NatWest shares fell in morning trading after the bank reported third-quarter results showing subdued profit growth. The FTSE 100 lender posted a pre-tax profit of £2.2bn, broadly in line with internal consensus and up 1.9 per cent from the same period last year. Its stock dropped almost 8% in morning trading.
Wealth division boosts income
The bank recorded total income of £4.6bn for the period, up 7.1 per cent, boosted by growth in its Private Banking & Wealth Management division following its first full quarter with Evelyn Partners. NatWest completed a £2.7bn deal to acquire the firm from private equity owners Permira and Warburg Pincus in February, with the transaction finalised at the end of June.
This helped income in the wealth division surge 47 per cent compared with the second quarter. Non-interest income more than doubled to £233m, while assets under management income climbed to £225m, from £92m, as reported by City AM.
Net interest income falls short
Group non-interest income surpassed expectations at just under £1.1bn, against the £1bn forecast. This helped counterbalance a weaker performance in net interest income, which fell short of expectations at £3.6bn, representing a modest £49m shortfall.
Richard Hunter, head of markets at interactive investor, said: "NatWest has rounded off the banks' quarterly reporting season with a fair to middling performance which was not sufficient for the bank to upgrade guidance for the year," He added the negative market reaction to the numbers "reflects some disappointment with the general tone of the update".
Guidance and tax changes
The company recorded a £35m charge "following a routine review of customer repayment behaviour across retail banking and commercial & institutional," which contributed to eroding net interest income. Nevertheless, the bank's net interest margin, a crucial measure of its profitability from lending, edged up to 2.5 per cent. This came after a 13 basis point annual rise in the second quarter to 2.49 per cent following a boost from the higher interest rate environment.
The group raised its income target for 2026 in August, expecting to achieve the top end of its £17.2bn to £17.6bn range following the elevated rate environment caused by the US-Iran war. On Friday, the bank said it was anticipating the Bank of England to raise interest rates to four per cent in next week's monetary policy committee meeting.
The update comes after banks were targeted for a tax raid in John Healey's first Budget. The Chancellor doubled the surcharge, which sits on top of corporation tax, to six per cent from January for 15 months. The Office for Budget Responsibility (OBR) has forecast the increase will raise around £1.5bn with surcharge receipts pulling in £2.4bn in 2027-28, up £1.2 billion from 2025-26.
Analysts said NatWest is tipped to be one of the most exposed UK banks to the changes with a four per cent hit to attributable profit. Paul Thwaite, chief executive of NatWest, stopped short of any direct criticism, though stated he "really wants" to use the bank's capital to "support the UK's growth agenda". He said: "There is an uncertain kind of macroeconomic backdrop. There's obviously pressure on the rising cost of living." Mr Thwaite noted that the 15-month timeframe on the tax rise offered "welcome clarity" and would enable investors to form a "view on the outlook for the policy environment".
