Bloomberg News

EDINBURGH - Bank of Scotland disappointed investors with lower-than-expected profits for its second half. The failed attempt to buy London's National Westminster Bank PLC boosted costs.

Profits in the six months that ended in February totaled $453 million, little changed from $452.6 million reported last year. Bank of Scotland shares fell 9% after the earnings report was released Wednesday.

Investors said the bank, Scotland's second biggest, needs an expansion strategy in the wake of its failure to acquire the United Kingdom's third-largest bank. Royal Bank of Scotland, a rival institution, prevailed in that merger battle earlier this year.

"The results were disappointing," said Tim Rees, director of U.K. equities at Clerical Medical Investment Group Ltd., which manages about $39.5 billion of assets. "The management went into the Natwest deal with a strong reputation, and they need to refocus on that."

Bank of Scotland said it had $85.4 million in costs related to its failed Natwest bid and a joint venture with television evangelist Pat Robertson that the bank announced and then abandoned. Information technology expenses also rose. The resulting 12% increase in operating expenses offset gains from increased lending amid a U.K. housing boom.

Having lost the bid for Natwest, Bank of Scotland's chief executive officer, Peter Burt, said he does not see other acquisition "opportunities in the U.K." and would be leery of mergers with banks elsewhere in Europe.

"There's not a lot of merit to cross-border linkage" in banking, Mr. Burt said. "We bitterly regret losing" the largest U.K. banking takeover battle, he added. There is "no greater waste of money than shelling out" fees for advisers.

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