Outlook: Banking farce

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The Independent Online
YET MORE delays - this time from regulators - in the great NatWest chase, which at this rate isn't going to be settled finally until the early spring crocuses start pushing up the soil. What's concerning the Office of Fair Trading, which has asked for a two week extension, is the high degree of overlap between Royal Bank of Scotland and NatWest in small and medium enterprise lending in the North West of England. At this stage it still seems likely the matter can be settled with suitable undertakings by RBS on branch disposals and SME account transfers, but even so the regulatory picture looks more clouded than it did.

In the meantime, it is hard to know how to interpret the relative values placed by the stock market on the two rival bids. On paper, the Bank of Scotland offer is now worth considerably more than RBS's. The standard explanation of this difference is that the market has already made up its mind that Bank of Scotland will fail. And if it does, then Bank of Scotland would itself become vulnerable to a bid - from, say, Barclays or Lloyds TSB. RBS, on the other hand will have to pay more to be certain of success, and its shares are already discounting this eventuality.

Well maybe, but the truth of the matter is that if Bank of Scotland's bid is still higher by the time final decisions have to be made, many shareholders are going to find it hard to reject it in favour of a lower offer from RBS. Certainly the board of NatWest would not be able to recommend any such action.

One way this anomaly could be removed is via a higher bid from RBS. Unfortunately, Sir George Mathewson has a lot of distance to make up and if the effect of a higher offer is further to damage the share price, raising the bid could prove counter productive.

Another is for the stock market to accept the reality, which is that there is little chance of a separate bid for Bank of Scotland.

This would have a depressing effect on the value of its shares and as a consequence on its offer for NatWest. Bank of Scotland is already a highly efficient bank with one of the best cost to income ratios in the business. There's little if any further value to be squeezed out of it, even as part of a larger grouping. Ergo, there's no point in bidding for it.

If the two Scottish banks don't watch it, they'll end up cancelling each other out and NatWest, despite itself, will remain independent. So here's a suggestion. Rather than paying all those fees and wasting all those words, why not settle the matter in time honoured fashion - swords at dawn at Murrayfield and may the best man win. Or perhaps Sir George Mathewson and Peter Burt might prefer a more civilised way of deciding who should stand aside - a round of golf at Muirfield, or given their liking for wine, a blind tasting of fine clarets. Sounds ridiculous? No more so than the present fracas.

Outlook@independent.co.uk

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