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

Treasury brings in advisers to solve RBS branch sale 'crisis'

28 September

Treasury officials have reportedly brought in its own advisers to scrutinise the Royal Bank of Scotland's attempts to sell around 300 of its branches.

The state-backed bank is compelled under EC terms on state aid ruling to offload the branches by the end of next year.

Plans to list the unit as an independent entity branded Williams & Glyn were abandoned amid IT problems this year, while talks to sell the business to Santander broke down earlier this month.

"The appointment of separate advisers by the Treasury suggests that there is now little confidence within government that RBS can meet the terms of the original state aid agreement," says Sky News.

It is understood an independent investment bank, possibly Rothschild, will advise the Treasury on "possible alternatives to a sale".

RBS is being advised on the Williams & Glyn process by Bank of America Merrill Lynch. It has already spent around £1.5bn trying to separate the unit and a trade sale will probably crystallise a massive loss for it and the taxpayer.

One option is a sale to Clydesdale and Yorkshire Bank owner CYBG. This may require the latter to raise new money – and there has even been the suggestion RBS itself might even buy shares issued to fund the buyout.

However, as the UK is expected to leave the EU soon, it has also been suggested the bank and government simply renege on the ruling and refuse to pay any fine that may be imposed.

Does Brexit give RBS a way out of 'doomed' Williams & Glyn sale?

22 September

Royal Bank of Scotland has suffered another setback in the drawn out saga that is its attempts to offload a unit of 300 branches.

After Santander walked away from nascent buyout negotiations after balking at the price tag, RBS must now either dramatically reduce the asking price or seek another suitor, perhaps CYBG, the owner of the Clydesdale and Yorkshire Bank brands.

But some commentators say the UK's vote to leave the European Union could offer the bank a solution to its woes: simply refuse to sell.

RBS is rushing to offload the business, which at one time it had been planning to spin out as an independent entity under the defunct Williams & Glyn brand, to comply with a ruling from the European Commission.

To boost competition in the sector, Brussels demanded the bank sell hundreds of branches as part of its conditions for retrospectively approving RBS's government bailout.

But that was in 2010. Two deadlines for the sale have already been missed and failure to hit a third, set for the end of next year, could see the state-backed bank handed a fine or forced to sell.

However, James Quinn in the Daily Telegraph says the UK's impending Brexit should embolden RBS boss Ross McEwan to "tell Brussels that the carve-out doesn't make sense and that it's not going to happen".

The journalist argues that although the government will want to curry favour with Europe as it approaches tricky exit negotiations, the Chancellor should back RBS and "strike a deal".

He says there were actually seven points to the Commission ruling, including selling a bunch of commercial financing units, reducing debt levels and ditching dividends, all of which, except the "doomed" branches sale, have already been met.

Extricating the unit has proved painfully difficult and already cost as much as £1.5bn in IT costs. "If the ruling was meant to punish RBS, surely [that] is penal enough?" says Quinn.

Jim Armitage, writing in the London Evening Standard, agrees.

"Stuff your deadline," he tells RBS and the Treasury to say to the European Commission. "After all, what are they going to do, kick us out?"

RBS unit sale on the brink as Santander talks break down

21 September

Royal Bank of Scotland's attempts to offload more than 300 branches have taken a fresh blow after talks with Spanish-owned rival Santander UK broke down.

The Financial Times  says a formal offer for the unit was submitted as recently as last month, but two people briefed on the process revealed Santander has walked away from the negotiations amid "price disagreements".

RBS originally valued the business at £1.9bn. When Santander agreed a buyout of the same branches in 2012, it had been willing to pay £1.65bn, but that deal also fell apart at the last minute over IT concerns.

Now, says The Times, RBS "may accept about £850m". That would translate to a hefty loss for the state-backed bank, which had invested about £1.5bn trying to establish the unit as a standalone entity under the Williams & Glyn brand that was retired in 1985.

At first the plan had been for Williams & Glyn to be fully separated and then listed. However, it proved impossible to extricate the IT systems and that plan was ditched earlier this year.

