The Royal Bank of Scotland Group plc (RBS) has found AnaCap Financial Partners as a new prospective buyer for its 316 branches. The company is forced to divest these branches to comply with the European Union state-aid ruling.
In 2010, one of Spain’s biggest banks – Banco Santander SA –agreed to buy these branches for £1.7 billion. However, last month, the Spanish bank abandoned the deal citing concerns over delays regarding the completion date (largely caused by mismatched Information Technology (IT) systems). Consequently, Royal Bank was compelled to look out for other prospective buyers.
The other possible bidders for this buyout include Nationwide Building Society, Virgin Money Holdings (U.K.) Ltd. and JC Flowers & Co. Royal Bank has appointed UBS AG (UBS) for managing the deal, which has been codenamed ‘Rainbow’.
Royal Bank had been working for more than two years on the original sale of the assets, which was demanded under the European state-aid rules after the bank received a £45.5 billion ($73 billion) bailout amount from the UK government following the 2008 financial crisis. Royal Bank must sell these branches by 2014 as a condition of receiving the bailout fund. However, if this prospective deal fails to materialize, Royal Bank might ask for an extension of deadline from the European Commission to sell these branches.
Presently, Royal bank is not the only bank disposing off its assets to pay the state debt. Netherlands-based ING Groep NV (ING) is also aiming to divest all its Asian assets, especially the insurance and investment-management businesses, by the end of 2013. This is mainly for the repayment of $13 billion (€10 billion) state financial aid, which ING received from the Dutch government during the 2008 financial crisis. The company also plans to vend its banking assets to accelerate repayment of the remaining amount – roughly $3.9 billion (€ 3 billion) – with premiums.
At present, ING Groep has already sold its Thai asset management division and its lucrative Malaysian insurance business. Apart from this, the company announced the divestiture of its insurance business, pension and financial planning divisions in Hong Kong and Macau, as well as its life insurance operations in Thailand.
We believe Royal Bank’s branch-sale deal will be better-priced if the number of bidders increase, thereby helping the bank to pay the bailout fund to the government as soon as possible. Though the branch sale will result in shrinkage of operations for Royal Bank, it will remove a major financial overhang.
Royal Bank currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.
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