ACQUISITION/ISSUE OF EQUITY

Royal Bank of Scotland Group PLC
17 July 2001

The Royal Bank of Scotland Group plc      17 July 2001

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, OR INTO, THE UNITED STATES,
CANADA OR JAPAN

ACQUISITION OF REGIONAL FRANCHISE FROM MELLON FINANCIAL CORPORATION, PLACING
TO RAISE APPROXIMATELY £2.0 BILLION AND THE ROYAL BANK OF SCOTLAND GROUP PLC
PROFIT ESTIMATE FOR THE SIX MONTHS ENDED 30 JUNE 2001

Highlights

*   Acquisition of the retail, small business and certain middle market
    commercial banking businesses of Pennsylvania based Mellon Financial
    Corporation ('the Regional Franchise' or 'the Business'), for a cash
    consideration of approximately US$2.1 billion.
*   Placing of new ordinary shares of The Royal Bank of Scotland Group plc
    ('Royal Bank Group') marketed today, expected to raise approximately £2.0
    billion.
*   Royal Bank Group profit before tax, goodwill amortisation and integration
    costs for the six months ended 30 June 2001 estimated to be £2,751 million.

Details of the acquisition

Royal Bank Group announces that its wholly owned subsidiary, Citizens
Financial Group, Inc. ('Citizens') has entered into agreements, subject to US
regulatory consents, to acquire the Regional Franchise for a cash
consideration of approximately US$2.1 billion.

The Regional Franchise comprises personal customers from some 650,000
households and approximately 58,000 business customers, supported by 345
branches and 4,135 staff in Pennsylvania, New Jersey and Delaware. Of the 345
branches, 321 are in Pennsylvania (mainly around Philadelphia and Pittsburgh),
5 are in New Jersey and 19 in Delaware. There are 257 traditional branches, 72
in supermarkets and 16 drive-ins.

The Business ranks third in terms of deposits in both Greater Philadelphia and
Greater Pittsburgh, with market shares of 9% and 10% respectively. Deposits of
the Regional Franchise at the end of May 2001 amounted to US$13.4 billion, of
which US$11.0 billion are consumer deposits and US$2.4 billion are commercial
deposits.

The Business includes assets comprised of US$6.1 billion of customer loans and
US$7.3 billion of cash, securities and other assets. Of the US$6.1 billion
loans, US$1.8 billion are student loans guaranteed by the US government,
US$0.6 billion are personal loans, US$2.0 billion are business loans and
US$1.7 billion are mid-market loans. Non-performing loans within the portfolio
amount to US$24 million and there are total provisions of US$75 million.

Royal Bank Group estimates that the current pro forma annualised profit before
tax and the after-tax earnings of the Business are US$241 million and US$161
million respectively (see Appendix 1).

The acquisition is expected to complete in the fourth quarter of 2001.

Benefits of the transaction

Royal Bank Group, through Citizens, has a highly successful acquisition track
record in the US. The acquisition is consistent with Royal Bank Group's stated
strategy in the US of growing shareholder value through the extension of
Citizens' franchise.

The acquisition is a logical extension of Citizens' activities into nearby and
similar states. As a result of the acquisition, Citizens will have
relationships with 50% more personal and business customers and will increase
its branch network by 80%. Citizens expects to generate increased growth,
revenue benefits and cost savings by applying its business approach to the
strong franchise in the densely populated areas of Pittsburgh and
Philadelphia.

Citizens has a clear business plan to integrate the Business and to deliver
the expected income benefits and cost savings. Key principles of the business
plan include minimal disruption to customer-facing activities and the
introduction of a centralised manufacturing capability. Citizens will
introduce its proven products and processes, and will convert the Business to
its existing technology platform, which is scalable.

Royal Bank Group estimates that the acquisition will enable Citizens to
achieve income benefits amounting to US$242 million on an annualised basis
(US$104 million pre-tax profit after associated costs and bad debts) and
annualised cost savings amounting to US$101 million, in 3 years from
completion. Specific initiatives to deliver these synergies are set out in
Appendix 2.

