NatWest Group Plc, the UK lender under the spotlight for closing Nigel Farage’s bank account, has trimmed its guidance for net interest margins this year, underlining the pressure on banks to pass interest rate increases on to savers.
The UK’s biggest corporate lender now expects NIM to be around 3.15% for the year, down from previous guidance of 3.2%, following a similar move from Barclays Plc on Thursday.
“The margin guidance is well below consensus as NatWest Group sees a shift from current accounts to time deposits,” Fahed Kunwar, an analyst at Redburn, said in a message. “Overall worries about margins as rates move higher will be compounded by these results.”
The bank reported pretax profit of £1.77 billion ($2.3 billion) for the second quarter, above analyst estimates compiled by Bloomberg of £1.45 billion. The result was up around 27% from a year ago.
NatWest also announced a £500 million share buyback on the open market, adding to the £1.3 billion it’s already bought from the government this year.
The bigger-than-expected buyback pushed shares up 1.8% at 9:56 a.m. in London, paring back their decline over the week to 2.9%.
NatWest is separately trying to defuse the furor about its decision to cut ties with Farage, the politician-turned conservative pundit who had an account with its upmarket Coutts unit. Former Chief Executive Officer Alison Rose admitted speaking to a BBC journalist about the reasons behind that decision, leading the government to indicate her position at the part-nationalized bank was untenable. The CEO of Coutts has also stepped down.
On a media call Friday, interim CEO Paul Thwaite said NatWest’s strategy was working well. Chairman Howard Davies, who Farage says should resign, said he intends to continue to lead the board.
The Brexit campaigner’s account was closed a month ago, sparking a public fight over the bank’s decision. Rose admitted speaking to a BBC journalist about the reasons behind the closure, leading the government to indicate her position at the part-nationalized bank was untenable.
Customer deposits at NatWest were flat at £432.5 billion at the end of the quarter and new mortgage lending declined as British households adjusted to higher interest rates. The bank said it was seeing “increased competition for savings balances.”
The Bank of England has raised rates 13 times in an attempt to curb inflation, which has been stuck above the central bank’s target for almost two years, though slowed slightly to 7.9% last month. As lenders earn more on money they hold with the central bank, they have come under increasing pressure from politicians and regulators to pass more of this windfall to their customers.
Impairment charges at NatWest rose to £153 million in the quarter, driven by increased economic uncertainty. That was less than analysts expected and, for now, the bank said “defaults remain stable and at low levels across the portfolio.”
NatWest’s results cap a challenging week for UK banks. Shares in Barclays fell on Thursday after the lender cut its guidance for net interest margin at its retail bank, signaling the boost from rising interest rates was coming to an end. Lloyds Banking Group Plc said on Wednesday its pretax profit fell to £1.6 billion, below estimates.
Once one of the world’s largest banks, NatWest has been transformed into a largely domestic retail lender following a bailout during the 2008 financial crisis. The government owns about 39% of the firm’s shares.
What Bloomberg Intelligence Says:
NatWest’s 2Q net-interest-margin miss of 10 bps and downgraded full-year guidance of 5 bps to 3.15% (similar to the move by Barclays UK) sum up the intensifying pressures in the domestic mortgage and deposit markets, with 2023 consensus revenue set for downgrades. Weakening top-line momentum is likely to take the shine off the announcements of an additional £500 million of share buybacks. The pretax-profit beat reflects lower loan-loss charges, which seem unsustainable.
— Tomasz Noetzel, BI banking analyst
(Updates to add CFO comments, detail from earnings, share price.)