Royal Bank courts a high-priced Sovereign

Royal Bank of Scotland has had a $7.5bn (£4.4bn) bid approach for Pennsylvania's second largest bank, Sovereign Bancorp, rejected.

The Philadelphia-based savings and loans bank is holding out for $9bn; its case has been strengthened by Bank of America's $47bn deal to buy a New England bank, FleetBoston Financial, which was announced last Monday. Royal Bank, which has an extensive banking network in the north-eastern United States through Citizens Financial, has been stalking Sovereign for some months.

Its attentions have been welcomed by the bank, whose chairman, Jay Sidhu, has publicly stated that it would be on sale for the right price.

It is understood that Royal Bank offered $25 a share for Sovereign, valuing the bank at around $7.5bn. However, Mr Sidhu is holding out for $9bn, a price that Royal Bank shareholders might find difficult to swallow. Bid speculation in the US has driven Sovereign shares up from a low of $12.6 last February to Friday's close of $20.81.

Royal Bank refused to be drawn on bid speculation but its chief executive, Fred Goodwin, has made no secret of the fact that he is on the hunt for a large deal and is interested in Sovereign.

Having bought NatWest three years ago for £21bn, Royal Bank has continued to be acquisitive. In the last year it has spent £3.4bn on deals ranging from Churchill Insurance in the UK to Mellon Bancorp in the US.

The Mellon deal extended the reach of Citizens from its New England base and has been highly successful. Citizens is now the second largest bank in the region, after FleetBoston.

Sovereign has $41bn of assets and 525 branches in Pennsylvania, Connecticut, New Hampshire, New Jersey and New York State. In its home town of Philadelphia, Royal Bank's Citizens has established itself by sponsoring the stadium where the local Phillies baseball team plays.