October 27, 2023
London, UK – Shares of NatWest Group, one of the UK’s largest lending institutions, plummeted by 9.2% on Friday morning to 186p, making it the worst performer on the FTSE 100 Index. The sharp decline followed the bank’s announcement of a downward revision to its annual profit forecasts and a highly critical review of its Coutts subsidiary’s dealings with political figure Nigel Farage.
NatWest’s decision to lower its annual forecast for the net interest margin (NIM), a crucial profitability metric, from 3.2% to 3.15% sent shockwaves through the financial industry. In the third quarter, the company’s NIM decreased by 19 basis points, settling at 2.94%. This decline was attributed to a shift in customer funds towards higher interest-paying savings accounts, combined with narrowing margins on mortgages.
Criticism has been directed at major banks, including NatWest, for rapidly increasing mortgage rates while leaving savings rates relatively stagnant. The banks have profited from the Bank of England’s recent base rate hikes. As a result of these changes, NatWest’s total income increased by just 3.4% to £3.49 billion, with growth primarily driven by higher lending and investment banking income, as well as favorable yield curve movements.
Despite the downward revision and subsequent share price plunge, NatWest still reported a pre-tax operating profit of £1.33 billion for the July to September period, marking a 23% increase compared to the same period in the previous year. While slightly below analysts’ expectations of £1.4 billion, the bank demonstrated resilience.
On a nine-month basis, the bank’s equivalent figure was approximately a third higher at £4.92 billion, primarily due to a robust performance from its commercial and institutional division. Paul Thwaite, chief executive of NatWest, attributed this success to the bank’s strong customer franchises, a robust balance sheet with high liquidity levels, and a well-diversified loan portfolio. He emphasized the bank’s commitment to supporting customers and businesses amid ongoing economic uncertainty.
In addition to its financial results, NatWest released the findings of an independent review into its subsidiary Coutts’ decision to “debank” Nigel Farage earlier this year. The review, conducted by legal firm Travers Smith, concluded that the decision to close Farage’s accounts was “predominantly a commercial” one and did not breach any laws.
However, the review was highly critical of former NatWest chief executive Dame Alison Rose for leaking confidential customer information about Mr. Farage, stating that this action “probably” violated data protection laws. Both Dame Alison Rose and Coutts’ counterpart, Peter Flavel, resigned from their positions within days of each other following the controversy.
Howard Davies, chairman of NatWest, acknowledged the review’s findings, stating, “The findings set out clear shortcomings in how it was reached as well as failures in how we communicated with him and in relation to client confidentiality. We apologize once again to Mr. Farage for how he has been treated. His experience fell short of the standards that any customer should expect.”
The combined impact of the profit forecast reduction and the criticism over the Farage incident has left NatWest navigating a challenging period, with the bank’s leadership keen to address the issues and rebuild confidence in their operations.
As the financial sector watches closely, the coming months will be crucial for NatWest as it works to regain lost ground and reaffirm its commitment to its customers and shareholders.