Shares in NatWest Group closed up by 7% last night after the Royal Bank of Scotland owner raised its profit guidance and announced a deal to acquire a £2.5 billion portfolio of prime residential UK mortgages from Metro Bank.
The state-backed institution smashed City expectations as it booked an operating profit of £3bn for the six months to June 30, 15.6% down on last year but ahead of market forecasts. It reported an operating profit of £1.7bn for the second quarter compared with the £1.3bn expected, following an increase in customer activity over the first half.
The results also revealed that NatWest has spent £24 million on preparations for a retail offer of the Treasury’s shareholding in the bank, a legacy of its £45.5 billion bail-out during the financial crisis of 2008 and 2009. There is now uncertainty over whether the share sale, announced by the former Chancellor of the Exchequer Jeremy Hunt, will go ahead, following Labour’s victory in the General Election.
Paul Thwaite, chief executive of NatWest, declared the strength of the first-half performance has given the bank confidence to raise its guidance for the full-year. Income guidance for the full year has been increased to £14bn from £13bn to £13.5bn.
READ MORE: Owner of historic Horseshoe Bar hails 'robust' sales
The bank said impairments were low, at £48m, in the first half, and that the quality of its assets was high, as it upgraded its assessment of the UK economic outlook.
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.
"NatWest has just delivered a knockout set of results," declared Matt Britzman, senior equity analyst at Hargreaves Lansdown. "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."
NatWest was the latest major UK bank to report a fall in profits during reporting season this week. This season's results have been defined by banks coming up against tough comparisons with last year, when interest rates were being increased by the Bank of England in an attempt to combat surging inflation.
NatWest's acquisition of the Metro Bank book comes shortly after it acquired the bulk of Sainsbury’s Bank in June. Mr Thwaite said the two deals have added “scale at attractive returns” to its 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.
READ MORE: SSE reveals plans to progress Great Glen pumped hydro scheme
“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.
“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.”
Labour's landslide 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 decisions around the possible offer, including its timing, pricing and mechanics, were down to ministers. He would not expect the Government’s policy to be announced until its next fiscal event, and said the £24m spent on preparations for the potential share sale are “normal” and “in line” with any public offer.
READ MORE: Historic Scottish law firm doubles headcount in Glasgow
The UK Government’s stake dipped below 20% earlier this month, as a result of the ongoing trading plan and completion by the bank of a directed buy-back in May.
Speaking to reporters, Mr Thwaite welcomed the “greater certainty” in “our political landscape” that the election result had brought, stating: “We welcome the clear focus on growth and wealth creation as a means to unlocking prosperity across the UK, as well as the Chancellor’s recognition that the financial sector will be a crucial partner in achieving its ambitions”.
NatWest finance chief Katie Murray said that the bank now expects there to be two cuts in the base rate this year, having previously modelled for five, and assumes there will be a further five reductions over the course of 2025. That would take the main Bank borrowing rate to 3.5% by the end next year, though Ms Murray acknowledged the “actual outcome may be different”.
“We continue to assume moderate real GDP growth and that unemployment will remain low, albeit with a small increase from the current level,” she said. “As a result of increased customer activity, as well as revised economic assumptions, we have upgraded our guidance for 2024. We now expect total income, excluding notable items, to be around £14bn this year, up from our previous guidance to £13bn to £13.5bn.”
Shares closed up 7.04%, or 23.8p, at 361.9p.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel