RBS/Santander deal falls through, Virgin is up next

Business banking news review: week ending 18 Oct 2012

Now that Santander has walked away from the table for the purchase of 316 RBS branches, rumours are that Virgin Money is waiting in the wings to pounce.

Royal Bank of Scotland, which needs to offload the more than 300 branches as a punitive measure for taking £45 billion in taxpayer funds during the credit crisis, has to pay the piper regardless of whom they finally sell the branches to. The EU has mandated the sale as part of the renumeration for the government bailout back in 2008, and it won’t take no for an answer.

RBS thought they had found a buyer back in August of 2010 with Santander, who initially agreed to take the branches off the bailed-out bank’s hands for a sum of £1.65 billion. However, the Spanish bank got cold feet recently, citing delays – and after more than two years of waiting, who can blame Santander for wanting to get out while the getting’s good?

Now that Santander is out of the picture, this paves the way for Virgin Money to swoop in and increase the size of its retail banking arm fourfold. As a result, Virgin is quite keen to get their foot in the door, according to reports from the BBC – in fact, Virgin Money had initially bid upon the RBS branches but lost out to Santander in the end.

Stephen Hester, chief executive for RBS, expressed his disappointment that Santander decided to turn tail and run, as it will impact both bank staff and retail customers. However, Mr Hester was quick to point out that RBS is progressing down along the path of stability thanks to its restructuring plans.

There’s another silver lining for RBS, thanks to the Santander bow-out: the bank could have cause to be granted an extension from the European Commission for the branch transfer deadline. The original deadline of December 2013 may now be too close for the bank to wrap up its buiness; however, the downside is that UK taxpayers are most likely to lose out because there’s no way Virgin Money’s going to offer anywhere near their initial bid for the 316 branches, and it will certainly come in substantially under the Santander bid.

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