ROYAL Bank of Scotland (RBS) could lose out on hundreds of millions of pounds on any eventual sale of 316 branches, with Virgin Money understood to be hovering following the breakdown of talks with Santander UK.
As Scotland on Sunday reported yesterday, Virgin Money, which took over Northern Rock on 1 January this year, is said to be looking seriously at the situation following Santander UK walking away from the £1.65 billion provisional deal agreed two years ago. The stumbling block is understood to be mainly “technical issues” with the RBS technology platform for branches.
However, sources said yesterday the perceived value of the assets had diminished, and even Santander UK chief executive Ana Botin had been negotiating a reduction in price of circa £300m.
City sources said this could be on the low side, and that Sir Richard Branson’s Virgin Money and any other potential bidders might only be prepared to bid between £750m and £950m.
One institutional investor in RBS said: “There is bound to be a financial impact for RBS. It’s a buyers’ market in banking. Bidders will bid down. From a financial perspective it is disappointing.”
RBS has been ordered to divest the branches before end-2013 by the European Commission (EC) in return for the taxpayer bailout the Scottish bank, which includes NatWest, received during the 2008 financial crisis.
It is understood that RBS chief executive Stephen Hester may also apply to Brussels for an extension of the deadline for divestment.
RBS chairman Sir Philip Hampton was quoted at the weekend as saying: “What’s changed since the original [EC] decision is the climate around state aid.”
The RBS investor said despite the “disappointment” of the deal with Santander collapsing it was unlikely to lead to severe credibility problems for Hester.
The fund manager said: “While I see the latest development as unhelpful I don’t see it as damaging to Hester or the bank in terms of credibility.
“I don’t necessarily think RBS has done anything wrong in the sales process, identifying a potential buyer and trying to conclude the deal. Ultimately, it was Santander who walked away.”
One City banking analyst said: “It is a setback, but in the wider scheme of things, RBS has made such progress in slimming down its balance sheet that the branch sale hold-up has to be put in perspective. Obviously, however Branson will talk down the price on any new deal from the off.”
NBNK, the banking consolidation vehicle in the process of winding down after losing out to the Co-Op Bank in the bidding for 600-plus Lloyds Banking Group branches, is thought to be a “long odds” possible rival to Virgin Money for the RBS branches. Commerzebank of Germany has also been touted as a possible suitor.
RBS has to divest 311 branches in England and Wales, and five NatWest branches in Scotland as part of the EU’s ruling.
It is understood testing of the RBS IT systems for the branches to be sold to Santander was due to begin on 1 November. RBS declined to say yesterday how much the two-year saga had cost it.
Virgin Money declined to comment on “speculation”, while NBNK and Commerzbank were unavailable for comment.