Santander has pulled out of talks with Royal Bank of Scotland to acquire Williams & Glyn in a blow to the state-backed lender’s attempts to offload the challenger bank.
The Spanish bank submitted a formal offer to buy the 300 Williams & Glyn branches from RBS last month, bankers told the Financial Times.
But Santander has now dropped the acquisition negotiations, according to two people briefed on the process. One person said this was because of price disagreements, noting that Williams & Glyn was originally valued at about £1.9bn.
The latest twist is a significant setback for RBS, which is 73 per cent-owned by the UK government, after it has spent seven years and £1.5bn attempting to separate itself from Williams & Glyn.
RBS must divest Williams & Glyn by the end of 2017 as a condition of European Commission rules for receiving a £45bn bailout during the financial crisis. Ross McEwan, chief executive of RBS, has said in the past that offloading Williams & Glyn is a precondition for returning excess capital and dividends to investors.
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RBS is understood to be in discussions with the Treasury about ways it could meet the commission’s criteria. A person close to the plans said that Clydesdale and Yorkshire Banking Group, a challenger bank, is eyeing the Williams & Glyn branches.
Mr McEwan highlighted last month that the aim of the divestment is to remedy competition concerns in the concentrated UK SME market.
RBS said at the end of last year it would pursue plans to list Williams & Glyn on the stock exchange as a standalone bank, but had also entered early-stage talks with parties interested in a potential acquisition.
However, RBS abandoned plans to create Williams & Glyn as a separate bank with its own IT system and licence last month, pointing to the lower for longer interest rate environment and the impact this would have on creating a profitable bank in the future.
The latest attempt by Santander comes after it abandoned a £1.65bn deal to buy Williams & Glyn in 2012, ostensibly because of IT complications relating to the separation of the branches.
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One person close to Santander suggested there could be room to come back to the table, saying: “At the right price, we’ll do the transaction”.
RBS’s task has proved tougher than other bank carve-outs, such as Lloyds Banking Group hiving off TSB, analysts have said. RBS had the dual challenge of building new technology — whereas Lloyds Banking Group allows TSB to “piggyback” off its own systems — and of creating a more complicated bank, by focusing on both retail and SME customers.
One adviser, who wished to remain anonymous, said: “It is tough to buy Williams & Glyn because it’s still impossible to pull it out of the bank [RBS], and is difficult to value post Brexit.”
The Treasury, Santander and RBS declined to comment.