In Depth

EC sounds positive note on RBS plan for Williams & Glyn

'Preliminary analysis' brings fresh hope that bank will not have to sell 300-branch unit

Royal Bank of Scotland bosses have cause to feel a little more confident with their plan to try and save the bank's 300 branch-strong Williams & Glyn unit.

A "preliminary analysis" from the European Commission ahead of its consultation on the proposal suggested "the alternative package appears to deliver an equivalent outcome with less execution risks" than a divestment, says the Daily Telegraph.

That will "will raise hopes Brussels will approve the plan", the paper adds.

If approved, RBS's plan will bring to an end seven years' of uncertainty over the Williams & Glyn sell-off, which was ordered retrospectively to compensate for the anti-competitive effects of the bank receiving a £45bn bailout from the government in 2008.

RBS has tried to sell the unit, suffering two abortive attempts with Santander, while other buyers have come forward and a listing proposal came and went.

Around £1.8bn has been spent in the process, says the Telegraph.

RBS's latest proposal, which involves it providing funding to help challenger banks boost their business banking capabilities and take on two per cent of the group's business customer base, will add to that expense.

The bank set aside £750m when it announced the plan in February, but the Commission said it "doubts whether the incentivised switching scheme is large enough" to hit the two per cent target.

Treasury figures supplied with the consultation and disclosed by the EC say the budget could rise to £1.5bn., taking the total cost of the divestment to £3.3bn.

An RBS spokesman said: "We believe that the proposed package of measures would provide increased competition in the SME marketplace, and enable us to deliver a solution on our remaining EC State Aid obligation more quickly and with more certainty."

RBS shares soar as it halts Williams and Glyn sale

20 February

Royal Bank of Scotland shares have risen by around six per cent after the bank, which is 73 per cent owned by the UK taxpayer, agreed a preliminary deal with the Treasury and European Commission to abandon the sale of Williams and Glyn.

RBS was told to sell the 300-branch strong division, which contains a large chunk of business customers, in 2010 by European officials. This was a retrospective condition for accepting a £45bn government bailout in 2008.

But the sale has been fraught from the start. One deadline for completion in 2013 was missed, while a second for the end of this year is certain to come and go as well.

Santander has returned for sales talks three times, while a planned float has been abandoned. More recently, Clydesdale and Yorkshire Bank owner CYBG showed interest, but no deal materialised.

Most of the stumbling blocks concern IT systems, which are diverse and difficult to separate from the wider RBS business.

Now instead of selling the business to improve competition in the sector, the bank is offering a funding package designed to boost rival challenger banks, says the Daily Record.

This includes setting up a fund that challenger banks can draw on to "increase their business banking capabilities" and to provide "dowries" for them to take on some of RBS's business customers.

A separate fund will also help smaller banks boost their technology infrastructure.

Current estimates say the whole package will cost around £750m. That's a big hit, but selling Williams and Glyn would have cost at least as much – the business was once valued in excess of £1.5bn but was only expected to realise half that amount.

Then there are the separation restructuring costs, which have already reached £1.5bn. There will be some costs involved in re-integrating Williams and Glyn, says RBS, but these should be less onerous.

RBS's shares were up six per cent at 10.30am, at 257.6p.

The European Commission is set to open a review into the new plan to ensure it does enough to boost competition in the sector, while the Treasury will carry out a "market testing exercise".

RBS makes contingency plans as branch sell-off falls through

19 December

Royal Bank of Scotland has hit another bump in the road towards offloading a 300-branch consumer unit, which it must do to comply with a European Union legal ruling.

The two prospective bidders in the running to buy Williams & Glyn – Clydesdale and Yorkshire Banks owner CYBG and the UK arm of Spanish giant Santander – have both backed out of purchasing the entire operation.

In particular, says Bloomberg, they have both refused to take on six NatWest branches in Scotland, according to two people "with knowledge of the matter".

It was revealed in May that these six outlets posed a problem because they operate on a different computer system from the rest of the company.

IT integration issues have dogged the sale process and scuppered an agreed deal with Santander back in 2012.

Bloomberg adds that Clydesdale has also refused to take on "business customers that have more than £25m in revenue because they are tougher to transfer".

The European Commission ordered RBS to dispose of assets equating to "five per cent market share in the country among small- and medium-sized enterprises and mid-corporate customers".

Williams & Glyn, as the unit has been internally branded, comprises 308 RBS branches in England and Wales and the six NatWest branches in Scotland. Forty of these 314 branches are business banking centres. Overall, they employ 6,000 people and have £24bn in deposits.

