Treasury drafts in advisers as RBS branch sale hits crisis point

The Treasury is lining up bankers to steer it through the latest crisis to engulf Royal Bank of Scotland (LSE: RBS.L - news) 's efforts to offload a network of 300 branches, underlining Government officials' frustration with the six-year disposal process.

Sky News has learnt that the Treasury is drafting in an independent investment bank - thought to be Rothschild - to help examine alternatives to a conventional sale of the business.

RBS has been trying to sell the unit since 2010, but the bank's chief executive, Ross McEwan, told investors this week that it may fail to do so by the end of this year, putting the state-backed lender in what he called "uncharted territory".

The disposal of the network was part of a package agreed between the Treasury and the European Commission in 2009 in exchange for the £45.5bn in state aid that RBS received during the banking crisis.

The Treasury is responsible for negotiating with Brussels if the terms of the state aid deal are not met, and Whitehall sources said on Wednesday that officials wanted "an extra pair of eyes" to help scrutinise possible alternatives to a sale.

A Treasury spokesman declined to comment on the appointment of bankers, and it was unclear whether a formal contract had been agreed with Rothschild or another firm.

It is likely that the new advisers would work with both Treasury officials and UK Financial Investments, which is now part of UK Government Investments, an agency which sits within the finance ministry.

The RBS unit was intended to be rebranded under the name Williams & Glyn (W&G), once a familiar name in the UK banking sector.

It has about 2m retail and business customers, and would be Britain's seventh-biggest bank if viewed on an independent basis.

A proposal to spin W&G off as a standalone business with its own stock market listing was jettisoned during the summer, with IT challenges and its sub-scale presence persuading Mr McEwan that it would be too difficult to achieve.

Santander UK (LSE: 44RS.L - news) subsequently approached RBS with an offer to acquire the assets due to be included in the W&G sale, but reports last week said the two banks were unable to agree a price.

Sky News revealed last month that CYBG (Frankfurt: 42YA.F - news) , the owner of the Clydesdale and Yorkshire banks, was also preparing a bid.

However, the appointment of separate advisers by the Treasury suggests that there is now little confidence within Government that RBS can meet the terms of the original state aid agreement.

The separation project has already cost RBS at least £1.5bn, but the alternatives to a sale of the W&G assets have not been disclosed and are unclear.

An earlier deal to sell the division to Santander UK fell apart in 2012 when the Spanish-owned lender walked away in frustration at RBS's struggle to create robust IT systems.

While the more recent transaction envisaged by RBS is less complex, it still faces significant technological challenges, with customers having to be migrated onto any acquirer's platforms.

That would entail changing the sort codes and account numbers of hundreds of thousands of customers' current accounts.

RBS is required to complete the disposal of what would have become W&G by the end of next year under the terms of a state aid agreement struck between the Government and European Commission in 2009.

Failure to comply could lead to a heavy fine, with the UK certain to still be a member of the European Union at the point that the deadline expires.

RBS, which is being advised on the W&G process by Bank of America Merrill Lynch and Robey Warshaw, also declined to comment.