Shares of NatWest Group experienced a significant drop of 16% at the opening of the market. This decline comes after the bank announced the results of an investigation into the closure of accounts belonging to prominent Brexit campaigner Nigel Farage. The investigation concluded that the closure was lawful. Alongside this news, NatWest also adjusted its full-year net interest margin guidance, following a similar move by Barclays earlier in the week.
Sharp Decline in Share Price
As of 7:09 GMT, NatWest Group shares had fallen by 33.3 pence to reach 172.5 pence. This price marks the lowest point for the shares since early 2021.
Politically Motivated Account Closure
The controversy surrounding Nigel Farage's accounts at Coutts, a private bank owned by NatWest, first emerged in July. Farage claimed that his political views led to him being dropped as a client. The fallout from this incident resulted in Alison Rose, then CEO of NatWest, stepping down after her conversation with a journalist about Farage engulfed the bank in a political drama.
Serious Failings Highlighted
Chairman Howard Davies addressed the report produced by U.K. law firm Travers Smith, which was commissioned by the board following Rose's departure. The report uncovered several "serious failings" in the treatment of Farage.
While the report confirmed the legal basis for the decision to close Farage's accounts, it also identified significant shortcomings in how the decision was reached. Additionally, there were failures observed in communication with Farage and regarding client confidentiality.
NatWest Group now faces the task of addressing these concerns and ensuring that their processes and communication with clients meet the required standards moving forward.
NatWest Reports Lowered Expectations for 2023
NatWest, the British Government-owned lender, announced its revised projections for 2023, revealing a net interest income margin of more than 3%. However, this new forecast falls short of analyst expectations despite the recent adjustment from around 3.15% to the current estimate. In response, Barclays, NatWest's U.K. division, decreased its net interest margin outlook to between 3.05% and 3.10%, disappointing the market and causing both NatWest's shares and its competitors' stocks to decline.
Lowered Total Income and Mixed Results
NatWest has also reduced its previous forecast for total income in 2023, revising it down to £14.3 billion ($17.34 billion) from the earlier estimate of £14.8 billion. Although the bank experienced an increase in total income in the three months ending September 30th, reaching £3.49 billion compared to £3.23 billion in the same period the previous year, it fell short of analysts' expectations of £3.585 billion. Similarly, net interest income for the quarter amounted to £2.685 billion, missing consensus expectations of £2.80 million.
Impact on Net Interest Margin
NatWest's net interest margin for the quarter stood at 2.94%, below the anticipated 3.07% and a decline from the 3.13% reported in the second quarter. The bank attributes this decrease to changes in deposit mix as customers transferred their savings to interest-bearing accounts, along with ongoing pressures on mortgage margins.
Operating Pretax Profit and Conclusion
Despite these figures, NatWest managed to achieve an operating pretax profit of £1.33 billion for the third quarter of 2022, surpassing the prior year's £1.09 billion but falling short of the expected £1.36 billion based on a company-compiled consensus.
Balance-Sheet Strength: A Key Measure
As professionals in the financial industry, it is crucial to closely analyze a company's balance-sheet strength. One key measure is the common equity Tier 1 ratio. As of September 30, our analysis reveals that this ratio stood at 13.5%.
Consensus: It is interesting to note that the consensus had projected a slightly higher figure of 13.8%.
Rest assured, we are continuously monitoring these indicators to provide you with accurate and up-to-date information.
Stay tuned for more insightful analysis and financial news.
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