Natwest shares tanked on Friday morning after announcing disappointing Q3 trading results punctuated by falling net interest margins and lower profits compared to the previous quarter.
Natwest’s results mark the end of a busy week for banking results.
Barclays results were poor, Lloyds were reasonable, Standard Chartered will hope their Chinese business picks up, and on Friday, Natwest’s results were pretty terrible.
Shares in Natwest were down around 10% at the time of writing as key operation metrics deteriorated.
Compounding the pressure on Natwest, they admitted failings around account closures and announced a raft of measures to investigate. The bank’s leadership will hope today’s admission Natwest are conducting internal reviews into account closures will draw a line under the Farage debacle.
“NatWest has been in a pickle of late following a series of governance issues. Along with third-quarter results, NatWest also released findings from stage 1 of its review into the account scandal following the closure of Nigel Farage’s Coutts account. The independent review found no legal breach, but did pick up on several governance concerns with how the decision was reached – something I think we already knew,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
Although the Farage saga has attracted public interest, it has little to do with the sharp fall in Natwest shares today.
Q3 results were poor. Lower net interest margin (NIM) is a major concern with a material drop to 2.94% from 3.11% before the Bank of England has even suggested cutting rates.
Reducing net interest margin guidance for the full year will be a kick in the teeth for investors.
Profitability is also a concern. Operating profit before tax fell to £1.33bn in Q3 compared to £1.77bn in Q2. The drop in key profitability metrics was the result of rising competition and pressure on the mortgage business.
“Back to results, they were largely disappointing as net interest margin dipped below 3%, and the outlook was lowered. Deposit levels did grow, which is a positive sign that NatWest is pricing itself at the right levels to attract customers searching for higher rates,” said Britzman.
“That trend’s plain to see, with longer-term cash balances jumping to 15% of the book – compared to 11% last quarter. But it’s less profitable business than non/low-interest current accounts. Add in mortgage headwinds as highly profitable business written over the pandemic rolls off, and that’s caused the hit to net interest margin.”
In a small positive, Natwest mirrored other FTSE 100 banks in setting aside less than expected for bad debts.
“As we’ve seen across the sector this week, the consumer remains resilient. Charges taken in anticipation of loan losses were a little lower than expected. Higher borrowing costs are being offset by proactive finance management, wage growth and a strong labour market.”