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New CEO at Britain's TSB plans cost-cutting drive - source

By Jesús Aguado

MADRID (Reuters) - The incoming chief executive of Britain's TSB will work on a plan to slash costs at the loss-making bank owned by Spain's Banco Sabadell, including potential staff cuts and relocations, a banking source said.

Debbie Crosbie, who is expected to take over at TSB in just over a month, will work on a new strategy as it tries to regain confidence after a botched switch to a new IT platform.

TSB, which was bought by Sabadell in 2015, has had to hire more than 2,100 staff to help fix IT problems which left customers locked out of their online accounts for weeks.

The glitches sent TSB's costs spiralling and last year it racked up losses of 240 million euros ($272 million).

"TSB is clearly over-sized and is an inefficient lender right now, so cost-cutting measures will be part of the bank's new strategy," the source told Reuters.

    Sabadell's executive chairman Josep Oliu told analysts in a webcast in February that TSB would consider several initiatives in cost reduction without giving out any details.

    A small reduction in TSB's branches in Britain may be accompanied by measures to reduce or relocate staff from its corporate centres to front offices, the source said, adding the plan will not be finalised until the third quarter.

    "Measures under consideration range from early retirements and voluntary lay-offs to transferring staff to new sales roles."

    TSB and Sabadell declined to comment.

Unlike its main rivals, TSB has been slow to cut its branch network since being spun out of Britain's largest lender Lloyds Banking Group in 2014 to appease regulators.

It has since closed around 80 branches, leaving it with 550. Similar sized rival Clydesdale and Yorkshire Banking Group had 159 branches for the same level of customer deposits prior to its takeover of Virgin Money last autumn.

    Sabadell bought TSB for 1.7 billion pounds ($2.25 billion) to expand into Britain and challenge incumbent retail banks with a range of digital services. But the outlook has since darkened amid Brexit-linked uncertainty and low interest rates, making a quick turnaround from last year's IT problems tough.

TSB says it has spent more than 330 million pounds ($435 million) in compensation, pushing its cost-to-income ratio up to 93 percent, from 76 percent the year prior.

    Crosbie wants to bring the ratio closer to the low 50s in two or three years, the source said. She will also work on the bank's growth strategy and expand in small business lending.


    MERGER AN OPTION?

Sabadell's shares fell 40 percent last year, in part because of the TSB crisis, while its fully loaded core tier-1 capital ratio, the strictest measure of solvency, dropped to 11.1 percent from 12.8 percent at end-2017.

This has prompted speculation that Sabadell may sell the British bank, although investment bankers say it would be unlikely to do so until the business is performing better.

    Sabadell has said it is not planning to sell TSB and that it could expand further in Britain.

    Investment bankers say that if Sabadell sells parts of its non-core banking business units, such as car leasing, asset management division or real estate assets, this might not be enough to address concerns about its capital and say that the real game changer would be a merger in Spain.

    "It would allow the bank to gain volume, generate synergies and cut costs at a larger scale," one investment banker said.

($1 = 0.7588 pounds)


(Additional reporting by Lawrence White and Iain Withers in London; editing by Rachel Armstrong and Alexander Smith)