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Monday, 7 February, 2000, 11:50 GMT
Q&A: NatWest takeover bid

A takeover of the NatWest would be one of the largest financial deals ever in the UK. BBC News Online answers some key questions about its implications for customers, staff and the public.

Why do Bank of Scotland and Royal Bank of Scotland want to buy NatWest?

Battle for Natwest
All stock-market companies have to grow to satisfy their shareholders, who want bigger profits and a higher share price.

Buying a rival business is often the quickest way to achieve high growth. NatWest had long been seen as vulnerable to a takeover because of its poor track-record.

It wasted a lot of money trying to develop an investment bank and has not been as effective as its rivals in keeping costs down.

The smaller Scottish banks see this as a good opportunity to snap up a rival, and to expand south of the border.

Who will decide whether it succeeds?

This will be determined by the shareholders who own the company, who will typically support the offer that delivers them the biggest gains.

Among NatWest's largest shareholders are pension and fund managers like the Prudential and Schroders. As, together, they own such a large proportion of the shares, their views are crucial.

Will branches close?

Both rival banks plan to trim jobs in order to generate cost savings, but their strategies differ on keeping branches open.

In its official statement, Bank of Scotland said it would open 125 new branches in the north of England, but close 36 and relocate 378 of NatWest's 1,714 branches.

It says the number of NatWest processing centres across the UK will shrink from 54 to just nine.

Royal Bank of Scotland also wants to make major costs savings, although it says that branch closures are not the most efficient way to do this.

Will there be many job losses?

Both banks say they will reduce staffing levels.

Royal Bank of Scotland has suggested that 18,000 jobs might eventually go if it wins control of NatWest.

Perhaps the best indication of the views of Bank of Scotland came in a comment from chief executive Peter Burt, who said he did not envisage "tens of thousands" of job losses.

Given that staff costs are a high part of any bank, job losses seem inevitable even if there is no takeover.

As part of its defence, NatWest itself announced 1,600 job losses, and plans for 14,000 redundancies over the next few years.

BoS and RBS are both smaller than NatWest - is the bid likely to succeed?

Size doesn't really matter as much as track-record, and Bank of Scotland says its past performance is much better.

It claims its profits have grown 14% a year since 1995, while NatWest profits grew by only 6% over the same period.

Royal Bank of Scotland has also had strong profits growth, led by its Direct Line insurance business.

What is more of a problem is that to succeed, one of the bidders needs to receive the support of more than 50% of NatWest's shareholders.

If the vote ended up being hung, with no overall majority, there would be stalemate. NatWest would keep its independence, but in a weakened state, with little confidence in its management.

Why have two Scottish banks bid for NatWest?

Both Scottish banks have ambitions to expand south of the border.

They have already launched raids, some successful - as when RBS took over Tesco's banking business from NatWest - and some unsuccessful - for example, a bid for Midshires Building Society.

RBS was widely expected to make an offer, but the low share price of NatWest drew Bank of Scotland in to bid first.

RBS may have been reluctant to move early with a hostile takeover, but felt it had no choice once its rival had acted.

Who will benefit from the takeover?

NatWest shareholders will be the biggest beneficiaries. Staff at NatWest could be the biggest losers.

The Scottish bank that loses the takeover bid could also become vulnerable to a takeover itself.

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See also:
24 Sep 99 |  The Company File
NatWest fights 21bn takeover
27 Sep 99 |  The Company File
The UK's biggest takeovers
24 Sep 99 |  The Company File
Timing of a takeover

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