Santander Eyes RBS Unit -- Update

By Max Colchester 

Santander UK has made an offer to acquire Royal Bank of Scotland Group PLC's Williams & Glyn unit, pouncing as the British bank struggles to unload the retail business ahead of a 2017 deadline, according to people familiar with the matter.

Following its government bailout, RBS is required under European Union state aid rules to spin off 314 branches. These have been regrouped under the brand Williams & Glyn and need to be disposed of by the end of next year.

The exact details of the deal remain unclear, and people close to the process warned that the sale could still fall apart.

For Banco Santander SA's U.K. unit, Williams & Glyn could help bolster its presence in corporate lending to small British businesses. For RBS it could solve an expensive problem: how to carve out a new bank from its existing operations.

The Williams & Glyn separation has been dogged with technology problems and delays. RBS, which is 73% owned by the British government, said earlier this year that there was "a significant risk" it couldn't spin off the branches by that deadline, making an initial public offering of William & Glyn look unlikely.

RBS has since been exploring other ways of shedding the branches. These include going down the route Lloyds Banking Group PLC chose when it also had to meet similar EU requirements. Lloyds created a new bank, TSB, but didn't move all its computer systems onto a new platform. Many of TSB's operations use Lloyds's technology. The Santander deal could be structured in a similar way.

However, RBS has been here before. A plan to sell the branches to Santander in 2012 fell through, amid concerns about the bank's technology. Today RBS has 5,000 staff working on the process of separating the bank. Williams & Glyn still doesn't have its own banking license.

Santander has been circling the unit for some time. Bankers say that a slew of smaller challenger U.K. banks could merge as they seek to weather the fallout from Brexit and boost market share. Santander UK isn't the only finance company looking at the Williams & Glyn unit, according to one person familiar with the matter.

Write to Max Colchester at [e-mail]

(END) Dow Jones Newswires

August 02, 2016 11:49 ET (15:49 GMT)

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