RBS is being made to spin out the branches by the European Commission as a condition for its bailout back in 2009. The process has already missed two deadlines and if it isn't concluded by the end of next year, the bank faces either "the threat of a potential fine or forced sale of the business", says the Times. RBS is in discussions with the Treasury over the "ways it could meet the commission's criteria", the FT adds.

A person described as being "close to Santander" said the Spanish bank could yet come back to the table, although that would involve movement on price. "At the right price, we'll do the transaction," said the source.

Other parties might also step in to take on the transaction. CYBG, the listed group that owns the Clydesdale and Yorkshire Bank brands, is understood to have expressed interest, but there are doubts as to whether it has sufficient scale. Even at RBS's far reduced price expectations, the sale would amount to more than a third of CYBG's total market value and it would need to raise a large chunk of money from investors to fund the purchase.

The Times speculates, however, that RBS could itself invest in newly issued shares. This might help to sweeten the pill of the disappointing sale price, as the bank would share in the upside if the deal proves to be a success.

Clydesdale emerges as rival suitor for RBS's Williams & Glyn unit

8 August

Royal Bank of Scotland appears to have sparked a takeover battle for its Williams & Glyn unit, with the owner of Clydesdale Bank emerging as a second potential suitor.

It has already been revealed that Santander is in the running to acquire the unit and has tabled a formal offer.

CYBG, the listed banking group that owns both the Clydesdale and Yorkshire Bank brands, has engaged investment bank Morgan Stanley to "help it explore a bid" for the 300-branch strong business, Sky News reports.

Last week, RBS confirmed it was no longer pursuing its plan to set up Williams & Glyn as a standalone listed entity that would have become the UK's seventh-largest lender.

The bank blamed the low-interest rate environment in the wake of the vote for Brexit and a resulting "challenge" for smaller banks to build "scale".

But the spin-out has also long been dogged by technology problems that scuppered an earlier £1.7bn takeover by Santander in 2012.

The new offer from the Spanish bank envisages a simpler transition, with most of Williams & Glyn's 1.8 million personal banking and 250,000 business customers simply being shifted on to its own existing IT infrastructure.

As this is still a complex process, however, with all customers needing to be issued new account details, sources told Sky News there is scope for rivals to come in with a rival plan and counter-offer.

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

CYCG shareholders appeared to welcome the "opportunity to help finance such a significant expansion of the company", trading its shares up 2.5 per cent to 258.4p on the FTSE 100 by mid-morning in a flat market.

RBS shares were up 0.3 per cent to 178.7p.

RBS blames Brexit as it abandons Williams & Glyn spin-out

05 August

Royal Bank of Scotland has abandoned plans to spin-out and float its 300-branch Williams & Glyn unit, blaming the EU referendum's indirect impact on bank profit margins.

Yesterday, the Bank of England cut interest rates to a new record low of 0.25 per cent, part of a £170bn stimulus package designed to counter an economic slowdown amid post-Brexit uncertainty.

Ross McEwan, RBS chief executive, said that in the low-rates environment, challenger banks would be "more challenged" due to their lack of scale, reports the Financial Times.

He added it was "clear that [Williams & Glyn] would now be unlikely to grow its balance sheet to the extent necessary to deliver returns above the cost of capital within the next five years", says the Daily Telegraph.

Consequently, RBS has given up on the project and the plan to establish Williams & Glyn as a separate bank - despite having spent at least £1.4bn attempting to set up an IT platform to house the unit's 1.8 million personal banking customers and 250,000 business clients.

McEwan said RBS had been considering an alternative trade sale of the business to a rival since late last year and that there have already been "positive discussions with interested parties".

Santander is known to have put in an offer, although no details have been disclosed.

European officials have demanded the branches are offloaded to comply with rules relating to RBS's £45bn taxpayer bailout in 2008. A similar requirement of Lloyds led to the establishment in 2014 of challenger bank TSB.

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