NatWest ramps up investor payouts as profits bounce back

NatWest accelerated returning cash to shareholders on Friday after a return to profit, rounding out a week of vastly improved earnings for British banks as the pandemic-battered economy reopens.

The state-backed bank said it would pay an interim dividend of 3 pence per share and carry out a share buyback of 750 million pounds, returning over 1.1 billion pounds ($1.53 billion) in total to shareholders.

The improved earnings follow similarly upbeat results from rivals Lloyds (LLOY.L) and Barclays (BARC.L) this week and show a turnaround in fortunes for banks lifted by a housebuying boom and pick-up in customer spending.

The buyback plan comes after the government unveiled a blueprint to sell up to around 2 billion pounds of shares in the open market over the next year to cut its stake below 50 per cent, following two stock sales earlier in the year.

NatWest – renamed from Royal Bank of Scotland last year – is still 55 per cent taxpayer-owned following its 45 billion pound bailout in 2008 at the height of the financial crisis.

The bank also raised its target for investor payouts to at least 1 billion pounds a year, up from 800 million pounds previously.

NatWest reported pre-tax profit of 2.5 billion pounds for the six months to June, well above an average of analyst forecasts of 1.8 billion pounds. The bank had slumped to a half-year loss of 770 million pounds in 2020.

However, just like rivals, NatWest was primarily boosted by releasing hundreds of millions of pounds set aside to cover pandemic bad loans. The bank freed up 707 million pounds of its own credit provisions in response to the improved economic picture.

The bank’s shares fell 0.6 per cent amid a 1 per cent drop in the benchmark FTSE index (.FTSE), as investors looked past the immediate profit rebound and payouts to longer-term questions about how it will grow income.

HURDLES AHEAD

NatWest still faces significant hurdles, including an impending money laundering criminal case – the first against a UK bank – and selling off its remaining under-performing Ulster Bank assets in the Republic of Ireland. read more

More broadly, British banks face a tough operating environment as rock-bottom central bank interest rates squeeze lending margins and competition for fee-based business, such as wealth management intensifies.

NatWest CEO Alison Rose has also cut costs, including scaling back the investment bank NatWest Markets, since taking on the role two years ago.

Income at NatWest Markets plunged 60 per cent in the period, as it continues to slash its fixed income business, while pandemic-related trading was less frenzied than in the prior year.

However, NatWest grew core parts of its retail business, including raking in 7 billion pounds of new mortgages as people rushed to move house before emergency tax breaks reduced last month.

Customer deposits increased by a further 35.5 billion pounds as people continued to pile up savings and had fewer opportunities to spend money during lockdowns.