Putlook: London bankers reel as the Scots call the tune

RARELY ARE takeover bids launched with the degree of savagery that characterised yesterday's pounds 21bn assault by the Bank of Scotland on National Westminster Bank. Peter Burt, Bank of Scotland's much-feted chief executive, began as he means to go on, with an attack on the target company's management record, abilities and strategy so devastating that it is hard to see his opponent coming back off the canvass.

The last comparable case was Argyll's pounds 2.3bn bid for Distillers in the mid-1980s,when the venom of the attack left the board so stunned that it was unable to put up a fight and instead ran into the arms of Ernest Saunders' Guinness.

No sensitivities were spared in Bank of Scotland's analysis of NatWest's record. Mr Burt tore into his victim with evident relish, detailing a 10-year history of failure in strategy and operational management which he made out to be of almost epic proportions.

Exaggeration is only to be expected given the nature of what he is trying to do - acquire an English counterpart approximately twice his size in terms of assets and stock market value - but if only half of what he is saying is justified, it is hard to know how Derek Wanless, NatWest's amiable chief executive, has managed to stay at the helm as long as he has.

Some will say it is because our "rip off" banks are so cushioned from the every day reality of commercial competition that besets the rest of us that even mis-management on the scale alleged by Mr Burt is insufficient to dent profits and prospects by much. Mr Burt could summon up only this by way of compliment to Mr Wanless - "he's a very nice man".

As far as the City is concerned, Bank of Scotland is pushing at an open door. Over the past 10 years, NatWest shares have underperformed those of Bank of Scotland by more than a half. NatWest has done much to clean up the errors of the past in the last two years, withdrawing from both the US and investment banking, and making a reasonable start on restoring its cost to income ratio to the level enjoyed by others.

Many of the things Mr Burt yesterday promised to do at NatWest in terms of cutting costs at the operational centres, streamlining the retail banking operation and making it more customer responsive, are already under way. But even post the recent arrival of Sir David "untainted by the past" Rowland as chairman, NatWest has faced an uphill task in winning back City credibility.

Investors have been unable to summon up any enthusiasm for NatWest's latest attempt at empire building - its pounds 10.7bn bid for Legal & General.

There is little in the way of cost cutting benefit to be had from such a tie-up, it is earnings dilutive in the first year, NatWest seems to be paying a high price which if there is upside in the deal means it goes to L&G shareholders rather than its own, and the value-enhancing justification relies on the entirely unproven merits of "bancassurance" - that is cross selling of high-margin savings products to captive account holders.

Bank of Scotland is surely right to accuse Mr Wanless of "abdicating" his responsibility by ceding the post of head of retail banking in the new combine to L&G's David Prosser, a highly regarded life assurer but with no banking experience and therefore an unproven quantity. NatWest's ever-shrinking share price has been telling a very different story to that offered by its chief executive - one of considerable scepticism.

A VALIANT attempt was being made by the L&G camp last night to save the marriage. The NatWest/L&G tie-up offered vision, a new concept of one-stop shopping for savers, depositors and account holders, it was said. The Bank of Scotland proposal, on the other hand, was a conventional and narrow-minded retail banking approach to the future. Unfortunately, the City has never been strong on "vision", and set against the easily calculated cost-cutting value enhancement of the Bank of Scotland proposal, the choice is going to seem a no-brainer to many investors.

Mr Wanless will struggle to rescue his transaction now, but whether Mr Burt will succeed in securing his quarry is another matter. When his counterpart at the Royal Bank of Scotland, Sir George Mathewson, was sounding out City support earlier this year for a similar assault on Barclays, he encountered nothing but hostility. For reasons he was unable to fathom, fund managers were either disinterested in such a move, or downright against it.

Mr Burt is in with a better chance, in part because he can reasonably claim to be a respectable alternative to a deal the City plainly doesn't like.

However, having fired the starting gun on a fresh round of consolidation in UK banking, there's no telling where the process will end.

The potential for cost cutting in Bank of Scotland's bid are considerable, but it pales besides that which could be achieved by combining NatWest with Barclays or Lloyds TSB. Both these alternatives would face daunting competition, but that's not going to stop Sir Brian Pitman of Lloyds TSB wanting to enter the fray, even if all he is able to do is spoil it for Bank of Scotland.

FROM HIS rival Edinburgh eyrie, Sir George is watching events with more than beady-eyed interest. He too has observed the City's discomfort with the L&G merger, and he was sharpening his sword for battle. Should he now go head to head with Mr Burt, Scot against Scot, in a battle of the clans for their southern competitor, or should he stick with his original prey, and emboldened by Mr Burt's lead, put his money where his mouth is by attempting a hostile bid for Barclays? What an exquisite outcome this would be - the Bank of Scotland takes Lothbury while the Royal has Lombard Street.

Whatever the future holds, there's no doubt that Bank of Scotland has thrown a giant rock into the pool and it's anyone's guess how the waters will settle. The possibilities are almost too numerous to list. For policy- makers too, the bid raises all sorts of concerns and issues. Bank of Scotland is probably right to insist that the competition concern with its own bid is not nearly as great as that, say, of a Barclays and NatWest merger, but does the Government really want to back cost cutting on this scale? And if it does not, what hope for British leadership in a fast globalising and consolidating world where the lowest cost operator will surely end up the ultimate winner?

With Don Cruickshank, the former telecommunications regulator, already examining the supposed lack of competition in the banking market, does it really make sense to allow even more shrinkage in the number of players? The outcome of the policy debate is as difficult to call as that on the takeover battlefield itself.