NatWest in payout bonanza as profits return
NatWest resumed dividend payments and announced a share buyback as it swung to a half-year profit and released more cash set aside for bad debts as the economy recovered from the Covid pandemic.
The bank, majority owned by the UK taxpayer, posted an operating profit before tax of £2.5bn for the six months to June 30 compared with a loss of £770m last year, largely boosted by the release of £707m in £rainy day" provision to cover loan defaults during the pandemic. Analysts had forecast profits of £1.8bn
A dividend of 3p a share was announced along with a £750m buyback and a pledge to increase annual shareholder distribution to £1bn for the next three years up from £800m.
The buyback comes after the UK government said it planned to sell up to around £2bn in shares in the open market over the next year to cut its stake below 50%, after two stock sales earlier in the year. Taxpayers will net £190m under NatWest's plan.
NatWest - renamed from Royal Bank of Scotland last year - is still 55% taxpayer-owned after its £45bn bailout in 2008 at the height of the financial crisis.
Pre-tax profits for the three months to the end of June jumped to £1.6bn, smashing consensus estimates of £861m. NatWest last year swung to a loss of £1.3bn in the same period last year after it put aside cash to cover potential customer defaults during the Covid crisis.
A better economic forecast allowed the bank to reduce its bad debt provision, including among business borrowers, by £605m. Analysts had expected NatWest, which put aside £2.1bn to cover bad debts during the same period in 2020 at the height of the Covid recession, to release only £84m.
Its return to profit comes in a week where rivals Lloyds and Barclays also announced upbeat earnings performances mainly boosted by releasing hundreds of millions of pounds set aside to cover Covid pandemic bad loans.
The bank said it now expected the 2021 full year impairment loss to be a net release as defaults remained low.
“While we see the potential for a more rapid recovery, we will continue to take an appropriate and conservative approach as the government schemes wind down and the economy reopens,” it added.
Despite the news, NatWest shares were lower on Friday in a broadly weaker London market. AJ Bell financial analyst Danni Hewson said investors would have been mulling the lack of a special dividend, the boost from provisions relief "and the sobering reality that even if the government sells 15% of its stake as planned and returns Natwest to private control, it will still own a chunky 40% of the business".
“By placing shares gradually over the next 12 months, the Government could put something of a ceiling on Natwest’s share price and the key net interest margin metric – basically showing how profitable its banking operations are – was also slightly disappointing as it dropped quarter-on-quarter."
“The ultimate reality is that despite rebranding as Natwest from Royal Bank of Scotland, the company is still working incredibly hard to escape the full extent of the damage wrought by the financial crisis more than a decade ago."