NatWest suffers its steepest share fall since Brexit

Economy
By Liam
  • NatWest reported ‘disappointing’ third-quarter results
  • The Bank missed analysts’ profit expectations and lowered expectations for credit margins
  • Shares tumbled as much as 18% in the biggest plunge since Britain voted to leave the EU

By Jessica Clark

Updated:

Natwest suffered the biggest share price fall since yesterday’s Brexit referendum, wiping billions off the lender’s value as savers moved to higher interest accounts.

The bank reported “disappointing” third-quarter results, missing analysts’ profit expectations and cutting lending margins, a sign that the benefits of rising interest rates have peaked.

Shares tumbled as much as 18 percent yesterday morning in their biggest plunge since Britain voted to leave the European Union in June 2016, before paring earlier losses to a decline of around 11 percent.

NatWest shares closed at 182p, down 11.6 per cent or 23.8p, wiping around £2bn from its market capitalisation. The shift cost taxpayers £780m as the bank is still 39 per cent publicly owned after a government bailout during the 2008 financial crisis.

Analysts warned the decline could lead to ministers abandoning plans to sell more shares in the near future.

Disappointing: Shares have been on a rollercoaster during Alison Rose's rough patch

Disappointing: Shares have been on a rollercoaster during Alison Rose’s rough patch

It came as NatWest, which also owns RBS and Ulster Bank, published the findings of an investigation into the closure of Nigel Farage’s Coutts account, with the City Watchdog launching an investigation into the company.

The scandal led to an investigation by the Financial Conduct Authority watchdog and forced ex-NatWest boss Dame Alison Rose to resign. The report ruled that the closure of the account was ‘lawful’ as the bank’s relationship with Farage was ‘significantly loss-making’. But the bank did not communicate properly and mishandled Farage’s complaint.

Banks have benefited from higher interest rates, which stand at 5.25 percent, as they increase the amount of interest customers pay on mortgages and loans.

But experts say the benefits may have peaked as consumers switch to accounts with better savings rates, putting pressure on lenders’ margins.

NatWest said its net interest margin (NIM) – a measure of the difference between what it pays out in deposits and what it generates in loans – fell to 2.94 per cent as more customers switched to higher interest savings accounts. She cut her NIM forecast for this year from 3.2 percent to 3.15 percent, based on the assumption that the Bank of England holds rates steady for the rest of 2023. Economists expect the central bank to leave the key interest rate unchanged next week.

Rival Barclays also cut its NIM expectations this week, sending banking stocks on the rise.

Richard Hunter, head of markets at Interactive Investor, said: ‘The disappointing themes that have plagued banking results have unsurprisingly resonated at NatWest, albeit perhaps to a lesser extent.

‘NIM declines across the sector have taken their toll on share prices, while also suggesting that the benefits of higher interest rates have peaked as customers seek higher returns on their cash.’ He added that the share price fall is unlikely to change the government’s plan to sell its stake in NatWest, but “it could start a fire in the near future.”

NatWest’s profits rose 23 percent to £1.33 billion in the quarter, up from £1.09 billion the year before, but fell short of the £1.36 billion expected by analysts. Total income rose by 8 percent to £3.5 billion.

It reported a net impairment charge of £229m, reflecting its ‘low and stable’ level of loan defaults, beating its peers.

CEO Paul Thwaite said: ‘The results show that NatWest is a strong bank that is performing well and generating sustainable profits and returns.

“Credit losses and impairments remain low and we are ready and able to assist our customers and businesses.”

The interest rate party is over for the largest British lenders

Banks generally make a profit when interest rates are high – so the theory goes – because customers are forced to pay more for mortgages and loans.

The Bank of England’s brutal interest rate hikes over the past two years have been something of a cash cow for British lenders, but the party seems to be over for good.

Savers have become smarter and are moving their money to accounts with higher returns.

Major banks warned this week that profit margins have been eroded as consumers shop around.

Net interest margins (NIM) – a key measure of profitability that calculates the difference between what banks earn on loans and what they pay out to savers – have come under pressure in the latest round of quarterly results. Barclays and Natwest both cut their full-year NIM outlooks. Britain’s biggest mortgage lender Lloyds held firm but said its NIM had shrunk in the third quarter.

It comes as major lenders faced political pressure to offer fairer interest rates to savers amid accusations of profiteering after mortgage costs rose faster than the amount paid out on deposits.

Matt Britzman, equity analyst at Hargreaves Lansdown, said: ‘Consumers are no longer keen to park their money in low-interest current accounts and are looking for higher returns – all of which is negatively impacting banks’ profit margins and deposit levels.’

The free market does its job every now and then, and now that better returns can be found elsewhere, the NIM bonanza appears to be coming to an end.

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