Guest Blog – How will Sabadell’s buyout of TSB affect the “local” bank?

April 13, 2015

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TSB have made much of their “differences” from other British banks since they re-emerged from Lloyds in 2013.
They’re proud of the fact that they “don’t do investment banking or overseas speculation”, instead focusing solely on retail banking in the UK.

Their website features videos explaining in simple terms how banking works, and how they choose to do business – without ever actually mentioning ethics.

But with a takeover by Spanish bank Sabadell on the cards, could they be about to lose some of that carefully crafted sheen?

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A truly local bank

The pre-Lloyds TSB, the Trustee Savings Bank, was founded in 1810, by Reverend Henry Duncan of Ruthwell, Dumfriesshire, with the aim of giving his poorest parishioners somewhere to save what little money they had.

By the 1860s there were almost 650 across the UK and Ireland. But unlike the mutual and building societies also appearing everywhere, the TSBs gave no voting or decision-making rights to their members. Instead they were run by a board of volunteer trustees – hence the name.

By the 1970s, the number of individual TSBs had dropped dramatically to just over 70, although they had more than 1,500 branches between them, all focusing on their local community.

During the 70s and early 80s, the remaining TSBs amalgamated, and in 1985 the group was floated on the stock market. Ten years later, the TSB Group was bought by Lloyds.

…To a “local” bank 

It’s easy to see what image the new TSB are aiming for, with a refreshed version of the old logo and declarations that they’re “the local bank”, claiming to only lend to people and small businesses in the surrounding community.

But unlike those earlier days, TSB aren’t owned by local boards of directors and volunteer trustees. Instead they’re half-owned by shareholders and half-owned by Lloyds – and by the end of 2015 they could be entirely in the ownership of a non-British company.

Far from being a bank that lends locally as claimed, TSB also undertakes lending decisions on a national level, via HQ. So in fact there is no assurance that the deposits taken in branches benefit the surrounding communities at all. Not exactly local.

In the meantime, because of their continued association with Lloyds, TSB are ranked poorly by most ethical consumer associations.

In fact, according to the Move Your Money scorecard, the only thing for which TSB and Lloyds can be applauded for is the number of women on their boards. Even in terms of “real investing” – circulating and reinvesting money, and supporting local economies, the thing TSB are keen to emphasise – they’re considered average.

Compared to other high street options, including any number of truly local building societies, they look a little more concerned with style than substance. And with excessive executive pay also in place, it seems TSB is more a chip off the old block than a genuinely new type of bank.

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Sabadell

So what about their prospective buyers, Sabadell?

Chairman Josep Oliu Creus says TSB and Sabadell share a culture “of focusing on our customers and local communities.”

In one sense, they do. Sabadell’s local banking services are aimed at small businesses and individuals, although the individuals they serve tend to be at the more affluent end of the market.

But Sabadell also have a strong bias towards international trade, and their policies on the rights of humans who aren’t directly in front of them leave something to be desired.

The US-based GoodGuide gives them 6.8 out of 10 for their environmental ethics, but just 5.5 out of 10 in terms of “society”.

That’s the result of a good score (8/10) for employee rights, but no more than 4/10 regarding their policies on child labour, oppressive regimes, fair trade, forced labour and indigenous rights.

Acquisition vs growth

And while they’ve doubled in size since 2007, to become Spain’s fifth largest bank, that’s been achieved mostly through buying other businesses.

Indeed, Move Your Money warned Choose in 2013 of “the dangers of banks seeking to grow by acquisition instead of pursuing sustainable growth”, which was a key cause of the failures of Lloyds and RBS, and in the troubles at the Co-operative Bank.

Under the 2014-2016 “Triple” business plan, Sabadell are aiming for “double digit” returns and net profits of 1,000 million euro in 2016. They’re planning to achieve this through further expansion – particularly abroad – and “optimising” their Spanish branch network.

As with many banks in the UK, this is being done by closing some branches and moving others towards serving a much wider area by using remote and digital services.

Think global, act local?

So far, TSB haven’t announced any branch closures – and as the Guardian reported, chief executive Paul Pester says the Sabadell deal should help them do just the opposite:

“This is about using the extra firepower that Sabadell brings to TSB to expand not only our retail presence but potentially get us into the small business market.”

That may mean an end to TSB’s “local” image – but that doesn’t have to be a bad thing.

For example, the Co-op have recently committed to a newly modified ethical policy, shaped by the concerns of their customers, staff and shareholders. While the new policy demands in no uncertain terms that they get their domestic house in order, it also insists that they stick to their ethical guns internationally.

But the “local” spin from both TSB and Sabadell has no such limitations built in. And we’ve already mentioned how Sabadell’s take on “local” tends to be at the expense of other people in other places.

It seems unlikely, therefore, that the takeover will do anything to make one of the few genuine challengers to traditional high street banking any more committed to ethical business, let alone localism.

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Lyndsey Burton is founder of Choose, a consumer information site covering personal finance, as well as home media and mobile.

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