NatWest may sell Ulster Bank in defensive strategy

Natwest Bank has given the clearest indication yet that it is considering selling Ulster Bank, as part of its defence against a hostile bid from Bank of Scotland. The bank's chairman, Mr David Rowland, said yesterday that it was considering all defence options, including the sale of non-core businesses including Ulster Bank and also capital markets unit Greenwich NatWest and private banking arm Gartmore.

Bank of Scotland wants to sell all three, if its bid succeeds.

Mr Rowland was speaking after NatWest announced that it was dropping Mr Derek Wanless as its chief executive. Mr Rowland will temporarily take over his position.

NatWest had already given indications that it would consider selling Ulster Bank and other subsidiaries as part of its defence. This was first raised in briefings reported last weekend in the UK media.

This came in response to a clear declaration by Bank of Scotland that it would dispose of Ulster Bank and a range of other subsidiaries if its bid succeeded.

However, the comments yesterday by Mr Rowland were the first public recognition of this, even though the likely timetable for any sale remains unclear.

NatWest Bank is fighting the £21 billion sterling hostile bid from smaller rival Bank of Scotland.

Responding to criticism of its management, it announced the departure of Mr Wanless and the appointment of Mr Ron Sandler, a former colleague of Rowland's from the Lloyd's of London insurance market, as chief operating officer.

Referring to the departure of Mr Wanless, one banking analyst in London commented: "They've shot him and thrown him over the wall as an appeasement to the besiegers."

NatWest management has come under fierce criticism from investors dissatisfied by the bank's under-performance in recent years and unimpressed by a plan, now abandoned, to buy insurer Legal & General Group.

The bank said it was restructuring its senior management to place it in the best possible position to deal with the unwelcome offer from Bank of Scotland.

But one fund manager and NatWest shareholder said the shake-up did not get to the root of the bank's problems.

"These announcements are going to be seen as reactive rather than pro-active," he said.

"This has the smell of the desperate about it. The credibility of the whole of NatWest's management isn't very high and removing one person doesn't change that culture there. Given their track record, their defences are still fairly limp."

Mr Rowland said that Wanless' departure and the board reshuffle had been decided at a meeting on Wednesday evening.

"The board has been thinking about the leadership of the company and decided that in the present circumstances it was right and in the shareholders' interest to make a change," he said.

NatWest shares rose 15 pence (or one per cent) to £14.55 sterling, while Bank of Scotland was 1 1/2p firmer at 731p.

Mr Sandler is former chief executive of Lloyd's of London, which oversaw the recovery of the insurance market from multi-billion pound losses in the early 1990s. He worked in various capacities with Rowland, who chaired the organisation, for more than two years.

On Thursday, Bank of Scotland said it expected to reap annual savings of at least £1.015 billion within three years of a NatWest take-over, above analysts' expectations of £500 - £700 million. But other bidders are widely assumed to be waiting in the wings. Royal Bank of Scotland is eyeing NatWest and Abbey National is also thought to be sniffing around after it appointed advisers this week.

The future of NatWest - and thus of subsidiaries such as Ulster Bank - remains unclear, with a counter-bid for the UK bank seen as likely.

Bankers said yesterday that a Royal Bank of Scotland counterbid was inevitable, as it would not want to play second fiddle to its Scottish arch-rival. It is also desperate to break beyond Scotland's borders to survive in a fast-changing industry.

But a banking source close to Royal Bank indicated it was not in any rush to trump Bank of Scotland's £21 billion hostile bid for its much bigger rival NatWest.