Banking on a future

City sources believe the Bank of Scotland's interim results, which were presented by the trio of Burt, Masterton and Gordon McQueen last Wednesday, have increased its chances of getting its hands on NatWest.

Investors, analysts and City scribblers who attended were generally impressed by a 12% jump in pre-tax profits and 22% annualised growth in lending. However the situation turned nasty later that day, when NatWest's Sir David Rowland said that the Bank of Scotland's results "demonstrate some worrying underlying trends". The NatWest chairman accused the bank of "buying market share" and "storing problems for the future". Gavin Masterton retorted: "You can't grow without incurring additional costs. They have not been growing their business."

Whoever emerges victorious, there will be many more such verbal spats in the weeks ahead. But the mud is more likely to stick to banks that are inefficient than those that are lean and mean financial machines.

Takeover chances: HHHHH

DESPITE the acquisition of Williams & Glyn's, which gave it hundreds of branches south of the border, the Royal Bank of Scotland is eager to boost its presence in the lucrative English market. But its proposed reverse takeover of Barclays earlier this year came to nothing.

Founded in 1727, the Royal Bank has around 650 branches in the UK. Its strategic alliance with Spanish bank BSCH has spawned a number of ideas that have boosted both banks' operations. The first was Interbank On-line Systems (IBOS) which permits the customers of member banks to make instantaneous money transfers. The Royal Bank also owns Direct Line insurance and in 1997 announced the creation of Tesco Personal Finance, a joint venture with Tesco.

It also owns Citizens Financial Group in New England and recently opened branches in Paris and Frankfurt, mainly to serve the burgeoning private equity market in Europe.

In 1981 the bank was spared the ignominy of a takeover by either Standard Chartered or HSBC when the Scottish business establishment rallied to its defence. The takeover was blocked by a compliant monopolies and mergers commission.

Takeover chances: HHH

WITH a market capitalisation of some #59 billion, the Hong Kong and Shanghai Banking Corporation dwarfs all the other UK banks and, were it not for competition considerations, could swallow NatWest in a couple of gulps.

HSBC was established in 1865 to finance the growing trade between China and Europe. Its founder was Thomas Sutherland, a Scot who spotted the demand for local banking facilities in Hong Kong and the China coast. In the late 19th and early 20th centuries, HSBC established a network of branches in China and South East Asia. In the 1950s, the bank diversified its sectoral and geographical spread via acquisitions, buying both the British Bank of the Middle East and the Mercantile Bank in the 1950s. By the 1970s a policy of expansion by acquisition was well-established. During the 1980s, HSBC moved into markets where it was not yet fully represented, with acquisitions in North America and Australasia.