(Bloomberg) -- NatWest Group Plc shares soared after it boosted its forecast for full-year revenue as the lending giant continues to reap benefits from stubbornly high interest rates.
The company now expects revenue for the year to be around £14 billion ($18 billion), up from an earlier forecast of £13 billion to £13.5 billion, according to a statement Friday. The move came after the lender generated net interest income and fee revenue in the second quarter that topped analysts’ expectations.
“It’s really been driven a lot by customer activity on both sides of our balance sheet as well as, of course, the absence of rate cuts,” Chief Financial Officer Katie Murray said on a conference call with journalists.
The new forecast comes as the Bank of England has held off on cutting rates in recent months, buoying NatWest’s results. At the start of the year, the lender had expected the central bank to begin cutting borrowing costs in May and that benchmark interest rates would reach 4% by the end of the year.
Now, NatWest expects the Bank of England to only begin reducing rates in the third quarter and the benchmark will drop no lower than 4.75% by the end of 2024.
Shares of NatWest soared as much as 9.1% Friday morning, making them the best performer in the FTSE 100 Index. The stock had risen 54% this year through the close of trading Thursday.
Separately, the company announced the purchase of a £2.5 billion portfolio of prime residential mortgages from Metro Bank Holdings Plc for a cash consideration of as much as £2.4 billion.
Under Chief Executive Officer Paul Thwaite, NatWest has said it’s trying to keep a lid on costs even as inflation drives wages and other costs higher. The company said it continues to expect expenses for the year to be broadly stable compared with 2023 excluding several one-time costs.
Expenses for the quarter rose 2.8% to £1.93 billion, according to the statement. NatWest has been “taking decisive action” in the quarter to manage costs, Thwaite said.
In the quarter, NatWest agreed to buy J Sainsbury Plc’s banking business. Britain’s second-largest grocer spent months trying to dispose of the division and ultimately agreed to pay NatWest £125 million to take the portfolio of unsecured personal loans, credit-card balances and deposits off its hands.
NatWest will continue to look at acquisition opportunities as they arise, Thwaite said on the media call.
Government Stake
The UK’s new Chancellor of the Exchequer Rachel Reeves is leaning toward offloading a substantial portion of the government’s £5.6 billion stake in NatWest to institutional shareholders rather than continuing with her predecessor’s plans to offer it up to the UK public, Bloomberg News reported this week.
Under former Chancellor Jeremy Hunt, UK officials had been formulating plans to sell the shares the government holds in the bank to retail investors as part of plans to offload the entire stake by 2026. The moves were part of a broader plan to reinvigorate UK capital markets by stimulating consumers’ interest in owning British stocks.
NatWest has already recorded about £24 million in costs tied to preparatory work it’s done for the potential retail stock sale, Thwaite said on the media call. The company expects the government to share its priorities on the sale during its next fiscal event, he said.
What Bloomberg Intelligence Says:
“NatWest’s significant 2Q beat, improved ROTE guidance to above 14% from 12% on new revenue expectations and lower provision charges provide a solid base for further consensus upgrades and confirm what the share-price outperformance already pre-empted. Acquisition of £2.5 billion mortgages from Metro Bank is in line with its strategy to strengthen retail arm.”
— Tomasz Noetzel, BI banking analyst
The government this year has continued to hasten its exit from NatWest and, earlier this month, the government’s stake in the lender dropped below 20% for the first time since 2008. That compares with the 38% interest it held in December.
“I’m really pleased with the momentum in 2024 in terms of the sell-down of the government holding,” Thwaite said. “Returning the bank into private hands, I believe, is in the best interest of all of our shareholders.”
Other items announced Friday:
- Pretax income for the period slipped 4.1% to £1.7 billion, beating the £1.29 billion average of analyst estimates.
- Net interest margin — a key measure of profitability that shows the difference between what a bank earns from lending and pays out to depositors — dropped by 10 basis points to 2.1%.
- NatWest announced that Mark Seligman, a senior independent director on the company’s board, won’t seek reelection to the board at its annual meeting in April. Ian Cormack, another senior independent director, has also indicated he will step down from the board.
(Updates with details of government shares starting in 12th paragraph.)
©2024 Bloomberg L.P.
