LONDON Santander (SAN.MC) is considering making a 2 billion pound ($3.2 billion) bid for National Australia Bank's (NAB.AX) UK business to accelerate its British expansion, the Sunday Times reported citing unnamed sources.
The British newspaper said executives in London and Madrid have been looking at a deal since the collapse of talks to buy a network of 316 branches from Royal Bank of Scotland (RBS.L) last October.
Santander declined to comment on the report. A spokesman for its British business said the bank was expanding organically.
NAB scrapped plans to sell 337 Clydesdale and Yorkshire bank branches last April, having struggled to attract a buyer, and instead announced plans to shrink the business, cutting 1,400 jobs.
NAB's Chief Executive Cameron Clyne has come under pressure from shareholders to sell the loss-making business, which has been hit by rising bad debt charges in its real estate portfolio. However, he has maintained that he will not resort to a "fire sale" of the assets.
The Spanish bank is keen to bulk up its British arm ahead of a planned listing of the business in London. The Clydesdale and Yorkshire banks may be an attractive target because of their strong position in small to medium enterprise lending, where Santander is keen to expand.
Santander UK could afford the acquisition, having saved $2.7 billion from the collapse of the RBS deal. Santander pumped 4.5 billion of equity capital into its UK business in August 2010 to fund growth.
In an interview with the Sunday Times, Santander UK's Chief Executive Ana Botin said the planned IPO of Santander UK - which could value the business at about 10 billion pounds - may be launched with months.
However, she cautioned the bank would require more clarity on Britain's proposals to make banks ring-fence their retail banking operations form their investment banking activities.
($1 = 0.6304 British pounds)
(Reporting by Matt Scuffham; Editing by Louise Heavens)