Santander, NAB Front-Runners For RBS Branches

Santander, NAB Front-Runners For RBS Branches - Source

Spain's Banco Santander SA (STD) and National Australia Bank Ltd. (NAB.AU) will likely be the short-listed bidders for Royal Bank of Scotland Group PLC's (RBS) 318 U.K. branches, a person familiar with the situation said Monday.

According to other people familiar with the situation, Spain's Banco Bilbao Vizcaya Argentaria SA (BBVA) is still in the race, but the bank is using the RBS bid as an opportunity to get more details on the U.K. market, rather than being seriously interested.

The shortlist will likely be out by the end of the week, and a deal is expected to be closed by the end of the year.

Richard Branson's privately held Virgin Money and a consortium of Blackstone Group (BX) and U.K. charity Wellcome Trust were eliminated from the process because their bids were too low, according to people familiar with the situation.

The five companies put down bids between GBP1.5 billion and GBP2 billion.

RBS, 83%-government owned, is selling branches in England and Wales, along with NatWest branches in Scotland, and the accounts of some SME customers across the U.K., under European Union requirements.

Combined, the branches have GBP23.6 billion in assets and 6,000 employees.

The bank received the largest state aid in the world following its near collapse during the financial crisis in 2008. The EU has ordered it to cut market shares in some segments to make sure the bank isn't at a competitive advantage to peers that stayed independent.

Santander and Australia's NAB have been favorites, since they already have a significant presence in the U.K. Because of that, they won't need to add infrastructure expenses to the final costs of getting the RBS branches, and therefore could make the highest offers.

The two banks also believe that the RBS assets are the best fit for their businesses, since the deal includes small- to midsize-enterprise accounts across the U.K. and since it isn't putting emphasis on back-office operations, which both already have.

RBS peer Lloyds Banking Group PLC (LYG), which is 41%-government owned, has also been ordered to sell about 600 branches within four years. Fully nationalized Northern Rock PLC will also sell assets under a government plan.

Santander entered the U.K. market in 2004 with the acquisition of Abbey National PLC, and it now has a network of around 1,300 banks.

Meanwhile, Australia's NAB--which owns Clydesdale and Yorkshire banks in the country--has 340 retail branches.

BBVA has only three U.K. branches, and buying RBS' assets would mean it would have to spend heavily to set up infrastructure for the new operations.

The bank has aspirations in the country but would likely benefit more from acquiring the assets of Northern Rock which, as a complete bank, would come with all the supporting operations, people in the sector have said.

-By Patricia Kowsmann, Dow Jones Newswires. Tel +44(0)207-842-9295, patricia.kowsmann@dowjones.com

(Margot Patrick and Jessica Hodgson contributed to this article.)

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