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Hours after trading closed in London on Friday last week, The Royal Bank of Scotland (LSE:RBS) announced Santander UK plc decided to pull out of its agreement to acquired RBS branches in England and Wales and NatWest branches in Scotland, putting serious pressure on the British bank to find an alternative solution to comply with the European Commission’s order after receiving state aid from the UK Government.
The news was heavily discussed over the weekend, with analysts predicting in different ways as to the effect of the collapsed deal, agreed back in August 2010 for a tag price of £1.65 billion, to both RBS and Santander.
Why is Santander Backing Out?
Stories written about it have postulated Santander decided to back out of the deal, which would have increased its market presence in the UK considerably, was due to the delay in integrating the existing banking infrastructure that supports the 1.8 million customers Santander was supposed to absorb following the completion into the Spanish bank’s own system – something RBS Group Chief Executive, Stephen Hester, discounted.
“RBS has worked hard to ensure it is substantially separate from our UK branch network and corporate business and largely ready to be taken on by a new owner,” Mr. Hester stated on Friday.
Mr. Hester continued to say that the bulk of the job to transfer the customers’ accounts “has already been completed”, at 98% completion, with new credit and debit cards already issued, an independent management team in place, separate business operating facilities, and a dedicated call centre support.
However, in a statement released today, Santander said it “does not believe the conditions to the transfer of the Business from RBS to Santander UK will be satisfied” before the agreed deadline of February 2013.
The deal was originally due to be completed by the end of 2011, but was extended to the fourth quarter of 2012. But last summer’s computer glitch problems that resulted in millions of customers not having access to their accounts for about two weeks further aggravated the delays in the integration of accounts to Santander as personnel working on the said transfer was recalled to work on the glitch first, according to a source revealed by The Wall Street Journal.
Santander UK’s Chief Executive, Ana Botin stated the delays meant that the scheduled transition will not be achieved, hence the “seamless journey” Santander promised to the customers about to be transferred will not be met.
The Spanish bank is walking away from 311 RBS branches in England and Wales and five NatWest branches in Scotland with a combined risk weighted asset of £10.3 billion and an operating profit of £186 million for the first six months of 2012.
What is RBS going to do now?
The disappointing news now leaves RBS, 82% controlled by the UK public, with very limited option to divest the assets before the deadline given by the EC in 2014.
Chris Skinner, Chairman of the Financial Services Club, said in an interview the bank has at least three options: one, finding a new buyer – one that is very difficult considering the financial condition of the European market; two, floating the business as a separate company; and last, to ask for an extension of the deadline of divestment and give the bank ample time to do the first option.
RBS, bailed out by the UK Government for £45 billion during the 2008 financial crisis, is under obligations with the European Commission to divest its business interests to foster competition. Last week, its former insurance business floated on the London Stock Exchange, also a part of the banking group’s commitment for the bailout.
Shares of the bank regained its 9.6 pence loss per share at the start of trading today but still down -2% to 265.50 pence by 1:30 PM GMT, following the news.
