Bank of Scotland yesterday announced a hostile bid worth £22 billion sterling (€33 billion) for National Westminster Bank, the UK's third largest, forcing NatWest to put on ice its controversial £10.75 billion bid for Legal & General, the British life assurance and pensions company.
The audacious bid from a bank less than half NatWest's size astounded other bankers and may well trigger a counterbid either for NatWest or for Bank of Scotland itself.
Royal Bank of Scotland, which this year tried to persuade Barclays into a similar merger, is understood to have made contact already with NatWest over a possible alliance.
Other competitors were hastily reviewing their options. Senior investment bankers cancelled their weekend plans to work on possible competing bids for Legal & General, NatWest or Bank of Scotland.
In a ferocious assault on NatWest's management, Bank of Scotland promised to close processing centres, slash costs and sell Gartmore, NatWest's fund management arm as well as Ulster Bank and Greenwich NatWest, its capital markets unit.
Mr Peter Burt, the Edinburgh bank's chief executive, said: "NatWest has been consistently disappointing. We aim to reverse its underperformance."
NatWest's first inkling of a bid came at 6.30 a.m. when Sir David Rowland, chairman, received a phone call from Bank of Scotland. Mr Derek Wanless, NatWest chief executive, was on the brink of departure to Washington to join international bankers at the annual meetings of the International Monetary Fund and the World Bank. He had to return immediately to London.
At a board meeting yesterday afternoon, the bank rebuffed the offer as "unsolicited, unwelcome and ill-thought out". Sir David said: "We are determined to stop Bank of Scotland from acquiring NatWest group on the cheap."
Bank of Scotland said it would keep NatWest as a separate bank, to be run by Mr Gavin Masterton, its own chief operating officer.
Sir George Mathewson, Royal Bank of Scotland's chief executive, is in Washington for the IMF meetings but is expected to cut short his trip.
Institutional investors disliked NatWest's proposed deal with L&G but reacted with enthusiasm to yesterday's bid, pushing Bank of Scotland up 43 1/2p to 750p and NatWest up 308p to £13.54, 3 per cent above the value implied by the Edinburgh bank's bid.