In time, the Regional Franchise will give Citizens greater options for further
acquisitions - either in-market consolidations or further market extensions.

Citizens' management

Over the last 10 years, the Citizens management team has successfully
completed 17 acquisitions. It has gained considerable experience in
identifying and delivering transaction benefits, assessing credit quality and
converting brands and technologies.

As a result of both organic growth and these successful acquisitions, Citizens
has grown its assets from US$3 billion in 1990 to US$30 billion in 2000 and
its profit before tax and exceptional items from US$16 million to US$567
million.

Financial impact of the acquisition

Citizens expects to pay a cash consideration of approximately US$2.1 billion
to acquire the Regional Franchise. This is based on a premium of 16% on
deposits of US$13.4 billion at the end of May 2001. Accordingly, the maximum
consideration payable would be US$2.4 billion based on total deposits capped
at US$15.0 billion on completion.

The equity required for this acquisition comprises the cash consideration of
US$2.1 billion, equity of US$0.7 billion to support the assets of the Regional
Franchise, fair value adjustments and integration costs of US$0.3 billion and
US$0.4 billion to allow for additional items and increased deposits at
completion. The total equity required of US$3.5 billion (£2.5 billion) will be
funded by the Placing (£2.0 billion) and internal funds (£0.5 billion). As a
consequence, the Royal Bank Group's tier 1 capital ratio is expected to reduce
by between 0.1% and 0.2%.

Citizens will be able to set amortisation of purchased goodwill against
taxable income for US tax purposes over a period of 15 years. As a result
there will be an annual tax benefit, the net present value of which is
approximately US$0.5 billion.

Royal Bank Group believes that the acquisition will have a broadly neutral
impact on its earnings in 2002, and will be accretive thereafter. (Note 1)

Note 1

No part of this statement should be interpreted to mean that earnings per
share of Royal Bank Group for the current or future financial years will
necessarily match or exceed the historical earnings per share of Royal Bank
Group.

Interim Results

Royal Bank Group's interim results for the six months ended 30 June 2001 are
scheduled to be announced on 7 August 2001. Royal Bank Group estimates that
profit before tax, goodwill amortisation and integration costs for the six
months ended 30 June 2001 is £2,751 million (six months ended 30 June 2000 pro
forma: £2,011 million), up 37%.

Royal Bank Group expects to report the following in its interim results:

*   All businesses performing well.
*   Integration of NatWest fully on track.
*   Income up 14%.
*   Costs down 1%.
*   Provisions up 19%.
*   Cost:income ratio 48.1% (2000 pro forma: 55.7%).



Placing

Royal Bank Group intends to finance the acquisition with the proceeds of a
placing, being launched today, of new ordinary shares of 25p each (the 'New
Ordinary Shares') to raise approximately £2.0 billion (the 'Placing'). The
Placing is being conducted through a bookbuilding process being carried out by
Merrill Lynch International and UBS AG, acting through its business group UBS
Warburg ('UBS Warburg'), the joint lead managers of the Placing. Details of
the number of New Ordinary Shares to be issued and the price at which they
will be offered are expected to be determined and announced as soon as is
practicable after the Placing closes. Merrill Lynch International and UBS
Warburg, in consultation with Royal Bank Group, reserve the right to close the
book at any time and with Royal Bank Group's agreement to alter the size of
the Placing at their discretion. The book is not expected to close later than
midnight (London time) on Wednesday, 18 July 2001.

Appendix 3 of this announcement sets out further information regarding the
Placing.



General

Goldman, Sachs & Co. is acting as exclusive financial adviser to Royal Bank
Group and Citizens, and has provided a fairness opinion to the Boards of Royal
Bank Group and Citizens, in respect of the acquisition. Merrill Lynch
International and UBS Warburg Ltd. are acting as advisers in respect of the
financing of the acquisition and as joint book runners to the Placing, and in
this context have also provided a fairness opinion in respect of the
acquisition to the Board of Royal Bank Group.

