NATIONAL Westminster Bank has suffered more opprobrium over a longer period this decade than any other British bank - and deservedly so.

It has failed to exploit its core strengths of the small business market, where it is the largest player in England and Wales, and the seven million or so retail banking customers, while its diversification into investment banking was a near calamity.

Like the other high street banks, it has grown out of mergers over the years - the first component was the District Bank, founded in 1829 to serve the textile industry in Lancashire, with the National Provincial and Westminster banks joining much later.

In recent years, it has been perceived as suffering from short-term thinking and frequent changes of strategy.

In 1995, it began buying US boutique specialist investment houses.These included Gleacher, which was sold last year and, ironically, is now advising Bank of Scotland.

But much more damaging to City sentiment were the problems at NatWest Markets, which had been set up in 1992 out of the former County Bank subsidiary. Although there was a relatively good performance for a few years, NWM began to suffer from lack of management control and very high costs. It lost #706m in 1997, which included a #87m hit attributed to mis-pricing complicated options.

There was amazement when it was revealed that chairman Lord Alexander of Weedon had approached Abbey National as to whether it should merge with the former building society: the NatWest argument was that the two would have a better combined mix of businesses, but the core was that Abbey would probably be the better managers.

There were also soundings out by Barclays as to whether NatWest would be agreeable to be taken over, although it was unlikely that this would have been permitted, as the two combined banks would then control about 53% of the small business market.

It was at this time that the Bank of Scotland had merger talks, although their existence was not made known until yesterday.

Chief executive Derek Wanless, in April last year, told senior managers that the bank's culture had to change to survive, as it had preserved structures and hierarchies that prevented it working efficiently. It costs are the highest in the industry.

The decision to merge with Legal & General, and the taking on of chief executive David Prosser in charge of all retail operations, has shown that NatWest has acknowledged it has not the internal skills to see the way forward. That is its fatal flaw.