Williams & Glyn, a bank brand that has been dormant for nearly 30 years, will soon return to the UK high street under a deal signed today by The Royal Bank of Scotland Group Plc.
27 Sep 2013
RBS Group (RBSG) has agreed a £600m pre-IPO investment in its Williams & Glyn business (formerly known as "Project Rainbow") - which centres around 314 branches in the UK - with a consortium of investors led by global financial services specialists Corsair Capital and Centerbridge Partners.
In addition to Corsair and Centerbridge, the consortium includes the Church Commissioners for England and RIT Capital Partners plc (together, the "Investors").
RBSG Chairman Sir Philip Hampton said: "We are delighted to be working in partnership with these investors to establish a new challenger bank for UK customers. Williams & Glyn will play an important role in the UK banking landscape and will be an excellent new addition to the market, with a particular strength in small business banking - a sector that is so crucial to the UK's economic recovery. Much has been done already in building the standalone business, and today's announcement provides more certainty for our customers and employees ahead of a flotation."
RBS Group Finance Director Bruce Van Saun said: "This deal concludes what has been a very competitive process, with several highly credible bidders. We believe this transaction demonstrates that Williams & Glyn is a viable and attractive business which will be positioned as a strong, customer-focused challenger bank."
As a condition of the State Aid received by RBSG, the group was required to divest 308 RBS branches in England and Wales and 6 NatWest branches in Scotland, with the associated retail and SME customers, direct SME customers and a portfolio of mid-corporate customers. The business serves nearly 1.7 million customers, currently employs around 4,500 people and in the future will employ approximately 6,000 people. It has a broad national footprint and a £19.7 billion loan book, funded by £22.2 billion in customer deposits.
RBSG will work with HMT and the European Commission to agree an extension to the timetable for the disposal of Williams & Glyn in due course.
Following completion of the operational and legal separation of the business into a standalone bank to be branded Williams & Glyn, an exercise that is already well underway, RBSG will pursue an Initial Public Offering ("IPO"). The pre-IPO investment announced today takes the form of a £600m bond to be issued by RBSG, which will be exchangeable for a significant minority interest in Williams & Glyn at the time of its IPO. The bond will convert into Williams & Glyn shares at the IPO price, subject to a minimum ownership level which will be linked to the tangible book value of Williams & Glyn prior to the IPO, and in any case no more than a stake of 49%. To the extent the maximum ownership level is reached, the bond will be partially redeemed in cash such that the Investors will receive a total value of £600m of cash and shares at the IPO price. At the IPO, subject to RBSG's consent, the Investors will have the option to acquire up to 10 per cent additionally at the IPO price, subject to their pro forma ownership being no more than 49 per cent in aggregate.
The subscription for the bond will be satisfied by way of a cash payment from the Investors. RBSG's Markets division is providing a £270m secured financing package to the Investors for the investment.
This transaction underscores the attractiveness of the new Williams & Glyn as an investment and provides meaningful benefits for RBSG. These include the opportunity to accelerate the timetable for divestment, the ability to benefit from the continued strong performance of Williams & Glyn as well as the improving UK macro and banking environment, and the significant operational and management expertise brought by its new partners, who will be long term investors in the business.
The investment brings a number of high calibre additions to the Williams & Glyn management team, including John Maltby as chief executive designate, and Philip N. Green, Mervyn Davies and Lance West as future directors.
John Maltby brings significant experience of UK retail and commercial banking, most recently as head of Commercial Banking at Lloyds Banking Group. Philip N. Green will join the new Williams & Glyn board, transitioning to Chairman prior to IPO. He brings extensive public company experience including as CEO of United Utilities, non-executive director of Lloyds Banking Group, and an advisor on corporate responsibility to the UK Prime Minister. Mervyn Davies and Lance West between them have a wealth of financial services and public listed company experience in both the UK and the US.
Mervyn Davies, Vice Chairman of Corsair Capital said: "We are delighted to have been selected by RBSG. The Consortium views this as an opportunity to create a genuine challenger bank, which will be a vibrant, healthy competitive force in UK banking and a new financial services provider to the UK public and small and medium sized businesses. There is a great history in the Williams & Glyn brand and the business has an opportunity to be at the forefront of the UK banking industry whilst making an active contribution to the community from its strong regional network."
Lance West, CEO of Centerbridge Partners Europe LLP, said: "We have built the foundations of a strong partnership with RBSG, and are thrilled to continue working together to deliver this new bank."
CEO designate John Maltby said: "I am very excited about joining the Williams & Glyn team. Williams & Glyn will have unique advantages. It will combine the heritage of an established bank, a strong national customer franchise and an experienced and committed team with the agility, motivation and growth opportunities of a challenger. Williams & Glyn will commit to the highest standards of banking ethics and business conduct while providing increased customer choice in the UK Banking market."
The Williams & Glyn business had total assets of £19.7 billion, customer deposits of £22.2 billion and risk-weighted assets of £13.3 billion, as at 30 June 2013. It generated an operating profit of £168 million during the first half of 2013, providing a post-tax return on period end notional equity of c. 16%. The transaction is expected to be marginally dilutive to RBSG's earnings and capital in the period through to the IPO.