Tuesday, 6 April is the deadline for bids for 318 branches of Royal Bank of Scotland (LSE: RBS) outside of Scotland. RBS was forced to put these branches, plus its Williams & Glyn brand, up for sale by the European Commission as a condition of approving state aid.
RBS, which is 84% taxpayer-owned, is expecting bids from a number of financial firms and consortiums for its branches south of the border, which are estimated to be worth £1.5-2.5 billion. One group sure to bid for this prize RBS asset is Virgin Money, the financial group controlled by billionaire entrepreneur Sir Richard Branson.
A brace of billionaires
Virgin Money lacks the financial firepower to bid for this branch network, so it is seeking other financial backers to join its bid. The latest candidate is US billionaire Wilbur Ross, who has agreed to buy more than a fifth (21%) of Virgin Money for £100 million. This values the financial arm of Virgin Group at over £476 million.
Ross plans to pump up to $760 million (£500 million) more into Virgin Money. Also, other investors -- such as pension funds, private-equity groups and sovereign wealth funds -- are lining up to join Virgin's bid. In addition, James Lockhart, vice chairman of WL Ross & Co., joins the board of Virgin.
Florida-based Ross made his name as an investor in distressed assets, troubled industries and turnaround situations -- hence his description as a 'vulture capitalist'. For example, Ross made a fortune in the Nineties by acquiring large stakes in ailing Japanese banks before nursing them back to profitability.
"We are impressed with Virgin Money's well deserved reputation with UK customers and with its growth strategy. We look forward to supplying substantial additional capital to support Virgin's acquisition program."
Virgin last attempted a large-scale entry into British banking when, with Ross, it unsuccessfully bid for Northern Rock prior to the failed bank's nationalisation in mid-February 2008. However, Virgin Money now has a UK banking licence, following its acquisition of Yeovil-based lender Church House Trust for £12.8 million in January, since renamed Virgin Bank.
Other banks in the running to buy the RBS branch network include Spain's Banco Santander (owner of scrapped brands Abbey, Alliance & Leicester, Bradford & Bingley), its domestic rival Banco Bilbao Vizcaya Argentaria (BBVA), and National Australia Bank (owner of Clydesdale Bank and Yorkshire Bank).
Banking on Branson
Personally, I'm delighted with this news, as Sir Richard has a well-earned reputation for disrupting established markets by launching improved products and services. His Virgin Money group has already shaken up the world of personal finance, thanks to its table-topping 0% credit card and popular index tracker fund.
Other big British banks will no doubt greet this news with concern, given Virgin's reputation for superior customer service, simplicity and fair dealing. The buyer of these RBS assets would instantly become the UK's sixth-largest bank, with 1.8 million retail customers and a twentieth (5%) of small-business banking.
In time and with further investment, Virgin Money could build a real alternative for long-suffering UK banking customers. However, it faces competition from other relative newcomers to retail banking, such as Tesco (LSE: TSCO), which reportedly has a long-term target of 10% of the UK market, and start-up Metro Bank, run by US entrepreneur Vernon Hill.
Even if Virgin Money does lose out in the RBS auction, there will be further assets on the block later this year, such as the 'good bank' element of state-owned Northern Rock and branches of Lloyds Banking Group (LSE: LLOY). Then again, without acquisitions, Virgin will struggle to be a force to be reckoned with in the British banking landscape.
Published in Investing on 6 April 2010
( source: The Motley Fool)
http://www.fool.co.uk/
