RBS could sue Santander as deal failure could cost bank £1bn

Lawyers and advisers at RBS are “looking at the legality” of Spanish bank’s reversal after its shares fell and as much as £800m was wiped off the value of the branch deal.

The bank faces additional costs of re-running the sale process, or preparing the business for a stockmarket listing, as well as additional penalities from the European Union if the deal takes longer than 2013 to complete.

Shares in RBS fell 1pc to 268p as traders had their first chance to react to the collapse of the £1.65bn deal which emerged on Friday night.

Sources close to RBS said directors “strongly refuted” Santander’s claim that the deal had failed because of delays and problems with the IT, and are said to be “convinced” that the bank is pulling out because of the banking crisis in Spain instead. “Santander is under intense pressure in its home market, particularly regarding capital levels. But that is not RBS’s fault,” said one source.

RBS refused to confirm if the deal had had a “break clause” which are written into protect vendor companies from being damaged if a buyer walks away.

After spending two years and millions of pounds preparing the branches for the sale to Santander, RBS is now facing the prospect of starting the process again. The bank insisted that the work had not been wasted but would be ready to use for fresh bidders.

UBS, the bank which advised on the original deal in 2010, is expected to be re-appointed to attract other bidders. Among them are expected to be Sir Richard Branson’s Virgin Money, and JC Flowers, the US private equity investor. However, analysts said that this time the deal was likely to attract more than between £650m and £800m.

RBS’s chief executive Stephen Hester has said that the bank may need to apply for more time from Brussels which has set a deadline for the disposal of the branches by the end of 2013. The disposal and the timetable was set as part of the penalities RBS had to pay for its £45bn bail-out under European Union state-aid rules.

Antoine Colombani, spokeman for Joaquin Almunia, the EU Competition Commissioner, told The Daily Telegraph that Brussels had “not received any request for an extension to the restructuring agreement.” But he said that any such request would incur more penalities for RBS.

He told reporters:“Since the beginning of the crisis, amendments made to bank restructuring plans were accepted by the Commission only on the strict condition that compensatory measures were put in place to preserve the original balance of these plans.

“This specific divestment that RBS was supposed to make, and which we accepted as a commitment submitted by the bank and the UK authorities, was meant to preserve competition in the UK market. This need to compensate for the distortions to competition created by the State Aid is still valid today.”