Banking on a future

0 Comments | Sunday Herald, The, Oct 3, 1999 | by Ian Fraser

The important question facing Sir George is whether his management team can put a tighter squeeze on costs through merging with NatWest than the boys on the Mound. Some analysts believe it is possible, owing to a greater overlap between Royal Bank's branch 'footprint' and NatWest's.

While the Royal Bank has 300 branches south of the Border, NatWest has 1700 and the Bank of Scotland has only two or three. The downside however is the St Andrew Square team would be more likely to face a gruelling competition commission inquiry.

A takeover by the Royal Bank of Scotland also inspires greater trepidation among NatWest staff. The combined financial services union, Unifi, has warned that there will be "carnage on the high street" if Royal Bank makes a successful counter-bid - with perhaps 30,000 bank staff losing their jobs.

If Sir George does proceed with a bid, it will be supported the Spanish banking giant BSCH, which has a 9.89% stake in the Royal Bank. On condition of anonymity, a source at BSCH said: "RBS is one of our strategic partners and anything that its management proposes will have our full support."

There is some doubt, however, whether Sir George will mount a counter bid after all. Fund managers were unaware of the Royal Bank having sounded out the investment community's interest in a rival bid, though it has made its interest sufficiently apparent for the Takeover Panel to formally add its name to the list of potential bidders for NatWest. "They are likely to be involved at some stage of the consolidation, whether as a predator or a prey," said one fund manager.

But David Erskine, investment director of Standard Life, said: "It is probable that they will (counter bid). It depends what they believe they can extract in synergies and cost savings." He does not accept, however, that a fully-fledged bidding war between the two Scottish banks would be damaging to either.

"NatWest knows the game is up," said Robert Mackenzie, a banking analyst at WestLB Panmure. "They'd do anything to save their backs."

AT the very least, it is expected that the Royal Bank and any other UK-based bidders - which could include Abbey National, Halifax, Lloyds-TSB and HSBC - will await the Bank of Scotland's formal offer document. According to takeover rules, this must be issued to NatWest shareholders within 28 days of the initial offer. Like an incumbent prime minister who can choose the date of a general election, Peter Burt has the element of surprise on his side. He could produce the document any time between tomorrow morning and Friday October 22.

It is only once this document is in the public domain that the takeover clock starts to tick. Once they've received the formal offer, NatWest shareholders have 60 days to decide whether to accept - which means the battle for control of the one-time doyen of British financial services could be drawn out until late January.

Foreign bidders which could include Banque Nationale de Paris, Societe Generale and Citibank, are in a position to step in before the document is released, however. This is because they are likely to offer NatWest shareholders cash - instead of a lengthy treatise on how they would run the English bank better than its current chief executive, Derek Wanless - a man described as the John Major of British banking.