The involvement of the Italians would be a serious blow to the hopes of Peter Burt chief executive of the Bank of Scotland

The involvement of the Italians would be a serious blow to the hopes of Peter Burt, chief executive of the Bank of Scotland, in clinching the deal.Mr Burt and his advisers have assumed that RBS would enter the bid battle with BSCH on its side. However, the BOS battle plans have assumed the Spanish would be reluctant to underwrite more than 15 per cent. The group used to have a large stake in Hambros, the City merchant bank, now part of Societe Generale. However, they may not be keen to go much further as analysts say the bank would need a rights issue in Spain in order to acquire, say, a 25 per cent stake in the combined RSB NatWest.But the interest shown by the Italians suggests the two Mediterranean banks could join forces to take anything up to a third of the combined NatWest/RBS bank.The Turin-based San Paolo is no stranger to Britain. San Paolo-IMI, which has played a major role in the consolidation of Italy’s fragmented banking sector, has a cross shareholding deal with BSCH and does not want to miss the opportunity to establish a foothold in the UK, particularly given the huge prize that is represented by NatWest.
“We are obviously interested We have close ties with BSCH and with CCF in France. Obviously it would be RBS management driving this in the UK,” a source close to the Italian bank said.The move would strengthen the chances of the Royal Bank being able to trump the pounds 22bn hostile bid for NatWest from its arch rival Bank of Scotland.Emilio Botin, BSCH’s co-chairman and Juan Inciniarte, the Spanish bank’s chief executive, have been intimately involved with the discussions about a counter bid being held by Sir George Mathewson, the Royal Bank chief executive, with his city advisers Goldman Sachs and Merrill Lynch.The Spanish are wholly supportive and have agreed in principle to raise their existing 10 per cent stake in RBS so that it is not diluted by a bid for NatWest.

The shares had risen 10- fold by the time the deal with Wal-Mart was struck.Mr Norman has also been linked with a vacant chairman’s position at Marks & Spencer.. SAN PAOLO-IMI, the Italian banking giant, is holding preliminary talks about joining Spain’s BSCH and Royal Bank of Scotland in a pounds 25bn bid for NatWest. Knutsford only has pounds 5m of assets and the group’s prospectus implies that it is likely to use its own assets rather than equity to fund deals.Mr Norman joined Asda in the early 1990s when the company was on the brink of bankruptcy after a disastrous expansion programme.He turned the group around, cutting debts and focusing the company on a policy of low prices. To immediately set up in direct competition with the company through which he made his name may present him with problems of loyalty, at least in the short term.But after a decent interval Mr Norman may feel able to return to the supermarket or clothing sectors.Mr Norman and his three colleagues in Knutsford, Nigel Wray, Nick Leslau and Julian Richer, are thought to be astonished by the frenzy of excitement which accompanied the news that they are on the acquisition trail.Privately they have been suggesting that their potential targets are much more modest than the companies being mentioned. However, there is no non-compete clause in his contract which would prevent him from joining or buying a business engaged in similar commercial activities.While this might make a supermarket bid appear more likely Mr Norman retains a huge emotional attachment to Asda. The paper lists a number of reasons for hoping this might improve, including new incentives for investment and enterprise announced in previous Budgets and the possibility that technological change will boost growth.News Analysis, page 16. ARCHIE NORMAN is to step down early as chairman of Asda in a move that will free him to concentrate on other business opportunities.

Mr Norman, who is a Conservative MP and former Tory party chairman, will leave Asda in the next few weeks. He had been expected to stay on at least until early next year in order to help oversee the integration with Wal- Mart, the American discount chain that bought Asda in June.
But with the handover proceeding smoothly he is leaving ahead of schedule, leaving him free to develop new business ventures.These include his involvement with Knutsford, the shell company which ignited the stock market last week when it announced that four high-profile entrepreneurs, including Mr Norman, had bought stakes in the group.They said they intend to use Knutsford as a takeover vehicle to take advantage of under-performing retail and property assets.Knutsford has been linked with a possible bid for a number of struggling retailers including J Sainsbury, Marks & Spencer and Storehouse, though the group has been trying to play down talk of a “mega-bid”.As chairman of Asda, Mr Norman would have been unable to become involved in a bid for a supermarket group on the grounds of conflict of interest.This would have ruled out Sainsbury’s and Somerfield as well as Marks & Spencer, which derives 40 per cent of its business from food.Storehouse, whose Mothercare chain competes head on with Asda’s George range of clothing, would also have presented a problem.When Mr Norman steps down from Asda later this month he will retain an advisory role. Even a small improvement in productivity compounds into a big change in living standards after a number of years.During the past 20 years productivity – GDP per worker – has grown on average by just under 2 per cent a year. Stable growth and lower unemployment thanks to a range of jobs market measures mean the proportion of people of working age who are in work has risen.The new economic forecasts presented tomorrow will be a range centred around the new 2.5 per cent trend, with the lowest figure used to set tax and spending and the higher figure indicating the potential for improvement.Treasury economists hold out the hope of future upward revisions to the trend growth rate if evidence of a permanent improvement in productivity does emerge. Monetary and fiscal policy then had to tighten sharply, having been too set loose on the assumption the economy could sustain higher growth.Rather, the main reason for today’s upward revision is faster growth in the working-age population combined with a higher employment rate amongst that demographic group. Measures to boost productivity will be at thecentre of the Chancellor’s statement tomorrow.Treasury forecasts in the late 1980s fell into the trap of revising trend growth up as high as 3 per cent only to find it was a temporary, cyclical improvement that later went into reverse. However, it will give more ammunition to critics who claim Mr Brown is building up a pre-election “war chest”.The Treasury’s new, more optimistic assessment of the economy’s long- term potential does not depend on assuming there has been any kind of “productivity miracle”.

However, the forecasts of the public finances presented in tomorrow’s statement by the Chancellor will continue to be based on the lower figure. The spending review next year to set departments’ expenditure plans for the following three years, 2001/02 to 2003/04, will also be based on the cautious figure.
The Treasury said a cautious view would be taken for all fiscal planning “The forecasts will be kept on a prudent basis,” he said. Sticking to the cautious 2.25 per cent trend growth assumption for the public finances means the surplus of revenues over spending will be several billion pounds higher than if the 2.5 per cent figure were used.The fiscal rules require the Chancellor to balance current spending over the course of the business cycle, so a surplus as the economy expands is needed to offset deficits during the downturn.Business will welcome continued prudence, as any relaxation would put more pressure on interest rates. It estimates that GDP can grow at 2.5 per cent a year on average, rather than the 2.25 per cent assumed previously. THE BRITISH economy’s trend rate of growth has risen, according to a Treasury paper published this morning on the eve of Gordon Brown’s Pre-Budget Report.