News Column

Co-op deal looks canny after TSB shares debut

June 22, 2014

Terry Murden

MAYBE former Cooperative group chief executive Peter Marks really did negotiate a terrific deal two years ago to buy what is now TSB Bank from Lloyds Banking Group. When he boasted that he had "taken the shirt off the back" of his rival Antonio Horta-Osorio, he clearly wasn't joking.Whatever else went wrong at the Co-op, the GBP750 million that Lloyds was prepared to take for a parcel of assets including 631 branches and the Cheltenham & Gloucester mortgage business was seen as a bargain even at the time. What a shame for the Co-op that the deal was aborted because of the underlying financial mess that later emerged at the group.On Friday, following the flotation of TSB on the London Stock Exchange, the business was valued at almost twice the size of the Co-op's offer, its shares rising more than 11 per cent on the first day of dealing to value it at GBP1.45 billion.The puzzle for stock market watchers is why it proved so popular, given that bank shares have been untouchable since the 2008 crash. Much of that is explained by the dowry handed to the TSB by Lloyds in the form of a chunky book of mortgages and a GBP450m "gift" to build its own IT system. Perhaps most importantly, Lloyds has promised to pick up the tab should there be any legacy issues that need to be resolved.That last pledge gives TSB a clean balance sheet and an untarnished reputation as far as the customer is concerned and sets it up as one of the new "challenger" banks alongside Tesco. It has also been deliberately over-capitalised in order for it to ramp up loans. Chief executive Paul Pester's challenge will be to ensure he does not overdo the push for market share by lending inappropriately.TSB came to market with promises of bonus shares for investors who stayed with it at least a year, though there is no prospect of a dividend in the short term. Even so, there will be hard luck stories at the Co-op, which clearly missed out on a bargain.

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Source: Scotland on Sunday

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