Outlook: Royal Bank

WOULD IT make sense for Sir George Mathewson, chief executive of Royal Bank of Scotland, to go hostile in his campaign to takeover Barclays. Having been given such short shrift by the Barlays board (or what remains of it at least), the possibility is being closely scrutinised at the bank's Edinburgh headquarters. In the old days, it would not have been possible to mount a hostile bid for a UK clearing bank. The Old Lady of Threadneedle Street would have frowned, and that would have been the end of it. But today regulators would be hard pressed to object in principle on anything other than competition grounds.

Three recent events might encourage Royal Bank to believe it might indeed be possible. First, the Vodafone takeover of AirTouch has demonstrated that investors are not, contrary to received wisdom, averse to the write off of goodwill against profits that such takeovers entail. They'll look beyond the accounting formalities to the underlying cash flow.

Second, Olivetti's successful bid for Telecom Italia shows that large -scale reverse takeovers are possible even when hostile. And third, if it can be done in France, where Banque Nationale de Paris is in a contested bid situation for two of its rivals, why not here?

As ever, the major drawback of going hostile is that it would require a premium, with the result that Royal Bank would risk giving away most if not all the merger benefits. For that reason if no other, the odds remain heavily stacked against Sir George, but Barclays would be unwise to discount it altogether.

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