UPDATE 1-UK's RBS to decide on branch sale plan in July-sources
* May seek cornerstone investors to anchor IPO -sources
* RBS preparing for flotation of business in next 2 years-sources
* Corsair, Anacap, Higginson-led bids in contention-sources
* Too early to say which bid will succeed - source
By Matt Scuffham
LONDON, June 28 (Reuters) - Royal Bank of Scotland will make a decision on how to offload hundreds of branches it has been ordered to sell by European regulators in the next month, industry sources told Reuters on Friday.
RBS is preparing the business, code named Rainbow, for a stock market flotation but is open to the idea of first selling substantial stakes to strategic investors prior to an initial public offering. The investor would then stay on as a dominant force in the floated company after the IPO.
The bank must sell 315 branches as a condition of receiving a 45.5 billion pound ($69.2 billion) government rescue in 2008 which left it 82 percent state-owned.
Industry sources said RBS is considering proposals from 3 sets of investors who could serve as the strategic partner.
One consortium is led by private equity firms Centerbridge and Corsair and has backing from the Church of England's investment fund, while another comprises several of Britain's biggest investment firms and is led by former Tesco finance director, Andy Higginson.
A third proposal has been submitted by British private equity firm Anacap Financial Partners, in conjunction with U.S. private equity group, Blackstone. RBS could also pursue a stock market flotation of the branches on its own without having additional investors on board, the sources said.
RBS is not yet favouring a particular proposal.
"All bids have their merits and it is too early to say which bidder is most likely to succeed," said one source close to the sale process.
RBS is aiming to tell potential investors what its plans are in the next month, the sources said, although that timetable is not set in stone.
An IPO could happen any time in the next two years, the sources said, but the bank would like to go earlier to avoid competing against a glut of impending bank share sales.
The government is planning to start selling its shares in Lloyds Banking Group soon while Lloyds is looking to spin off 630 branches via a stock market flotation.
The deal adds to an increasingly busy block of UK bank assets seeking investment or new capital over the next year, raising questions of whether the market will be swallow everything.
Spain's Santander and Virgin Money, the financial group that is part of Richard Branson's empire, are both planning to float their UK businesses.
The sale of the RBS branches was halted in October when Santander pulled out of a deal to buy the whole portfolio for 1.65 billion pounds. RBS has said a sale this year is now unlikely, meaning it will have to ask European regulators to extend a December 2013 deadline.
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