Shares in Royal Bank of Scotland owner NatWest Group are up by more than 7% this morning after it raised its profit guidance and announced a deal to acquire a £2.5 billion portfolio of prime UK mortgages from Metro Bank.
State-backed NatWest smashed City expectations as it booked an operating profit of £3bn for the six months to June 30, 15.6% down on the same period last year but ahead of market forecasts. It reported an operating profit of £1.7bn for the second quarter versus an expected £1.3bn.
Chief executive Paul Thwaite declared the strength of the performance in the first half had given the bank confidence to upgrade its guidance for the full-year, with income guidance for the full year raised to £14bn from £13bn to £13.5bn It recommended a 9% increase in its interim dividend to 6p per share which, along with a £1.2bn directed buyback in May, will bring total shareholder distributions for the first half to £1.7bn.
Matt Britzman, senior equity analyst, Hargreaves Lansdown, declared: "NatWest has just delivered a knockout set of results. It's also good to see full-year guidance on net interest income finally get the upgrade investors had been hoping to see, and now supports the numbers analysts had been pencilling in.
"That's positive news and helps underpin the stock price which has been on a heater this year."
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The Metro Bank deal comes shortly after NatWest acquired Sainsbury’s Bank in a deal worth £2.5bn in June. Mr Thwaite said the two deals have added scale and the prospect of attractive returns to the bank’s retail business, with the Metro book bringing around 10,000 new customers.
“We are also pleased with the continued reduction of the Government’s stake, which has almost halved this year,” Mr Thwaite said.
“We have made good progress against our strategic priorities, taking decisive action to grow and simplify our business and to manage our capital and costs more efficiently.
“There has been growth across all three of our businesses, we have attracted over 200,000 new customers and our acquisition from Sainsbury’s Bank is expected to add around one million customer accounts on completion.
“We have also agreed to acquire £2.5bn of UK prime residential mortgages from Metro Bank plc, adding further scale to our Retail Banking business. The positive momentum and progress in the first half reflect the ambition across the bank to deliver its full potential.
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“Our customers are beginning to feel more confident, with activity increasing and asset quality remaining strong, and we are well positioned to help unlock growth across the UK through our unrivalled regional network. Fundamentally, if we succeed with our customers, we will succeed for our shareholders and the wider economy.”
As announced earlier this month, the UK Government’s shareholding in the bank, a legacy of its £45.5 billion bail-out during the financial crisis of 2008 and 2009, is now below 20%. It has nearly halved since December.
The Labour Party’s victory in the General Election has led to speculation over the fate of plans announced by the previous UK Government to launch a retail offer of the public’s shares in the bank. Mr Thwaite said it was down to the new Government to deide whether to proceed with the offer.
John Moore, senior investment manager at RBC Brewin Dolphin, said: “NatWest’s acquisition of Metro Bank’s residential mortgages portfolio builds on its purchase of Sainsbury’s Bank’s core banking operation, adding further scale to NatWest’s loan book. Both deals provide momentum for NatWest, which has been moving in a more positive direction after the distractions of last year.
“Overall, the bank appears to be in healthy shape, with good cost discipline and a growing balance sheet. All of this looks positive for NatWest and is providing a foundation for a recovery in its share price, which is up more than 50% in the last six months – albeit the prospect of the retail offer for the government’s remaining stake, will likely temper too much progress for now.”
Shares in NatWest were trading at 363.7p at 9.05am, up 25.6p or 7.57% on the day.
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