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Clydesdale Owner Joins Suitors For RBS Unit

The owner of the Clydesdale and Yorkshire banks is drawing up plans to buy more than 300 branches that Royal Bank of Scotland (LSE: RBS.L - news) (RBS) will sell to a rival after failing to carve them out into a standalone lender.

Sky News has learnt that CYBG (Other OTC: CYBBF - news) has asked investment bankers at Morgan Stanley (Xetra: 885836 - news) to help it explore a bid for an asset portfolio that would rank as Britain's seventh-largest bank.

CYBG's interest is at an early stage, and - unlike Santander UK (LSE: 44RS.L - news) - it has yet to approach RBS with a formal offer for the division.

RBS confirmed on Friday that it would pursue a sale of the branch network and associated customers to a competitor instead of ‎its initial objective of creating a separate bank using the revived name of Williams & Glyn (W&G).

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The decision was attributed to the inability of W&G to grow its balance sheet sufficiently quickly to enable it to achieve the necessary scale in an economy where low interest rates are likely to persist for years to come.

However, the project to establish W&G‎ as a standalone bank, which cost RBS at least £1.5bn, was also dogged by technology problems for years.

An earlier deal to sell the division to Santander UK fell apart in 2012 when the Spanish-owned lender walked away in frustration at RBS's struggle to create robust IT (Other OTC: ITGL - news) systems.

While the transaction now envisaged by RBS is less complex, it still faces significant technological challenges, with customers having to be migrated on to the acquirer's platforms.

That will entail changing the sort codes and account numbers of hundreds of thousands of customers' current accounts.

Sources said the scale of that task might yet convince CYBG and others to lodge formal offers.

RBS is required to complete the disposal of what would have become W&G by the end of next year under the terms of a state aid agreement struck between the Government and European Commission in 2009.

As Sky News revealed last week, Santander UK's interest is likely to give it an advantage given its experience of overseeing complex banking integration programmes.

In addition to CYBG, Secure Trust Bank and Virgin Money have been linked with the RBS division in the past, although neither is said to be actively working on a deal.

It was unclear on Saturday how CYBG would fund a takeover, although its major shareholders may welcome the opportunity to help finance such a significant expansion of the company.

The shares of most challenger banks have been hammered since the EU referendum amid concerns about weaker economic growth and ‎lower-for-longer interest rates.

Reporting third-quarter results last month, Mr Duffy said CYBG had made "good progress" with its strategy, and "continued to support our customers through the current period of uncertainty following the EU referendum result".

A spokesman for CYBG, which was listed by its former parent, National Australia Bank, declined to comment on its interest in the RBS assets (Other OTC: UBGXF - news) .