Spanish lender Santander on Friday pulled out of a £1.65 billion ($2.65 billion, 2.05 billion euro) deal to buy 316 branches from Royal Bank of Scotland, in a blow to the state-rescued British bank. Santander said it was withdrawing because it did not believe the banks could meet a deadline of February 2013, extended from the end of 2011, to complete the sale ordered by the European Commission in 2010 after RBS\'s state bailout. \"It is now apparent that this revised target will not be achieved,\" a Santander statement said. \"Santander ... is not willing to agree a further extension to that deadline. In that case, the agreement will automatically terminate in accordance with its terms and the transfer of the business to Santander UK will not take place.\" Chief executive Ana Botin added that she did not believe the business could be tranferred in a \"steady state\" within a \"reasonable timeframe\". The collapse of the deal, which was to include RBS-branded branches in England and Wales plus NatWest branches in Scotland, leaves troubled RBS searching for a new buyer and millions of customers uncertain of their accounts\' future. RBS said that 1.8 million retail customers were involved, while media reports said the deal included accounts of hundreds of thousands of small and medium-sized businesses. The price could have been adjusted on completion. The bank was required to reduce its branch network as part of European Commission penalties after it received a £45.5-billion bailout amid the financial crisis. It faces a deadline of the end of 2013 to complete a sale. RBS said it would \"continue to work to fulfil its obligations to the European Commission\", while chief executive Stephen Hester called the deal\'s collapse \"disappointing, especially for the customers and staff involved\". \"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,\" he added in a statement. \"RBS\'s strong progress in our restructuring plans means we can continue to provide a stable home for this business and its customers pending a further resolution.\" The bank, which remains 81-percent owned by the British taxpayer, is also awaiting news of its fine for manipulation of the Libor interest rate after fellow lender Barclays was fined $450 million in the rate-rigging scandal. RBS admitted in July it was implicated in manipulation of rates crucial to the operation of short-term financing and global markets, the subject of an international investigation. The collapse of the Santander deal came a day after RBS lauched a partial flotation of its insurance subsidiary Direct Line Group on the London stock market ahead of a full sale of the unit by the end of 2014. RBS raised at least £787 million ($1.261 billion, 978 million euros) from the sale of around a third of Direct Line in an initial public offering (IPO). The sale of Direct Line, which specialises in motor and home insurance, was also ordered by the European Commission following RBS\'s bailout.