The ruling to offload Williams & Glyn was made in relation to the £45.5bn bailout RBS received during the financial crisis. The European Commission demanded the sell-off to boost competition in the corporate banking sector.

RBS has already admitted it will not meet a revised deadline of completing the deal by the end of next year – and it is now seeking permission to divest a smaller unit than the European Commission demanded.

The Daily Telegraph says options under consideration include selling off other assets instead to make up the numbers, or even simply closing the Williams & Glyn branches that cannot be sold to force customers to move elsewhere.

If RBS fails to meet the terms of the ruling, the European Commission could intervene to take over the process, which could lead to a forced sale on far less favourable terms.

Investors back Wlliams & Glyn bid, says Clydesdale boss 

23 November

Clydesdale and Yorkshire Bank (CYBG) boss David Duffy has "hinted shareholders support" the group's bid to take on the Williams & Glyn business being sold by Royal Bank of Scotland, says the Daily Telegraph.

A number of analysts have questioned the decision to make an offer for the 314-strong branch network, saying it is "overambitious" as it would effectively double the size of the bank.

"Jonathan Goslin of Numis [warned] that CYBG 'already has enough problems of its own without even thinking about such a sizeable acquisition'," the paper says.

Duffy dismissed these concerns, citing apparent shareholder enthusiasm for the deal.

He said: "When I look at the market there seems to be commentators who are ill-informed and perhaps negative and then there's our investors.

"And how would you characterise our investors? They are the people who have our share price at the level it is."

CYBG's shares are worth around four per cent more than prior to the bid for Williams & Glyn and this month reached their highest since February, when the group demerged from former owner National Australia Bank.

Duffy added his management team had "run banks many times the size of this bank" and "engaged in acquisitions, disposals and restructurings of significant scale in the past".

He also seemed to suggest the group is only engaged in talks because it is confident it can pull off the financing and regulatory approval, says the Financial Times.

"If we're in a transaction discussion, it's because we've had discussions with the regulators and financing is very straightforward," he said.

CYBG yesterday announced its first pre-tax profit in five years, reporting £77m from a £285m loss a year earlier.

However, its shares fell four per cent when it revealed a £164m deficit after restructuring costs and deferred tax assets were deducted.

Will it be third time lucky for Santander and Williams & Glyn?

08 November

Spanish banking group Santander's UK arm has reportedly come back to the table for a third attempt to buy more than 300 Royal Bank of Scotland branches.

RBS is being forced to sell by the European Commission as a condition of its 2008 government bailout. The unit, branded internally as Williams & Glyn, has 1.8 million customers, loans worth £20bn and deposits of £24bn.

Santander had agreed to buy it in 2012, but the deal broke down due to problems separating Williams & Glyn's IT systems from the rest of RBS. 

A second attempt earlier this year, after RBS abandoned a listing of the business, reportedly failed as the two banks were unable to agree a suitable price.

Now The Times says Santander is back and has "improved" on what was considered a "low-ball" offer. It is still, however, expected to offer only "a fraction of the £1.3bn equity value" attributed to Williams & Glyn. 

RBS is hoping to sell "for about £850m", adds the paper, not least to stem the "close to £2 billion" costs associated with the disposal.

The state-backed bank also faces a hefty fine from the European Commission for missing a deadline to fully divest the business by the end of next year, which it admitted last month was impossible.

European officials could even have the right to take over the sale process, which could lead to an even less agreeable sale from the perspective of shareholders.

As such, the return of Santander is a welcome development. It will be competing, among others, with Clydesdale and Yorkshire Banking Group, which is known to be in talks with RBS over a potential buyout.

However, there are doubts over whether Clydesdale "could pull off the deal, which would include raising finance and demonstrating an ability to double in size".

RBS admits Williams & Glyn deadline is now impossible

28 October

Royal Bank of Scotland has admitted it will not hit a deadline imposed by the European Commission to sell its Williams & Glyn unit.

The demand, designed to boost competition in the sector, is part of an EC ruling from 2010 and a condition of the bank getting a bailout from public funds in 2008. 

Having already missed one deadline, RBS has until the end of the year to confirm a sale for the 314 branches, a substantial chunk of the bank's network that it has grouped together under the defunct brand Williams & Glyn. It must fully separate the business by the end of 2017.

A listing of the unit as a standalone entity was abandoned this year and sale talks with Santander subsequently broke down. Bu it was revealed this week that the owner of Clydesdale and Yorkshire banks has made a formal approach.

