RPT-Virgin Money among challenger banks expected to join race for TSB - sources

(Repeats Friday story to additional subscribers)

By Pamela Barbaglia, Jesús Aguado and Iain Withers

LONDON/MADRID, Dec 4 (Reuters) - Britain's Virgin Money
and OneSavings Bank are among a group of
challenger banks expected to show interest in British lender TSB
ahead of an auction process which is due to start next year,
sources familiar with the matter told Reuters.

British residential mortgage lender Kensington Group and
credit card provider NewDay are also likely to join the race as
their respective private equity owners are seeking ways to add
scale and banking capabilities to their portfolio investments,
the sources said, speaking on condition of anonymity as the
matter is confidential.

A consortium of Cinven and CVC bought NewDay in 2017 in a
deal worth roughly 1 billion pounds ($1.35 billion) while
Blackstone and TPG Special Situations Partners took
control of Kensington in 2014 from Investec for 180 million
pounds.

TSB's Spanish owner Sabadell has hired Goldman Sachs
to put the business up for sale following the collapse of merger
talks with BBVA.

It is currently sounding out possible bidders as it wants to
launch an auction process in the first quarter of 2021 and wrap
up the sale by next summer, the sources said.

A TSB spokesperson declined to comment on the bidders but
said the lender was making progress on its growth strategy.

Sabadell, Virgin Money, OneSavings Bank, Kensington and
NewDay declined to comment.

Britain's mid-tier banks, also known as challenger banks as
they seek to challenge the dominance of big high street lenders,
are best placed to pursue a tie-up with TSB as they could
extract synergies and IT efficiencies without cutting costs as
much or undertaking a drastic restructuring of its branch
network, the sources said.

"The challengers have a much stronger case in terms of
scale, integration and PR," one of the sources said.

"For any big bank there would be a significant restructuring
job to do after buying TSB and no one has any desire to be all
over the papers for cutting jobs in the middle of the pandemic,"
he added.

However, Virgin Money and OneSavings Bank recently merged
with Clydesdale Bank and Charter Court respectively, and may
need more time to embark on any new deal, the sources said,
adding TSB's price tag is a key element in reviewing any bid.

Sabadell paid 1.7 billion pounds in 2015 to take control of
TSB but its valuation has since dropped and was one of the main
sticking points in negotiations with BBVA, sources have said.

BBVA, which barely has a British presence, put a "zero
valuation" on TSB, one source has said, but UK challenger banks
may value it differently depending on the synergies, or cost
efficiencies, they could extract.

BIG BANKS LIKELY TO SNUB TSB

Most large banks including Santander and HSBC
have no interest in scaling up their UK network and are
expected to turn their back on TSB, the sources said.

Others, including Barclays, may look at the dossier
when the sale kicks off but they are not expected to go far,
they said.

HSBC and Barclays declined to comment while a Santander
spokesperson - asked specifically about the bank's potential
interest in TSB - referred to comments made recently by the
bank's Chairman Ana Botin indicating that Santander was not
interested in buying traditional banks.

A successful sale of TSB would help Sabadell resume talks
with BBVA or other Spanish lenders over a possible tie-up, the
sources said.

In the meantime, Sabadell is considering more job cuts and
striking product distribution alliances with other European
banks in segments such as consumer and insurance services.

($1 = 0.7419 pounds)
(Reporting by Pamela Barbaglia and Iain Withers in London and
Jesus Aguado in Madrid; Editing by Kirsten Donovan)