Richard Branson’s Virgin Money Holdings (U.K.) Ltd. approached Royal Bank of Scotland Group Plc to buy 316 branches and U.S. investor JC Flowers & Co. is considering a bid, according to three people with knowledge of the matter.
The discussions come after Banco Santander SA (SAN), Spain’s biggest bank, abandoned its 1.7 billion-pound ($2.7 billion) purchase of the branches last week, citing completion delays. The new plans are at a very early stage and no decision on whether to table a formal offer has been made, said the people who asked not to be identified because the talks are private.
RBS has to sell the outlets by 2014 to comply with a European Union state-aid ruling after receiving 45.5 billion pounds in the biggest banking bailout in the world in 2008 and 2009. RBS (RBS), Britain’s biggest government-owned bank, may approach the European Commission and seek an extension to the deadline, one of the people said.
“We would expect any offers received to come in well below the book value of 1 billion pounds, reflecting prices achieved by similar transactions elsewhere,” Gary Greenwood, a banking analyst at Shore Capital in Liverpool, said in a note to clients today.
NBNK Investments Plc (NBNK), a company created to acquire financial assets, is unlikely to bid for the outlets as the firm is being wound down and reversing that process would be difficult, said a separate person with knowledge of the company’s plans.
Officials at Virgin Money, NBNK, JC Flowers and RBS declined to comment.
Regulators may now be “a lot more flexible” with the branch sale deadline because Britain’s consumer-banking market has become more competitive, RBS Chairman Philip Hampton said on Oct. 13.
“RBS will commence a new process of disposal following discussion with the EC and will provide a further update on this in due course,” Chief Executive Officer Stephen Hester said in a statement today.
RBS fell 1 percent to 268.1 pence in London trading, the only bank among Britain’s five largest to fall today. The stock has climbed 33 percent this year. Santander gained 1.2 percent to 5.81 euros.
Virgin Money agreed to buy part of Northern Rock Plc in November for 747 million pounds and moved its headquarters to Newcastle, England, the mortgage lender’s base. JC Flowers and NBNK also submitted bids for the bank, which the U.K. government took over in February 2008.
RBS’s Hampton said the bank might try to see if the European Commission will let it keep the branches.
“It used to be a pretty severe regime but they are making different judgments,” Hampton told reporters in Tokyo, where he held meetings on the sidelines of the International Monetary Fund’s annual gathering. “The U.K. retail banking market is more competitive now than it has been for decades.”
Antoine Colombani, a spokesman for the EC, said the regulator’s rationale for the sale of RBS’ branches “remains valid.” The EU has previously required banks to suggest alternative measures if they seek to change the original terms of approval for state aid, he said. The U.K. government hasn’t yet made a formal request to change the terms of the EU’s approval for RBS, Colombani said.
Commerzbank AG, a German lender rescued by taxpayers, this year won approval to alter the terms of its 2009 bailout to wind down most of a real estate unit instead of selling it. KBC Groep NV (KBC) last year got EU permission to replace a planned sale of Czech and Hungarian assets with the sale of Polish units.
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