Branson's bank branch bid

Virgin Money, founded by the entrepreneur, has its eye on 316 RBS branches

Richard Branson's Virgin Money could be set to quadruple its high street presence by buying 316 branches from RBS at a knock-down price.

RBS, which is obliged to sell the branches as a penalty for its £45 billion bailout during the financial crisis, was in the final stages of off-loading the branches and associated customers when its previous potential buyer Santander abruptly pulled out of the deal.

The branches must be sold by the end of 2013 as part of the European Commission's efforts to increase competition in the UK banking sector, but with Santander pulling out at such a late stage, it seems unlikely that a deal will be closed in time.

Though it cited frustration at the technical difficulties involved in integrating RBS's famously antiquated IT systems, there is speculation that Santander simply got cold feet. Although no official announcements have been made, there is rumour that RBS made "informal contact" with Virgin Money, which could get the branches at a knock-down price due to the hurried circumstances.

The branches were originally going to be sold for £1.65 billion, but Virgin Money and private equity group JC Flowers, another frontrunning bidder, are thought to be negotiating around the £650 million mark. The sale would be an excellent result for Virgin Money, which had originally chased RBS in 2010, but lost out to Santander.

Virgin Money has had a limited high-street banking presence since it bought 75 Northern Rock branches earlier this year, and boasts a portfolio of around four million savings and mortgages customers, though only some 100,000 current account holders - a number which will swell dramatically should the deal go through.

It's been blasted from some quarters as classic opportunism by Branson, who could be said to be using the impending deadline to relieve RBS, which is 82 per cent government-owned, of valuable assets at a knockdown price. In the wake of the Northern Rock deal the National Audit Office estimated that the acquisition cost the taxpayer between £175 million and £289 million, and RBS values the 316 branches at around twice what Virgin Money is said to be offering.

The European Commission has insisted that the branches be sold by the end of 2013 - and has previously taken a hard line on enforcing penalty measures such as these. However, it has been suggested that the regulatory body may relent in this case, having recently gone softly on other European banks, including Germany's Commerzbank and Belgium's KBC, which were also subject to penalties for taking state aid.

RBS Chief Executive Stephen Hester seems to be hoping for more time and recently said that he was confident that the deadline would be extended, allowing more time to find a buyer. The branches hold between them around 5 per cent of the UK market for SMEs (small and medium enterprises), and though Virgin Money would remain a long way off the size of other high street giants, the 316 RBS branches would provide them with a valuable foothold from which to expand.