The note was published two weeks ago, on the day that Royal Bank launched its pounds 24bn bid for NatWest and also published its half-year figures.
The analysis has been seized upon by Bank of Scotland, suitor for NatWest, as an example of how Royal Bank is less efficient than itself and less able to cut costs at NatWest.
The battle for NatWest is now moving into a crucial stage, with Royal Bank shares falling sharply since it launched its bid, cutting the value of its offer to less than the Bank of Scotland bid. NatWest has also been seen softening its stance on the two bids, making an agreed deal appear the more likely option.
Talking to The Independent on Sunday this weekend, Peter Burt, the chief executive of Bank of Scotland, attacked Royal Bank's strategy. "Like for like, we are more efficient than Royal Bank," said Mr Burt, who added that the analysis by the bank proved that NatWest was the most inefficient of all the high-street banks.
Mr Smith, who after rising to fame at BZW and Phillips & Drew, now works for the broker Collins Stewart, said in his analysis that the accounting treatments used by Royal Bank flattered the group's profits and its return on capital. He argued that if the information was adjusted for those "treatments", Royal Bank's performance was less good than Bank of Scotland.
Mr Smith said: "We believe that historic figures will tell you that it is Bank of Scotland's management who are most suited to carry out this task [of making NatWest more efficient]."
However it has emerged that Mr Smith's figures are based on an analysis of return on capital which uses the wrong figure for Royal Bank's capital. Specifically, Mr Smith has used the incorrect figure for Royal Bank's preference share capital. This means that the return on capital figure he uses is understated by as much as 0.8 per cent.
Mr Smith admitted to The Independent on Sunday that the figures he had used could be incorrect, but he refused to withdraw the circular.
"I will stand by this piece of research," he said. "It is generally right."
Mr Smith has based his reputation on stringent analysis of companies' accounting policies and in the past he has stood firm against attacks from the likes of big players such as Grand Metropolitan and Ladbroke.Reuse content