Royal Bank may not yet be out of the merger & amalgamation woods

While there are not that many potential bidders, some bankers were surprised that HSBC – which bought its way onto the British High Street via Midland Bank – had not joined the fray and speculated it might yet join in.

"The obvious deal would be for HSBC to bid for Royal Bank given its share price," one investment banker said. Such a bid would have to be hostile, a tactic that until Bank of Scotland’s attack on NatWest would have been viewed as impossible by most in the banking and investment banking world.Now Royal Bank has proved such bids can succeed, the chances of copy-cat bids emerging have grown enormously.

HSBC A BIDDER?: HSBC, Britain’s largest listed bank by far, has operations in Asia, Latin America and the United States. But it has the lightest footprint of the four big British High Street banks and would be able to reduce costs and enlarge its customer base with such a merger.

A spokesman declined to comment on whether HSBC would consider bidding for Royal Bank, which currently has a market capitalisation of a mere $11.89 billion compared to HSBC’s 59.5 billion pounds ($95.12 billion), a difference underlined by its recent performance.

Royal Bank’s shares have fallen sharply from 13.28 pounds just before it bid for NatWest in November to a close of 8.71 pounds on Friday. Royal Bank has under performed its UK peer group by 16 per cent since the bid and by 31 per cent against the overall UK market in the same period.

RBS LAGGING MORE THAN NATWEST: NatWest itself lagged the index of UK banks by eight per cent after it launched its ill-fated bid for insurer Legal & General, which was enough to trigger the initial hostile bid from Bank of Scotland and scuppered the deal. Much of this recent slide has been put down to the so-called "winner’s curse", where the bank seen a most likely to win the NatWest bid has had its share price hammered.

Some of this effect has been blamed on arbitrageurs playing the share price differentials between the stocks. Royal Bank or indeed Bank of Scotland – the losing bidder for NatWest – might make obvious targets for Lloyds TSB Group Plc but the group could encounter competition difficulties because of the TSB branch network in Scotland. LLOYDS TSB ON SIDELINE: The prospect of Lloyds TSB getting involved was also played down on Friday by its chairman Brian Pitman who said he saw hostile bank bids as destroying shareholder value.