The City may not like him much, reports Financial Editor Ian Fraser, but the smart money is on Sir George
A SUNDAY HERALD poll of fund managers with shareholdings in the UK’s three squabbling clearing banks has revealed that the Royal Bank of Scotland is the most likely winner in the battle for NatWest. Royal Bank, which first declared its hand three weeks ago, has since seen its share price slump by 15%, leading to a lot of soul-searching at St Andrew Square. The weakening in its share price has put Royal Bank in an ignominious position, with its bid for NatWest continuously worth less than that of its Edinburgh rival’s. At Friday’s close, Bank of Scotland’s bid was worth £25.5 billion (including a special dividend), compared to only £22.7bn from the Royal Bank.
Alison Galbraith, banks analyst at Glasgow-based Britannic Asset Management, said: “There’s no doubt that Sir George Mathewson is concerned about the drop in his share price. The market has an aversion to the combined entity.” So what is making the City warm to what has so far been the less generous offer? First of all, the fact that Royal Bank, which, as predicted, posted its formal offer document to NatWest shareholders and received the blessing of trade secretary Stephen Byers last week, is widely expected to come up with a second, more generous offer once the City of London returns from its millennium break. There’s also a view that they have made more convincing presentation about how to take NatWest forward.
But the personalities of the protagonists is also playing a major part in determining who will win or lose. One analyst, who preferred to remain nameless, said: “If it was down to the personalities there’d be no contest. I would go with Bank of Scotland any day. Mathewson has been an absolute s*** to everyone in the City for the last 10 years. There’s very little reason why we should give him any support now. The contrast with Peter Burt could not be more marked. When he made his initial offer in September, there was a spontaneous round of applause at the analysts’ meeting, something I’d never experienced before. Burt is well liked and his bank is better managed and is likely to deliver better value long term.”
Despite this, the same analyst gives Royal Bank a 60% chance of securing NatWest and Bank of Scotland only a 10% chance of success in the battle which will now drag on until February 14. He says NatWest has a 30% chance of staying independent .His dislike of Mathewson as an individual seems to be shared with many fund managers and analysts. One says of Mathewson’s sidekick, Fred Goodwin, that “in terms of arrogance and single-mindedness, Fred is George with knobs on”. And a fund manager added: “Neither of them is known for their charisma.”
However, these same people are still prepared to give the Royal Bank duo the benefit of the doubt when it comes to tackling entrenched inefficiencies at NatWest. Perhaps the City has realised that gentlemanly virtues, epitomised by Peter Burt and some of his colleagues at Bank of Scotland, are not what is required when it comes to re-engineering such a troubled giant. The reason former NatWest chief executive Derek Wanless – nicknamed the “John Major of British banking” – failed to tackle the bank’s Kafka-esque bureaucracy or turn round its inefficient branch network was, according to a former aide, because he was just too nice. Wanless was sacked and received a £1 million pay off in October.
Perhaps the City fears the same niceness of Peter Burt and believes that, at 59, Gavin Masterton, his second-in-command, is too long in the tooth for what is going to be a five-year task. By contrast, Mathewson and Goodwin seem to relish their image of toughness. Mathewson likes to ride into central London from Heathrow airport on a powerful motorbike and played for his local Ballater rugby team until well into his 50s. And after all, if you’re going to dismiss 18,000 people, politeness and charm are not particularly helpful characteristics.
On Friday, NatWest chairman Sir David Rowland firmly rejected Royal Bank’s offer, saying the bid, posted to shareholders on Thursday night, “contains seeds of substantial shareholder destruction”. He added that Royal Bank’s promises of massive cost-savings and synergies, based on the experience of US mergers, would be unlikely to bear fruit. With these words, Rowland confirmed that Royal Bank’s attempts to cosy up and secure a friendly deal have been in vain. Both the Scottish banks’ bids are now on an equally hostile footing. “They’re both very much smaller institutions, straining the credibility of their shareholders to buy a very much bigger company with a great deal more complexity and scale,” Rowland said. “The more they stretch, the more vulnerable the share price is.”
The consensus view among fund managers in Scotland and London is that Royal Bank has a 50% chance of success, while Bank of Scotland is trailing at between 20% and 40%. A leading fund manager said: “I suspect the fact Bank of Scotland came in first with a bid will make it tougher for them. Having made such a blazing start in September it’s been very difficult for them to keep up their momentum. “By biding their time, Royal Bank is pursuing a good tactic. There’s no need for them to hurry.”
However, a growing band of investors are beginning to share Rowland’s view that NatWest has a fair chance of escaping “between the legs” of the two Scottish clearers. One fund manager with a significant stake in the English bank said: “NatWest has been given a long time to work out how it can improve its story. So far it has delivered a very robust defence and given the bidders something to think about.” Ian Beattie, deputy chief investment officer with Edinburgh Fund Managers, said: “It is disappointing that two very, very good Scottish banks should go head to head for NatWest.”
David Poutney, of WestLB Panmure, added: “With the management buy-out of NatWest Equity Partners and the sale of Ulster Bank, they could easily tempt shareholders with a £3bn special dividend. “There’s not much of a cash element to either of the bids, and the Bank of Scotland’s special dividend will not be available for a year or two. Money talks at the end of the day.”
This article was published in the Sunday Herald on 19 December 1999