Merrill Lynch International and UBS Warburg Ltd., both of which are regulated
in the United Kingdom by The Securities and Futures Authority Limited, are
acting exclusively for Royal Bank Group and no one else in connection with the
Placing and will not be responsible to anyone other than Royal Bank Group for
providing the protections afforded to customers of Merrill Lynch International
and UBS Warburg Ltd., or for giving advice in relation to the Placing or any
other matters referred to in this press announcement.

Comments

Fred Goodwin, Group Chief Executive of Royal Bank Group, said: 'We have always
believed that the Citizens model was capable of being replicated in other
parts of the north eastern US. The Mellon transaction is a logical and low
risk extension of the Citizens' franchise which is not only a good deal in its
own right, but opens a range of additional options for us. Our motivation in
purchasing the business from Mellon is growth and we are confident that the
Citizens' management team with its outstanding track record of integrating and
growing businesses is well positioned to unlock the growth opportunities in
the sixth largest state in the US.

'Banco Santander Central Hispano, our alliance partner and the holder of 9.01%
in Royal Bank Group welcomes and fully supports the transaction.

'All our businesses are performing well, and integration is fully on track. We
are pleased with these results as they demonstrate our continuing strong
income growth and a cost:income ratio that has been substantially reduced in
the last 12 months. Provisions have increased largely as a consequence of
growth in our lending. Credit quality remains strong in absolute terms and we
continue to see a flow of business with a good credit profile at attractive
margins.

'As ever, a wide range of economic scenarios are being postulated and it seems
to us imprudent to assume any one outlook will prevail. We remain confident
that the strength, diversity and flexibility of our business will enable us to
continue to deliver superior performance for our shareholders in any credible
economic scenario.'

Contacts:

Fred Goodwin, Group Chief Executive                    [phone]
Fred Watt, Group Finance Director                      [phone]
Press contact:
Howard Moody, Group Director, Communications           [phone]



An analysts' conference will be held at Royal Bank Group's offices at
Waterhouse Square, 138-142 Holborn, London EC1N 2TH, at 9.30am on 17 July 2001.

A press conference will be held at Royal Bank Group's offices at Waterhouse
Square, 138-142 Holborn, London EC1N 2TH, at 11.30am on 17 July 2001.

Presentations will be available on the internet at www.rbs.co.uk from 5.30pm on
17 July 2001.



Certain statements made in this announcement are forward looking statements.
Such statements are based on current expectations and are subject to a number
of risks and uncertainties that could cause actual results and performance to
differ materially from any expected future results or performance, express or
implied, by the forward looking statements. Factors that might cause forward
looking statements to differ materially from actual results include, among
other things, regulatory and economic factors. Royal Bank Group assumes no
responsibility to update any of the forward looking statements contained
herein.

This announcement does not constitute an offer of securities for sale in the
United States. The information contained herein is not for publication or
distribution to persons in the United States. The New Ordinary Shares have not
been and will not be registered under the U.S. Securities Act of 1933 ('the
Securities Act') and may not be offered or sold in the United States unless
they are registered with the U.S. Securities and Exchange Commission or
pursuant to an exemption from the registration requirements of the Securities
Act. There will be no public offering of the New Ordinary Shares in the United
States.

This document has been issued by and is the sole responsibility of Royal Bank
Group and has been approved solely for the purposes of Section 57 of the
Financial Services Act 1986 by Merrill Lynch International and UBS Warburg
Ltd.



                                                                    APPENDIX 1

                      PRO FORMA INFORMATION FOR CITIZENS

                          AND THE REGIONAL FRANCHISE


                               Citizens (1)      Regional Franchise (2) (5)
Profit and loss (US$m):

Income                                  1,393                         719
Costs                                   (765)                       (453)
Bad debts                                (61)                        (25)
Profit before tax                         567                         241

Profit after tax                          369                         161

Cost:income ratio                       54.9%                       63.0%


                               Citizens (3)      Regional Franchise (4) (5)
Assets (US$bn):

Loans                                    17.6                         6.1
Cash and securities                       8.5                         7.8
Other (incl goodwill)                     4.2                         0.2

