Virgin launches bid to oust favourites in RBS battle

But Sir Richard faces a hard fight against front-runners NAB and Santander

Virgin Money yesterday launched its bid to wrest more than 300 Royal Bank of Scotland branches from front-runner Banco Santander.

Sir Richard Branson's banking operation confirmed it had attracted £100m of investment from the US tycoon Wilbur Ross, who has indicated that he could be prepared to put up as much as £500m to back deals and will have a 21 per cent stake in Virgin Money.

The announcement came as the company became one of five to submit bids for the branches ahead of yesterday's 5pm deadline. The business is expected to fetch between £1bn and £2bn, although the price will not be finalised until a shortlist of bidders has had the chance to conduct due diligence.

One source said yesterday: "This is a forced sale and you'd expect that there will be a certain amount of junk in there as a result. We haven't had the chance to conduct due diligence yet and it won't be until we have completed it that we know how much mucky stuff there is."

Virgin is understood to have stressed that it will not overpay for the business – which would be Britain's sixth biggest bank if it traded on a standalone basis – and will seek to enhance its chances by pledging no redundancies or branch closures.

The eventual buyer will immediately snatch about 5 per cent of each of Britain's small-business and mid-sized corporate banking markets, areas Santander has targeted after already building a strong franchise in retail banking through its ownership of Abbey National, Alliance & Leicester and the deposit business of Bradford & Bingley. The RBS branches have about 1.8 million retail customers, or 2 per cent of the market. The business has about £24bn in loans and £22.5bn of deposits, with 6,000 staff. Virgin's no redundancies pledge makes its bid politically attractive. However, the separation of the branches from RBS is set to be a highly complex process and Santander and National Australia Bank, which both submitted proposals of their own before the deadline, could almost certainly pay more because they could extract cost synergies following any deal as a result of having their own network of branches in place.

They are also the only bidders with substantial UK banking infrastructure – such as risk, human resources and audit functions – already available. Rivals including Virgin, Spanish bank BBVA and private equity firm JC Flowers, both of which also submitted proposals yesterday, will probably have to buy these in on a service-contract basis from RBS, at least initially.

A deal is unlikely to be finalised before the general election, owing to the complexity of the deal on offer and the need to secure approval from UKFI, the government body set up to oversee the state's massive investment in the banking industry.

Speaking of Mr Ross' investment, Sir Richard said: "I am delighted that WL Ross has decided to invest and partner in our vision for a new way of banking. Our ambition is to make everyone better off through good value and transparent products backed by a great customer experience."

Mr Ross said: "We are impressed with Virgin Money's well-deserved reputation with UK customers and with its growth strategy. We look forward to supplying substantial additional capital to support Virgin's acquisition programme." Even if Virgin fails in its bid for RBS, it still has numerous targets to pursue, including assets from Lloyds Banking Group, Allied Irish Banks and the "good bank" created by the split into two of Northern Rock.

RBS has also set a deadline of today for bidders for its payment-processing arm, WorldPay, which is expected to fetch up to £3 bn.

America's Bankruptcy King: The man Sir Richard's snagged to back his banking venture

The financial world loves its nicknames so when Fortune magazine dubbed Wilbur Ross "the King of Bankruptcy" the moniker stuck. The turnaround specialist – and former advisor to President Clinton – is said to have been involved in the restructuring of more than $200bn of assets and in 1999 was awarded a medal by Korean President Kim Dae-jung for his help during that nation's 1998 financial crisis. He was also appointed by former New York mayor Rudy Giuliani to be his privatisation advisor.

Mr Ross started his career at Rothschild's in 1976 and swiftly established a reputation as a bankruptcy specialist. His work included clearing up the disaster of Michael Milken's junk bond financing, a scandal that came to epitomise what was seen as Wall Street's greed in the 1980s. However, he is perhaps best-known for selling the International Steel Group for $4.9bn (£3.2bn) to Mittal Steel in 2004, a deal that created the biggest steel company in the world.

After running a private equity fund at Rothschild, he left to start WL Ross & Co in 2000, which specialised in shaking up the management of businesses and cleaning up their balance sheets before selling them on. The operation has bought and turned around companies in a diverse range of industries, including steel, textiles, telecoms, coal and auto parts. Globally his main interests have been in the US and Asia, although he first expressed an interest in getting involved in the post-crisis reorganisation of the world's banking industry in 2008. Then he predicted more than 1,000 branch closures in America and the opportunity to pick up attractive assets cheaply.

Mr Ross, 72, is well known in US political and regulatory circles and his company is one of those that was selected by the US Treasury to invest in troubled assets offloaded by America's band of beaten up banks alongside the federal Government. His firm runs about $3bn in seven private equity funds and two hedge funds and his choice of Virgin as a way of entering Britain's troubled banking industry is something of a coup for Sir Richard.