Royal Bank of Scotland could make a decision on the sale of its 315-branch Project Rainbow business this week amid reports one of the three bidders for the unit has had its offer rejected.
W&G Investments denied a BBC report it had lost out in the three-way battle for the small business-focused lender being sold by RBS and said it was still in the running to buy the operation, according to the Daily Telegraph.
"We remain in constructive discussions with RBS," said a spokesman for W&G Investments, which is offering £1.1bn for the Rainbow business.
However, two banking industry sources said W&G's offer had been rejected by RBS and that it was now weighing up the two remaining bids for the business.
A spokesman for RBS declined to comment to the Telegraph.
Andy Higginson, the former finance director of Tesco, is heading W&G's bid whose backers include some of the UK's largest fund managers, such as Schroders, Threadneedle and Jupiter.
Two private equity consortiums have made rival offers for the branches. Unlike W&G's bid to buy the business outright, the private equity firms have come up with broadly similar offer structures that will allow RBS to retain a substantial stake in the unit.
US buyout firms Corsair Capital and Centerbridge and rival private equity firms AnaCap and Blackstone have submitted plans that will see RBS retain as much as a 49% stake in Rainbow giving it the benefit of any upside should the business be listed on the stock market.
W&G had countered that its offer was the only one to offer RBS an outright sale of the business, as well as all the proceeds upfront.
RBS itself could opt to reject all the bids and go ahead with its own initial public offering of the branches if it decides this is most likely to maximise the value to its shareholders, including the state which owns 81pc of the lender.
The sale has been forced on the bank by the European Commission as a condition of its October 2008 taxpayer bailout that eventually cost the state £45.5bn.
Under the terms of a state-aid agreement with Brussels, RBS must sell the branches by the end of the year. Treasury officials are negotiating on behalf of RBS for an extension to allow it more time to sell the business.
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