Virgin Money is emerging as the front-runner to buy more than 300 branches from Royal Bank of Scotland (LSE: RBS.L - news) after the collapse of a deal to sell the high street business to Santander (Madrid: SAN.MC - news) .
Representatives of Virgin Money are understood to have expressed an interest in buying the branches after Santander UK withdrew from the deal on Friday blaming frequent delays.
Virgin Money is said to be “very interested” in the business, having lost out to Santander two years ago in the original bidding contest. RBS is thought to have initiated contact over the proposed deal.
Santander had been expected to pay £1.65bn for the 316 branches but, following years of delays in attempting to carve out the business, a sale price of closer to £650m is now thought more likely.
Buying the branches would more than quadruple the size of Virgin Money’s high street presence and also give it a small and medium-sized business lending operation. Last year, Virgin Money bought Northern Rock Plc, the “good bank” part of the collapsed lender, greatly expanding the scope of its operations and giving it 75 branches.
Stephen Hester, chief executive of RBS, said it was “disappointing” that the sale to Santander had fallen through. The collapse followed a meeting of Santander UK’s board on Thursday at which it was decided to withdraw from the deal due to alleged frustrations over the length of time the deal was taking.
A report prepared for RBS and Santander by Accenture (NYSE: ACN - news) warned that the transfer of the retail banking business would happen in 2014 at the earliest, three years behind schedule, with the transfer of the corporate business coming a year later.
Ana Botin, chief executive of Santander UK, is reported to have met Mr Hester on Thursday evening to personally inform him of the bank’s decision.
The delays are likely to mean that RBS will be forced to go the European Commission to ask for an extension to the deadline for the transfer of the branches. Following RBS’s October 2008 rescue, the EC ordered the bank to divest the branches, as well as several other businesses, by the end of 2013 as a condition of waving through the taxpayer support it received.
However, speaking in Tokyo at the International Monetary Fund meeting this weekend, Sir Philip Hampton, chairman of RBS, claimed the European authorities had relaxed their stance on state aid. He has suggested that the European Commission could be persuaded to rethink its demand for a sell-off.
“What’s changed since the original decision is the climate around state aid. The commission has been much, much more flexible. It used to be a pretty severe regime but they are making different judgments,” said Sir Philip.