Royal Bank of Scotland (RBS) is believed to have teamed up with the Spanish bank Santander to work on a bid for ABN Amro, which is in exclusive merger talks with Barclays.
There are also suggestions RBS is using the threat of a counter-offer in order to convinceBarclays to sell it ABN's US retail business.
Any RBS/Santander move would wait until they can see the outcome of the negotiations between Barclays and the Dutch group.
Barclays was given a 30-day exclusivity period by ABN on March 18. Analysts expect any merger to work out at a roughly 60/40 split in favour of the British bank.
However, the acquisitive RBS chief executive, Sir Fred Goodwin, is unlikely to sit on the sidelines. ABN's US retail business, La Salle, would be a good fit with the US operations of RBS.
Barclays has no retail business in the US, but selling La Salle would still leave it with ABN's wholesale and asset management businesses in the US.
But given that the Barclays-ABN deal is billed as a merger, the sale of La Salle would need to be agreed with the management of the Dutch bank, which hopes to keep its empire intact.
A full-blown bid from Santander, chaired by Emilio Botin, and RBS could involve a bigger premium for ABN shareholders as they would break up the Dutch bank.
Santander would walk away with the ABN retail business in continental Europe and South America, according to reports. RBS would get La Salle and ABN's wholesale operations.
One City source pointed out that Barclays and RBS shareholders overlap significantly and they will be nervous that any bidding war between the two for ABN would result in the victor overpaying.
RBS and Santander are long-term allies. The banks used to have cross-shareholders and Botin sat on the RBS board until Santander bought Abbey in 2004.
A move by Goldman Sachs to end its advisory role with the Dutch bank ING last week revived speculation of a counterbid for ABN, with dealers saying it could mean Goldman wanted a clear role to advise RBS if it makes an offer.
