City suspects NatWest may sell US subsidiary
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Your support makes all the difference.City rumours re-emerged yesterday suggesting that NatWest Group may sell off its US retail subsidiary, NatWest Bancorp, as the consolidation of the American banking industry gathers pace.
There is a strong feeling among analysts that NatWest, which suffered appalling losses from Bancorp in the early 1990s, would do well to take advantage of the current merger mania in the US which has seen retail banks swap hands for 2.5 times book value. Mike Trippitt, an analyst with SBC Warburg, was typical in his opinion that "now the US sector is consolidating, NatWest has to decide whether to take part and expand or watch it take place around them, which would leave them at a price disadvantage".
American retail banks have traditionally been held back by laws banning them from expanding across state lines, laws which are being scrapped. The recent mega-merger between Chemical and Chase Manhattan is seen by the markets as just the start of a process which will end in the existence of a small number of huge national banks.
Mr Trippitt warned however that: "It all depends on price. Two times book value would be a minium." NatWest Bancorp currently has equity of around $2bn, making an estimated minimum price tag of around $4m.
NatWest is conscious of the speculation, and said yesterday: "We don't comment at all on any market or press speculation. We have nothing to add to the chairman's [Lord Alexander's] remarks when the half-year results were released in August. He said then: 'There is no for sale sign over Bancorp. If you come up with a good offer we'd have to consider it - beyond that I'm not going'."
The City is asking the same questions about Royal Bank of Scotland's US retail subsidiary, based in Rhode Island. Bancorp is located in New York and New Jersey. But analysts would not be keen if NatWest, which is led by chief executive Derek Wanless, sold up without making clear its new strategy. In the spring it rebranded itself from NatWest Bank to NatWest Group, to emphasise its portfolio of businesses - UK retail, investment banking, and Bancorp. This comes at a time when the fashion in the banking industry is for focusing on central operations and for selling off non-essential businesses.
The City has not been persuaded by NatWest's portfolio strategy, but would need to see how the proceeds of Bancorp's sale would be invested in the rest of the business before applauding it, according to analysts yesterday.
Bancorp has a network of more than 300 branches around the north-east of the US, and recently bought Citizens First and Central Jersey.
Pre-tax profits rose by almost a quarter to pounds 145m in the first half of 1995 compared to last time, with provisions against bad debts easing pounds 2m to pounds 26m.
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