By Scott Wright
NATWEST Group, owner of Royal Bank of Scotland, saw its share price plunge yesterday after analysts signalled concern over the bank’s outlook for 2023.
Shares in the bank closed down nearly eight per cent despite reporting profits had leapt by more than one-third to £5.1 billion in 2022.
The bank, which remains 45.97% owned by UK taxpayers, benefited last year from successive hikes in interest rates to counter inflation. But analysts highlighted concern over weaker guidance provided by the bank on income and costs for this year, amid expectations that base rates will hold at 4% during 2023.
NatWest maintained expectations of a return on tangible equity of 14-16% and income for the year of around £14.8bn, against a consensus of £15bn. It guided on a full-year net interest margin of 3.2%, versus a consensus of 3.38%, and costs of £7.6bn, compared with £7.2bn forecast by the City.
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The bank’s net income margin widened by 55 basis points to 2.85% during 2022.
Russ Mould, investment director at stockbroker AJ Bell, said: “NatWest may have delivered its biggest profit since the financial crisis, but investors are far more concerned about what’s coming next and that’s less positive.
“Income for 2023 is now guided to be lower than expected, with the key net interest margin metric also falling short. Costs are also set to be higher than forecast.
“While impairments are anticipated to be a bit lower than estimates the market may be cautious of taking NatWest at its word given the difficult backdrop for consumers and businesses which could lead to a big increase in bad debts.”
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Dame Alison Rose , chief executive of NatWest, said: “What we have seen is a very strong performance by the bank. We are targeting 14-16% return on tangible equity. I think that is a very strong performance.”
Dame Alison declared that the bank was “not yet seeing signs of significant financial distress among our customers” amid the continuing cost-of-living crisis. But she noted “we are acutely aware that many people and businesses are struggling right now and that many more are worried about what the future holds”.
Dame Alison was paid a total of £5.2 million in 2022, up from £3.6m, which came after changes were made to the bonus structure for senior executives last year.
Chairman Sir Howard Davies said: “We think this is a totally appropriate level of remuneration for our senior people.”
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The overall bonus pool for the bank’s wider workforce increased to £367.5m, up 23% on the year before. Around half of the bank’s 60,000 staff work in bonus-eligible roles, a spokeswoman said.
The bank booked an impairment charge of £337m, reflecting the macroeconomic conditions.
Asked to comment on impairments during a call with reporters, Dame Alison said credit conditions remained “very benign”. But she acknowledged that it was “very tough out there”.
Meanwhile, asked whether the bank’s strategy around the Scottish independence debate had changed following the decision this week by First Minister Nicola Sturgeon to resign, Dame Alison said: “Scottish independence is a matter for the Scottish people in Scotland. As you know we have a significant business in Scotland. One in the three businesses we support, one in five people, one in seven households, so it is a significant part [of our business].
“We’re not making any plans and that’s very much for the Scottish people.”
The bank proposed a final dividend of 10p per share and plans a share buyback worth up to £800m in the first half of 2023. That would take total distributions deducted from capital in the year to £5.1bn, or 53p per share.
Shares in NatWest closed down 23.5p at 282.1p.
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