Yesterday NatWest got the chance to make the case for its pounds 10.75bn deal - and still the share price fell.
The lukewarm City reaction to the deal is in marked contrast to the enthusiasm that greeted the announcement of Lloyds TSB's takeover of Scottish Widows, the mutual life insurer in July. Although Lloyds' share price also fell on the morning the Widows deal was announced, by the end of the day it closed roughly unchanged.
What both deals have in common is that they are an admission by the banks that attempts to cross-sell higher margin life and pensions products to their current-account customers have failed. By different routes, both Lloyds and NatWest have concluded that to capitalise on the growth in the long-term savings market they need to buy in both the brand and the product expertise from outside.
Yet conceptually there is little doubt that NatWest's takeover of L&G is the superior deal. NatWest is talking of being able to achieve annual cost savings of pounds 130m within three years by eliminating the overlap with its existing investment management business, compared with the pounds 60m Lloyds hopes to achieve by taking over the Scottish mutual group. Moreover, NatWest and L&G also appear to have given much more thought to how the two groups should mesh in the longer term.
Unfortunately for NatWest, talk of blending management cultures and careful husbanding of brands cuts little ice with the more hard-bitten City fund managers, who naturally feel with this particular bank that they have been here before. NatWest has come a long away in the last two years, but it has yet to live down previous acquisition sprees in the US, and more recently in investment banking, which ended in disaster.
Tom Rayner, bank analyst at Societe Generale, said: "I think there will be long-term benefits. However, the market is a bit sceptical. People worry about whether they will be able to generate enough income. Unlike Sir Brian [Pitman, the Lloyds TSB chairman] who can announce something and people believe it straight away, with Derek Wanless [NatWest group chief executive] the reaction is people tend to believe the opposite until proven wrong. Given the NatWest track record on acquisitions people will prefer to wait and see if they deliver."
NatWest is going to have to prove the deal will mean that L&G sells more policies than it would on its own. It is here that analysts are most sceptical. David Prosser, the L&G chief executive who joins NatWest as deputy chairman responsible for the retail and wealth management business, waxed lyrical about the opportunities presented by NatWest's underexploited base of 6.5 million current-account customers.
"NatWest has 1.3 per cent of the pensions market but 16 per cent of current accounts. That gives you an idea of the opportunities we are looking at," he said. "We would hope to double NatWest's market share in three years." That would add pounds 100m to the bottom line each year.
Sir David Rowland, the NatWest chairman who made the call to David Prosser three weeks ago, is well aware of the depths of City scepticism. "I think NatWest has learnt some really hard lessons. There is no point being rueful about what happened in the past. I do see a fierce determination to ensure that the lessons learnt from the past really are applied to the future," he said.
Indeed, for Sir David the chance to bring L&G's management expertise on board was as important as acquiring its low-cost financial services "factory", which will now be pumping its products through.
Mr Prosser, who has turned L&G into one of the most feared producers in a highly competitive life sector, is clearly savouring the prospect of being let loose on the flabby midriff of the NatWest retail bank. NatWest is halfway through its retail transformation programme aiming to get costs back down to 1997 levels by 2000. Mr Prosser said: "We can easily match those targets and more."
But still analysts wonder whether even someone of David Prosser's track record can do what no one else in the UK has managed: to persuade ordinary banking customers to buy pensions from their banks.
Bancassurance - selling insurance through bank branches - works well on the Continent, to the extent that two of Europe's largest insurance groups - ING and Fortis of Holland - are also banks, and Allianz, the German insurer, can justify being the controlling shareholder in Dresdner, one of the country's biggest banks. But the concept has not worked in the UK.
NatWest says the reason UK bank customers have stubbornly refused to buy more than the odd travel insurance policy from their high-street bank is that up to now their products have not cut the mustard. The plan is that NatWest will be able to offer NatWest products made in L&G's factories, while L&G will continue to offer L&G-branded products to existing customers through the IFA (independent financial adviser) sector.
But Mr Prosser may have a rather too rosy view of the power of NatWest's brand. "This is not the ideal deal," fretted one banker yesterday.
What the City really wants from NatWest is what it cannot have - at least not with the Government in its current frame of mind - a merger with Barclays or Lloyds, both of which would yield 10 or 15 times the cost savings talked of yesterday.
At 210p NatWest has paid up what it needed to get the deal through. The price - 85p in cash, the rest in NatWest shares - was enough to secure the backing of L&G's board and probably enough to deter even deep-pocketed foreigners from trying to gatecrash the deal.
But Terry Eccles, the banker from JP Morgan who advised NatWest, said philosophically: "Judging by the share price reaction we've probably got the price about right. If anything we may have given more of the value to L&G shareholders. What we've still got to do is sell it to NatWest shareholders."