Deal collapse hits RBS shares

Bailed-out UK bank Royal Bank of Scotland saw its shares come under pressure today as investors weighed up the impact of its collapsed £1.65bn (€2bn) branch sale with Santander.

Bailed-out UK bank Royal Bank of Scotland saw its shares come under pressure today as investors weighed up the impact of its collapsed £1.65bn (€2bn) branch sale with Santander.

The Spanish-owned bank pulled the plug on the deal, which covered 316 branches and 40 banking centres for small and medium-sized businesses, on Friday evening.

RBS shares dipped 1% as broker Investec warned the lender was now likely to settle for terms that are £500m (€620.3m) to £1bn (€1.24bn) worse than those originally agreed with Santander.

Meanwhile, it emerged that Richard Branson's Virgin Money, which took control of nationalised Northern Rock in January, is weighing up a bid for the network of branches.

Other banking shares fared well today with the likes of Barclays and state-backed lender Lloyds Banking Group adding more than 1%.

Branson is reportedly facing a battle with US private equity group JC Flowers - run by billionaire entrepreneur Christopher Flowers - over the EU-enforced disposal.

RBS chief executive Stephen Hester is understood to be confident that he can secure an extension to the Brussels state aid deadline to sell the branches by the end of 2013.

Investec analyst Ian Gordon said: "The original terms agreed appeared generous at the time, and even more so in the light of loss-making Lloyds Banking Group's recent "giveaway" of its mandated 632 branch disposal to the loss-making Co-op.

"Early speculation cites Virgin Money and others as potential alternate bidders, though unless the European Commission's terms are materially relaxed, we believe that a loss on disposal of £500m (€620.3m) or more now appears likely."

The Spanish lender agreed in August 2010 to buy the assets but it emerged it had pulled out as it became apparent that a revised target for the purchase to be completed by the end of the year would not be achieved.

The deadline had already been put back twice and a review by management consultancy Accenture reportedly indicated it would be mid 2014 before the deal was completed.

Buying the RBS division would more than quadruple Virgin's branch network and add a small and medium-sized business bank to its offering.

Credit Suisse analyst Carla Antunes-Silva said Santander's late move creates "additional uncertainty" for RBS and the prospect of "more value destructive alternatives".

She added: "Furthermore there has been significant sunk costs in carving out the branches which will not be recouped."

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