Shares in NatWest plunge as Farage report reveals 'failings'

In a difficult day for the bank, which is 38.9% owned by UK taxpayers, the lender also underlined the pressure from customers moving balances from current accounts to interest-bearing savings accounts, to take advantage of higher interest rates.

Shares initially plummeted by 18%, the biggest intra-day fall since the Brexit vote in June 2016, as investors reacted to a margin downgrade by the bank, before staging a partial recovery. The stock closed te day down 11.6%, or 23.8p, at 182p.

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An independent review commissioned by NatWest, carried out by law firm Travers Smith, found the move to shut the accounts of Mr Farage had been lawful and had been “predominantly a commercial decision”. It noted that Coutts considered its relationship with Mr Farage to be “commercially unviable” because it was “significantly loss-making”.

However, the report also found Coutts had weighed up perceived risks to its reputation, “in the eyes of its stakeholders”, from public statements made by the politician “on issues such as the environment, race, gender and migration”.

It was considered that such statements did not align with NatWest Group’s “purpose”. But the report found that while reputational risk and non-alignment of purpose had been supporting factors, they had not determined the decision to close the accounts.

Mr Farage branded the report a "whitewash" and "laughable". He said: “Travers Smith has taken a very mealy-mouthed approach to this complex issue.

“The law firm argues that my political views 'not aligning with those of the bank' was not in itself a political decision. This is laughable.”

NatWest commissioned Travers Smith to review Coutts’ decision to close the accounts of Mr Farage and the circumstances which led to confidential information about his financial affairs being leaked to the BBC by Dame Alison.

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The BBC initially reported that Mr Farage had his accounts closed for commercial reasons, but it subsequently emerged that concerns had been expressed by some managers about his political views. That came after Mr Farage has requested the release of a subject access request.

Travers Smith concluded that a decision taken in May last year to continue to classify Mr Farage as a politically exposed person was incorrect.

Dame Alison stepped down in late July after admitting to being the source of stories about Mr Farage’s accounts being closed which appeared in the BBC, having initially retained the support of the board, including chairman Sir Howard Davies.

No decision has yet has been reached on the exit remuneration of Ms Rose, after it emerged in August that she was in line for a £2.43 million pay-off under the terms of her 12-month notice period.

City watchdog the Financial Conduct Authority said separately yesterday that it was conducting supervisory work into governance, systems and controls at both NatWest and Coutts to identify and address any significant shortcomings.

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Sir Howard, who reiterated yesterday that he will remain in post until April, when his nine-year tenure as chairman will end, said: “This report sets out a number of serious failings in the treatment of Mr Farage. Although Travers Smith confirm the lawful basis for the exit decision, the findings set out clear shortcomings in how it was reached as well as failures in how we communicated with him and in relation to client confidentiality. We apologise once again to Mr Farage for how he has been treated. His experience fell short of the standards that any customer should expect.

"Our job now is to make sure that does not happen again. The bank is committed to implementing all the recommendations made by Travers Smith and we are making substantive changes to our policies and procedures, in particular to ensure that the lawfully protected beliefs or opinions of customers do not play any role in our decision making.

"The board is considering the findings and deciding on the appropriate outcomes on other matters. It is important we have regard to all necessary processes and due consideration of issues including the bank's obligations around privacy and confidentiality."

On the remuneration of Dame Alison, Sir Howard said a decision would be announced after the bank had given full regard to all the “necessary processes”.

Phase one of the Travers Smith report was published as the bank reported a pre-tax operating profit of £1.33 billion for the third quarter, up from £1.09bn at the same stage last year.

The bank said its net interest margin had fallen amid a “significant change” in customer behaviour over the quarter, as people moved balances to lower-margin fixed term accounts to take advantage of higher interest rates.

Interim chief executive Paul Thwaite said: “That has obviously involved us paying more on savings accounts to our customers, and you can see the impact of that on our incomes and our margins. What the future looks like depends on the trajectory for base rates. Our current view is that base rates will remain at current levels.”

Mortgage margins have also came under pressure as the “higher margin Covid-era book rolls off and is replaced at lower margins”.

The bank revised down its guidance on net interest margin to “greater than” 3%; it has been 3.11% for the year to date, though was 19 basis points lower in the third quarter at 2.94%, compared with the previous quarter.

The Bank of England base rate is currently 5.25%.