RBS looks at Williams & Glyn sale as buyers circle

* RBS (LSE: RBS.L - news) to look at sale option and continue with plans for 2017 IPO

* Williams & Glyn seen valued at about 1.5 bln stg

* Virgin Money, Santander, Clydesdale seen potential bidders

* RBS shares up 1.2 percent (Adds comments from Virgin Money, Sabadell)

By Sinead Cruise and Steve Slater

LONDON, Dec 16 (Reuters) - Royal Bank of Scotland (RBS) may ditch plans to float its 1.5 billion pound Williams & Glyn branch network after attracting interest from buyers looking to own a slice of Britain's rebounding bank sector.

Taxpayer-backed RBS said on Wednesday it would consider the sale of the 300-strong branch network after receiving a number of informal approaches for the unit, while also preparing it for a possible flotation in the first quarter of 2017.

Analysts estimate the book value of Williams & Glyn at about 1.5 billion pounds ($2.3 billion). RBS, 73 percent owned by the British government, was ordered to sell the network by European competition authorities as a cost for being bailed out by the taxpayer in 2008.

The launch of a formal sale process follows a flurry of international interest in Britain's so-called "challenger" lenders, following the takeover of TSB by Spain's Sabadell earlier this year.

RBS did not name the possible bidders, but they could include Spain's Santander, which already owns one of the biggest UK retail banks and was close to buying the RBS branches three years ago, and Virgin Money, which listed a year ago and is backed by billionaire Richard Branson.

Santander and Virgin Money declined to comment on whether they had made approaches, but neither ruled out their interest.

A spokesman for Santander said the lender would "continue to analyse opportunities" in its core 10 markets, which include Britain.

A spokesman for Virgin Money said: "We have consistently said that we will look at acquisition opportunities which are a good fit with the business and that come with an appropriate risk profile and come at a reasonable price."

Industry sources and analysts said two other potential suitors included Clydesdale, the UK retail bank set to be demerged by parent National Australia Bank in February, and Spain's BBVA (Amsterdam: BA6.AS - news) . BBVA declined comment and Clydesdale did not return a request for comment.

Sabadell said it had not made an approach and had no interest in getting involved in the sale process.

PROSPECTIVE CHALLENGER

Williams & Glyn has 1.8 million customers, net loans and advances of 20 billion pounds and customer deposits of 24 billion pounds, making it one of Britain's largest prospective challengers with potential to poach market share in the small business lending sector from Lloyds and RBS.

RBS has said Williams & Glyn made a 369 million pound profit in the first nine months of this year, on income of 625 million.

RBS said it remained committed to a sale of Williams & Glyn before the end of 2017, under the terms of its 46 billion pound bailout at the peak of the 2007/2008 financial crisis. It (Other OTC: ITGL - news) said it had hired Bank of America Merrill Lynch in September to prepare the spin-off.

RBS submitted an application for a banking licence for the separate business in October, which ran to more than 16,000 pages of information about strategy, risk and governance frameworks.

RBS raised 600 million pounds in 2013 from a group headed by private equity firms Corsair Capital and Centerbridge Partners for a stake of up to 49 percent in Williams & Glyn. (http://uk.reuters.com/article/rbs-branches-corsair-idUKL5N0HN2D120130927)

Williams & Glyn's origins date back to 1753, but the name has been dormant for almost 30 years. Carving out the business was expected to cost the bank about 1.5 billion pounds and has been beset by problems with separating the technology platform. ($1 = 0.6653 pounds) (Additional reporting by Jesus Aguado in Madrid; Editing by David Holmes and Elaine Hardcastle)