best: taken a lot of money off someone coming over here to do business.

But is it good for the rest of us? Well, that’s open to question. The trouble is that we don’t count. The public interest barely registers when it comes to deals. In this country the market reigns supreme. OK, deals do sometimes run into trouble on competition grounds, but there no such difficulties in this case.

The Sabadell-TSB deal involves two banks; and if the financial crisis and its fallout have taught us anything, it is that banks need to be kept on very short leashes when it comes to M&A activity, because it isn’t just shareholders that are put at risk from bad deals. We all are.

Which is why the Financial Conduct Authority and the Bank of England could, in theory, have put a spanner in the works. Except that they didn’t. No doubt they will say Sabadell is a suitable owner, and that may well be true. But it may also be true that the risks to them from blocking the deal – with all the potential challenges and complications involved – surely outweigh the risks to them of not doing so.

Maybe Sabadell will prove to be what the FCA and BoE have adjudged it to be: a good owner for TSB and a good entrant to the British banking market. We’d better hope so. Unfortunately, as with RBS, it may be years before we find out if that is truly the case. By which time those who approved this deal will have moved on, so they won’t have to carry the can along with us.