Santander abruptly pulls out of a deal to buy more than 300 branches of Royal Bank of Scotland amid qustions about why the deal fell apart after more than two years.
Santander blamed IT delays for scuppering the deal, struck more than two years ago. But RBS Chairman Sir Philip Hampton said IT challenges could always be overcome and hinted that Santander might have decided now is not the time to take on new businesses.
RBS will now look for a new way to dispose of the branches which could include asking the European Commission for extension to the 2014 deadline to pursue another sale, or an initial public offering.
RBS may also request to the Commission allow the bank to retain the branches. European authorities may have relaxed their stance since 2009 when they ordered RBS to dispose of the branches as part of a deal to allow taxpayers to bail out the troubled bank.
“What’s changed since the original decision is the climate around state aid,” Sir Philip said from Tokyo, where he was attending the International Monetary Fund’s annual meeting.
“If you look at the LTROs [the European Central Bank’s Long Term Refinancing Operation), in one way they are state aid. The Commission has been much, much more flexible. It used to be a pretty severe regime but they are making different judgments,” he said.
RBS said in a statement that “much of the heavy lifting associated with a transfer has already been completed,” including separating data for 1.8m customers and putting in place a standalone management team.
On Friday, Santander said it was unwilling to extend the deadline when it became clear that it would not be completed this year, citing problems with technology and separation issues. Santander UK agreed to buy the branches in August 2010. The deal had already been delayed previously when a December 2011 target was missed. Some 5,000 RBS staff are involved in the transfer.
“We have concluded that given delays it is not possible to complete this within a reasonable timeframe,” Santander UK Chief Executive Ana Botin said. The bank said the deal had no chance of being completed by a February 2013 deadline, allowing it to walk away with no break fee.
Santander has not commented on Sir Philip’s assertion that the Spanish bank did not want to take on new businesses.
RBS was rescued by the UK government for £45bn and is 83 percent owned by the British taxpayer. The sale of branches was ordered by European authorities as a cost for Britain’s 2008 rescue.
“This is a blow to Santander UK’s aspirations to build a universal bank but a bigger headache for RBS as there are not likely to be many other buyers,” Ronit Ghose, an analyst at Citigroup, told the Financial Times.
At one point, National Australia Bank, start-up bank NBNK and Richard Branson’s Virgin Money were interested in buying the branches and the 244,000 business customers among the bank’s clients.
Virgin bought nationalised bank Northern Rock and there is speculation they may be the keenest to return for another look if it wants to bulk up. Another possibility is an initial public offering of the separated RBS business.
The branches are located England and Wales, along with the NatWest branch business in Scotland.
RBS said it would continue to work on fulfilling its obligations to the European Commission and pledged that Santander’s decision to pull out would not impact service to customers.
RBS faces more bad news as the bank is expected to be next in line to be hit with a fine for the alleged manipulation of Libor global interest rates.
A Treasury spokesperson said the deal’s collapse was a commercial matter for RBS and Santander, and said the government remained determined to promote greater competition in the banking sector.
The affected business made an operating profit of £186m in the first six months of this year and has 21.7bn in customer deposits and loans representing 86 per cent of deposits.