Before getting too carried away, however, everyone should pause for thought. What are the Government and the competition authorities to make of this unseemly outbreak of merger mania among the banks? Will the sheer weight of deal making bulldoze all before it, or will not the Government wish to step in and halt the scramble before it gets out of hand?
Do policy makers intend to adopt a French "dirigiste" approach to corporate consolidation - broadly, the idea that domestic players must be allowed to consolidate in order to keep the foreigners out - or will the more traditional regulatory concern about needing to preserve as many players as possible in the market-place take the fore?
At this stage these are open questions, but the City can hardly look forward to favours. The banks have had a rough ride from government ministers. There is little in the way of sympathy for their position on anything round at the Treasury. Gordon Brown believes that small business in particular has been poorly served by what he regards as the present "oligopoly" of banks. He would like to see more of them, not fewer. In Washington for the annual meeting of the IMF, the Chancellor has again been emphasising that Don Cruickshank's investigation of the UK banking market is for real, and that bankers can expect to get tough action from regulators.
However, that doesn't mean the Government is immune to persuasion. The two Scottish banks start with a natural advantage; Royal Bank has only a quite limited presence south of the border while Bank of Scotland has hardly any. In a sense they are like foreigners entering the market for the first time, and there are few obvious competition barriers that can be put before them.
This is despite the fact that in their own home market, both these banks can reasonably be regarded as worse than their English counterparts in terms of monopolistic abuse. Charges to small and medium-sized enterprise in Scotland are notably higher than they are in most parts of England. All the same, it is hard to see how they can legitimately be blocked or obstructed in bidding south of the border.
Even harder to see is how the two Scottish banks ever thought it would be possible to mount a "joint" bid for NatWest. Here the problem was not so much regulatory as personality.
Sir George Mathewson and Peter Burt, chief executives of the Royal Bank of Scotland and Bank of Scotland respectively, could hardly be more unalike, the one an outspoken nationalist with a touch of the thug lying just beneath the surface of his prickly exterior, the other an intensely scholarly, close to the chest operator, shy in manner and appearance. To put them together under one roof would be like putting two ferrets in the same sack together. Sir George must be spitting blood at being called back from the IMF to counter his erstwhile partner's treachery. For him, to be outmanoeuvred by Mr Burt would be almost worse than being beaten by the English.
Sir George may none the less have the more crafty and fruitful strategy. By foregoing the brutal, full frontal assault launched by Mr Burt and instead attempting to soft talk NatWest into an agreed deal with some kind of ongoing management and boardroom role, Sir George could end up on top.
The English clearers would appear to be pretty much ruled out as serious counter bidders for NatWest. With Gordon Brown in his present mood, the authorities would not tolerate any further concentration of market power in small-business lending. It might be possible to divest sufficient branches to satisfy these concerns, but this would be messy, complicated and costly. Mortgage banks are a different matter. Even Mr Brown would find it hard to argue there was insufficient competition in retail financial services, where the problem is less that of too few players and more one of lack of transparency. A merger is not going to effect this one way or the other.
Even so, it is more than possible that the City has an exaggerated view of the scope for further consolidation in the UK banking market. Competition concerns rule out those deals that would have the most potential for cost cutting and mortgage banks may still be too cautious to want to go head to head with the Scots in a contested bid for a commercial bank. What of a "real" foreign predator, as opposed to a Scottish one? The Government did nothing to stop Wal-Mart taking over Asda. Would it act to prevent, say Citibank, going for NatWest or Barclays? We'll see.Reuse content