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* Targets cost-income ratio in low 50s in 2-3 years -source
* Possibility of more branch closures - source
* Bankers say not right time for Sabadell to sell TSB now
By Jes?s Aguado
MADRID, March 26 (Reuters) - The incoming chief executive ofBritain's TSB will work on a plan to slash costs at theloss-making bank owned by Spain's Banco Sabadell
Debbie Crosbie, who is expected to take over at TSB in justover 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 hiremore than 2,100 staff to help fix IT problems which leftcustomers locked out of their online accounts for weeks.
The glitches sent TSB's costs spiralling and last year itracked up losses of 240 million euros ($272 million).
"TSB is clearly over-sized and is an inefficient lenderright now, so cost-cutting measures will be part of the bank'snew strategy," the source told Reuters.
Sabadell's executive chairman Josep Oliu told analysts in awebcast in February that TSB would consider several initiativesin cost reduction without giving out any details.
A small reduction in TSB's branches in Britain may beaccompanied by measures to reduce or relocate staff from itscorporate centres to front offices, the source said, adding theplan will not be finalised until the third quarter.
"Measures under consideration range from early retirementsand voluntary lay-offs to transferring staff to new salesroles."
TSB and Sabadell declined to comment.
Unlike its main rivals, TSB has been slow to cut its branchnetwork since being spun out of Britain's largest lender LloydsBanking Group
It has since closed around 80 branches, leaving it with 550.Similar sized rival Clydesdale and Yorkshire Banking Group had159 branches for the same level of customer deposits prior toits 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 witha range of digital services. But the outlook has since darkenedamid Brexit-linked uncertainty and low interest rates, making aquick turnaround from last year's IT problems tough.
TSB says it has spent more than 330 million pounds ($435million) in compensation, pushing its cost-to-income ratio up to93 percent, from 76 percent the year prior.
Crosbie wants to bring the ratio closer to the low 50s intwo or three years, the source said. She will also work on thebank's growth strategy and expand in small business lending.
MERGER AN OPTION
Sabadell's shares fell 40 percent last year, in part becauseof the TSB crisis, while its fully loaded core tier-1 capitalratio, the strictest measure of solvency, dropped to 11.1percent from 12.8 percent at end-2017.
This has prompted speculation that Sabadell may sell theBritish bank, although investment bankers say it would beunlikely to do so until the business is performing better.
Sabadell has said it is not planning to sell TSB and that itcould expand further in Britain.
Investment bankers say that if Sabadell sells parts of itsnon-core banking business units, such as car leasing, assetmanagement division or real estate assets, this might not beenough to address concerns about its capital and say that thereal game changer would be a merger in Spain.
"It would allow the bank to gain volume, generate synergiesand cut costs at a larger scale," one investment banker said.($1 = 0.7588 pounds)
(Additional reporting by Lawrence White and Iain Withers inLondon; editing by Rachel Armstrong and Alexander Smith) ((jesus.aguado@thomsonreuters.com; +34 91 585 8339; ReutersMessaging: Reuters Messaging:jesus.aguado.reuters.com@reuters.net))
