NatWest returned to profit last year as the UK economy rebounded from the worst disruptions of the pandemic, allowing it to release more provisions for potential loan losses and upgrade its earnings forecasts.
A booming mortgage market and more than £1bn of loan impairments being written back helped the state-owned consumer-focused bank to a net profit of £2.95bn last year, a sharp reversal from a £753mn loss in 2020.
However, analysts at Citigroup described the fourth-quarter numbers as “messy” after the costs to exit its Ulster Bank division in the Republic of Ireland were revealed to be much higher than expected, combined with another poor performance in its trading division.
“A messy set of numbers, which we don’t expect to be taken that well,” said Citi’s Andrew Coombs. While earnings beat expectations, it was “low-quality, driven by further impairment releases”, while “NatWest Markets was again the main driver of the miss and continues to be a drag on group profitability”.
NatWest shares fell 2.1 per cent after the announcement on Friday; they have risen 37 per cent in the past 12 months.
Like its UK rivals, NatWest has benefited as the wider economic recovery fed demand for loans and sustained a hot mortgage market. The bank’s net lending last year, including loans made via government support programmes, climbed 2.8 per cent to £352.3bn.
The bank, which is majority owned by the UK government following its 2008 bailout during the financial crisis, began unwinding provisions for potential bad loans last spring as the initial shock of the pandemic receded. It added to those on Friday, reversing a further £341mn in the fourth quarter, taking its total release last year to £1.3bn.
Despite a gloomier UK economic picture at the start of this year as households face the worst squeeze on their disposable incomes in decades, chief executive Alison Rose said the bank had not yet seen any evidence of distress in its loan books.
“We’ve got really good customer resilience today,” she said. “We see strong employment numbers and low levels of defaults, and we’re not seeing elevated calls coming in.”
For the final three months of 2021, NatWest’s net profit jumped to £434mn compared with a loss of £109mn a year earlier.
The bank said it would pay a 7.5p final dividend and announced a share buyback of £750mn, while also upgrading its 2023 return on tangible equity target to “comfortably above 10 per cent”. ROTE is a measure of profitability.
Blemishing the results was the disclosure that it will make a loss of €300mn on its disposal of Ulster Bank this year and a further €600mn in strategic costs by the end of 2024. NatWest has been selling off portfolios of Ulster’s €20bn of assets at a discount since its decision to exit a year ago.
NatWest Markets, as the trading business is known, made an operating loss of £302mn in the fourth quarter and £711mn over the whole of last year, following a loss of £227mn in 2020. John Cronin, an analyst at Goodbody, described the performance as “especially weak”.
Despite the unit’s substantial loss, NatWest’s 2021 bonus pool was increased 44 per cent to £298mn. Rose argued that the size of the pool showed “significant restraint” compared with surging pay across the industry, but insisted she had to be competitive on pay to retain top staff.
The bank also disclosed that 62 employees took home a total of more than €1mn, with 30 of those in the NatWest Markets division.
While the lender has radically restructured since the financial crisis — it rebranded from Royal Bank of Scotland in 2020 to avoid its toxic legacy — its reputation took a hit in December when it became the first institution to plead guilty in a criminal prosecution under anti-money laundering laws. It was fined £264.8mn.
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2022-02-18 16:50:34Z
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