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NatWest profit surge raises hope of government sell-off

Simon English
·3-min read

WATCH: Natwest boss sees 'reasons for optimism' as profits climb 82%

NATWEST profits surged 82% in the first quarter prompting chatter in the City that the government is getting ready to take advantage of favourable market conditions and unload its shareholding.

The taxpayer owns near 60% of the bank following a bailout of the old Royal Bank of Scotland back in 2008.

Bank shares have surged since Christmas as losses from Covid came in much lower than feared. NatWest shares have near doubled to more than 200p, at which price the government’s 6.9 billion shares are worth nearly £14 billion – a handy windfall to a stretched Treasury.

NatWest itself can’t be drawn on the issue – it has to treat the government like any other shareholder.

Chief executive Alison Rose did say: “The government has been a very good shareholder, but our focus is to return that money to taxpayers. That is absolutely a priority for me.”

A NatWest bank sign (PA Wire)
A NatWest bank sign (PA Wire)

The 82% leap in profits to £946 million offers a strong case to be freed from government control, say analysts. NatWest has already done a £1.1 billion share buyback this year and has limits on how much it can do to cut the taxpayer stake. 

The government can sell the shares down as its sees fit however, once saying it wanted to reduce the holding by £3 billion a year.

The NatWest balance sheet looks strong.

Nicholas Hyett at Hargreaves Lansdown said: “NatWest is awash with capital, and unlike other UK banks is already making use of it.”

The process of the government divesting since the bailout has been painfully slow and has suffered numerous delays as crises kept hitting the business and the economy.

NatWest – it moved on from the Royal Bank of Scotland name last year – hasn’t yet updated its economic forecasts, something it will do at the half-year. But like rival Lloyds Bank it plainly sees that there are causes for hope.

Rose said: “Defaults remain low as a result of the UK government support schemes and there are reasons for optimism.”

NatWest had put aside £3.2 billion to cover bad debts last year, today releasing £102 million of that in light of lower defaults.

Customers in lockdown boosted customers deposits by 17% to £453 billion.

Under Rose, NatWest is positioned as a “relationship” bank. The statement makes references to mental health programmes, carbon footprint and National Careers Week.

One Edinburgh office has been turned into a mass vaccination centre, running 12 hours a day, seven days a week.

Rose and her executive team are back at offices in the City at least part of the time.

There is no dividend this quarter, but there should be one in the half-year unless the economy takes a sharp turn for the worse.

John Moore at wealth manger Brewin Dolphin, said: “Today’s announcement from NatWest shares parallels with Lloyds and others, with a glint of optimism shining through amid the continued uncertainty. A more buoyant economy and higher interest rates are required for optimism to build from here.”

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