Sunday, 15 June 2014

The TSB IPO - Fancy buying a pukka bank?

The 17th June is the final day to decide whether or not you're participating in the TSB IPO. Once you've downloaded and spent the rest of the day reading the 300pg load of nonsense document you'll be none the wiser about what to do.

TSB is being sold off by Lloyds as punishment for being shafted by Brown and being forced to save HBOS during the Great Financial Crisis, they subsequently went broke and had to ask the state for survival funds. TSB was previously a mutual, then a bank and then succumbed to the excitement of the big bank mergers of the 80s-90s. What we are seeing now is a reversal of those big mergers and a general expansion of the number of banking entities as the new regulators attempt to encourage more competition and fewer companies that are too 'big to fail'.

So TSB - any good?

Here's the GOOD stuff about it:

- It's supposed to be a purely retail bank so no mucking about in the filth of investment banking. 
- It is supposedly being sold on the cheap, at least the PR tells us it is 'priced to go' at about .7-.9 of book value.
- It makes money - about £170M last year and on course for £200M this year.
- It won't be tainted with any mis-selling dramas from the last few years.
- Long term holders will get 1 share for every 20 held each year for the next three years. 

The BAD stuff:

- It revealed last week 45% of its mortgage loans are interest-only. This is INSANE. That's about 45% of its mortgage loans that it will never get its money back on.
- Competition is heating up. Tesco, M&S, Metro, etc. are all chasing new business too.
- Interest rates are on the move up. Mr Carney says so. Expect default rates on loans to rise as they do.
- There is some confusion as to how much they are paying for IT which is a huge cost for banks. Lloyds are currently subsidising / paying for it - when that arrangement ends, TSB will have to pay full whack.
- No dividends until a long time away - 2018.
- They tried to sell it a couple of years ago to Co-op for a boat load less. It wasn't worth £900M then, it's not worth more than that now.
- The market is fairly high at the moment. IPOs are dime a dozen as private equity groups look to cash in at the top of the cycle.
- Only 25% of the shares are being sold. Lloyds will retain the rest and look to sell them all over the next 12 months (I think that's the timeline, they have to sell soon I know). This enormous overhang of shares means there will almost certainly be a better time to buy (if you're keen).
- It's a bank. They can't be trusted. They're almost certainly lying about everything.

More stuff to read from others here:

Investimouse is staying out of this. There's almost never any way a private investor can make money out of IPOs unless the seller wants you to. Remember, it's a bank. They want your money and they don't care how they get it.