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Commercial banks

NatWest to Promise Shareholders Special Dividend and Cost Cuts in Response to Bank of Scotland's Bid

Strategic Insights

— 1 min read

As Bank of Scotland's hostile takeover bid for NatWest has increased in value, the target bank is preparing a defence document that will likely promise shareholders a special dividend and accelerated cost-reduction plans. The bid, worth around £21 billion, is now above its initial value of £23 billion after the share price recovered and market fears of meltdown subsided. NatWest, expected to produce its defence by Thursday, will acknowledge that its return on equity is too low and its cost-income ratio is too high, citing the need for drastic action.

Key Takeaways:

  • NatWest's defence document is likely to promise shareholders a special dividend, addressing concerns about the bank's return on equity.
  • The bank may reduce its cost-reduction plan timescale from five years to two years, aiming to match Bank of Scotland's proposed savings of over £1 billion through job cuts.
  • NatWest will review its non-core operations, rather than offloading subsidiaries like Ulster Bank, Gartmore, and Greenwich NatWest.
  • New Chief Executive Ron Sandler has been tasked with re-examining the group's strategy and business portfolio.
  • Bank of Scotland has announced an ambitious direct mortgage operation in the Republic of Ireland, with a rate as low as 3.69%.
  • Lloyds TSB has hired investment bank Donaldson Lufkin and Jenrette to advise on further acquisitions in the sector, potentially targeting Bank of Scotland or the Royal Bank of Scotland.

Statistics:

  • £21 billion: The increased value of Bank of Scotland's takeover bid for NatWest.
  • £23 billion: The initial value of Bank of Scotland's takeover bid for NatWest.
  • 10,000: The number of headcount reductions planned by NatWest over five years.
  • 2 years: The revised timescale for National Westminster's cost-reduction plan.
  • £1 billion: The potential savings through job cuts proposed by Bank of Scotland.
  • 23,000: The number of jobs potentially shed by Bank of Scotland.
  • 3.69%: The new direct mortgage rate announced by Bank of Scotland in the Republic of Ireland market.

Sources:

  • "Bank of Scotland launches bid for NatWest" (Undated)
  • "NatWest to promise shareholders special dividend as Bank of Scotland launches bid" (Undated)

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