True, the divestment isn't essential to RBS's wider rehabilitation. The branches are solidly profitable and the disposal is only on the agenda at all because European Union competition regulators demanded it - as the price for hefty state support RBS received during the financial crisis. Moreover, Santander's exit doesn't mean that a deal won't eventually be done - the European Commission still expects the branches to be sold and RBS has until the end of 2013 to find another buyer. RBS says that the "vast majority" of the work to separate the business has been completed, too.
Neither is there a lack of potential buyers. Both Richard Branson's
But, with the UK's economy having deteriorated significantly since the Santander deal was signed, RBS can expect a lower price. Indeed, analyst Shailesh Raikundlia of Espirito Santo Investment Bank points out that "the [Santander] deal value is at a significant premium to subsequent transactions" - at a price to book value of roughly 1.3 times, compared to 0.9 times for Virgin's acquisition of Northern Rock and just 0.5 times for the Co-op's acquisition of 632 branches from Lloyds. "For RBS, this is a further disappointment with at least £350m less capital expected from the deal," adds Mr Raikundlia. The profit stream from the branches - £186m in the first half alone - though will help compensate for that.
While not disastrous, Santander's withdrawal represents another sentiment problem for RBS. Indeed, a lower likely sale price for the branches, the possibility of LIBOR-related fines and the fairly low price achieved for first tranche of