By Jeannette Neumann and Christopher Bjork
MADRID-- Banco de Sabadell SA's bid for TSB Banking Group PLC
reflects a maxim of post-crisis banking in Spain: Diversify.
The profitability of Spanish banks such as Sabadell, the
country's No. 5 lender by market value, was hit hard when a real
estate boom went bust in 2008. Property developers defaulted on
tens of thousands of loans, saddling banks with bad debts that they
are still working through today.
Spanish banks with massive international operations, Banco
Santander SA and Banco Bilbao Vizcaya Argentaria SA, which have
units from the U.K. to Latin America, fared better during the
downturn, buoyed by returns in stronger markets overseas.
Executives from small- and medium-size banks that are primarily
focused on the home market vowed in the aftermath of the crisis to
look beyond Spain's borders.
In that sense, Sabadell's move is the boldest yet by a Spanish
midsize bank. Both Sabadell and TSB on Thursday confirmed they are
in talks about a possible GBP1.7 billion ($2.54 billion) takeover,
in what would be one of the largest European cross-border banking
acquisitions in years.
Some analysts said Thursday that the proposed offer deal was too
ambitious. Shares in Sabadell were down 8.7% in early afternoon
trading.
Sabadell, which purchased six lenders in Spain between 2006 and
2014, is already digesting financial-crisis era acquisitions, such
as a troubled regional savings bank called Caja de Ahorros del
Mediterráneo, known as CAM, that it purchased in 2011 for EUR1.
TSB said Sabadell had indicated that it expects to finance the
proposed takeover "on a capital neutral basis."
Francisco Riquel, an analyst with Madrid-based
financial-services firm N+1 Group, said Sabadell is likely to need
around EUR1.2 billion in capital to fund the deal. A rights issue
at a 30% discount to its current share prices would require
Sabadell to increase its share count by around 20%, diluting
current shareholders, Mr. Riquel said in a research note
Thursday.
Sabadell has long affirmed its aim to expand internationally.
Still, Mr. Riquel said, "We thought this was a long-term strategic
ambition."
He said: "We would have preferred Sabadell to deploy its excess
capital in its Spanish market [organically or through acquisitions]
now that [Gross Domestic Product] growth is gathering pace."
In an interview with The Wall Street Journal last year, Chairman
Josep Oliu said that a lesson learned in the Spain's financial
crisis was that it was necessary for the bank to build an
international presence. Mr. Oliu has been chairman since 1999 and
received a Ph.D. in economics from the University of Minnesota.
Chief Executive Jaime Guardiola also has international experience,
after running BBVA's Mexican unit for years.
Berenberg Bank analyst Nick Anderson said the takeover talks
with TSB raised questions about Sabadell's confidence in its home
market.
"By bidding for TSB, they're saying their marginal euro is best
invested in a mature market at the top of cycle [U.K.] rather than
a supposedly recovering economy at [the] start of [a] cyclical
rebound [Spain]," Mr. Anderson said.
Sabadell already owns Miami-based Sabadell United Bank and
corporate lending units in Mexico, but the bank said this week that
it was keen to increase the proportion of its annual net profit
generated abroad to 30% from around 8% now. It didn't say when it
aimed to hit that figure.
Sabadell has said it expects to get its full banking license in
Mexico this summer and that it would focus on loans to small- and
medium-size businesses.
The takeover talks come as another Spanish lender, Caixabank SA,
has made a bid to expand in neighboring Portugal. Caixabank,
Spain's No. 3 bank by market value, last month offered to buy the
55.9% of Banco BPI SA that it doesn't already own. The takeover bid
has been muddled as a top shareholder has suggested BPI instead
merge with another Portuguese bank.
Write to Jeannette Neumann at jeannette.neumann@wsj.com and
Christopher Bjork at christopher.bjork@wsj.com
Access Investor Kit for Banco Bilbao Vizcaya Argentaria SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=ES0113211835
Access Investor Kit for Banco de Sabadell SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=ES0113860A34
Access Investor Kit for Banco Santander SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=ES0113900J37
Access Investor Kit for Lloyds Banking Group Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0008706128
Access Investor Kit for Banco Bilbao Vizcaya Argentaria SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US05946K1016
Access Investor Kit for Banco Santander SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US05964H1059
Access Investor Kit for Lloyds Banking Group Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US5394391099
Subscribe to WSJ: http://online.wsj.com?mod=djnwires