City cheers bank as ‘Tell Sid’ sale beckons
SHARES in Natwest Group surged more than 6% after the Royal Bank of Scotland owner beat profit expectations and underlined its “shared ambition” to make a full return to private ownership.
Edinburgh-based Natwest reported an operating profit of £1.3billion for the first quarter, down from £1.8bn on the same quarter of last year but ahead of the £1.26bn forecast. The bank’s net interest margin also came in higher than anticipated, with impairment provisions lower.
The results came as the bank announced the UK Government’s stake in the lender, a legacy of its bail-out at the height of the financial crisis, had fallen below 28% (27.93%) as a result of its ongoing trading plan.
One analyst declared the Natwest results were the
“best of the bunch” from this week’s reporting season.
“Lloyds and Barclays led the way this week and Natwest certainly hasn’t disappointed with firstquarter results very nearly a clean sweep versus expectations,” said Matt Britzman, equity analyst at Hargreaves Lansdown. “Impairments came in lower than expected, net interest margin ticked higher from the previous quarter and both customer loans and deposit levels grew.
“The UK banking sector looks strong. Natwest has followed its peers in calling out a slowing of some of the headwinds that have been impacting performance in recent quarters.
“Customers shifting to higher-rate accounts is slowing as expected impairment rates on loans have stabilised at low levels, the economic outlook has improved, and balance sheets remain strong.”
In common with other banks reporting this week, Natwest saw profits fall amid the “annualised impacts” of changes in customer behaviour observed in 2023. These included customers moving from instant access to fixed-term deposits as interest rates rose and the effects of a “shallow but competitive” mortgage market.
The bank reported total income of £3.48bn for the first quarter, down from £3.54bn in the preceding quarter and £3.88bn in the first three months of 2023, but ahead of £3.4bn forecast. The bank’s net interest margin – broadly the difference between the interest charged on loans and that interest paid on deposits – was 2.05%, six basis points higher than the fourth quarter of 2024 and better than the 1.98% forecast.
A net impairment charge of £93m was booked versus a forecast of £186m, which Natwest said “principally reflected the continued strong performance of our lending book”. The bank added: “Levels of default remain stable and at low levels across the portfolio.”
Natwest underlined its determination to return to full private ownership. The bank was bailed out by the UK Government during the financial crisis of 2008 and 2009, which took it into public ownership. The stake held by the Treasury is now just under 28%, having gradually fallen from 45.9% at the end 2022 through both the daily trading plan and a £1.3bn directed buyback on May 22, 2023.
Chancellor Jeremy Hunt signalled the UK Government’s plan to return Natwest to full private ownership in the Spring Budget. That is expected to include a retail offer of shares that could take place as early as this summer.
Paul Thwaite, chief executive of Natwest, said: “Natwest Group has delivered a strong set of results for the first quarter as we remain focused on the priorities we set out in February, which will help us shape the future of this bank.”
He added: “We are also pleased with the recent momentum in the reduction of HM Treasury’s stake in the bank.
“Returning Natwest Group to private ownership is a shared ambition and we believe it is in the best interests of both the bank and all our shareholders.”
Commenting on the retail offer in a call with reporters, Mr Thwaite said: “I think the retail share offer, should it happen, is an important opportunity, because it further reduces the shareholding. We are taking the necessary preparatory steps to ensure, should it happen, we are ready for that.”
The bank said it had not changed its economic forecasts for the year. Katie Murray, chief financial officer, told reporters that despite continuing economic uncertainty at home and abroad, the bank’s customers were “resilient”. She added that “impairments are low, with a well-diversified prime loan book continuing to perform well”.
Ms Murray noted that there had been “early signs of improving demand” for mortgages this year. Total gross new mortgage lending was £5.2bn for the first quarter, compared with £9.9bn at the same stage last year, and £5.6bn in the fourth quarter of 2023.
Ms Murray said the bank reported a marginal rise in customer deposits to £420bn, “ahead of expectations”, and noted that “migration to higher rate savings accounts remains slow, in line with the trend we saw in Q4”.
Shares closed up 17.6p, or 6.1%, at 307.4p.