RBS mulls float of branches to create challenger bank

Tim Wallace
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RBS is working on a plan to float the 316 branches it is being forced to sell off, in a move that could create a new high street bank.

The state-owned institution had hoped to sell the branches to Santander, but after several years of negotiations the bidder dropped out last Friday.

It needs to sell the unit by the end of next year to avoid a fine from the European Commission.

Inspired by the successful float of its Direct Line subsidiary, RBS now hopes it could spin off these branches into a new independent bank.

The bailed out bank is running a “dual track” process, where it will simultaneously work on plans to sell the branches to other bidders – potentially including Virgin Money, JC Flowers and NBNK – and to float the bank as an independent institution.

However, it is unlikely any bidder will pay the £1.65bn Santander had agreed to, and an initial public offering (IPO) would bring its own problems.

“A float is far from ideal – a retail operation with only 316 branches and a peculiar geographic distribution would have a competitive disadvantage in scale, even before you get onto legacy systems issues,” said Investec’s Ian Gordon. “RBS will pursue a sale with all vigour, and even then can expect to drop up to £1bn from the price.”