The paper said the counterbid would come early next month and would be a cash and share offer of between 15 and 16 pounds a share, valuing NatWest at 26 billion pounds ($42.20 billion).

That would outstrip the existing 12.70 pound a share bid from Bank of Scotland for its much bigger rival, which values NatWest at 22 billion pounds.

This would represent the first significant tie-up between a European and a British bank and the Sunday Times said BSCH may take a 29.9 per cent stake in the combined business.

Last week Britain's Takeover Panel said Royal Bank must clarify its position with regard to NatWest by December 3. No one was immediately available for comment at Royal Bank.

-- The Wall Street Journal