BANK of Scotland yesterday enthralled the City by declaring it could within three years wring more than #1bn of annualised cost savings from a takeover of National Westminster.

Its estimate of ''at least #1.015bn'' of cuts, from a combined cost base of #5.7bn, was way ahead of analysts' estimates.

Although there was some scepticism, many analysts were giving Bank of Scotland the benefit of the doubt.

Rival banks were, however, either questioning where it was going to find all the ''hand-picked managers'' required to implement ''cost control best practice'', criticising the lack of detail, or expressing doubts that the estimated savings could be achieved.

Bank of Scotland, which launched the biggest hostile takeover attempt in UK corporate history two weeks ago by bidding for a competitor more than twice its size, put no figure on job cuts.

But its managing director and treasurer, Gavin Masterton, reiterated there would not be large-scale compulsory redundancies at NatWest.

He said NatWest had 6800 agency staff on shorter-term contracts.

Masterton estimated about 5000 people would leave the enlarged group each year of their own accord, citing ''girls leaving to have babies and people retiring and all the rest of it''.

He reiterated Bank of Scotland had frozen recruitment, as has NatWest, and added that it aimed ''to work the numbers down not by tens of thousands of redundancies''.

Finance union UNIFI has estimated an additional 15,000 jobs will go if Bank of Scotland acquires NatWest, but hopes there will be no compulsory redundancies.

The English bank, which employs about 68,000 people, is already shedding 10,000 staff in a shake-up of retail operations.

Bank of Scotland claimed ''little progress has been made towards this (10,000) target''.

The Scottish bank did not disclose the one-off restructuring costs it would incur.

But chief executive Peter Burt noted that, in other bank mergers, these had been 110% to 125% of the recurring annual savings achieved. This points to a figure of between #1.1bn and #1.3bn.

Even stripping out the #200m of savings which banking analysts considered would result from measures already put in place by NatWest, the additional #815m-plus which Bank of Scotland expects to achieve was surprising in its magnitude.

It will have rattled potential rival bidders for NatWest, which are believed to include Royal Bank of Scotland and Abbey National.

Burt noted Royal's cost-to-income ratio was higher than

that of his organisation and claimed Abbey would not obtain the same synergies.

But Royal and Abbey's shares rose strongly yesterday - strengthening their ability to launch a shares-plus-cash offer.

Rumours that they might themselves get together appeared to lack substance.

Bank of Scotland shares rose 16.5p to 729.5p, making its shares-and-loan-note offer worth #21.5bn or 1287.2p per NatWest share.

The English bank's shares ended slightly closer to the bid price, rising only 5p to 1440p, but Bank of Scotland is still seen having to raise its offer to win.

''I think the market is probably still expecting someone else to come in. Time will tell,'' said Masterton.

Tom Rayner, analyst at SG Securities in London, believed Bank of Scotland could bid #15-a-share.

The Scottish bank will post its full offer document next week.

It estimated it could extract #510m of cost savings from ''application of . . . proven management practices to the cost base of NatWest''. These savings relate largely to its planned reduction in the number of NatWest proces-

sing centres from 54 to nine and possible relocation of these, and proposals to halve branch sizes.

But, responding angrily, NatWest claimed: ''The majority of the (#510m) cited by Bank of Scotland relates to cost savings which can be achieved by NatWest alone.''

The Scottish bank is also targeting a #290m reduction in information technology costs and related expenditure.

The remaining #215m of the #1.015bn relates to the elimination of duplicated functions, taking in head office costs, support services, and treasury functions, and to the eradication of surplus management in regional offices, credit card operations, and corporate banking. This #215m also includes savings from integrating NatWest's Lombard finance house, similar in nature to Bank of Scotland's Capital Bank subsidiary, into the enlarged group.

NatWest's head office at 41 Lothbury in London appears likely to go.

Masterton confirmed Bank of Scotland's plans to relocate about 90% of NatWest branches to much smaller premises over 10 years.

He claimed such a wholesale relocation would not be costly.

''There are a couple of parties interested in acquiring the whole (NatWest) property portfolio,'' he said. This portfolio is valued at about #1.6bn.

Bank of Scotland talked about

re-locating NatWest processing operations away from ''expensive locations in South-east England and elsewhere''.

Asked if Scotland might benefit, Masterton replied: ''I think there is potential for everywhere.''

Bank of Scotland sees potential for cost savings at NatWest's

Coutts private bank and at the

''big four'' player's life operation - not included in the #1.015bn.

NatWest noted Bank of Scotland was claiming merger benefits and information technology savings equivalent to more than 50% of its total UK cost base in 1998 and cited ''risks'' inherent in integrating banks on a hostile basis.

Chairman Sir David Rowland, presumably noting Bank of Scotland's warning that the ''costs savings referred to may not be achieved . . . or could be materially different from those estimated'', said: ''This heavily-qualified and unsubstantiated announcement again highlights the ill-thought-out nature of Bank of Scotland's bid.''

Masterton said the #1.015bn figure had involved a ''very detailed line-by-line analysis''.