                                         30.3                        14.1

Liabilities (US$bn):

Deposits                                 25.0                        13.4
Other                                     2.8                         0.0
Equity                                    2.5                         0.7

                                         30.3                        14.1

Notes
(1) Citizens' financial statements for the year ended 31 December 2000,
    excluding one-off costs of US$32 million.
(2) Estimated by annualising the unaudited management accounts for the
    businesses to be acquired for the four months ended 30 April 2001, adjusted
    to include corporate overheads and yields on cash and securities to reflect
    those anticipated to be achieved under Citizens' ownership.
(3) As at 31 December 2000.
(4) As at 31 May 2001.
(5) Equity of approximately US$0.7 billion would be required to support the
    assets in the Regional Franchise and is included in the above pro forma
    information together with the interest income thereon.
(6) All figures have been prepared under UK GAAP.



                                                                    APPENDIX 2

                      Revenue Benefits and Cost Savings

Citizens has identified specific initiatives to increase the Business' income
and reduce its costs, in the 3 years after completion of the transaction.

Citizens plans to increase the Business' income by an annualised amount of
US$242 million, in 3 years after completion of the transaction. After costs
and additional bad debt provisions, the impact on Citizens' profit before tax
in 2004 is expected to be US$104 million.

Income          Annualised Income     Contribution to Profit      Number of
Benefits            Benefits*               Before Tax           Initiatives

US$m
Personal               136                      54                    5
Business               32                       20                    3
Banking
Mid-market             74                       30                    3
Total                  242                     104                   11

* Annualised income benefits at the end of 2004.

The planned income initiatives relate primarily to the introduction of
Citizens' core banking products (packaged deposit accounts, consumer loans and
fee services), sales processes, marketing and incentive arrangements. The
annualised income benefits are expected to be achieved as follows: US$57
million by end 2002, US$136 million by end 2003 and US$242 million by end
2004. The impact of the revenue benefits on profit before tax is expected to
be US$2 million in 2002, US$34 million in 2003 and US$104 million in 2004.

Citizens plans to reduce the Business' costs by US$101 million, in 3 years
after completion of the transaction.

Cost Savings    Annualised Cost     Contribution to Profit        Number of
                   Savings*               Before Tax             Initiatives
US$m
Manufacturing         62                      59                     11
Central               39                      39                      3
Total                 101                     98                     14

* Annualised cost savings at the end of 2004.

Cost savings are expected to be achieved by the establishment of central
manufacturing capabilities for technology and processing and by the
consolidation of central functions.

The annualised cost savings are expected to be achieved as follows: US$71
million by end 2002, US$95 million by end 2003 and US$101 million by end 2004.
The impact of the cost savings on profit before tax is expected to be US$46
million in 2002, US$83 million in 2003 and US$98 million in 2004.

Citizens expects integration costs of US$267 million to be incurred over a 3
year period (US$101 million in 2001, US$140 million in 2002, US$19 million in
2003 and US$7 million in 2004). These integration costs will establish the
Citizens brand in new areas and reflect increased product marketing
expenditure and IT systems migration costs.

The income benefits and cost savings have been prepared on a detailed
bottom-up basis and have been reported on by Deloitte & Touche.

Citizens expects to use the Business' existing brand for a transitional period
and then convert to the Citizens brand.



                                                                    APPENDIX 3


                      FURTHER INFORMATION ON THE PLACING

The Placing of New Ordinary Shares is to be made by Merrill Lynch
International and UBS Warburg acting as agents of Royal Bank Group.

The New Ordinary Shares will be allotted subject to the memorandum and
articles of association of Royal Bank Group and will rank pari passu with
Royal Bank Group's existing ordinary shares of 25p each, including the right
to participate in all dividends and other distributions declared, paid or made
after the date of this announcement on or in respect of such shares and will
carry entitlement to the interim dividend to be declared on 7 August 2001.

