BBVA gets regulatory approval to control TSB

Kalyeena Makortoff

Banking News: City regulator the Prudential Regulation Authority has given Spanish lender BBVA the green light to take indirect control of British high street lender TSB, clearing another hurdle in its hostile takeover of the UK bank’s parent company, Sabadell.

Sabadell rejected BBVA’s original all-share offer worth €12.2bn (£10.5bn) in May, saying it significantly undervalued the bank and its “standalone prospects”.

BBVA is now trying to circumvent the board by taking the same offer straight to Sabadell investors.

Part of that process has involved getting approval from regulators to potentially take over Sabadell subsidiaries and local operations from regulators in different countries – including the UK.

BBVA said on its website:

The UK’s Prudential Regulation Authority has given green light to BBVA to take indirect control of TSB Bank plc, Banco Sabadell’s banking subsidiary in the United Kingdom. The authorization is one of the conditions to which the purchase offer to Banco Sabadell shareholders is subject and a necessary step to complete it, since TSB would become part of BBVA.

The PRA declined to comment. TSB was contacted for comment.

Investors have rushed to take part in an auction of UK government debt today, in an sign that the new government has not upset the bond vigilantes in the City.

An auction of a new bond today has attracted a joint record of bids from investors.

The debt sale attracted over £110bn of orders, which Bloomberg reports matches a record set in June and is the biggest-ever demand compared to the size of the sale.

The Debt Management Office will raise £8bn from the bond, or gilt, which matures in January 2040 and has a 4.375% coupon (the interest payment which bondholders receive).

This could calm concerns that investors could be spooked by the new Labour government, which has said it discovered a £22bn black hole in the public finances.

The UK national debt is already at its highest since the early 1960s, at almost 100% of GDP, after Britain borrowed £3.1bn, more than expected, in July.

Bloomberg explains:

The latest deal looks like an endorsement for a new government under pressure to fill a gap in the budget, two years after a blowout in yields on concerns about the country’s deficit.

The bumper orders come as the UK’s bonds have rallied in recent months on the prospect of more interest-rate reductions from the Bank of England following a cut last month.

Global stock markets are dropping today, as investors brace for economic data that may show whether the US economy is weakening.

In London, the FTSE 100 shares index is down 50 points, or 0.6%, at 8314 points, away from the three-month highs set last week.

European markets are also in the red, with the pan-European Stoxx 600 index off 0.5%.

Concerns about Germany’s economy led to a “bumpy start” for Europe’s markets today, says Joshua Mahony, chief market analyst at Scope Markets.

The prospective closure of German Volkswagen factories serves to highlight the downfall of Europe’s largest economy, with yesterday’s PMI survey confirming another month of contraction to add to the two-years behind us.

Wall Street is heading for falls too, with the futures market indicating the S&P 500 index will fall by around 0.55%.

Traders are also on edge ahead of a healthcheck on the US manufacturing sector this afternoon (3pm UK time).

And Friday will bring the latest US jobs report for August. July’s report showed a surprise slowdown in hiring and a rise in the unemployment rate, which may signal a recession.

Takeovers involving UK companies have fallen to their lowest level since early in the Covid-19 pandemic.

New data from the Office for National Statistics shows there were 93 domestic and cross-border M&A deal involving UK companies in June, the lowest since May 2020.

This includes a fall in domestic M&A activity (where one UK company buys another), inward M&A deals (where a foreign company buys a UK one), and outward M&A (where a UK firm buys an overseas company) in June.

Sam Fuller, managing director at global investment bank Houlihan Lokey’s Consumer Group, says high interest rates are hitting dealmaking:

Whilst there is a recognition amongst both sponsors and corporates that financing conditions have improved on last year, this morning’s data suggests that key constraints on dealmaking, such as elevated interest rates and prevailing market uncertainty, are continuing to hamper overall activity in the UK.

Despite showing an openness to quality assets and still having significant capital to deploy, sponsors are often pursuing smaller, buy-and-build strategies rather than new platform acquisitions, reflecting a continued trend towards strategic consolidation and expansion within existing portfolios.

As we look ahead to the remainder of the year, further BoE interest rate cuts could act as a catalyst for larger, buy-out deals to return to the market, but only if buoyed by increasing confidence and still cheaper financing costs.

The upcoming Budget is feeling increasingly seismic and will almost certainly impact M&A activity levels. Changes in corporate and capital gains tax rates, in particular, could impact company valuations and seller incentives, meanwhile an increased tax burden will further hurt an already struggling consumer economy.”

Bank of America has raised its forecast for UK economic growth this year, and next, in a boost to the new Labour government.

In a new report, BofA says recent growth has been stronger than expected. It now expects GDP to rise by 1.1% in 2024 and 2025, with “upside risks” that growth could be stronger.

That’s a rise on BofA’s previous forecasts of 0.8% growth this year and 1% next.

Faster growth should translate to higher tax receipts, and lower unemployment, which would help to address the ‘black hole’ in the UK public finances which means this autumn’s budget is likely to be tough.

BofA also expects a small increase in unemployment, but not as much as previously expected, saying:

We expect the labour market to ease from tight levels, though slightly less than previously expected and unemployment to increase from 4.2% currently to 4.4% by end 2024 and 4.6% by end 2025 (less than 4.5% and 4.7% before).

Rolls-Royce isn’t the only European manufacturer involved with a technical problem today.

BMW, the German carmaker, is recalling its electric Mini Cooper SE vehicles due to problems in their batteries, which could lead to a fire.

The recall could potentially affect more than 140,000 autos worldwide, a company spokesperson told Reuters last night.

In a statement, BMW epxlained that problems in the battery system can lead to overheating, adding:

“A vehicle fire, even when the vehicle is parked, cannot be ruled out.”

There have been claims that fires are more common in electric cars, and are more damaging when they break out. However, as our EV Mythbusters series explained last November, the evidence suggests there is no reason to think that EVs are more likely to go up in flames….Indeed, the opposite appeared to be true.