National Westminster Bank may shortly receive a counter-bid from the Royal Bank of Scotland and the Spanish bank BSCH.

The pair are understood to be preparing a joint bid for the bank, which is fighting a hostile bid from Bank of Scotland.

The counter-bid could value the bank at £26 billion sterling (€32 billion), compared to Bank of Scotland's £22 billion offer. Royal Bank of Scotland and BSCH are believed to be considering a cash-and-share offer of £15 to £16 per share against the existing £12.70 per share bid from Bank of Scotland. Market sources indicate the bid could be made early next month.

Meanwhile, up to 10 financial institutions are expected to bid for NatWest's Irish subsidiary, Ulster Bank, this week.

The bank is being sold as part of a restructuring exercise to raise funds to fend off the Bank of Scotland bid.

Irish Life & Permanent and Bank of Ireland are discussing whether they will make a joint bid while AIB is likely to look closely at Ulster Bank.

National Australia Bank, which owns National Irish Bank and Northern Bank, may also bid, although it is not believed to have made a direct approach to NatWest's advisers yet.

At the weekend, however, NAB managing director Mr Frank Cicutto clearly indicated it was looking at expanding its operations in the northern hemisphere, particularly in Britain.

Within the next six months, he said, the bank may use excess capital to take advantage of acquisition opportunities.

Several British and European financial institutions are also considering buying Ulster Bank and one US group has expressed interest.

If Royal Bank of Scotland and BSCH proceed with a bid for NatWest it will be the first significant link-up between a European and a British bank, with suggestions that BSCH may take a 29.9 per cent stake in the combined business.

A spokesman for Royal Bank of Scotland said it was monitoring the situation carefully but it never commented on speculation.

Last week, Britain's Takeover Panel said Royal Bank of Scotland must clarify its position on NatWest by December 3rd.

In the meantime, Bank of Scotland must decide whether to raise its hostile bid for NatWest. The Edinburgh-based bank said it would pursue its bid to a successful conclusion regardless of the actions of its arch-rival Royal Bank of Scotland.

Analysts believe it is in a difficult position. "If it increases the offer too early then they give the Royal Bank a perfect benchmark to price against," according to Schroders' banking analyst Mr Mike Trippitt. Analysts believe Bank of Scotland could offer up to £17.60 a share, valuing NatWest at £29 billion, without it being dilutive and depressing its own share price.

Royal Bank of Scotland, on the other hand, could go up to £20, or a total value of £33 billion, if it really wanted NatWest. The battle could drag on until March if Royal Bank of Scotland joins in.

--(Additional reporting from Reuters)