Royal Bank, which is offering 0.968 new Royal Bank shares for each NatWest share plus a 305 pence loan note, had attempted a friendly approach but was rebuffed at the weekend.

Royal Bank believes it can achieve hefty cost savings by merging the two banking networks into an enlarged group which it said would be Britain's largest corporate bank and the second biggest retail concern behind Lloyds TSB Group Plc.

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 pounds, excluding a planned special dividend worth 1.20.

Royal Bank's bid is at a 4.7 per cent premium to NatWest's closing share price on Friday of 15.18 pounds. Shares in NatWest dipped nine pence to 15.09 pounds by 0900 GMT as Royal Bank's stockretreated more than three per cent, or 46P, to 12.82 pounds. Bank of Scotland added 14 P to 738P. "They've left the door open to a NatWest management agreement, which wouldn't be possible for Bank of Scotland because they've been so vitriolic," said one banking analyst.

NatWest said it was considering the latest Royal Bank move -- which represents an increase in the cash element over the deal rejected at the weekend -- and recommended shareholders take no action for the time being.

Royal Bank Deputy Chief Executive Fred Goodwin said the deal would be accretive for earnings per share from the first year, excluding goodwill, adding his bank had identified 43 revenue-enhancing opportunities and 111 cost-savings opportunities. "From those, we think there could be a head count reduction in the region of 18,000, which would compare with the 15,000 that NatWest have spoken about," he said.

Bank of Scotland has not forecast job losses, but it has been estimated its plans would see about 22,000 jobs lost.Goodwin said there were no branch closures planned directly from the merger.

Royal Bank said its 9.6 per cent shareholder, Spain's Banco Santander Central Hispano, would subscribe for 1.2 billion pounds worth of Royal Bank shares at market prices in support of the bid. The Spanish bank, currently the biggest shareholder in Royal Bank with a 9.64 per cent stake, would have a holding of around 6.5 per cent in the enlarged group.

Royal Bank also announced a banc assurance deal with Britain's largest composite insurer CGU Plc under which CGU would buy 50 per cent of Royal Bank's life assurance unit for 150 million pounds and spend 300 million pounds over the next six months increasing its stake in Royal Bank.