Virgin Money Unlikely to Pick Up RBS Branches

Posted on 29 October, 2012 by Kirsten Kennedy

Banking chain RBS has not had an easy run during the recession. Trust in the banking system, already damaged by the country’s descent into economic instability, plummeted after the Libor scandal, with the major high street chains suffering accordingly.

Now, it appears that their troubles are set to continue, with frontrunner for the purchase of 316 RBS branches, Virgin Money, expected to pull out of negotiations for the deal.

As part of RBS’s £45 billion bailout in 2008, a condition was set that the chain would offload a number of its branches in order to make up some of the loan. Santander UK was expected to become the buyer for the properties, but pulled out due to struggles at parent company Banco Santander. Furthermore, the UK branch cited persistent delays and IT issues as concerns which made it uneasy about continuing with the deal.

Santander UK would have paid £1.65 billion for the branches – a price tag which will now be significantly reduced due to the urgency of the situation.

Virgin Money seemed the likely second choice, yet billionaire owner Richard Branson has quashed these hopes by saying that his company is “unlikely” to enter into a bidding war.

Virgin Money has already expanded greatly in the past year, having bought nationalised mortgage lender Northern Rock for £747 million. As a result, Mr Branson claimed earlier this week, no further acquisitions are needed at the present time.

He said; “We will always look at opportunities, but I would say it is more unlikely than it is likely that we would do a transaction like that.

“Virgin Money has 1 million new accounts since we took over Northern Rock and one in three of all new mortgages are now being written by Virgin Money, which is pretty incredible.

“So we don’t need to acquire a lot of other branches; we are building our own new branches, and I am very happy with the way it’s growing organically.”

With Virgin Money citing their lack of interest, RBS is now faced with the issue of obtaining an extension from the European Commission. The original deadline was to be the end of 2013, but with no interested parties as yet making themselves known, this could prove to be a difficult goal to achieve for the 82 per cent state owned banking chain.

However, industry experts have also claimed that RBS may approach the European Commission and ask for the diktat to be reversed altogether, thus freeing them from the need to find a buyer.

Should RBS be forced to continue in their efforts to find a buyer, it is expected that the price tag for the 316 branches will have dropped significantly. Rather than the £1.65 billion quoted to Santander UK, the price may even half to as low as £600 million – perhaps ushering in a whole new range of problems for the banking giants.

Do you believe that banks which received state bailouts should be forced to sell their properties as a means of recouping the money owed to the taxpayer? Are there any other ways you can think of which would allow banks to repay the loans without offloading their property portfolio, perhaps using a fixed rate interest deal in which the money is paid back over a set period of time?

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