Speed is not of the essence in the disposal of RBS branches

David Hellier
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THE ROYAL Bank of Scotland (RBS) was yesterday called upon to get a move on in the disposal of 316 branches it has been required to make as a condition of its 2008 bailout by the UK taxpayer.

Urging it to make a speedy decision are two of the three short-listed bidders who are vying for the chance to set up a new challenger bank on the back of the newly-acquired branches.

The bidders have every reason to want a speedy process, and RBS is justifiably criticised for being tardy in separating the for sale division from the rest of the bank. But that’s not to say it should do anything too hasty now.

The attempt to sell these branches and another batch owned by Lloyds Bank has been a nightmare for both these banks so far.

In fact it would not surprise me if the next edition of Brealey and Myers’ corporate finance textbook included a chapter on how not to conduct a bank branch sale, based on the banks’ recent experience.

A £1.65bn sale of the RBS branches to Santander bank fell apart spectacularly in October last year, with the Spanish group citing IT delays.

Similarly the sale of Lloyds’ 365 branches, intended to go to Co-op bank, was aborted when the mutually-owned organisation realised it had a massive black hole in its finances. The fact that there was another bidder in the fray, which had all but been ignored, did not look good for Lloyds decision-makers.

Both RBS and Lloyds and the branches that are intended to be sold in order to comply with EU competition rules have been left in limbo as a result of these sales having backfired.

There is some justification in the fears of Andy Higginson, the former Tesco finance chief who is heading up the W&G consortium, that the RBS branch division has been slightly neglected because of the uncertainty over its future.

“The staff have done a fantastic job in holding the customers, but you know this business needs a separate focus, the management vigour that a for-sale sign doesn’t allow you to have,” Higginson was quoted as saying yesterday.

Higginson is right in this regard and he is possibly right to surmise that the RBS management over the last five years have not exactly prioritised the sale of the said branches.

But the most crucial task in front of the RBS management is to assess all three bids carefully and make sure there are no stones unturned when it comes to assessing each of the bidders’ worthiness and sustainability.

Higginson’s bid, deemed by him as the only bid on the table, is worth £1.1bn. But if RBS takes more than two years to separate the branches, then £200m gets knocked off the price and if it takes longer than four years to do the same his group can walk away and get its money back.

The two other bids, from Corsair/Centerbridge and Blackstone/Anacap envisage some money being put in for a portion of the business now, followed by an IPO at some future date. RBS could get more than the current £1.55bn book value if things go well in these circumstances but obviously could also get less.

The bottom line is that assessing which of the three bids is the best is not an easy task. RBS has until the end of the year to reach a decision. It should use all the time available to be as certain as it can that it has made the best choice.

Neither RBS nor for its part Lloyds can afford to make more mistakes in this process, so best not to be bounced into any tighter timetable than necessary.

Better to get into the next edition of that corporate finance textbook for the right reasons this time around.

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