NatWest shares slump 5% despite tripling profit

·3-min read
NatWest shares slump 5% despite tripling profit
Natwest's markets division saw profits fall by 62.5% to £175m due to subdued levels of customer activity and the 'ongoing reshaping of the business'. Photo: Vuk Valcic/SOPA Images/LightRocket via Getty

NatWest (NWG.L) fell out of favour with investors on Friday, falling as much as 5% on the day, despite revealing that pre-tax profit tripled in the three months to September, compared to last year.

The state-backed bank said profits came in at £1.1bn ($1.5bn), up from £355m in the same period a year ago, while revenue stood at £1.8bn. This also beat the £677m forecast from analysts thanks to a jump in mortgage lending.

NatWest added that a stronger economy meant it could release £242m worth of provisions in the last three months, which it had made to cover a potential increase in loan defaults.

However, its markets division saw profits fall by 62.5% to £175m due to subdued levels of customer activity and the “ongoing reshaping of the business”.

It also set aside £294m to cover for a litigation and conduct charge for money laundering failings. Earlier this month NatWest pleaded guilty to failing to prevent the laundering of almost £400m.

The bank, formerly Royal Bank of Scotland, which is 55% owned by taxpayers, is the first in the UK to admit to such an offence and said it “deeply regrets” its failings.

NatWest share price on Friday. Chart: Yahoo Finance
NatWest share price on Friday. Chart: Yahoo Finance

The charges were brought to Westminster Magistrates' Court by the Financial Conduct Authority (FCA). The case, which relates to three offences of not adequately monitoring customer accounts between 2012 and 2016, has now been referred to the Southwark Crown Court for sentencing.

The FCA alleged that the lender failed to monitor suspect activity by a client that deposited about £365m in its UK accounts over five years, of which £264m was in cash.

The client at the heart of the case is collapsed Bradford-based gold dealership Fowler Oldfield, which was closed down following a police raid in 2016.

NatWest said on Friday that it would not disclose the exact provision for the fine, which will be determined at a sentencing in December, as court proceedings are ongoing.

Read more: NatWest pleads guilty to money laundering charges

Alison Rose, chief executive, said there were strong signs of recovery in the economy.

“Although we are seeing challenges in the economy and for our customers – especially around supply chains and the cost of living — a number of key indicators remain positive; growth is good, unemployment is low and there are limited signs of default across our book,” she said.

NatWest joins a string of lenders that have issued positive trading updates, with Lloyd’s (LLOY.L) upgrading its outlook for the year on Thursday after posting better-than-expected profits.

Rivals Barclays (BARC.L) and HSBC (HSBA.L) have also benefited as the UK economy rebounds from the coronavirus pandemic.

Read more: Lloyds shares surge as mortgage boom doubles profits

“A lot of attention is being given to the money put aside to pay for money laundering regulation breaches. Clearly this kind of issue is unsavoury, and with the PPI scandal only just disappearing in the rear-view mirror, it’s uncomfortably common,” Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said.

“However, a longer-term problem is lower yielding loans which have hurt the all-important net-interest margin.

“NatWest was keen to point out it’s increasing mortgage rates, but the full effect of this won’t show up until full year results. In the meantime, any updates on interest rate hikes would go down particularly well where NatWest is concerned, which is more exposed to the rate environment than some other banks.”

Watch: NatWest faces criminal probe over cash laundering

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