Shareholders in NatWest (NWG) must be thanking their lucky stars that markets are in a forgiving mood heading into the weekend as shares in the high street lender traded sideways at 106p despite a hike in bad loan charges.

Considering the 6% drubbing handed out to holders of Barclays (BARC) on Monday and the 7% collapse in shares of Lloyds (LLOY) yesterday, taking them to new eight-year lows, investors in the newly renamed NatWest have got off lightly today.

This is in spite of the fact that the bank raised its provisions for bad loans from £800 million in the first quarter to £2.86 billion for the first half and predicted that the full year charge could be as high as £4.5 billion.

Operating losses for the first half before impairment charges were £770 million, as the bank’s net interest margin – the gap between the interest rate it collects on loans and the rate it pays out on deposits – shrank from just over 2% a year ago to 1.67% at the end of June.

Customer deposits ballooned by £39.1 billion or more than 10% to £408.3 billion as customers ‘sought to retain liquidity and reduced spending as a result of government measures’ during lockdown.

On a positive note the Markets business, which has a chequered history and which the bank is in the process of scaling back, had a blowout quarter lifting its half year revenues by 44% even after credit write-downs.

Another small positive was the bank’s commitment to cutting £250 million of costs by the end of the year although it clearly has work to do as at the half year stage its cost to income ratio had risen from 57.2% to 63.8%, which is in the opposite direction to the trend at its two big rivals.

Analyst Joseph Dickerson at Jefferies was sanguine on the results: ‘Fortunately the core equity tier one (CET1) ratio is strong at 17.2%, 1.1% ahead of the consensus. Elsewhere, net interest income did better than we estimated and was 4% ahead of the consensus.’

He also flags that the shares are trading on just 0.4 times the bank’s tangible ‘book’ or net asset value.


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Issue Date: 31 Jul 2020