City traders were bracing for Royal Bank of Scotland's shares to fall sharply when they open for trading this morning for the first time since the collapse of its proposed £1.7bn sale of 316 branches to Santander.
The Spanish banking giant unexpectedly pulled out of the purchase on Friday evening, with Santander UK chief executive Ana Botin breaking the news to her RBS counterpart Stephen Hester.
Cormac Leech, analyst at broker Liberum Capital, said: "I expect the market to overreact and RBS to decline 3 per cent to 4 per cent on Monday." Mr Hester faces a major headache about what to do with the 316 branches, which must be sold on the orders of the European Commission, following the UK government's bailout of RBS in 2008.
Analysts fear that RBS will struggle to get a similar price to that agreed by Santander, with reports suggesting the branches could be worth as little as £650m. RBS shares have risen more than 25 per cent since July. The bank, which is 83 per cent-owned by taxpayers, appeared to be turning a corner with this week's float of Direct Line in an initial public offering that values the insurance subsidiary at £2.7bn.
Sources close to RBS said Mr Hester is focused for now on finding a new buyer for the 316 branches, and the bank has received two approaches.
Sir Richard Branson's Virgin Money, which already owns 75 former Northern Rock branches, has signalled it is looking at the RBS branches. NBNK, an investment vehicle set up by Lord Levene, and private-equity groups JC Flowers and Blackstone have also been mooted as buyers.
RBS could consider a stock-market float of the 316 branches, or keeping them in their present ownership.Chairman Sir Philip Hampton said at the weekend that the banking market was more competitive than in the immediate wake of the credit crunch, and regulators could be "a lot more flexible" if RBS did want to hold on to the branches.
Mr Hester has said another option could be to spin off the branches through an initial public offering, but observers suggested that could be fraught with problems. RBS needs to focus on selling all its shares in Direct Line by a 2014 deadline, and may be worried about trying to tap the markets in a second float.
An RBS spokesman did not comment on the size of any break fee that Santander may have had to pay to exit the aborted sale, which was first agreed in August 2010 and was quite far advanced.