NatWest hits back at Bank of Scotland plan to cut £1bn in costs

The Bank of Scotland said yesterday that it planned to take more than £1bn costs out of NatWest over the next three years if its £22bn hostile bid for the high-street bank succeeds.

The Bank of Scotland said yesterday that it planned to take more than £1bn costs out of NatWest over the next three years if its £22bn hostile bid for the high-street bank succeeds.

Peter Burt, the chief executive, said yesterday that £510m of savings or at least half of the total would come from better management of the NatWest businesses, the rest from eliminating duplication such as head-office and IT functions.

Analysts said that to achieve that figure the bank will have to take a charge of up to £1.25bn in the first year to cover restructuring costs.

Sir David Rowland, the NatWest chairman, hit back saying that NatWest could achieve those cost savings on its own. "This heavily qualified and unsubstantiated announcement again highlights the ill thought-out nature of the Bank of Scotland's bid."

The initial City reaction to the BoS numbers was positive, analysts having pencilled in £400-£700m as the likely costs cutting figure. But some of that enthusiasm wore off later in the day as analysts realised that £200m-£500m of the headline figure related to costs which NatWest had already pledged to eliminate as part of its existing Retail Transformation Programme.

BoS whose own business is substantially more efficient than NatWest insisted these were "bottom-up" numbers based on benchmarking NatWest businesses against their own. The figures excluded Gartmore, Greenwich and Ulster Bank which BoS intends to put up for sale, and NatWest Life for which BoS complained it could not get accurate enough figures.

Mr Burt refused to be drawn on job cuts, merely repeating his earlier statement that there would not be tens of thousands of compulsory redundancies.

However, Gordon McQueen, the finance director, said that at the current rate of attrition around 23,000 NatWest employees would leave the bank over the next three years although he made the point that at BoS, the management had succeeded in getting the costs out of the business while actually increasing the total numbers employed.

Bankers queried the decision by BoS to put out the figures separately from the offer document which will not go out to shareholders until next week. Some suggested that showed that BoS was getting nervous in the wake of the sharp fall in its share price over the past few days, and that it is looking for ways to recover momentum.

BoS shares recovered 16.5p to 726.5p yesterday following the publication of BoS's detailed cost-cutting plans. However, that still leaves the see-through price for its bid for NatWest at £12.78 - still £1.60 below NatWest, up 5p at £14.38.

"They look like they have merely teed things up for the Royal Bank of Scotland," said one banker yesterday. RBS gained 44p to 1,371p on expectations that it was now more likely to bid.

The rival Scottish bank, which has been closeted with its advisers for the past two weeks, could justifiably claim to be able to achieve the same cost savings with its own management plus another £800-£900m from removing the overlap between its 300-strong branch network in England and that of NatWest. Bankers believe RBS could easily offer £16 a share and the post of chairman to Sir David Rowland, provided Derek Wanless, the NatWest chief executive, stepped aside in favour of Sir George Mathewson, the RBS chief executive who would step up to chairman when Sir David retired.

Asked whether another bidder could improve on BoS's figure of £1.05bn, Mr Burt pointed out that the BoS plan would deliver 68 per cent of the uplift to NatWest shareholders.

RBS is understood to be working feverishly to secure an agreed deal with NatWest, although it is believed that a deal is still some way away. "The City wants an auction, although in truth it probably has one already," said one banker last night.