The future of Ulster Bank has taken a new twist with Royal Bank of Scotland declaring it will retain the Irish bank if its £26.5 billion sterling (£33.5 billion) bid for NatWest succeeds. In its offer document to NatWest, Royal Bank states it expects to retain Ulster Bank if it gains control of NatWest, insisting this would be in the best interests of both sets of shareholders.
Royal Bank's interest will be a disappointment for Irish Life & Permanent and AIB which have both tendered bids to NatWest for Ulster Bank. It also signals fresh competition for the entire financial services sector and could trigger pressure on profit margins.
Based on public information on Ulster Bank, Royal Bank believes it would be in the best interest of shareholders to keep the bank as part of its retail banking business. "The market's perceived valuation does not seem to the board of Royal Bank to be adequate to justify the disposal of a business of this quality," the document says. Ulster Bank, which is the Republic's third largest clearing bank, would offer Royal Bank a substantial foothold in the Irish retail banking market.
Royal Bank, which was established in 1728, is one of the major players in the UK financial services sector. The bank has well developed on-line and telephone banking services and, if its bid is successful, is likely to introduce many of its services and products to the Irish market through Ulster Bank.
A takeover by Royal Bank may also provide greater certainty for the bank's staff throughout Ireland.
NatWest has put Ulster Bank up for sale in a bid to raise funds to defend against Bank of Scotland's hostile bid. A number of banks have tendered bids of around £2 billion for Ulster Bank, which are being considered by NatWest's corporate advisers, Dresdner Kleinworth Benson.
In its second defence document issued at the weekend, NatWest said Ulster Bank, together with Greenwich NatWest, Gartmore and NatWest Equity Partners, will be divested in a manner that maximises value for its shareholders.
Substantial work has been undertaken on the disposal of these subsidiaries, it states. "Many indications of interest have been received and the board of NatWest is confident that the divestments will realise significant value."
Royal Bank's bid for NatWest follows a revised offer from its Scottish rival Bank of Scotland. Both offers have been rejected by NatWest.
In a statement to the Stock Exchange yesterday its board said it considered Royal Bank's offer to be "inadequate" and will be advising shareholders to reject it.
