Banco Santander S.A. announced late on Tuesday that it reached an agreement to acquire 100% of TSB Banking Group plc (TSB) from Banco de Sabadell, S.A., with a valuation of £2.65 billion.
The transaction remains subject to regulatory approvals and Sabadell shareholder approval. Completion of the transaction is expected to occur in the first quarter of 2026.
Sabadell said: “The bank will ask shareholders to approve the sale of its subsidiary TSB to Banco Santander for £2.65 billion (€3.1 billion), with the final price expected to rise to £2.9 billion (€3.4 billion) once estimated profits from that date until completion (expected in Q1 2026) are included.”
Santander beat Barclays to a deal for TSB. The transaction comes as Sabadell, which bought TSB in 2015 at book value for £1.7 billion, is seeking to fight off an €11 billion hostile approach from its domestic rival BBVA.
Sabadell said it has received €559 million in dividends from TSB since 2015.
Santander said the all-cash transaction values TSB at 5x 2026 earnings “post identified cost synergies and 1.45x tangible book value as of 31 March 2025.”
Sabadell said that as a result of the value generated by the deal, it will propose the payment of an extraordinary cash dividend of €0.50 per share, equivalent to €2.5 billion, at its General Meeting to be held in Sabadell on August 6.
TSB CEO Marc Armengol said: “TSB is a UK success story, providing excellent service to more than 5 million customers. Today’s announcement marks the beginning of a new chapter as part of a major group like Santander.”
Santander said: “TSB is a well-established UK retail bank with a nationwide network of 218 branches and outlets, and a growing digital presence.
“It serves approximately 5 million customers, primarily in the personal and small business segments, with £34 billion in mortgages (2% market share in the UK) and £35 billion in deposits.
“The acquisition further strengthens Santander’s position in one of its core markets, expanding its customer base and lending capacity across the UK.
“Santander UK would become the third largest bank in the country by personal current account balances and number four in mortgages.
“When combined, the two banks would serve nearly 28 million retail and business customers nationwide, giving TSB customers access to Santander’s international network and allowing them to benefit from the group’s leading technology platforms.”
Ana Botín, Banco Santander’s executive chair, said: “The acquisition of TSB represents a continuing strategic commitment to our customers in the UK, offering a compelling opportunity that is financially attractive to our shareholders and aligned with Santander’s long-term objectives.
“It strengthens our franchise in a core market through the acquisition of a low-risk and complementary business that adds to our diversification.
“We are creating a stronger and more competitive business across key products such as personal current accounts where the combined business will become the third largest bank in the UK by market share.
“The transaction will accelerate our path to greater profitability in the UK and helps achieve a return on tangible equity of 16% by 2028.
“The acquisition also reflects our commitment to growing profitably through disciplined capital allocation. This acquisition meets our goal of achieving a return on investment above 20% and EPS accretion from year 1, while consuming limited capital and having low execution risk.
“Furthermore, the transaction will not affect Santander’s existing distribution policy and 2025 targets.”
Mike Regnier, CEO of Santander UK, said: “This is an excellent deal for customers combining two strong and complementary banks, creating one of the most substantial banks in the UK and materially enhancing the competitiveness of the industry.
“At Santander UK we have momentum in our strategy to become the best bank for customers in the UK by investing in technology and service and improving our processes and efficiency.
“This deal accelerates our transformation allowing us to enhance our customer proposition and invest more in innovative products and our digital offering, supported by the human touch service so many appreciate, not least in our new branch formats and enhancements across the country.
“We are fully committed to ensuring a seamless integration, by leveraging our market leading technology and significant experience.
“Maintaining the highest levels of service for customers across both banks will be a key priority and we will support all colleagues through the transition, as we invest in building a stronger bank for the future.”
Santander said: “The combination of the two high quality franchises would deliver substantial value to Santander shareholders through increased in-market scale, greater access to low-risk mortgages and high-quality deposits, and operational efficiencies. The combined businesses would have a loan-to-deposit ratio of 107% versus 108% for Santander UK currently.
“The deal would generate a return on invested capital of over 20% and bring the business closer to Santander UK’s productivity and efficiency standards. When coupled with our transformation plans for Santander UK, it is expected the integrated business’s return on tangible equity would increase from 11% in 2024 to 16% by 2028.
“The transaction is expected to generate cost synergies of 13% of the combined business’s cost base, equivalent to at least £400 million pre-tax. To deliver these synergies, Santander expects to incur £520 million of pre-tax restructuring costs during 2026 and 2027.
“At Santander group level, the transaction would be accretive to earnings per share from the first year and of c.4% by 2028 and consume approximately 50 basis points of CET1 capital.
“Santander is expected to operate with an approximately 13% CET1 ratio at year-end 2025 on a pro forma basis for both the sale of 49% of Santander Polska and associated share buyback in early 2026 announced on 5 May 20253, and the acquisition of TSB.
“The transaction is consistent with Santander’s strict capital hierarchy and will not affect the existing distribution policy. Santander’s 2025 objectives remain unchanged.”
Banco Sabadell Chairman Josep Oliu said: “This transaction is beneficial for the bank and its shareholders, as it creates significant value, allowing us to pay an extraordinary dividend while maintaining our capital ratio above 13%.
“This transaction benefits our shareholders regardless of the outcome of the takeover bid … if approved by the General Meeting, the deal will proceed even if the bid is withdrawn …
“As I have reiterated, Banco Sabadell is a bank with a clear focus on Spain. We offer the highest dividend yield among Spanish banks, have delivered the strongest share price performance over the past four and a half years, and have a strong future as an independent entity serving our customers. We are also a key pillar of the Spanish financial system.”
Sabadell CEO César González-Bueno described the sale as “a strategic opportunity we could not overlook, representing a disposal at a highly attractive multiple of TSB’s book value.”
González-Bueno added: “We will now focus our strategy on Spain, where we see significant growth potential in both business terms and share price performance relative to peers.”
Sabadell added: “Subject to shareholder approval, the sale price has been set at £2.65 billion as of 31 March 2025, implying a multiple of 1.5 times TSB’s book value. This will be adjusted upwards to include profits generated from that date until completion, anticipated in Q1 2026. Based on projected performance, the final price is expected to be £2.9 billion (€3.4 billion).
“Banco Sabadell acquired the UK mortgage-focused bank in 2015 at book value for £1.7 billion. Between then and Q1 2025, TSB’s loan book grew from £26.4 billion to £36.4 billion, its cost-income ratio improved from 80% to 67%, and its return on tangible equity (ROTE) rose from 5.3% to 12.5%. Over the decade, Sabadell has received €559 million in dividends from TSB.
“As part of the transaction, TSB debt securities subscribed by Banco Sabadell will be transferred at fair value on completion. These include perpetual convertible bonds, subordinated debt and senior unsecured bonds, totalling £1.45 billion.
“Banco Sabadell has agreed not to compete in the UK market for 24 months following completion. It will retain its UK branch to support businesses with international operations and will continue to operate in the market through its Corporate & Investment Banking (CIB) division.”