Staff pay rise
Shares surge as NatWest boosts dividend
Shares in NatWest, trading as Royal Bank of Scotland north of the border, soared to the top of the blue chip table after it announced better than expected pre-tax profits of £2.6 billion for the six months to June.
This was up from £2.3bn in the previous year and ahead of the £2.2bn average of analyst forecasts compiled by the bank.
It has announced a 3.5p per share interim dividend and a special dividend of 16.8p per share, with a share consolidation.
The return of £2.1 billion to shareholders in its biggest dividend payout since before the government bailout in 2008. The Treasury’s 48% stake in the bank means it will be entitled to receive about £1bn.
NatWest’s net interest margin, which reflects the difference between its charges for loans and what it pays to depositors, was 2.72% in the second quarter, up from 2.35% last year.
Shares in the bank ended the session 18.6p (8.09%) higher at 248.9p as investors warmed to the statement.
AJ Bell investment director Russ Mould said: “In a mixed UK bank reporting season so far, there’s no question who is getting the gold star.
“Natwest has knocked it out of the park with its latest results. It’s hard to see what more it could have done to impress the market.
“Profit ahead of expectations: check. Big shareholder returns: check. Raised guidance: check. It all adds up to suggest that rising rates are helping to boost the profitability of the group.
“Natwest moved to majority private ownership earlier this year and, whether coincidence or not, these results imply the long, slow rehabilitation process post the Great Financial Crisis may be nearing its conclusion under current chief executive Alison Rose.
“If Natwest can keep this sort of momentum up, the Government will be glad it extended the deadline for the final sale of its shareholding by 12 months to August 2023.
“There will likely be significant obstacles along the way given the clouds hanging over the UK economy, but the business at least looks in decent shape to take on these challenges.”
More than 22,000 of the lowest paid staff globally will receive an average cost of living pay rise of c.£1,000 on a full time equivalent basis, effective from 1 September. In the UK, there will be a 4% salary rise for 16,000 staff earning less than £32,000 FTE.
Alison Rose, chief executive, said: “NatWest Group delivered a strong performance in the first half of 2022, building on two years of progress against our strategic priorities.
“We are growing our lending to customers and continuing our £3bn investment programme to create a simpler and better banking experience whilst delivering sustainable dividends and returns for our shareholders.
“We know that continued increases in the cost of living are impacting people, families and businesses across the UK and we have put in place a range of targeted measures to support those who are likely to need it most.
“Our strong levels of profitability and capital generation mean we are well positioned to provide this support.
“By building deeper relationships with our customers at every stage of their lives, we will deliver sustainable growth and help them to thrive in a challenging environment.”
On a conference call with journalists, she said there was no sign of any cost of living distress among customers and spending had continued on entertainment, hospitality and travel.
Operating profit before tax – £2.8bn (£1.5bn in Q2 ’22)
- Profit of £2.5bn at H1 ’21.
- Impairment release – £39m in Q2’22, up from £7m release in Q1’22.
- Income (excluding notable items) – 16.2% of income growth, up £819m vs. H1’ 21.
- Growth – strong loan growth of £9bn, up 2.6% in H1’22.
- Capital – 14.3% CET1, down 90bps from 15.2% at Q1 ’22.
- Costs – 1.5% cost reduction of £50m in H1 ’22 vs. H1 ’21.
- ROTE – 13.1%, up from 11.7% in H1’ 21.
- 3.5p per share interim dividend.
- To help reduce its CET1 ratio to the target of 14% by the end of 2022, the bank is also issuing a special dividend of 16.8p per share, with share consolidation. This will be voted on at a general meeting in August.
- The Board has chosen to implement this return of capital through a special dividend with an associated share consolidation (as is common practice in the case of significant special dividends) because it can be executed efficiently, is financially attractive, and avoids increasing the proportion of the Group owned by the UK Government.
- Once these actions are completed, the bank’s CET1 ratio will be 14.3%. We continue to target a CET1 ratio of 14% by the end of this year and 13% -14% by the end of next year.
- £1.2bn directed buy-back completed in March – reduced UK Government stake to around 48%.
- £750m H1 ’22 on-market buy-back complete.
- £3.3bn shareholder distributions announced so far this year.
- Target of £1bn minimum annual dividend for 2022 and 2023.
Strengthened financial targets
- Income – forecast for FY’22 upgraded to around £12.5bn in 2022, against previous target to be comfortably above £11bn.
- ROTE – target upgraded to be between 14% – 16% for Group in 2023.
- Costs – on track to deliver around 3% reduction this year and keep costs broadly stable in 2023.
Supporting customers, colleagues and communities through the cost of living crisis
- The bank has put in place a range of targeted measures to support those who are likely to need it most.
- Proactive outreach to over 2.7 million personal and business banking customers by the end of July, offering support and information on how best to manage increases in the cost of living.
- New £4m hardship funding to provide debt advice and support, delivered through organisations we work with, including Citizens Advice, StepChange and Money Advice Trust.
- Tailored support to the most impacted sectors – for example, range of supportive measures to 40k agriculture customers, including a £1.25bn lending package as well as capital repayment holidays, increases to overdrafts and reductions in interest rates for some Small Business Loans.
- Freezing fees on Business Current Accounts for 12 months to help SMEs.
- Permanent pay rise for our lowest paid colleagues to help with the cost of living rising: more than 22,000 colleagues globally will receive an average pay rise of c.£1,000 on a full time equivalent basis, effective from 1 September. In the UK, there will be a 4% salary rise for colleagues earning less than £32k FTE (c16,000 colleagues).