REGIONAL BANKS in America are neither dynamic nor exciting to run. But that doesn’t bother Charles “Bud” Koch. The 57-year-old chairman and chief executive of Cleveland-based Charter One has dedicated a large part of his life to running the bank that was set up by his great grandfather, and last week he showed that while it may be dull, it could also make him exceedingly rich.

Koch (pronounced Coke) found himself in the path of the American acquisition drive put in place by Sir George Mathewson and Fred Goodwin, chairman and chief executive of Britain’s second-biggest bank, Royal Bank of Scotland (RBS).

While bank analysts were busy evaluating whether RBS has paid too much for the deal, Koch could scarcely conceal his delight. Last week his board accepted a $44.50-per-share cash offer, which was a 24% premium to Charter One’s previous closing price.

Koch personally stands to make $105m (£59m) from the sale of his shares and a further $13m from share options. His younger brother, who is a director, will also be a big beneficiary along with three other board members. The five of them will share $500m. A further $500m will be paid out to other senior staff. The total payouts will account for 10% of the $10.5 billion (£5.9 billion) purchase price.

Goodwin has staunchly defended the price, claiming that Charter One will meet RBS’s target of achieving an annual return of 12% after tax.

This is the 26th American bank that RBS has bought since its first acquisition in 1988, when it purchased Citizens Financial of Rhode Island for £235m. Most of these deals have been on Goodwin’s watch. But Charter One is by far the biggest deal, eclipsed only by the audacious £21 billion takeover of National Westminster four years ago — a bank that was then three times the size of RBS.

Ambition and acquisition are two words that are etched on Goodwin’s forehead. Mathewson may help to plot strategy, but Goodwin puts it into effect and then does the cost-cutting. In the case of Charter these savings are expected to be about $185m.

The acquisition team at RBS and its American operation Citizens has become a well-oiled machine and, as RBS has become bigger, so have its targets. RBS’s market value is now just below £50 billion.

Goodwin has so far delivered everything he has promised to investors, but this latest deal, which will turn RBS into America’s seventh-largest bank with a 1,400 branch network and $12.8 billion of assets, has demonstrated that the stakes are getting higher and the deals are becoming more expensive. RBS’s share price dived 5% on Wednesday to touch £16.26 as investors worried that the deal would not boost earnings.

The fall also reflected the fact that RBS is raising £2.5 billion in a share placing to part-fund the acquisition. By Friday, however, the share price had recovered to close at £16.50.

It appears the City is again prepared to give Goodwin the benefit of the doubt. Simon Price, a bank analyst at JP Morgan said: “On our calculation, RBS’s acquisition of Charter should generate a return on investment in the range of 8.5% to 9.5%. This is lower than RBS’s claim of 12% but still sufficient to cover the cost of capital and ensure the deal is at worst value-neutral.”

The latest deal takes the RBS group into new regions, including Illinois, Michigan, Indiana and Ohio. Goodwin said last week that it will be the prelude to hundreds of more deals. He said: “As well as making good financial sense in its own right, it opens up another interesting range of options for Citizens to maintain its strong growth, and it consolidates Citizens’ position as one of the leading banks in the United States.”

But despite his confidence, the deal appears to be doing little to boost RBS’s rating. Richard Staite, a bank analyst at SG Securities, believes Goodwin needs to address this. He said: “That is partly what is wrong with this deal. RBS is issuing its own shares, which are trading at 9.5 times earnings, to buy something that is trading at 15 times. That is why you have virtually no earnings-per-share enhancement until 2005.” His view was shared by Paul Mumford, senior fund manager at Cavendish Asset Management.

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