Part-nationalised lender Royal Bank of Scotland (RBS) has confirmed that Spanish banking giant Santander is going back on its agreement to purchase 316 RBS branches in the UK, as it does not believe the deal could be completed by the end of year deadline.

News of the collapse of the deal broke over the week-end. Virgin Money is said to be interested in acquiring the branches, adding to its network of branches, which it acquired from nationalised lender Northern Rock on January 1st. Buying the division would more than quadruple Virgin's branch network.

The sale of the RBS assets was mandated by the European Commission in 2009 as a condition of its approval of state aid provided to RBS as part of the recapitalisation by the UK government. Santander agreed to the purchase in August 2010. RBS Chief Executive Stephen Hester said the group would prefer not to sell the business, but would look for a new buyer. In the meantime, it is "business as usual" in the affected branches.

The decision by Santander to pull out follows extensive work by both parties to separate the business into a largely standalone form and to prepare the business, customers and staff for transfer.

Spanish bank Santander became a major presence on the UK high street through the acquisition of former building societies Abbey National, Alliance & Leicester and Bradford & Bingley, so it has plenty of experience in integrating new branches into its operations.

However, Santander UK does not believe the conditions to the transfer of the business from RBS to Santander UK will be satisfied by the agreed final deadline of February 2013 and that, having already seen the original deadline of the end of 2011 extended once, it is not willing to agree a further extension to that deadline.

RBS's boss Hester declared that the UK lender has worked hard to ensure the up for sale business is substantially separate from RBS's UK branch network and corporate business, and said the business is largely ready to be taken on by a new owner.

"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.

"It is, of course, disappointing that Santander decided to pull out of this transaction, especially for the customers and staff involved. However, RBS's strong progress in our restructuring plans means we can continue to provide a stable home for this business and its customers pending a further resolution," Hester claimed.



JH

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