Summary
- Bank guides interest margins may soon rise
- Shares slip around 9% on concerns about 2023 outlook
- 2022 profit of 5.1 bln pounds (2021: 3.8 bln)
NatWest (NWG.L) cautioned on Friday that soaring interest rates may not deliver the long-lasting earnings bonanza investors expect, even though profit rose by 33% in 2022.
Shares in the bank slipped as much as 9% as investors reflected on forecasts for profitability and costs for 2023, even as the bank’s reported annual pretax profit climbed to 5.1 billion pounds ($6.1 billion) from 3.8 billion pounds.
“We think broadly the results are likely to be seen as a miss on 2023 expectations today,” Credit Suisse analysts said, citing the bank’s unchanged returns target and guidance that costs would be 300 million pounds above analysts’ expectation.
NatWest shares fell 6% at 1153 GMT. Rival Lloyds Banking Group (LLOY.L), also focused on the UK market, tumbled 3%. State-backed NatWest did hike dividends for shareholders, made public a 10 pence per share final dividend and an 800 million pound share buyback.
NatWest CEO Alison Rose said the bank’s strategy was delivering and it had been straightforward on its economic forecasts – including a forecast that Bank of England rates would hold at 4% in 2023.
It also increased the staff bonus pool by almost a quarter to 368 million pounds, sparking criticism since it is still 44% owned by taxpayers following its state bailout at the peak of the 2008-2009 financial crisis.
“NatWest is using bumper profits to deepen its bonus pool, not to support the public, who bailed it out just 15 years ago,” said Fran Boait, executive director at Positive Money, which advocates for a fair financial system.
Rose’s total pay package for last year rose nearly 50% to 5.2 million pounds, up from 3.6 million pounds the prior year.
NatWest Chairman Howard Davies said the figures indicated executive directors getting an annual bonus for the first time since 2010 and included long-term awards received in previous years.
NatWest said the government will earn a total of 2.6 billion pounds for 2022 via the bank’s payouts to shareholders.
Bad Loan Charges Impact NatWest
Britain’s economy barely dodged a technical recession at the end of last year, official data showed last week, but inflation could still batter households and cause more loan defaults.
Inflation, although declining, has crushed spending power of British businesses and households, and has weakened the housing market and investment supported by credit.
Buy Bitcoin NowNatWest earmarked 337 million pounds over the year to cover potential soured loans, though this was below the 400 million-plus figure analysts predicted.
“Despite not yet seeing significant signs of financial distress among our customers, we are acutely aware that many people and businesses are struggling right now,” Rose said.
While higher rates sting borrowers, lenders profit from the widening gap between what they charge borrowers and pay savers.
NatWest’s revenue jumped more than a quarter over the year to 13.2 billion pounds, buoyed by growth in its mortgage book.
The lender plans to deliver a cost-to-income ratio below 52%, excluding costs associated with litigation and conduct, it added.
($1 = 0.8372 pounds)
