NatWest opens way for agreed merger with RBS

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The Independent Online
NATWEST, THE clearing bank fighting a pounds 21bn hostile bid from Bank of Scotland, yesterday left the door open to an agreed merger with Royal Bank of Scotland when it revealed that it has asked the Office of Fair Trading (OFT) not to recommend the bid to the Competition Commission.

Sir David Rowland, the chairman, told The Independent yesterday that the bank had made its formal submission to the OFT. He said: "We have made it clear that we believe in an atmosphere that opens up the possibility of change in the financial sector. As far as the substantive issue is concerned we have not expressed a view. We did not press for a referral."

The OFT is considering both the bid by the BoS for NatWest, and a request for clearance from RBS, which has indicated that it is interested in bidding, but has not tabled a formal offer so far. On Friday, the City Takeover panel froze the bid timetable until after 3 December, when the OFT is due to complete its investigations.

Analysts said that for a board to lobby for a referral would be a clear breach of their fiduciary duty to shareholders. However, for the target of a hostile bid to specifically call for a bid not to be referred is highly unusual, particularly when, as is this case, a referral would deal a serious blow to the aggressor.

Sir David said that he had no idea on which way the OFT or Stephen Byers, the Trade and Industry Secretary on whom the decision to refer ultimately rests, will jump.

The financial and legal advisers to the three banks privately say they believe there are no formal competition grounds for a referral, but given recent political decisions which have gone against the OFT's recommendations, there is a view that Mr Byers may play safe and opt to refer both bids.

Sir David admitted that the political climate would be a factor in deciding who potential merger parties might be. Sir David, who was the architect of NatWest's failed bid for the life insurance group Legal & General - which indirectly precipitated BoS's bid - repeated his belief that NatWest should not be fighting the BoS bid on a platform of independence. He said: "If there are benefits of coming together with another bank, it should be discussed."

The only conditions he would set for a deal are that it should not cause disruption to customers and that it should not result in a competition reference which would prolong the uncertainty for the group.

"The political climate is still looking towards being careful rather than looking for businesses which can be globally competitive," he said.