RBS Warns Over W&G Branch Sale Deadline

Royal Bank of Scotland (LSE: RBS.L - news) (RBS) is likely to miss a deadline of the end of 2017 to offload more than 300 branches - a failure that would raise the prospect of substantial financial penalties being imposed by Brussels on the taxpayer-backed lender.

Sky News has learnt that RBS directors agreed at a board meeting on Thursday that there was now "a significant risk" that the disposal of Williams & Glyn may not be achieved by the end of next year. Shares (Berlin: DI6.BE - news) had fallen 2.9% by the close of trading.

The development means that offloading W&G is now likely to cost far more than the £1.2bn already disclosed by RBS, which is said to be examining the possibility of drawing up a transitional services agreement with a prospective buyer.

In a statement rushed out following an enquiry from Sky News, RBS said it was possible that "the separation and divestment to which we are committed will not be achieved by 31 December 2017".

"Due to the complexities of Williams & Glyn's customer and product mix, the programme to create a cloned banking platform continues to be very challenging and the timetable to achieve separation is uncertain," it said.

"RBS is exploring alternative means to achieve separation and divestment.

"The overall financial impact on RBS is now likely to be significantly greater than previously estimated."

The news represents a serious blow to RBS, which has repeatedly delayed the point at which it hoped to sell W&G.

It (Other OTC: ITGL - news) may also spell the end of its original plan to float the branch network as a standalone business on the stock exchange, which itself would mean the demise of an agreement for the Church of England Commissioners to become a major shareholder in W&G.

A previous effort to sell W&G's 310 branches to Santander UK (LSE: 44RS.L - news) collapsed in 2012 after the Spanish-owned lender became frustrated with ongoing IT issues relating to the separation of the branch network.

Santander UK and Virgin Money were two of the parties indirectly referred to in a statement issued by RBS in December which referred to "a number of informal approaches" for W&G.

The new bank, which has to be divested by RBS by the end of 2017 under an agreement between the Government and Brussels, has 1.8 million customers, including a significant presence in the small business banking market.

At the end of September 2015, W&G had net loans and advances to customers of £20bn and customer deposits of £24bn.

RBS previously said it had "made significant progress in separating Williams & Glyn" and that it remained "committed to meeting our obligation under the State Aid agreement to dispose of Williams & Glyn before the end of 2017".

The expected failure of that ambition means the Government may have to return to the European Commission to try to negotiate a further extension to the W&G disposal.

However, sources said the likely outcome of those negotiations would inevitably be hampered if the UK votes to leave the EU in June's referendum.