Investors Lure Allies To RBS Branches Bid

Some of the City's biggest investment institutions are confident of ministerial support for their bid to create a new force in small business banking through a takeover of 315 Royal Bank of Scotland (RBS) branches.

I have learnt that the team leading a bid on behalf of the institutions has recruited two board members who they believe will be critical to the success both of their offer and of the business following the completion of a deal.

Andrew Higginson, the former finance director of Tesco who has been lined up as chairman of the branch network, has lured a former colleague from the grocer's finance arm to supervise the crunch task of creating new IT systems.

The competence of the rival bidders' technology systems is viewed as crucial by both RBS and the Government following last year's meltdown which left the largely state-owned bank facing a huge fine after customers were left without access to their money for several days.

The complexity of banks' IT issues was also behind the failure of a previously-agreed sale to Santander UK. That deal collapsed last autumn despite more than two years of talks between the two lenders.

Sky News understands that Mr Higginson has persuaded Shaun Doherty, who oversaw the IT separation of Tesco's personal finance arm from RBS when their joint venture was disbanded four years ago, to join the branch network as a non-executive director.

Mr Doherty left his role as IT and operations director at Tesco Bank last year.

Mr Higginson, who chaired Tesco's banking arm during his career there, is also a non-executive director of BSkyB, the owner of Sky News.

The institutions' bid for the branch business, which incorporates 1.7m retail customers, 230,00 small business clients and roughly £20bn in assets, has also been bolstered by the arrival of John McGuire, who ran the network during its incarnation under the name Williams & Glyn's. He has also agreed to serve as a non-executive director if their offer is successful.

Now vice-chairman of RBS's pension fund trustees, Mr McGuire also sits on the board of N Brown, the retailer, which is chaired by Mr Higginson. He was formerly chairman of corporate banking for RBS in the north of England and Midlands regions.

Most of the branches that are now being sold by RBS are those which formerly traded as Williams & Glyn's, and are well-known to Mr McGuire. The network was subsumed into NatWest following its takeover by RBS during the 1990s.

RBS is understood to have been told privately by the Government that the Coalition would support a takeover by the institutions and that the bank should work towards a rapid agreement on a deal.

The institutions include some of the most blue-chip names in British finance, including F&C, Schroders and Threadneedle. The wealthy Pears family has also agreed to invest in the bid.

RBS has set a deadline of March 21, the day after George Osborne's Budget statement, for bids for Williams & Glyn's. While the Chancellor is therefore unlikely to be able to announce any form of deal next Wednesday, officials say he may offer a signal of the progress of talks.

The political rhetoric around lending to small and medium-sized businesses (SMEs) was escalated again today when the Labour leader, Ed Miliband, pledged to create a network of regional banks if his party wins the next election.

Last week, figures from the Bank of England's Funding for Lending Scheme showed a disappointing response from banks in relation to SME lending.

The institutional investors believe a couple of other important factors weigh in their favour.

Firstly, their bid would not be based on debt funding. Although the final financing details have not yet been decided, they are hopeful that the Treasury will throw its weight behind their offer in the face of competition from several private equity firms.

The other big advantage that the institutions believe they possess is that their offer could be structured through a mechanism known as an accelerated initial public offering. That could enable RBS to meet its obligation to sell the business ahead of a deadline imposed by Brussels towards the end of this year.

RBS must sell the branches to comply with state aid rules following the bank's £45bn bail-out by British taxpayers in 2008. Unless it does so by November, it could face heavy financial penalties.

Sky News reported earlier this week that rival bidders include Centerbridge Partners, an American investment firm, which has joined forces with Corsair Capital. Corsair's interest in the branches is being spearheaded by Lord Davies, the respected former Standard Chartered banker and ex-trade minister.

Another private equity bid has been put together by Apollo Management and JC Flowers.

None of the parties involved in the auction would comment.