THE leadership of taxpayer-owned Royal Bank of Scotland has been condemned for failing to offload 300 branches to satisfy European state-aid rules, as the associated costs spiral towards £2.55 billion.

One senior source familiar with the project claimed the bank’s moves to establish the Williams & Glyn branches as a standalone bank were doomed from the start, claiming there was “never a viable bank business strategy”.

The criticism comes after the Edinburgh-based lender disclosed that the Treasury has submitted proposals to Brussels that would prevent the bank from having to sell the Williams & Glyn branch network – a condition of the bank’s £45bn bailout by the UK Government at the height of the financial crisis.

Read more: Herald View - RBS challenged on £2.55bn project that yielded nothing

Those proposals would see Royal Bank of Scotland (RBS), led by Ross McEwan, spend £750 million on measures to boost competition for the UK banking sector.

This would come on top of the £1.8bn already spent on the failed bid to hive off the 300 branches as a separate and independent bank.

It means a total of £2.55bn will have been spent on the Williams & Glyn project – if the Treasury’s proposals are accepted by the European Commission.

The latest costs associated with the venture will heap further pressure on the RBS management, who are expected to report a ninth consecutive loss when its latest annual results are announced on Friday.

The source said: “They [the board] will go on paper and say they couldn’t deliver the programme because of market changes [and that] the economic climate meant it wasn’t a viable bank.

“Since day one there was never a viable bank business strategy.

Read more: Herald View - RBS challenged on £2.55bn project that yielded nothing

“They had a couple of strategy houses [firms] in to try and develop a strategy but they never managed to pull one out of the bag that would make the bank stand up.”

Nicholas Hyett, equity analyst at stockbroker Hargreaves Lansdown, said yesterday: “RBS has been trying to divorce its Williams & Glyn division for years.

“News that it may now be allowed to keep the business in return for paying ‘dowries’ to rival challenger banks means the years of toil and billions spent have achieved almost nothing.

“However, it’s a mark of how hard things have been for the bank that despite a tough alternative agreement (costing the bank £750m today with more costs likely in the future), the shares are still up 6.4 per cent this morning as investors breathe a sigh of relief.

“The new agreement should at least be achievable.”

From 2010 RBS racked up hundreds of millions of annual costs on a project to clone its own banking platform and float Williams & Glyn on the stock market as an independent challenger bank.

It is understood that up to 6,000 staff were detailed to work on the project, the bulk of whom were outside contractors. As many as 300 individual contracts were handed to third-party agencies.

The source said the bank had always struggled to make Williams & Glyn viable as a standalone bank, citing the high cost of factors such as risk functions and technology.

“My view is that, number one, it wasn’t viable from a commercial perspective [and] number two, the programme was too difficult, too complex,” the source said.

“And RBS don’t have the change capability.”

Mr McEwan, chief executive of Royal Bank, said the latest proposals “would provide a path to increased competition in the SME market place.”

He said: “If agreed it would deliver an outcome on our EC State Aid divestment obligations more quickly and with more certainty than undertaking a difficult and complex sale and would provide much needed certainty for customers and staff.”

Read more: Herald View - RBS challenged on £2.55bn project that yielded nothing

Crisis-torn RBS was ordered to offload the branches as a condition of its £45bn bailout to prevent its collapse in the banking crisis of 2008/09.

The edict was aimed at boosting competition in the UK banking sector following the crash, which led to both RBS and Lloyds Banking Group receiving state cash to stay afloat.

In August the bank abandoned the standalone option, citing concern over the “risks and costs”, as well as the complexity of the project, and signalled its intention to pursue a trade sale of the branches.

Asked whether the bank could have brought in the expertise needed to handle the change, the source replied: “They could have, but it comes from the top down.

“[One school of thought] is the leadership team, from the board down, isn’t there to take the bank forward.”

Despite interest from Santander and CYBG, owner of Glasgow-based Clydesdale Bank, Royal Bank failed to find a buyer for the Williams & Glyn branches.

Having failed to sell the branches, Treasury officials tabled an alternative deal to Brussels. That would see the bank spend hundreds of millions of pounds on a range of measures to boost competition in the market, in return for keeping the branches.

Royal Bank confirmed the bid to sell the Williams & Glyn network has cost £1.8bn and warned it would incur further costs as a result of reintegrating the branches back into its core banking business.

The £1.8bn figure does not include the £750m the bank is proposing to spend on the measures proposed to the European Commission.

With the lender 72 per cent owned by taxpayers, and expected to post losses up of £7bn when it posts its latest annual results on Friday, it came in for heavy criticism for its handling of the project.

The source also expressed surprise a buyer was not found for the branches, declaring Clydesdale had been “desperate” to buy the branches.

But the holding company for Clydesdale, CYBG plc, said in a statement that it was now ruling out any bid for the Williams & Glyn branches.

It said: “Further to CYBG plc’s announcement on  October 25 2016 and RBS Group plc’s announcement on February 17 2017, the company has notified RBS that it has withdrawn its preliminary non-binding proposal for, and ceased discussions relating to, the Williams & Glyn operations. 

“CYBG’s medium term performance targets are wholly based on the organic business strategy...

“Building on progress made since the demerger and IPO, CYBG continues to focus on and deliver against its strategy of sustainable customer growth, efficiency and capital optimisation...

“As previously stated, the Board will continue to evaluate potential inorganic opportunities to enhance its business in line with the company’s objectives.

Shares in Royal Bank rose by 16.5 per cent yesterday to 258.9p.