LONDON â€" The Royal Bank of Scotland is expected to settle for a lower price as the bank looks to sell a number of its British branches after Santander of Spain pulled out of a deal to buy them for £1.7 billion ($2.7 billion).
The British bank, which is 81 percent owned by taxpayers after receiving a government bailout, faces the prospect of few potential acquirers looking to mount a bid for the 316 branches spread across Britain.
The new sale comes as the European banking sector continues to struggle from the Continent's debt crisis, and any potential bidder would likely demand a large discount to what Santander had agreed to pay in 2010.
Banks are facing stricter capital requirements that may hamper interest in a rival firm bidding for the assets, while European bank lending also remains weak because of poor consumer demand for borrowing.
Potential acquirers may include Richard Branson's Virgin Money, which also tried to buy the branches t wo years ago. The American private equity firm J.C. Flowers, whose founder J. Christopher Flowers recently moved to London, is also reported to be considering an approach.
The new price tag for the branch network would likely total around £1 billion, according to Cormac Leech, an analyst with Liberum Capital in London.
“Even if alternative bids do materialize for the business, which remains uncertain, we expect they would be at much lower valuations than the original deal,†Andrew Coombs, an analyst with Citigroup, said in a research note to investors on Monday.
The reduction in price follows an announcement late on Friday that R.B.S. and Santander had failed to complete the multi-billion dollar deal. The two banks had been negotiating for almost two years to finalize the sale, but had been bogged down with a number of technical challenges.
Following the government bailout during the recent financial crisis, the British bank had been ordere d to sell the branch network, which has around 1.8 million customers.
R.B.S. has until the end of next year to sell the units, which represented around 5 percent of the bank's pretax profit last year.
The Edinburgh-based bank also may now look to pursue an initial public offering for the unit, though analysts say investor appetite for the British-focused business could be subdued.
Last week, R.B.S. raised $1.3 billion through the listing of its insurance division, Direct Line, which the British bank also has been forced to sell as part of its government bailout.
In early afternoon trading, shares in R.B.S. had fallen 1.6 percent in London.
