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National Westminster Bank - Case Study Example

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Summary
The National Westminster Bank's move to speed up reorganization by shedding excess fat and increasing profitability to make itself attractive to its own shareholders - its main defense against the hostile bids from The Bank of Scotland (BS) and the Royal Bank of Scotland (RBS) by December 1999 - came way too late…
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National Westminster Bank
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Nat West The National Westminster Bank's move to speed up reorganization by shedding excess fat and increasing profitability to make itself attractive to its own shareholders - its main defense against the hostile bids from The Bank of Scotland (BS) and the Royal Bank of Scotland (RBS) by December 1999 - came way too late. It should have done so much earlier and NatWest could have repaired its image of being poorly managed, with its strings of failures in diversification, in becoming an international bank and its involvement in a fraud trial in the late 1980s that proved costly. NatWest could have also responded swiftly and effectively as rivals such Barclays and Lloyds TBS had done so with the sweeping changes brought about by Internet-enabled financial transactions to the banking industry. By the 1990s, NatWest's traditional bank branch practices such as mortgage and savings faced stiff competition from new comers such as Egg and Virgin, upstart retailers and supermarket banks which rode the wave of the financial services revolution. The globalization of financial transactions has also partly driven the mergers in the banking industry - making big domestic banks such as NatWest unable to compete in the new financial landscape. By the time NatWest made its ill-fated foray into bancassurance (an untested recipe in the U.K.) via a bid for the insurance and investment firm Legal and General in early September 1999, the market has made a clear judgment that the bank didn't cut the investors' approval of its management. The steep fall in NatWest's stock thereafter only revealed its vulnerability for a takeover.
Right until the very end when RBS has won the bid against the BS in February 2000, NatWest refused to give in, insisting that a takeover would not add value to shareholders and would put the much smaller bank in danger of overstretching its finances. In addition, in its defense document, NatWest's board tried to convince its investors of the poor outcome of previous bank mergers especially in the U. S. Also, right after the B.S. declared its hostile bid five months earlier, NatWest was considering breaking itself up to make itself more attractive to its shareholders and less attractive to hostile takeovers. It also fired its CEO, Derek Wanless on October 8 after the Legal and General debacle. In December 1999 after the RBS declared its hostile bid, NatWest put up a defense based on the break up its businesses that would release some 6.5bn pounds to investors - more than enough to compete against the potential cash return contained in the separate bids from the two Scottish banks.
The failure of NatWest's management to convince its own investors that it would better off independent and the favorable perception of RBS's innovative capability to turn around NatWest's uncompetitive response to the new ballgame in the financial services industry - allowed for the takeover of NatWest by a much smaller bank. RBS was well prepared for the battle, offering NatWest to significantly retain its most assets (a difference from BS's offer and NatWest's own plan to remain independent) and NatWest investors to get 62% ownership in the merged group. At the time of the takeover RBS was in partnership with Spain's Banco Santander providing the Scottish bank stronger financial backing. In contrast to NatWest's shrinking profits from huge assets that were not performing at par with those of rivals, the much smaller RBS had strong profit growth, especially coming from its insurance businesses. RBS also had a reputation for scoring successes in diversifying into internet-enabled operations and forging alliances with strategic partners (Virgin, Tesco) while NatWest had failed mostly in similar ventures.
Bibliography:
Buerkle, T. 26.4 Billion Offer Pits 2 Scottish Banks For Britain's No. 3 : Royal Bank Tops Rival's Bid to Buy NatWest. 30 November 1999. International Herald Tribune. 27 March 2007. http://www.iht.com/articles/1999/11/30/natwest.2.t_0.php#
Buerkle, T. In Turning Down 2d Takeover Bid, Bank Points to Downside of Mergers : NatWest's Defense Is a Good Offense. 23 December 1999. International Herald Tribune
27 March 2007 http://www.iht.com/articles/1999/12/23/natwest.2.t.php
Christy, J. The A List: Pro-Choice. 15 April 2002. Forbes.com. 27 March 2007
http://members.forbes.com/global/2002/0415/043.html
NatWest fights 21bn takeover. 24 September 1999. BBC News. 27 March 2007 http://news.bbc.co.uk/2/hi/business/456280.stm
Timetable of a takeover. 27 September 1999. BBC News. 27 March 2007.
http://news.bbc.co.uk/2/hi/business/456971.stm
Royal Bank confirms NatWest interest. 27 September 1999. BBC News. 27 March 2007 http://news.bbc.co.uk/1/hi/business/the_company_file/458581.stm
Royal Bank of Scotland: A history. 17 January 2000. BBC News. 27 March 2007.
http://news.bbc.co.uk/2/hi/business/607402.stm
BoS promises 'major surgery' of NatWest. 19 January 2000. BBC News.27 March 2007.
http://news.bbc.co.uk/2/hi/business/610583.stm
Banking on size to compete. 7 February 2000. BBC New. 27 March 2007. http://news.bbc.co.uk/2/hi/business/456551.stm
Q&A: NatWest takeover bid. 7 February 2000. BBC News. 27 March 2007.
http://news.bbc.co.uk/2/hi/business/456616.stm
Bank admits defeat over NatWest. 10 February 2000. BBC News. 27 March 2007.
http://news.bbc.co.uk/2/hi/business/637836.stm
NatWest: A history. 10 February 2000. BBC News. 27 March 2007.
http://news.bbc.co.uk/2/hi/business/619438.stm Read More
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