TSB promises rapid growth to new investors

 
Tim Wallace
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NEW HIGH street bank TSB yesterday set out plans to grow by 50 per cent over the coming years, hoping to attract investors with an ambitious expansion plan.

Lloyds is selling the 631-branch bank and published its intention to float the lender on the stock market yesterday.

The sale comes at a tricky moment as the flotation market has suddenly slowed down.

But TSB hopes it can win over investors with its strong capital position and potential for growth.

It has six per cent of all UK bank branches but only one per cent of mortgages and 4.2 per cent of current accounts, so expects to expand rapidly.

CEO Paul Pester expects it can grow its balance sheet by 40 to 50 per cent over the coming three to five years.

“We are here to grow into an infrastructure that is 50 per cent bigger than the business is,” he said. “It is all retail mortgage growth. Mortgages, mortgages and more mortgages.”

TSB is also in the unusual position of having no exposure to historic conduct risk – Lloyds has promised to pay any bill for mis-selling or other bad behaviour which has blighted the sector in recent years.

The bank does not expect to pay a dividend until 2017, instead investing more money in growth.

TSB wants to build systems to sell mortgages through brokers – currently it has no capability to sell through intermediaries, meaning it misses out on up to 50 per cent of the market.

At the moment its return on equity is below the estimated 10 per cent cost of capital, meaning analysts expect the bank to float at a small discount to its £1.5bn book value.

But Pester hopes to increase the returns into double digits, promising investors a bank which will trade on the stock market at above book value in around five years’ time, as well as paying a high dividend.

BEHIND THE DEAL
NUMIS | ALEX HAM

1 Alex Ham is Numis’ head of corporate broking, and has been leading the firm’s efforts to seize more work from the big banks.

2 His team has landed positions on initial public offerings including AO World, Polypipe, Cambian and McColl’s Retail Group so far this year, and is joint lead manager on the TSB deal.

3 Ham is a long-term fixture at Numis – he joined the business straight out of university in 2005 and has worked his way up through jobs in broking to the top of the unit.

Also advising...

A large syndicate of banks has been hired to work on the TSB flotation. Citigroup and JP Morgan are joint global co-ordinators, joint sponsors and joint bookrunners. UBS’ team is working as joint bookrunner and joint lead manager, with Investec and RBC Capital Markets as other joint lead managers. The group is rounded off with Rothschild advising TSB’s board and Bell Pottinger advising on public relations.

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