The offer, worth 15.90 pounds a share, tops the hostile bid for NatWest already on the table from its Edinburgh-based rival which has offered 14.57, excluding a planned special dividend worth 1.20. Royal Bank's bid is at a 4.7-percent premium to NatWest's closing share price on Friday of 15.18. Royal Bank said its 9.6 percent shareholder, Spain's BancoSantander Central Hispano, would subscribe to 1.2 billion pounds worth of Royal Bank shares at market prices in support of the bid. Royal Bank believes it can achieve hefty cost savings by merging their two British banking networks.

"Our proposed combination of NatWest with RBS isa unique opportunity to produce a new force in banking...with substantial cost savings and revenue opportunities," said Royal Bank Chairman Viscount Younger. NatWest shareholders would hold 62.2 percent of the new group under the Royal Bank proposal, compared to the 75 percent under the Bank of Scotland plan.

It said it expected to find savings of 600 million by removing overlaps and efficiency cost savings of 580 million, giving total expected cost savings of 1.18 billion. This compares with the 1.015 billion that Bank of Scotland is predicting and the 525 million that NatWest itself has predicted. Royal Bank's loan note element is higher than Bank of Scotland's 190 pence, which along with the higher cost savings, mean it is seen more likely to succeed.

Most analysts believe Bank of Scotland cannot increase its bid much more without destroying shareholder value. Royal Bank also forecast a profit enhancement of 240 million from initial revenue benefits, while neither Bank of Scotland or NatWest havereleased a revenue enhancement forecast.

This is also seen boosting Royal Bank's case. However, Royal Bank is at a disadvantage in that the government is still considering whether its bid should be referred to the Competition Commission while Bank of Scotland's was cleared last week.