Natwest Group PLC disappoints market with lacklustre update

Natwest Group PLC disappointed the market on Friday despite delivering profit figures comfortably ahead of expectations.

The FTSE 100 bank reiterated the outlook guidance provided in its interims, but said it no longer expects to achieve the majority of the remaining risk-weighted assets (RWA) reduction towards the medium-term target of £20bn this year.

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Group RWAs are now expected to be below the previously guided range of £185-195bn on 1 January 2022.

In the quarter to 30 September, pre-tax profit came in at £1.1bn, compared to a loss of £355mln last year, thanks to a £242mln release of credit impairments helped by improved macroeconomic conditions.

Net lending decreased by £1.7bn to £361bn. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes increased by £2.9bn, including £2.5bn from mortgages alone.

RWAs decreased by £3.2bn reflecting business movements in Commercial Banking and unwinding of the second quarter increase following regulatory changes.

Customer deposits were 1.9% higher at £476bn, pushing liquidity coverage ratio (LCR) up to 166%, which represents £78bn headroom above the 100% minimum requirement.

“The destination for this embarrassment of riches is not totally clear, although the ongoing reduction of the government stake and further returns to shareholders are most likely,” commented Richard Hunter, head of markets at Interactive Investor.

“The bank has already repurchased £400mln of its own shares against the £750mln programme announced at the interims, while the current dividend yield of 2.6% is not punchy but could also be the focus of a further increase.”

According to Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, approaching 19%, the CET1 capital ratio is rather too generous by some people’s books, so what NatWest decides to do with this “is a crucial marker of the stock’s attractiveness”.

Shares lost nearly 5% to 220.09p on Friday morning, having risen 39% in the year to date but still 1% below pre-pandemic levels.