NAB, Santander, Virgin Set To Bid For RBS Branches

NAB, Santander, Virgin Set To Bid For RBS Branches - Sources

A tight race is developing for the 318 branches up for sale by 84% state-owned Royal Bank of Scotland Group PLC (RBS), led by Banco Santander SA (STD), which is keen to add it to its growing U.K. empire, and Richard Branson's privately held Virgin Money, which needs to buy a branch network to give credibility to its retail banking ambitions.

National Australia Bank Ltd. (NAB.AU) also will bid at Tuesday's first-round deadline, people familiar with the situation said.

The three bidders--along with others--have been examining RBS's assets for some weeks but have now decided to bid by April 6, a deadline set by advisers UBS (UBS), these people say.

Meanwhile, Spanish bank Banco Bilbao Vizcaya Argentaria SA (BBV) and private equity firms are still considering offers, people familiar with the situation have said.

RBS has been ordered to sell the branches and other assets by the European Commission in return for receiving billions of pounds of state aid. The bank, along with Lloyds Banking Group PLC (LYG) and Northern Rock PLC, were fully or partly nationalized during the banking crisis.

RBS will sell branches in England and Wales, along with NatWest branches in Scotland, and the accounts of some SME customers across the U.K., totaling about GBP23.6 billion in assets.

Combined, they are expected to be valued at up to GBP2 billion, although the winner will be required almost immediately to inject around GBP3 billion in the business to cover an emergency funding from the Bank of England that will be withdrawn.

In addition to this sum, the buyer would need to add around GBP2 billion in capital to support RBS's loan book.

People familiar with the situation said Santander could probably offer the highest price for the assets, although Virgin Money could emerge as a favorite, since the U.K. government is keen to see a new entrant in the country's banking sector.

Santander, which has 1,300 branches across the U.K., would be able to build on a string of recent acquisitions, which started with Abbey National PLC in 2004. The bank is being advised by Credit Suisse (CS).

A bid by peer BBVA, Spain's No. 2 lender by assets, would mark a shift in strategy for a bank that in recent years has focused on expanding in the U.S. and Asia. It is already a big player in Latin America. Nomura (NMR) is the bank's adviser.

Although Australia's NAB is putting a bid for the branches, it isn't clear whether it will be alone or through a tie-up with private equity firms. The bank--which owns Clydesdale and Yorkshire banks in the U.K.--is being advised by Morgan Stanley (MS) and Goldman Sachs (GS).

Another possible bidder is private equity giant Blackstone Group. (BX), which is exploring a range of opportunities to break into British retail banking and could bid alone or with one of the other bank bidders. Blackstone's intentions toward RBS's branch network remain unclear. Although one person familiar with the firm's intentions said it is still involved in the auction, others play down the likelihood that it could compete on price with more determined bidders like Santander and Virgin Money, which is being advised by Greenhill.

Santander, in particular, is seen to have a clear advantage because it has cost synergies through its existing U.K. operations and experience in the market. "The [bidder] that UBS is really nurturing and spending time on is Santander," a person familiar with the process said. "They are a clear leader and RBS wants to get this deal done."

However, Virgin, which has a reputation for shaking up markets dominated by incumbents with innovative products and marketing gimmicks, could be a popular choice as it brings a new entrant into the banking sector. People familiar with Virgin stress that it is keen to win the assets.

Many of the bidders are simultaneously exploring alternative opportunities to break into the U.K. retail banking sector, such as a forthcoming sale of around 600 retail branches by Lloyds and the expected sale of some of the assets of Northern Rock.

RBS has said it expects to close the sale by early 2011.

-By Jessica Hodgson, Patricia Kowsmann and Margot Patrick; Dow Jones Newswires; +44207 8429373; jessica.hodgson@dowjones.com.

BBVA Bilbao Vizcaya Arge... (NYSE:BBVA)
Historical Stock Chart
From Jul 2024 to Aug 2024