Spanish banking giant Santander has pulled out of a deal to buy 316 UK branches from the Royal Bank of Scotland (RBS), blaming IT integration problems.
RBS was ordered to sell off some of its UK branch-based businesses by the European Commission in 2009, as a condition of its multi-billion pound government bailout at the height of the financial crisis.
The businesses include the RBS branch business in England and Wales, and the NatWest branch business in Scotland, along with certain SME and corporate activities across the UK.
Santander agreed to the buy the branches in August 2010. System integration was originally scheduled to complete by the end of 2011, but was later extended to Q4 2012.
It is now clear that the revised deadline will not be met, and Santander is not willing to agree a further extension. The bank has therefore notified RBS of its intention to pull out of the purchase.
"Our guiding principle throughout this transaction has been a seamless journey for customers - which requires the business to be delivered to Santander UK by RBS in a steady state," said Santander UK CEO, Ana Botin
"We have concluded that given delays it is not possible to complete this within a reasonable timeframe."
Steve Pateman, head of Santander UK's high street banking operation, told The Guardian that IT integration costs were to blame, claiming that consultants at Accenture predicted it would take until 2016 to complete the integration of the banks.
Santander has considerable experience of integrating and re-platforming UK banking operations - bringing Abbey, Alliance & Leicester and Bradford & Bingley onto its Partenon platform in 2009 and claiming significant cost savings in the process.
However, a spokesman for RBS said that IT challenges could "always be overcome", hinting at other reasons for Santander's decision.
"Much of the heavy lifting associated with a transfer has already been completed, including separating data for 1.8 million customers and putting in place a standalone management team," said RBS Group Chief Executive Stephen Hester in a statement.
"It is of course disappointing that Santander decided to pull out of this transaction. However, RBS's strong progress in our restructuring plans means we can continue to provide a stable home for this business and its customers pending a further resolution."
Richard Branson's Virgin Money has emerged as a possible buyer for the branches. Virgin was one of the initial bidders for the network but lost out to Santander and has since acquired the Northern Rock network.
Commenting on the news, Mikko Soirola, from IT integration specialist Liaison Technologies, said that integrating legacy systems can be a brutal task for even the most adept IT organisation, so walking away from the RBS deal might have been the right decision for Santander.
"Successful integration is also in the eye of the beholder - and RBS could have, and should have, ensured that its IT assets were implemented in ways that were more open to integration and change, which would have been to the benefit of both the seller and its shareholders," he said.
"For any other potential suitor, the now very public issue on integration has had the added effect of substantially marking down the multi-billion dollar price tag that such a deal was originally deemed worth."