(Updates with Monday statement from Co-operative Bank)

Spain’s Banco Sabadell confirmed at the weekend that its board has rejected an audacious offer for its subsidiary TSB Bank from Manchester-based Co-operative Bank.

A merger of TSB and Co-operative Bank would create one of the UK’s largest retail banks.

Sabadell confirmed in a statement it received a letter from Co-operative Bank outlining a proposed offer for TSB.

However Sabadell said its board had officially responded to Co-operative Bank that “this is not a transaction that we wish to explore at this moment as we have previously expressed publicly.”

Media reports claimed Co-operative Bank would be willing to pay more than £1 billion to acquire control of TSB.

Co-operative Bank said on Monday: “The Co-operative Bank p.l.c. notes the recent press speculation indicating that the bank sent a letter to Banco de Sabadell, S.A. expressing an interest in exploring the potential purchase by the Bank of TSB Banking Group p.l.c., Sabadell’s UK subsidiary.

“The bank confirms that such letter was sent but that no discussions in relation to a potential transaction are currently taking place between the Bank and Sabadell.”

On July 29, TSB Bank reported a statutory first-half profit before tax of £42.9 million compared to a pre-tax loss of £65.5 million in H1 of 2020 and a pre-tax profit of £21.1 million in H1 of 2019.

TSB said total customer lending increased by £2.2 billion or 6.6% to £35.5 billion in the first half — up £4.3 billion or 13.7% year-on-year — with growth driven by mortgages.

TSB said customer deposits at £35.5 billion increased by £1.2 billion or 3.4% in H1 of 2021 — up £2.6 billion or 8% year-on-year “primarily reflecting the market wide impact of Covid-19 on consumer spending.”