Royal Bank of Scotland is to sell its European consumer finance business to Santander of Spain as it seeks to bolster its weakened capital position after last year's purchase of ABN Amro.
The consumer business has €2.2bn (£1.7bn) of assets and 2.3 million customers in Germany, the Netherlands, Belgium and Austria. RBS and Santander did not reveal the sale price, but analysts said RBS probably got about €350m.
RBS and Santander joined with Fortis of Belgium to buy ABN Amro for €71bn last year in the world's biggest financial services deal. The deal left RBS's core tier one capital depleted, causing speculation that the bank might be forced to go to investors in a rights issue.
Sir Fred Goodwin, RBS's chief executive, has said he will consider selling assets to rebuild capital, but insists he does not need to do so.
RBS said it decided to sell the business to Santander because the UK bank was concentrating on wholesale banking in Europe. The consumer finance division funds instalment loans sold under other companies' brands and sells credit cards and point-of-sale consumer finance.
RBS has already sold some assets to help fund the ABN deal, including Southern Water, on which it made a £950m profit last year, and about £1bn of property. ABN assets that could be sold include the Dutch bank's Australasian business and a 40 per cent share in Saudi Holland Bank, which could fetch up to £800m.
The biggest potential disposal is Angel Trains, which has been up for sale for as much as £4bn. Lack of news on Angel Trains has increased concerns in recent weeks that RBS might need to go to shareholders for capital. Sir Fred has said that RBS's regulators are comfortable with the bank's capital position and that profit generation will rebuild the safety buffer.
The consumer finance deal sees RBS working again with its long-time ally Santander. The two companies formed an alliance in 1989 that included cross-shareholdings and board membership and lasted 15 years. Santander lent financial support to RBS when it bought NatWest in 2000 in the transformational deal that turned the Scottish lender into a major international bank. The alliance ended when Santander bought Abbey National in 2004, but the banks retain close links.
RBS shares rose 0.5 per cent to 370p. They have fallen 17 per cent this year.