June 20 - Lloyds sells a bigger-than-expected share of TSB in a more aggressive approach to spinning off the new challenger bank. Hayley Platt looks at TSB's prospects at a time when a string of other small lenders are coming onto the market to take on the UK's big four.
The UK's TSB, an offshoot of Lloyds Banking Group, got off to a flying start on its first day of trading. Shares were up more than 10 percent thanks to strong investor appetite. Lloyds had originally planned to sell just a quarter of its stake, but upped it to just over a third. The shares went on sale at 260p each, valuing the new retail bank at £1.3 billion. TSB is among the so-called 'challenger banks' competing with the UK's big four high street lenders. Its CEO Paul Pester says it wants to bring a new type of bank to Britain. SOUNDBITE: Paul Pester, Chief Executive Office, saying (English): "We've taken all sales targets out of our telephone operators for instance, so when you call us we will not be trying to sell you a credit card or home insurance. If you go into our branches they're measured on how good a customer service they deliver, not on their sales performance." TSB has 4.5 million customers and operates 6 percent of Britain's bank branches. And although it only has 4.2 percent of market share, it's not expected to stay small for long. Dominic Elliott of Reuters Breakingviews. SOUNDBITE: Dominic Elliott, Reuters Breakingviews, saying, (English): "TSB wants to grow very fast. It's outlined how quickly it wants to grow its mortgage book for example and there's a worry there that you get the same sort of problems that you have with Northern Rock, with Alliance and Leicester and Bradford and Bingley, where these banks push for growth. They've got the worst customers if you like, who are the least credit worthy and there's a worry that TSB could have the same problem." Further new British banks are expected to float over the next two years. The question for investors is whether to buy TSB now or wait and see who else comes to market. SOUNDBITE: Dominic Elliott, Reuters Breakingviews, saying, (English): "For starters it's going to be given 450 million pounds cash to develop its own IT system when it finally severs its links entirely from Lloyds. It will also be insulated from any of the scandals that have affected Lloyds. And it's got a very strong balance sheet, it's got a lot of capital but that itself is one of the problems. Because at the moment TSB hardly makes a return on equity, it's only about 5 percent, very low." UK tax payers still own a quarter of Lloyds. Part of the terms of its bailout with EU regulators, was that it slimmed down its operations. It has until the end of next year to sell its remaining shares in TSB.