Credit Suisse sees room for capital returns at NatWest Group
Credit Suisse reiterated its 'neutral' stance on shares of NatWest Group following a meeting the day before with the lender's finance chief.
Foremost, they believed consensus estimates for £4.2bn of impairment charges, versus NatWest's own forecast for £3.5-4.5bn were "reasonable" and that the bank's "strong" capital position gave it a "good opportunity" to return capital even should it register a loss for all of 2020.
NatWest Group's common equity tier one ratio had improved to 17.2% over the course of 2020 - against a long-term target for 13-14%.
Hence, said the Swiss broker, even after a full-year loss on the back of impairments, "we do not think the 40% payout intention is a hard target [...] Especially at low prices we think buybacks are a sensible part of the capital return mix."
Admittedly, Brexit and interest rates in the UK had proved an additional headwind for lenders in the country, but trading on just 0.4 times' its tangible book value, the stock's valuation should find support - and then there was the yield potential to consider.
And while the macroeconomic environment was slowing progress towards the stated goal of reaching a return on tangible equity of 9-11%, it still had opportunities to grow its retail market share and fee income and digitalisation could help cement annual cost reductions of between 3-4%.
On the subject of negative interest rates in the UK, Credit Suisse said that it would be "difficult" to completely offset their impact.
Finally, the Swiss broker said that the lender scored "reasonably well" on Environmental, Social and Governance criteria and that the transition to cleaner energy constituted a real opportunity for the lender and the sector more broadly.