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NatWest's Q1 Performance Shows Mixed Results
NatWest Group PLC saw a decline in mortgage lending and net interest income in the first quarter of 2024. Despite this, its profit fell less than expected, leading to a rise in shares as results exceeded forecasts, bringing them close to a five-year high. The government also reduced its stake in the company.
In the first quarter of 2024, NatWest Group PLC (LSE:NWG) encountered a mix of challenges and achievements, as its mortgage lending nearly halved and net interest income decreased, but its profit decline was less severe than anticipated. The bank reported a 47% year-on-year drop in mortgage lending, with the figures falling from £9.9 billion to £5.2 billion. This downturn was attributed to "increased mortgage margin pressure," leading to a 10% decline in total income compared to the previous year. Moreover, net interest margins decreased from 2.25% in the previous year to 2.05%, with a corresponding fall in net interest income from £2.9 billion to £2.65 billion.
Despite these challenges, NatWest's profit before tax (PBT) reached £1,330 million, a 27% decrease from the previous year but 5% above market consensus. Profit attributable to shareholders fell 28% to £918 million, and return on tangible equity (RoTE) slipped 560 basis points to 14.2%. However, these figures were still better than market expectations, largely due to improved results in net interest income and reduced litigation and conduct charges. The bank's Common Equity Tier 1 (CET1) ratio stood at 13.5%, in line with market predictions and within the targeted range of 13-14%.
Shares of NatWest surged 6% in afternoon trading, propelled by the quarterly earnings surpassing City estimates and reaching close to a five-year high. This uptick in shares came alongside news that the UK government has further reduced its stake in the bank, now holding just 27.93%, down from 28.9%. This ongoing reduction is part of a strategy initiated in August 2021, aimed at returning NatWest Group to private ownership—a goal echoed by Chief Executive Paul Thwaite.
NatWest's full-year outlook remains largely unchanged except for an increase in expected operating costs by £100 million due to higher bank levies. However, the bank also repurchased and cancelled £42.4 million of shares as part of its share buyback programme. The bank traffics a cautious path forward, maintaining its guidance for a full-year RoTE of approximately 12%, despite favourable conditions that could support better net interest margins.
In response to these developments, analysts remain cautiously optimistic about NatWest's financial trajectory, with consensus forecasts for FY24 predicting a PBT of £4,845 million and an EPS of 38.1 pence, slightly above the bank's expectations. Shore Capital continues to recommend NatWest shares as a 'buy', although it notes the limited upside compared to other large UK banks and points out ongoing political risks tied to the government's shareholdings, which are expected to be fully sold off by 2025/26.
As NatWest navigates these mixed results and strategizes for the future, the bank's approach to overcoming challenges and seizing opportunities will be pivotal in shaping its trajectory toward sustained growth and profitability.
Articles published about this story
- proactiveinvestors.co.ukproactiveinvestors.co.uk
- seekingalpha.comseekingalpha.com
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- forbes.comforbes.com
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- reuters.comreuters.com
- wsj.comwsj.com
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