Royal Bank begins auction of Williams & Glyn’s
The government, the Tories, the Lib Dems and the European Commission all say they want it: that’s to build a more competitive banking market in Britain from the devastation wreaked by the bulldozing credit crunch.
What I’ve learned is that first steps have been taken in this direction with the formal launch by Royal Bank of Scotland of the auction of Williams & Glyn’s, the small business and retail bank it is being forced to sell by the Commission.
The sale memorandum has been sent by RBS’s financial adviser, UBS, to possible purchasers. And initial bids are due in April, before the most likely date of the general election on 6 May – though completion of the disposal is unlikely till after the election.
In respect of the rehabilitation of wounded Royal Bank, the sale will not be very material. According to bankers, proceeds may be around the book value of what’s being sold, or possibly even a bit less, so perhaps a billion pounds or so – which would be a drop in the ocean of RBS’s 2009 operating losses of £6.2bn.
But in respect of competition in the banking industry, the deal is potentially more important.
RBS is selling a business with 318 branches, about £20bn of loans and other assets and 2% of Britain’s retail banking market – which is not huge, but not irrelevant either.
Perhaps what is most important is that 70% of the assets are loans and credit provided to small and medium size businesses, which is the part of the market where – many would say – competition is particularly inadequate.
The remaining 30% is credit provided to households.
So who is going to bid?
Well the two banks that seem most enthusiastic are Santander and Sir Richard Branson’s Virgin Money.
And of the two, Santander can obviously afford to pay more, because it would be able to reap sizeable cost savings from the takeover thanks to its substantial existing presence in the UK.
Virgin, however, would argue that it would increase choice and competition in Britain more than Santander would do – for the obvious reason that it isn’t yet a substantial player in British banking.
What’s relevant in that context is that Santander was originally on a list produced by the Commission of big banks that would not be acceptable buyers of Williams & Glyn’s, because sale to them would not promote competition.
However that draft list was eventually ditched and replaced by a market share threshold for bidders: the combined market share of a bidder and Williams & Glyn’s mustn’t exceed 15%; and Santander just limbos under that bar.
That said, the natural buyer of Williams & Glyn’s in many ways would be National Australia Bank (NAB) because its British branches in Scotland and the North East would dovetail beautifully with Williams & Glyn’s in the North West and Scotland.
And if NAB enters the fray that would introduce some tension in the bidding process.
But bankers tell me that NAB may well decide to sell its UK operations, Clydesdale and Northern, possibly to Santander – which would rather stymie Royal Bank’s disposal.
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