Placees' commitments to acquire the Placing Shares will be subject to (i) the
admission of the New Ordinary Shares to the Official List of the United
Kingdom Listing Authority and to trading by the London Stock Exchange each
becoming effective at or prior to 8.00am on 25 July 2001 or such later date as
Merrill Lynch International and UBS Warburg and Royal Bank Group may agree in
writing and (ii) the Placing Agreement not being terminated. Commitments to
acquire New Ordinary Shares made in the bookbuilding process are not capable
of termination or rescission by placees in any circumstances.

Confirmation of an allocation of New Ordinary Shares to a placee will
constitute the agreement of such placee (subject to the conditions referred to
above):

(i)  to subscribe at the placing price for the number New Ordinary Shares
     allocated;
(ii) that it is not a person in Japan or Canada and is outside the United
     States (as defined in Regulation S under the Securities Act) or is a
     'Qualified Institutional Buyer' (within the meaning of Rule 144A
     Securities Act); and
(iii) that it is a person whose ordinary activities involve acquiring, holding,
     managing or disposing of investments (as principal or agent) for the
     purposes of its business or that the allotment to the placee, if the
     placee is in the United Kingdom, fulfils one or other of the conditions
     specified in Article 3(1) of Schedule 11A of the Financial Services Act
     1986 or that it is otherwise a person to which the allotment may lawfully
     be made without observing any requirement for the New Ordinary Shares to
     be registered or made the subject of a prospectus (or equivalent
     document).

Settlement for the New Ordinary Shares is expected to occur three London
business days after confirmation of the price and allocation is sent to
placees but not later than 25 July 2001. Admission to listing and to trading
are expected to take place on the same day.

Subscriptions for New Ordinary Shares will be made on the basis that the
subscriber has not relied (i) on any information, representation and/or
warranties from Merrill Lynch International or UBS Warburg nor (ii) on any
information, representation and/or warranties from Royal Bank Group, save for
the information contained in this announcement.

Settlement of subscriptions for New Ordinary Shares will only be free of
United Kingdom stamp duty and stamp duty reserve tax ('SDRT') if the New
Ordinary Shares are not acquired in connection with arrangements to issue
depositary receipts or to transfer New Ordinary Shares into a clearance
service and on the basis that subscribers of New Ordinary Shares are not, and
are not acting as nominee or agent for, a person (or its nominee) who is or
may be liable for United Kingdom stamp duty or SDRT under Section 67, 70, 93
or 96 of the Finance Act 1986. If all such requirements are not satisfied, or
the settlement relates to other dealings in New Ordinary Shares, United
Kingdom stamp duty or SDRT may be payable for which neither Royal Bank Group,
Merrill Lynch International nor UBS Warburg will be responsible.

Royal Bank Group has agreed with Merrill Lynch International and UBS Warburg
in the Placing Agreement that it will not, for a period of 90 days from the
signature of the Placing Agreement, effect certain disposals of its ordinary
shares, subject to certain exceptions.

In certain circumstances, Merrill Lynch International and UBS Warburg will
have the right to terminate their obligations under the Placing Agreement, in
which event the Placing will not proceed.

The making of an offer in, or to residents or citizens of, certain
jurisdictions ('Foreign Shareholders') may be restricted by laws of the
relevant jurisdictions. Foreign Shareholders should inform themselves about
and observe any such applicable legal requirements in their respective
jurisdictions.

This announcement does not constitute an offer to sell or issue, or constitute
the solicitation of an offer, in any jurisdiction in which such offer is
unlawful.

In the unlikely event that Royal Bank Group does not acquire Mellon's Regional
Franchise, Royal Bank Group intends to use the proceeds of the Placing for
general corporate purposes.

Application has been made for the New Ordinary Shares to be admitted to the
Official List of the UK Listing Authority and for admission to trading on the
London Stock Exchange.

'Placing Agreement' means the placing agreement to be entered into between
Royal Bank Group, Merrill Lynch International and UBS AG acting through its
business group UBS Warburg relating to the Placing Shares.

'New Ordinary Shares' means the new ordinary shares of 25p each of Royal Bank
Group proposed to be allotted as part of the Placing.