RBS branch bidders push for speedy deal

LONDON Tue Aug 20, 2013 3:29am EDT

A man uses a cashpoint machine outside a branch of the Royal Bank of Scotland in the City of London August 2, 2013. REUTERS/Andrew Winning

A man uses a cashpoint machine outside a branch of the Royal Bank of Scotland in the City of London August 2, 2013.

Credit: Reuters/Andrew Winning

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LONDON (Reuters) - Two of the three bidders short-listed to buy 315 bank branches from Royal Bank of Scotland (RBS.L) have called for the long-running sale process to be completed as quickly as possible, with one describing the outlets as "slightly neglected" under their current ownership.

RBS was ordered to sell the UK branches as a condition of its 2008 taxpayer bailout, which left the bank 81 percent state-owned. A 1.65-billion-pound ($2.59 billion) sale of the branches to Spain's Santander (SAN.MC) collapsed in October 2012, triggering a fresh sale process that has been plagued by delays.

In separate interviews with Reuters, senior figures from short-listed bidders W&G Investments and Corsair said a deal needed to be agreed quickly so that the branch business, which has assets of about 20.5 billion pounds, can begin operating as a separate entity ahead of its change in ownership.

Both laid out plans to expand the business by focusing on small business lending and said they were committed long-term investors who wanted to create a "challenger" bank in the UK.

Headed by former Tesco Finance chief Andy Higginson, W&G Investments is a UK-based group of institutional investors which will list on London's Alternative Investment Market (AIM) on Tuesday. It wants to pay between 1.1 and 1.5 billion pounds for the branches.

U.S.-based private equity firm Corsair is bidding along with fellow private equity house Centerbridge, and other investors including the Church of England's investment fund and Standard Life Investments.

It wants to install former Lloyds Banking Group (LLOY.L) executive John Maltby as chief executive and pay between 600 million and 800 million pounds to become a cornerstone investor ahead of a stock market flotation that would value the new bank at more than 1.5 billion pounds.

The third bid is headed by British private equity house AnaCap, with U.S. investor Blackstone. In a statement, they said they would work with RBS to "achieve a premium valuation" for the business through a stock market offering, but would give no detail on the value of their proposed deal.

RBS declined to comment on the process.

'SLIGHTLY NEGLECTED'

Asked about the biggest challenge to their bid, W&G's Higginson said the most important thing was for the branches to get separate management as soon as possible so that value is preserved.

"Having been a division within RBS with a for-sale sign above it for five years, inevitably it's been slightly neglected," said Higginson.

"The staff have done a fantastic job in holding the customers, but you know this business needs separate focus, the management vigor that a for-sale sign doesn't allow you to have."

Under the W&G plan, RBS would ready the business for sale over about two years by giving it more autonomy, getting a banking license and making other necessary changes, before passing it over to the investors.

Corsair would install Maltby as chief executive as soon as a deal was done, and he and RBS would work together to prepare the business for independence, a similar model to the one proposed by AnaCap/Blackstone. Maltby said both staff and customers had been living through a "period of uncertainty".

"The quicker the process can come to a successful conclusion and we can get on and build this new bank the better it is for all parties," he said.

Under the terms of its bailout, RBS must sell the branches by the end of 2013. Chief Financial Officer Bruce Van Saun said in February the bank had already told the European Commission it was "likely to need an extension" but would not apply formally until a preferred bidder was picked.

IN IT FOR THE LONG HAUL

Higginson said his grouping had "a very big group of powerful institutional investors" that would create a business that would still be around in twenty years' time. The investors would be legally allowed to sell their equity once W&G's AIM trading goes 'live', he said, but stressed that they were long-term holders by nature.

W&G's stock market listing begins on Tuesday based on the 15 million pounds that was raised to fund the bid's costs, but the shares are suspended until the bid is accepted and 1.1 billion pounds is raised from investors.

Corsair and its fellow investors do not currently have any obligation to stay on after a flotation. "The IPO (stock market sale) is the beginning of the process, not the end," said Maltby. "Each of the investors is very long term and expect to continue to be investors long after the IPO."

Both bidders see room for significant growth in the small business market, where the branches have a 5 percent market share, but neither would give details of their target market share.

AnaCap/Blackstone said it has experience in SME lending through AnaCap's investment in UK SME lender Aldermore. The grouping's proposed management team, former Lloyds executive Mike Fairey and former First Direct boss Alan Hughes, have "track records running major UK retail and SME banks", the statement added.

Both Higginson and Maltby said jobs would increase under their plans and that they had no plan to follow a Europe-wide branch cutting trend that saw 5,500 outlets eliminated last year.

"We have no plans to slash the branch network," said Higginson, adding that they would institute longer, Tesco-style opening hours "if that's what customers want".

(This story corrects 'Centre Point' to 'Centerbridge' in sixth paragraph)

(Editing by Tom Pfeiffer)

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