Bottom Line: Royal Bank dips its toe into New England

IF THE Royal Bank of Scotland was being honest when it proclaimed itself pleased with the sale of its Charterhouse merchant banking operation for close to its book value two months ago, it should be less than pleased at having to fork out 1.2 times net assets for a 25-branch banking chain in Massachusetts.

Fortunately, however, it can claim that the purchase takes it closer - albeit only a small step - to its aim of generating 10 per cent of its earnings from southern New England by 1997. And, while Charterhouse was demanding resources for expansion into Europe, merging Boston Five with its Citizens subsidiary should bring cost-savings, as well as an expanded retail network.

Those who worry about Royal eschewing a quality merchant banking operation in favour of expansion in the US - a graveyard for many British banks, as well as their customers - can take some comfort from Citizens' record. Classified by the City as boring for much of the 1980s, the lack of excitement meant it managed to avoid the horrors that afflicted many of its peers as the New England property market collapsed. And it is so well-capitalised - with a risk/asset ratio of 12.5 per cent, 50 per cent above the minimum required - that it should be able to finance the dollars 95m purchase comfortably.

Boston Five also looks a relatively safe acquisition. Its concentration on domestic mortgages makes it more like a building society than a bank and, although it has been making losses with the rest of them, it has just managed to climb back into profits.

The City is far more interested in the potential for Direct Line, its insurance arm, than small forays into the US, and Royal's shares closed 1p lower at 258p. It will have to do rather more to justify the 40 per cent outperformance in its shares over the last year.