Bloomberg News

LONDON - Royal Bank of Scotland Group PLC won a $33.2 billion struggle Friday for National Westminster Bank PLC after shareholders lost faith in NatWest, Britain's third-largest bank. The takeover would be the biggest on record for a U.K. financial institution.

Investors holding more than half of NatWest chose Royal Bank's cash and stock bid over a rival hostile bid from Bank of Scotland. Sir George Mathewson, Royal Bank's chairman, has said he will cut 18,000 jobs to squeeze more profit from a company more than twice Royal Bank's size.

"NatWest has been poorly managed, and Royal Bank should be able to get the bank back on track," said Chris White, a fund manager at Johnson Fry Holdings PLC, which owns NatWest shares. "We'll see further consolidation in U.K. and European banking."

Royal Bank would become the United Kingdom's biggest corporate lender and second-largest retail bank, as well as Europe's seventh-biggest bank. Competition is driving mergers across the region, with shares of companies such as Germany's Commerzbank AG rising on takeover speculation.

CGU PLC, a British insurer, and Banco Santander Central Hispano SA of Spain have said they will help finance the deal.

Sir George would run the combined company, Royal Bank said, with his deputy chief executive, Fred Goodwin. In eight years Sir George has turned Royal Bank from a regional company into the United Kingdom's second-most-profitable bank by cutting jobs and expanding into areas such as credit cards and car insurance.

Royal Bank officials declined to comment on plans for NatWest beyond confirming details in the offer document, and Sir George was unavailable for an interview. NatWest was formed in 1970 by the merger of National Provincial Bank and Westminster Bank. National Provincial had its roots in Smith's Bank, which was founded in 1658. Today's NatWest is the result of more than 200 mergers and acquisitions. Its clients include Britain's royal family, which banks with the Coutts & Co. unit, and Vodafone AirTouch PLC, the world's biggest wireless phone services company.

The London-based bank has been among the nation's worst performers, with an annual return on equity of 14.3% in the five years through 1998.

Royal Bank averaged a return of 26.4%; Bank of Scotland, 22.7%.

Royal Bank, founded in 1727 to challenge the monopoly of Bank of Scotland, opened its first London branch almost 150 years later, and in 1968 it became a publicly traded company. Today Royal Bank is among Scotland's biggest employers, and it ranks among the country's leading train leasing companies and pub investors.

Until Friday morning, NatWest chairman Sir David Rowland had urged shareholders to reject both Royal Bank's bid and the $38.4 billion offer from Bank of Scotland. The latter's higher offer had a smaller cash component than Royal Bank's.

"In the end, there wasn't sufficient confidence in [NatWest's] new management to turn the company around," said Tim Rees, director of U.K. equities at Clerical Medical Investment Group Ltd., which owns 0.7% of the bank.

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