Sale of TSB Reduces Sabadell's Franchise and Revenue Diversification; Refocuses the Group in Spain

Morningstar DBRS released a commentary discussing the sale of TSB Banking Group plc by Banco de Sabadell.

Key highlights:

-- Banco de Sabadell has announced that it had reached an agreement to sell TSB Banking Group plc to Banco Santander for GBP 2.9 billion compared with the GBP 1.7 billion that the Group paid in cash at the time of the acquisition in 2015.
-- The transaction could result in some profitability pressure, as higher structural hedge revenues and cost savings from TSB had been expected to offset domestic revenue pressures.
-- While the sale of TSB will reduce Sabadell's geographical and revenue diversification, it is a shift to refocus the Group on its core retail domestic market in Spain where we see better growth opportunities supported by the benign economic environment.

"We consider the transaction to be negative for Sabadell's franchise and profitability from a credit rating perspective," said Maria Rivas, Senior Vice President and Sector Lead, European Financial Institution Ratings at Morningstar DBRS, "although this will be counterbalanced by the expected limited impact of the sale on asset quality, funding, and capital."