SCH 'discussed' Abbey outsourcing with RBS

Royal Bank of Scotland will not take over the day-to-day running of Abbey National mortgages should Banco Santander's bid for the country's second-biggest lender be successful.

Royal Bank of Scotland will not take over the day-to-day running of Abbey National mortgages should Banco Santander's bid for the country's second-biggest lender be successful.

Santander, which has tabled an agreed bid worth more than £8bn for Abbey, considered whether to use RBS's back-office during initial takeover talks earlier this year. But the idea was dropped after it emerged that any such arrangement was likely to spark a lengthy competition inquiry which the Spanish bank is desperate to sidestep.

Such an inquiry would leave Abbey in limbo over the autumn and could damage its business.

A source close to the deal said: "During the first round of talks in March, Santander was looking at using RBS's back office. But when talks resumed in July, it was no longer under consideration. This is not going to suddenly crop up. It's not an option."

Santander and RBS have close ties. Each holds a stake in the other and has directors on the other's board. The Spaniards even part-bankrolled RBS's takeover of NatWest in 2000.

The deep relationship between the two has fuelled speculation that Santander is cooking up an outsourcing deal with the Scots. On paper that makes sense. Santander could keep the Abbey name but slash back-office costs, while RBS would benefit from a huge slice of third-party revenue that such a deal would bring.

But Santander is trumpeting Spanish know-how in banking technology as one of the main reasons why Abbey shareholders should back its offer.

Abbey uses no fewer than 11 computer systems and 454 software programmes. And Santander boasts that by ditching this antiquated set-up in favour of its own state-of-the-art technology, it can slash costs by €450m (£300m) in three to four years, and improve sales.

Analysts at Citibank have reviewed the plan and are less optimistic. They put likely savings at around €315m.

The Spaniards reject suggestions by Citibank that the planned technology revolution is likely to see 8,000 Abbey jobs axed. A spokesman for Santander said: "Speculation that redundancies in the order of 8,000 are needed to achieve the stated cost savings are clearly exaggerated, given the lack of branch overlap."

The Spanish offer is the only firm bid on the table, but HBOS is widely expected to throw its hat into the ring next month after Santander makes public its offer document. Abbey shares edged 2.5p higher to 583.5p.