NatWest in limbo after Prudential merger talks fail

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The strategic direction of NatWest Group will remain in limbo until at least 5 August when the bank will announce half-year profits and a far- reaching restructuring of investment banking operations, after the collapse of merger talks with the Prudential last week.

Neither NatWest nor the Prudential would comment on the talks yesterday. But it is understood the Pru approached Britain's biggest bank a fortnight ago, and that the preliminary talks broke down on the subject of who would get the top jobs in the proposed pounds 27bn merger.

This latest incident follows earlier rumours of an approach by Barclays Bank to buy NatWest, strongly denied by both sides, and more substantial rumours of talks with Abbey National, again denied.

NatWest's shareholders have grown restive after the recent pounds 77m traded options black hole was discovered, and the subsequent resignation of Martin Owen from the top job at NatWest Markets.

NatWest's chairman, Lord Alexander, has promised shareholders a revamped strategy for the investment bank with the results in a fortnight.

There are unconfirmed rumours NatWest has already decided to return its main treasury function from Markets to the clearing bank, which would theoretically make it easier to dispose of Markets if NatWest decided to do so.

Derek Wanless, chief executive of NatWest, took over as head of the investment bank when Mr Owen departed, while a search was started for the latter's replacement. It is thought unlikely NatWest will persist with its original strategy of building a world-class investment bank to rival the likes of Merrill Lynch.

City observers have not discounted another approach by the Pru. The Pru's current strategy is to widen its customer base and increase its distribution outlets and product range, all of which NatWest would provide.

The stumbling block so far, according to analysts, is that the Pru's chief executive, Sir Peter Davis, and his management team feel they are on a roll following the acquisition of Scottish Amicable, and have no intention of allowing the NatWest team to take the lead in a merged set- up.

Either Lord Alexander or Mr Wanless would have to bow out of the top jobs, according to this analysis.