Bank of Scotland aims to cut costs by £1bn a year after its merger with NatWest - but insists that job cuts will be limited.

"We expect job losses to be achieved through natural wastage, and we don't anticipate tens of thousands of compulsory redundancies," said BoS chief executive Peter Burt.

"The bigger than expected cost savings come really from IT and improved management practices," Mr Burt said.

BoS does, however, plan to stick to NatWest's 1996 plan to cut 10,000 staff. So far, only about 1,000 jobs have been lost.

Mr Burt - going on the offensive as he gave details of BoS's £21bn bid for its larger rival - described Natwest as a "relatively inefficient operation".

"We'd expect there to be more substantial cost savings than with a conventional bank merger, " he said.

In a statement to the London Stock Exchange, the bank said that within three years it would achieve cost savings of £1.015bn a year - about 15% of the operating costs of £6.1bn for the combined group.

"Our track-record in costs and productivity means these are commitments we are confident of delivering," added Mr Burt.

Third-party bids

BoS said that about £510m of the savings would come from the application of its management practices to NatWest's cost base.

The company said it expected costs to be reduced in processing, in regional, central and group operations and in branch frontline functions.

A further £290m would come from cuts in information technology and related spending, including the migration to common software application and consolidation of data centres.

The remaining £215m would come from other duplicated functions, including the elimination of head office and support services overlap.

Legal & General bid dropped

BoS said it had already received bids from third parties for NatWest properties.

There will inevitably be a considerable number of jobs lost if the takeover succeeds - Bank of Scotland had already said it planned to close half the combined group's 2000 branches.

The announcement on Thursday morning came as NatWest dropped its own £10.75bn move for insurance group Legal & General, to concentrate on fighting the hostile takeover bid.

The move has heightened speculation that NatWest plans to sell off non-core assets in an attempt to fight the £22bn takeover.

NatWest had made the bid for Legal & General as an attempt to reposition itself as a Bancassurance business, following the European model which unites banking, insurance and other financial services under one roof.

Analysts say the bank is now likely to try to sell its investment arm Gartmore, its structured finance business Greenwich NatWest, Ulster Bank, and Coutts private bank.

BoS had said it would sell off these assets if its takeover was successful and return proceeds from the sale to BoS and NatWest shareholders.

Legal & General, which had recommended NatWest's bid, said it was disappointed but not surprised that it would now not go ahead.