Natwest Group – Playing The Rating Game

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Natwest Group PLC (LON:NWG)’s total income rose 14.5% to £2.8bn in the third quarter, as loans to customers rose 2% to £361m, and there was a 65.0% increase in non-interest income to £820m.

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The group was able to release £242m of the provisions put aside last year, in case customers defaulted on their loans. Compared to a charge of £254m last year, together with higher income and reduced costs, this meant pre-tax profit jumped from £355m to £1.1bn.

Natwest has put aside £294m for litigation issues, including an “anticipated fine” relating to money laundering regulation breaches.

The shares fell 3.6% following the announcement.

Natwest Group Have Too Much Capital

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown:

“A lot of attention’s 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.

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.

Natwest is also in the enviable position of having too much capital. Approaching 19%, the CET1 capital ratio is rather too generous by some people’s books. What the bank decides to do with this is a crucial marker of the stock’s attractiveness – repurchasing larger chunk of the government’s remaining stake in the bank seems a likely candidate.”

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