NatWest Group Plc’s shares fell as much as 9.5% on Friday after issuing 2023 guidance that disappointed some investors even as it said it would start a fresh share buyback after a surge in fourth-quarter profit.
(Bloomberg) — NatWest Group Plc’s shares fell as much as 9.5% on Friday after issuing 2023 guidance that disappointed some investors even as it said it would start a fresh share buyback after a surge in fourth-quarter profit.
Britain’s biggest corporate lender posted an operating profit before tax of £1.43 billion ($1.7 billion), more than double that of a year earlier. But the bank said costs will rise this year and it stuck with a previous range for its 2023 profitability, below what some analysts were expecting.
“Guidance is dire,” said Keefe Bruyette & Woods analyst Edward Firth of the drop in NatWest shares. The bank said its net interest margin this year would be unchanged at 3.2%, which a Morgan Stanley analyst indicated would underwhelm the market.
Many UK lenders have improved their margins following rapid rate rises by the Bank of England in the past year, but with inflation easing off, there are question marks over any further increases. NatWest said its outlook assumes the central bank rate has already peaked at 4%.
Jefferies analyst Joseph Dickerson wrote the guidance was “problematic,” adding that “the investment community is likely to focus on ‘23 guides that on our calculations imply 8% lower ‘23 pre-provision profit, broadly offset by a better credit cost guide.”
The bank’s shares were down 5.9% at 10:11 a.m. in London, paring some of the earlier losses. Friday’s slump wipes out about half of NatWest’s year-to-date gains, leaving shares up about 8% for 2023 so far.
The bank had weathered a rocky few months for the British economy, with provisions for bad loans actually falling from the previous period to £144 million in the fourth quarter. After setting aside billions of pounds more than they needed for potentially troubled loans during Covid-19, British lenders are now making smaller provisions than before the pandemic — despite economic pressures that have left the UK on the verge of recession.
“We’re not seeing signs of distress,” Chief Executive Officer Alison Rose said in an interview with Bloomberg TV on Friday. “Our arrears levels, for example on mortgages or in businesses, are well below pre-Covid levels, so there is an incredible resilience. But obviously people are facing real challenges with the squeeze of the cost of living.”
The buyback of £800 million is slightly higher than analysts were expecting and marks the latest effort by NatWest to return cash to its shareholders after years of losses and restructuring. A final dividend of 10 pence per share was also announced.
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NatWest’s deposits decreased by £29.5 billion during 2022 to £450.3 billion, mostly among commercial clients after “an overall market liquidity contraction in the second half of the year.”
Bonus Pool
Once one of the world’s largest banks, NatWest has been transformed into a largely domestic retail lender following a string of scandals and a state rescue during the 2008 financial crisis. The UK government is still its biggest shareholder.
The bank increased its bonus pool by 23% for the year, meaning staff will share in £367.5 million, according to its annual report. The rise comes “in the context of strong financial and capital performance” and after a cut in 2021 following a money laundering fine. NatWest, formerly known as Royal Bank of Scotland, is also paying its CEO a cash bonus for the first time since its bailout.
The results come after rival Barclays Plc disappointed the market with a smaller-than-expected boost from higher rates in its earnings Wednesday. Barclays said provisions were rising toward pre-pandemic levels.
(Updates with latest share price, analyst comments from first paragraph.)
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