MarketLine Blog

Branch sale collapse leaves RBS in limbo

 

Last Friday, it was announced that the Royal Bank of Scotland’s (RBS) proposed sale of 316 branches and other interests to Santander had collapsed.

The Spanish banking giant pulled the plug, citing the length of time the deal was taking to complete as its reason for doing so. The bank’s spokesmen stated that it did not feel the deal could be completed by a deadline that had already been revised.

Santander has long felt that its share of the UK SME market is far lower than its natural market share and has consequently stated on numerous occasions that one of its goals is to increase its presence in this space. In November 2009, EU competition commissioner Neelie Kroes announced that RBS and Lloyds Banking Group had to sell off their assets as a result of accepting government bailouts the previous year. This provided Santander with a chance to expand its UK business further. RBS in particular offered a strategically important opportunity due to its strong position in the UK SME market.  In August 2010, it was announced that the two parties had agreed terms on the sale of 316 RBS-branded branches in England and Wales. The deal should have seen Santander increase its share of the UK SME market from 3% to 8% and become the UK’s fourth largest bank by number of branches, surpassing HSBC.

The deal was originally expected to complete in Q1 2012 but following a number of delays, Santander has finally decided to pull out. The main stumbling block appears to have been the number of problems they have experienced trying to integrate RBS IT systems, an issue that has hindered a number of financial services mergers and acquisitions in the past. Other rumors circulating include Santander trying (unsuccessfully) to negotiate a lower purchase price and the Spanish bank deciding that the acquisition is no longer prudent given the precarious state of the European economy.

RBS Chairman Sir Philip Hampton hinted at the latter when he said that IT challenges could always be overcome and that Santander may have decided that now was not a good time to be taking on new businesses. Santander has not yet responded to his comments.

For his part, RBS CEO Stephen Hester said that he was “disappointed” as much of the “heavy lifting” work on the disposal had been done, meaning that the assets were “largely ready to be taken on by a new owner.”

Whatever the reasons for the deal’s collapse, the end result is a period of uncertainty for RBS. The EU-mandated sale has to complete by 2014, but this will now surely need to be revised.

Hester, is saying (publically at least) that it “will commence a new process of disposal and will provide a further update on this in due course.” Relative newcomer to the UK high street banking scene, Virgin Money, is said to be interested, as are two other unnamed institutions, but no formal offer has yet been tabled. There is however, a belief that RBS feels it may be able to retain the branches as the EU’s stance may have changed given the deterioration of economic conditions since it announced its decision nearly three years ago. This remains pure conjecture at this point and as things stand, disposal remains the most likely option.

After two years of hard work, RBS is now back to square one and the future of its branch network in the UK is as uncertain as ever, but with the threat of possible legal action against Santander a very real one, Santander and RBS look set for unwanted publicity for some time to come.

For a full understanding of Santander’s operations in the UK, see MarketLine’s Case Study, Santander UK: Becoming a Major Force in the UK Banking Sector

For further information on Royal Bank of Scotland, read MarketLine’s Company Profile here 

Posted in Financial Services.

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