Santander pulls out of £1.65bn deal to buy 300 RBS branches ROYAL Bank of Scotland was last night forced to re-think its plans to sell more than 300 branches after Spanish giant Santander pulled out of the £1.65 billion deal. Santander UK had agreed to buy the branches and small business division, which have 1.8 million customers, in August 2010. But it was said to have issues over the IT system. RBS has argued that it has made significant progress in carving out the branches as a standalone business. RBS was forced to sell the 311 branches in England and Wales, and five NatWest branches in Scotland, as part of a condition imposed by the European Commission for accepting taxpayers" support in 2009. Santander's decision has thrown the whole sale process into doubt, with a deadline to offload the branches set for the end of next year. With Santander emerging as one of the few credible and interested buyers, there will be questions over the prospect of others coming back for a second round of bids. Potential new bidders include Commerzbank. The Scotsman understands that RBS will go back to the European Commission to seek advice on what should now happen and it may request an extension to the deadline. RBS chief executive Stephen Hester admitted at the half-year results in August that there had been "technical issues" with the sale to Santander following speculation that the Spaniards wanted to renegotiate the price. He had not wanted to sell the branches, which make a substantial contribution to group earnings. It had operating profits of £186 million in the first half, supported by good customer deposits, contributing 3 per cent to core RBS income. The business includes 40 banking centres aimed at small and medium sized businesses, 3 per cent of total UK SME business. It is understood that testing of the IT systems was due to begin on 1 November following two years of separating customer accounts. In a statement RBS said it was "determined that the decision will have no impact on the service available to customers and will continue to work to fulfil its obligations to the European Commission." Hester said: "I can assure customers that there will be no disruption to the service they receive. It is business as usual in all of these branches, and customers don't need to take any action. 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. It is of course disappointing that Santander decided to pull out, especially for the customers and staff involved. RBS will commence a new process of disposal and will provide a further update on this in due course. More than 98 per cent of the customers have been moved to new sort codes and account numbers and staff have been moved to separate buildings, with new debit and credit cards issued to all customers. Separate internet banking channels have been created and a dedicated call centre set up with separate phone numbers for customers.