Royal Bank of Scotland has finally sealed the £1.65bn sale of 318 branches to Santander, allowing the Spanish bank to expand its business banking franchise in the UK.
The deal gives Santander an additional 244,000 small and medium-sized business customers, or a 5 per cent market share, to supplement its existing 3 per cent, as well as 1.8m retail customers.
The net asset value of the portfolio being transferred has fallen from about £1.9bn when talks began several months ago to about £1.3bn now, although RBS has negotiated a £350m premium to the net asset value, up from about £100m at the outset.
The portfolio contains £21.5bn of assets and generated an operating loss of £55m for 2009. However, the complexities of the transfer of the business means it will take 12-18 months to complete.
Stephen Hester, RBS’s chief executive, on Wednesday described the deal as “an important milestone in our restructuring work”. It is expected to be followed as soon as Thursday by the sealing of a £2bn sale of the bank’s payment services operation, centred on the WorldPay card processing business, to Advent and Bain, the private equity groups.
The deals combined should be enough to push RBS into profit for the full year, although the bank may still be lossmaking for the six months to June when it announces its results on Friday.
For Santander, the purchase is another example of its aggressive acquisitive growth. The Spanish bank has transferred £4.5bn to its UK operations to fund the deal and the restructuring of the subsidiary elements of Santander UK – Abbey, Alliance & Leicester and part of Bradford & Bingley.
It emerged recently that Santander was considering a part-flotation of Santander UK as early as this autumn in order to help fund the acquisition. Floating 20 per cent of the business could raise £3bn, bankers say.
That kind of operation would replicate last year’s $7bn initial public offering of part of Santander’s Brazilian subsidiary.
If markets do not look healthy enough to sustain an IPO, bankers said the main alternative way to fund the acquisition of the RBS branches would be with group-level retained profits.