With final takeover bids having been issued by Bank of Scotland and Royal Bank of Scotland, NatWest shareholders must decide by 14 February which to accept, or whether to reject both.

The rival bidders increased their offers to around £24bn ($38.4bn) on 31 January, as the midnight deadline approached.

Neck and neck in the battle to win control of NatWest, they have both dug as deeply as possible into their pockets to find extra cash to throw into their bids, in a last attempt to win shareholder favour.

The NatWest board has rejected the offers as "inadequate and risky". It said they largely consisted of "vulnerable" paper and would leave the two Scottish banks financially stretched if they were to succeed.

Brinkmanship

Bank of Scotland made its final offer just five hours before the deadline.

It said the new offer valued each NatWest share at about £14.41 and that the total value of the bid was 5.2% higher than the value of the Royal Bank bid earlier in the day.

NatWest shareholders would own 70% of the combined group, which would be headed by BoS chief executive Peter Burt.

BoS would sell off Gartmore, Greenwich NatWest and Ulster Bank and would undertake "major surgery" of the branch network with 21,800 redundancies.

Peter Burt said his bank's bid was worth £1bn more than RBS's and gave NatWest shareholders a bigger stake in the combined group.

"We have a better strategy to turn NatWest around," he said.

More cash

The Royal Bank had increased its offer earlier in the day.

NatWest shareholders would own 62% of the combined group, which would be headed by RBS chairman Viscount Younger.

RBS would sell off Gartmore and US Greenwich NatWest but keep UK Greenwich NatWest and Ulster Bank. It has no plans to close branches but does expect 18,000 redundancies.

On upping the bid, chief executive George Mathewson said: "We have injected more cash into this offer in a way which does not involve dismembering the NatWest business and does not disadvantage any of the shareholders involved."

The RBS bid includes an 'additional value share' - guaranteeing a £1 dividend by 2003 and estimated to be worth 70p each - which technically cannot be included in the offer price.

RBS's biggest shareholder, Spanish bank BSCH, is contributing additional cash of up to £500m to back the new bid.

RBS's chairman, Viscount Younger, said shareholders now had a duty to make up their minds, otherwise the bid system simply would not work.

Spirited defence

NatWest has fought hard to resist the bids, insisting it would be better off retaining its independence. It has said it will return £6.5bn to shareholders.

NatWest has gained credibility by poaching Gordon Pell from Lloyds TSB to reinvigorate its management team as head of UK banking.

The bank has also said it will cut 11,650 jobs by next year and further slim down by selling Gartmore, Greenwich NatWest, Ulster Bank and NatWest Equity Partners.

It says it will double its life and pensions market share, "significantly" grow its mortgage business, boost online customers to one million by the end of the year, and double investment services funds over the next three years.

"Damp squib"

Commenting on the RBS bid, a spokesman said: "After all the anticipation, this is a damp squib and a risky one."

The spokesman said NatWest would look at whether it could recommend either of the bids to shareholders once it had digested the comparative final offers.

On Monday, NatWest's chief executive, Sir David Rowland, questioned the capacity of the Scottish banks to integrate the businesses.

He said: "Did they realise that independently each lacked the management resource to integrate a business twice its size and manage a combined business three-times bigger?

"Did they realise that independently each lacked the capital and market capitalisation to pay NatWest shareholders an adequate premium backed by real value?"