RBS Jilted as Santander Rejects Branch Deal

May need more time to find buyer—or regulators may ease up

Royal Bank of Scotland Group Plc was left standing at the deal altar late Friday after Spain’s Banco Santander abruptly pulled the plug on the deal after winning an auction to buy 316 RBS branches. The surprise turn of events could mean that RBS will need more time than its current deadline to find an alternate buyer—or that regulators might need to revise their requirement for RBS to sell.

RBS logoBloomberg reported Monday that the deal, which would have cost Santander some 1.7 billion pounds ($2.7 billion), was originally supposed to be completed by mid-2014, already past the original deadline of 2013. Santander had agreed to buy the branches in 2010, and has been trying to raise capital since then.

“One of the reasons why Santander may have abandoned this deal is because overall profit expectations for banks in the U.K. aren’t as great as the market had forecast because of regulatory pressure,” said Inigo Lecubarri in the report. Lecubarri, who helps manage about $400 million at Abaco Financials Fund in London, continued, “Additionally, banks are being requested to boost their capital all around the world, and Santander may find some savings by pulling out of this deal at a very little cost.”

The branches RBS was selling included locations in England and Wales, as well as its National Westminster Bank branch network in Scotland, acquired in 2000. In addition, there was a business in Scotland that had an operating profit of 186 million pounds in the first half of 2012, as well as customer deposits totaling 21.7 billion pounds.

RBS Chairman Philip Hampton said in the report that regulators could be “a lot more flexible” since the U.K.’s consumer banking market has become more competitive. After RBS had received the largest bank bailout in the world in 2008, RBS was obligated to sell the branches by 2014 to comply with European Union state aid rules.

Analysts believe that regulators will likely allow more time for RBS to sell its branches, but Hampton said the bank might try to see if the European Commission (EC) will permit it to retain them instead. He was quoted saying, “It used to be a pretty severe regime but they are making different judgments. The U.K. retail banking market is more competitive now than it has been for decades.”

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