Whichever way the battle for NatWest works out, the fact of Bank of Scotland's audacious raid has injected new urgency into UK banking consolidation. Patrick Frazer, executive director of Davis International Banking Consultants says: "By showing that NatWest is vulnerable, it opens up all sorts of prospects, including bids for the biggest players or bids by foreign players. My guess is that NatWest is going to open the floodgates for things that were unthinkable."
Bank of Scotland has shown that even a smaller player can be a predator. And the Bank of England has emitted not so much as a squeak of objection to hostile takeovers (unlike its Italian counterpart, which frustrated the will of the market in May this year by blocking unsolicited bank bids). In a sense, the Scots have thereby threatened numerous banks' survival, not just NatWest's.
The pressure on British financial institutions to merge and acquire, gain scale and overhaul their product palette, stems from the disparity between their superficially impressive financial statistics and the downward trend in their commercial prospects. On the one hand, they have high returns on equity and trade at high multiples compared with their European peers.