NatWest warns earnings boost from UK rate rises might have peaked

NatWest warned that rising interest rates would not continue to push up earnings this year, overshadowing strong fourth-quarter results and sending shares sharply lower on Friday.

The UK bank’s pre-tax operating profit in the three months to December tripled to £1.4bn from £543mn a year earlier, in line with analysts’ expectations. Revenue rose 43 per cent to £3.7bn, compared with a consensus forecast of £3.6bn, bolstered by rate increases by the Bank of England.

But the group’s shares fell as much as 9 per cent in morning trading after NatWest warned that its net interest margin — the difference between the interest it receives on loans and the rate it pays for deposits — would remain at the fourth-quarter level of 3.2 per cent this year.

Analysts had expected an increase to 3.38 per cent following a series of rate rises by the BoE, with rates this month hitting a 15-year high of 4 per cent. NatWest’s guidance is based on the BoE holding the rate stable for the rest of 2023.

Analysts at Citi also drew attention to revenue guidance of £14.8bn for 2023, below expectations of £15bn.

“On balance, we expect these results to be met with disappointment on the weaker 2023 outlook,” they said. The results echo the disappointment surrounding Barclays’ results on Wednesday, which also prompted a steep decline in its stock.

NatWest’s weaker guidance came after a strong performance in 2022, with full-year operating profits before tax of £5.1bn, an increase of just over a third year on year and in line with analysts’ estimates. Revenues grew more than 25 per cent to £13.2bn, slightly above consensus forecasts of £13bn.

Revenues in its retail banking division increased 27 per cent year on year, as the higher interest rates offset increasing competition in the mortgage market. Rates have come down significantly since the UK’s disastrous “mini” Budget in September.

Off the back of the results, the bank said it intended to start an £800mn share buyback programme in the first half of 2023, and proposed a final dividend of 10p per share.

Provisions for bad loans were £144mn, lower than analysts’ estimates of £247mn and compared with a release of £269mn of Covid-related provisions a year earlier.

Operating losses for the fourth quarter for the continuing Ulster Bank business in Ireland were £354mn, with costs largely stemming from withdrawing from the market.

“From our perspective, we’re well positioned for growth,” said chief executive Alison Rose on a media call, adding: “I don’t manage [the] share price on the day,” following a question about the bank’s performance.

Despite the fall on Friday, NatWest shares are still up 10 per cent over the past 12 months.

The bank’s bonus pool grew 23 per cent to £367.5mn, which it said reflected “strong performance and progress against strategy”.

Rose’s total remuneration, including salary, pensions and bonuses, was £5.2mn, compared with £3.6mn in 2021.

Howard Davies, NatWest’s chair, said direct comparisons were “apples and pears” because the bank had changed its remuneration policy at its 2022 annual meeting to include an annual bonus, which totalled £643,000.

The lender, in which the UK government still holds a stake of about 44 per cent after a £46bn bailout in 2008 when it was known as RBS, has been among the banks under pressure to pass on the benefits of rate increases to savers squeezed by the cost of living crisis.

Last week, Rose and other bank executives were accused by MPs of moving too slowly on increasing savings deals while rapidly increasing mortgages following the “mini” Budget. Rose initially refused to go to the meeting, before deciding to attend.