LET’S face it – break-ups are never fair. One side always gets the best part of the deal, spiriting away the record collection while their former spouse gets lumbered with a half-broken Ikea coffee table.
At first glance, TSB appears to have done rather well out of its divorce from Lloyds. For a start, it is being loaned £3.3bn-worth of mortgage assets until 2017 with the intention of allowing it to boost profits by £230m over the period. How very amicable.
And Lloyds is stumping up far more of the cash needed to split the companies, bearing around £33.2m for fees and expenses while TSB faces a relatively minor £3m hit. It might be what you’d expect, given the size of the firms, yet the new bank argues that it would have outperformed Lloyds in recent years with profits of £172m in 2013, £28m in 2012 and £57m in 2011.
Its message is clear – I have all the good stuff here, and am no longer worrying about bad loans, impending fines or other hangovers from the crisis. In which case then, why sell at a price that could be just 0.7 times your book value?
In a word – risk. There seems to be a fairly big risk in jumping into bed with any IPOs at the moment, and once in, there are plenty of things that can go wrong with this one. Analysts remain sniffy about the aim of boosting return on equity to 10 per cent, and scepticism abounds about the intermediary distribution and even the agreed deal on IT systems.
TSB is looking for long-term relationships, offering extra shares to those who stick around, while admitting that dividends may not appear until 2018. The question is whether or not you’re into that kind of thing. A lot of investors won’t be.