Bank 'in good place'
NatWest triples profit despite laundering provision
Alison Rose: robust capital position
NatWest (RBS) said its third quarter operating profit tripled to £1.07 billion despite having to account for a hefty fine for money laundering.
The profit figure, which compared to £355m for the same period last year, was well ahead of the £677 million forecast by analysts and reflected a return to greater economic activity. The attributable profit came at £674m against £61m last time.
NatWest took a £294m litigation and conduct charge for the quarter, which includes a provision for an anticipated fine after pleading guilty earlier this month to failing to prevent the laundering of nearly £400m.
Despite the robust performance, shares were down 9.80p (4.24%) to 221.45p in the first hour of trading.
The bank said it is investing £3bn over the next three years, 80% on digital and tech transformation. Seven million retail current account customers now use digital only to interact and 13% more now transact on mobile.
Chief executive, Alison Rose, said: “Throughout Q3, NatWest continued to deliver a strong operating performance; growing in key areas and accelerating our digital transformation to improve customer experience and make our business more efficient.
“Our robust capital position means that we have been able to buy back around £402 million of our shares, whilst also investing for growth as we support our customers and drive sustainable returns to our shareholders.
“Although we are seeing challenges in the economy and for our customers – especially around supply chains and the cost of living – a number of key indicators remain positive; growth is good, unemployment is low and there are limited signs of default across our book.
“We have a vital role to play in helping the 19 million people, families and businesses we serve in communities throughout the UK to thrive.
“NatWest Group has made addressing the climate challenge and supporting our customers through the transition a key strategic priority. We recently announced a new target to deliver an additional £100 billion of Climate and Sustainable Funding and Financing by the end of 2025, having exceeded our initial two-year target of £20 billion in less than 18 months.”
The bank bought back shares worth £402m from 2 August to 27 October – £750m on-market buy back programme expected to be completed in the first quarter of 2022.
It will distribute at least £2.9bn to shareholders in 2021 through dividends and buy backs with £2.6bn already booked.
In a conference call with journalists, Ms Rose said the repayment of government-backed loans provided during the pandemic was running at between 90% and 98%.
“That is a positive sign. Obviously it is early days but these are good trends,” she said.
On the general outlook for the economy she was “cautiously optimistic” despite recent challenges over supply chains and price pressures.
Chief Financial Officer, Katie Murray, said there were expectations in the market of a rise in interest rates and that a 0.25 basis points rise would equate to £450m of additional income.
“It would be beneficial for us,” she said.
Donald Brown, senior investment manager at Brewin Dolphin, said: “NatWest has beaten expectations in today’s results, underlining the turnaround in fortunes for the UK’s major banks over the last 12 months on the back of a stronger UK economy.
“The bank has largely navigated the pandemic well and, with increased profits, a strong capital position, and a brighter outlook ahead, NatWest appears to be in a good place.
“All things being equal, the bank should continue on its positive trajectory, with the shares up around 45% in 2021 – notwithstanding legal costs and the government selling down its stake over the next year or so.”
AJ Bell investment director Russ Mould was less enthused, saying: “Next week could potentially see the Bank of England start to raise interest rates in the UK or failing that we could see it happen in December. Rates are expected to go from 0.1% to 1% by next May, and potentially 1.25% by the end of 2021.
“With this prospect firmly in the headlights, NatWest has somewhat disappointed the market by announcing a reduction in its third quarter net interest margin. That’s been blamed on the non-repeat of the tax variable lease repricing gain in Q2 2021 in its commercial banking arm.”
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