LONDON--A consortium of investors led by U.S. private equity
company Corsair Capital will take a stake in a standalone bank
formed from 314 Royal Bank of Scotland Group PLC (RBS) branches
that the U.K. lender must sell to appease European regulators.
Friday, RBS said it will list the 314 branches as a separate
business called Williams & Glyn's in around two years. The
consortium of investors, which includes the Church Commissioners
for England, who manage the assets of the Church of England, and
Centerbridge Partners Europe LLP, will pay GBP600 million for a
bond that will convert into no more than a 49% stake in the
branches once they are spun off.
As a condition of RBs' government bailout in 2008, the European
Commission made the U.K. bank sell part of its U.K. branch network.
Last year, a long standing deal to sell the branches to Santander
U.K. collapsed forcing RBS executives to either find another buyer
or list them as a separate business.
As the U.K. economy slowly rebounds, the branches, which make up
5% of the U.K.'s SME corporate banking market, have attracted a
range of bidders including other private equity firms. RBS received
an offer--worth up to GBP1.5 billion--from U.K. investment vehicle
W&G Investments to buy the branches outright. A person familiar
with the matter said the sale offer would have seen RBS lose too
much money on the deal.
By attracting cornerstone investors RBS hopes be able to list
the branches in one go, rather than two, and also ensure that the
branches are listed at a fair price. The investors will also help
RBS create the standalone bank and have agreed to pay RBS up to an
extra GBP200 million based on the performance of the Williams &
Glyn's shares in the 18 months following the IPO. In the meantime
RBS will have to ask the European Commission for a two-year
extension on the deadline for the branch disposal, which was
supposed to happen this year.
The Williams & Glyn's business will serve nearly 1.7 million
customers, and will employ approximately 6,000 people. The business
will have a GBP19.7 billion loan book, funded by GBP22.2 billion in
customer deposits, RBS said in a statement.
"Williams & Glyn's will play an important role in the U.K.
banking landscape and will be an excellent new addition to the
market, with a particular strength in small business banking," RBS
Chairman Philip Hampton said in a statement.
RBS, which is 81%-owned by the U.K. government, isn't alone in
having to ditch branches to appease European regulators. Lloyds
Banking Group PLC must sell 632 branches following its 2009
bailout. A deal with Co-operative Bank PLC fell apart earlier this
year, and Lloyds has resurrected an old brand, TSB, hoping to float
the branches as a separate bank in 2014.
Meanwhile U.K. politicians have touted these various new banks
as a way of bolstering competition in the U.K. banking market.
Skeptics warn that these new banks will have relatively small
market shares, making it hard for them to take on larger
competitors.
Write to Max Colchester at max.colchester@wsj.com
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