NatWest, the UK bank under siege from two smaller Scottish rivals, has announced increased profits and a plan to keep its shareholders happy.

The company has reported profits of £2.3bn, compared to £2.1bn last time.

And NatWest says it will be returning £3.5bn to shareholders, partly through a £1.5bn tender offer.

It is also increasing its dividend by 25%.

The announcements are designed to save NatWest's independence. Both the Bank of Scotland and the Royal Bank of Scotland are bidding to take over NatWest, one the UK's big four clearing banks.

NatWest is planning to sell off some its assets, including its life assurance business and some regional banks, in order to remain independent.

It also says it has made £50m in cost savings.

Fierce battle

Both the Bank of Scotland and the RBS claim they could increase NatWest's profitability.

Last week the BoS said it would add £1.3bn to NatWest's profits within three years through "major surgery" to its branch network.

But in its defence document, NatWest has questioned these claims, which it says are based on cost savings that Natwest can make on its own.

It also claimed that both offers were inadequate because they were paper offers which could be vulnerable to share price falls.

Increased bids?

Both Scottish banks have until next Monday to increase their offers for their larger rival.

Neither has ruled out such a move, which may be necessary for a clear-cut victory.

Takeover panel rules say the vote must take place within 15 days of the final offer.

If it is split, with no-one gaining more than 50%, then NatWest will retain its independence even if a majority of shareholders vote against its management team.

Both banks may also be considering increasing the amount of cash they are prepared to offer to shareholders.

In its defence - its last chance to produce new data to support its case - NatWest also said it would double its life and pensions market share by moving to outsource products under the NatWest brand.

It said it would grow its mortgages income "significantly", boost online customers to one million from 65,000 by the end of the year and double funds under management through its investment services over the next three years.

Mr Rowland signalled the Scottish banks would have to significantly change tack to stand any chance of a board recommendation.

At 1518 shares in NatWest were up 44p at 1,224p, with BoS up 2.5p at 638p and RBoS up 20p at 1,027p. Both Scottish banks are offering mostly their own shares for NatWest.

BoS's offer, excluding an 120p dividend, values NatWest at 1,306.5p, while RBoS's offer values it at 1,299p.

RBoS responded to the defence document by saying NatWest's plan confirms the bank has "embarked upon a strategy for dramatically downsizing the business without furnishing any form of vision for the future and how shareholders are to benefit from the reshaped business activities."