In its quarterly results this morning, RBS said "it has had 'positive discussions' with a number of interested parties", says the Financial Times, although it did not refer to a specific offer.

However, The Times reports Ross McEwan, RBS's chief executive, saying: "None of the proposals under discussion can deliver full separation and divestment by December 31, 2017."

He added: "We don’t know what the consequences are [of missing the deadline]. We're not in conversation with the European Commission about that… It's between [the Treasury] and the commission." 

If the ruling is breached, the EC has the right to take control of the sales process, a process that "could see [Williams & Glyn] sold off at a steep discount to its £1.3bn valuation", the Daily Telegraph says.

Even at that full price the sell-off will have inflicted losses on RBS, which has already spent £1.5bn trying to separate its IT systems from the unit's.

Ewen Stevenson, the chief operating officer of RBS, highlighted Williams & Glyn's operating profit of £84m in the third quarter and told the FT: "We do expect to get an attractive price for it."

Overall, RBS reported a quarterly loss of £469m for the three months to September. But when restructuring costs and hefty tax bill are discounted, it posted a pre-tax earnings of £255m and operating profit of £1.3bn.

Clydesdale owner bids for RBS's Williams & Glyn unit

26 October

Clydesdale and Yorkshire Bank Group (CYBG) has made a "last-ditch" attempt to buy Royal Bank of Scotland's Williams & Glyn spin-out, says the Financial Times.

It's "only weeks before the sale deadline", adds the paper, referring to the European Commission's state aid ruling that the unit must be sold by the end of this year and fully divested by the end of 2017.

CYBG confirmed the "non-binding" approach, but refused to be drawn on terms. The FT says the bank is "valued at around £1.3bn, but analysts expect it to be sold for less".

Last month, after a second attempt to sell the business to Spanish bank Santander fell through, The Times reported RBS might accept £850m for the unit, despite incurring costs of at least £1.5bn trying to separate IT systems for the business, which it had at one time planned to establish as a standalone listed bank known as Williams & Glyn.

"The resurrected Williams & Glyn will have 300 branches, 1.8 million customers, loans worth £20bn and deposits of £24bn," says the BBC. "That makes it one of the UK's largest prospective 'challenger' bank brands."

CYBG was listed on the London Stock Exchange in February by its former parent National Australia Bank, which still owns a controlling interest. It is now valued at £2.4bn.

Despite the boost of a formal offer for the unit, the FT says RBS is still expected to announce this week that it will not hit the deadline of fully offloading the business by the end of next year.

That raises the prospect of intervention by the European Commission, which could impose a hefty fine or even appoint a trustee to take control of the process.

Will Brussels take control of RBS branch spin-out?

24 October

Royal Bank of Scotland (RBS) could be about to lose the right to decide for itself how it offloads more than 300 branches thanks to a European Commission (EC) ruling, says The Sunday Times.

If the bank fails to meet a deadline of the end of this year to announce a sale of the business, informally known as Williams & Glyn, EU regulators "will be entitled to appoint a trustee to seize control of the sale process", the paper claims.

"The trustee… would be legally obliged to find the best way to meet the terms of the agreement with Brussels, even if that proved costly to the bank's shareholders," the report adds.

RBS was ordered to sell the branches as part of an EC ruling in 2010, which demanded concessions to boost competition in return for the bank's bailout in 2008.

One deadline has already been missed. RBS now has until the end of this year to outline its plans and then to the end of next year to complete the separation. Failure to comply will lead to sanctions that include a hefty fine.

Earlier this year, RBS scrapped plans for a stock market float of  Williams & Glyn. Last month a second round of sale talks with the Spanish bank Santander also broke down.  

RBS maintains there is "interest in the business" and there is speculation that the owner of Clydesdale and Yorkshire banks could be lining up a bid.

Considerable doubts remain, not least because of the IT challenges the spin-out has already thrown up. But people close to RBS insist that agreeing a sale by the end of this year is not necessary to avoid EC action, says the Daily Telegraph.

"A source close to RBS's lawyers believes the [EC] is not entitled to appoint a trustee to handle the process unless it misses the 2017 deadline," says the Telegraph.

Instead the source said the bank "only has to clarify to the [EC] how it intends to offload the branches by the end of this year".

Some commentators, including the Evening Standard's Jim Armitage, have said the Treasury and RBS should use the vote for Brexit to tell the EC to "stuff your deadline" and refuse to sell the branches.

But in a bid to ensure its EU exit negotiations get off on the right foot, the government is thought to have told RBS that Brexit "will not allow the bank to wriggle out of the sell-off" and that "there is no prospect" of a further extension.

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