RBS parent NatWest posts big hike in profits but results underwhelm: full reaction

Royal Bank of Scotland parent NatWest failed to light up the market despite posting a third-quarter pre-tax operating profit that was well ahead of City expectations.

Over the three-month period, the banking giant booked an operating profit before tax of £1.1 billion, up from £355 million a year earlier, and higher than the £677m that analysts were expecting.

Total income grew 14 per cent to nearly £2.8 billion, around £150m more than predicted. However, shares came under pressure following the latest results.

CMC Markets chief market analyst Michael Hewson said: “Having seen decent numbers from Lloyds and Barclays, expectations were high for NatWest Group's third-quarter numbers.

NatWest-owned Royal Bank of Scotland has its headquarters and conference facilities at Gogarburn in Edinburgh. Picture: Ian Georgeson

“NatWest's share price has been a notable outperformer so far this year, its shares up over 35 per cent, and at 20-month highs, so the bar was quite high for [these] numbers, and quite frankly the market reaction has been a little underwhelming.”

Donald Brown, senior investment manager at Brewin Dolphin, the wealth management firm, said: “NatWest has beaten expectations, underlining the turnaround in fortunes for the UK’s major banks over the last 12 months on the back of a stronger UK economy.

“The bank has largely navigated the pandemic well and, with increased profits, a strong capital position, and a brighter outlook ahead, NatWest appears to be in a good place.

“All things being equal, the bank should continue on its positive trajectory – notwithstanding legal costs and the government selling down its stake over the next year or so.”

NatWest chief executive Alison Rose said: “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.

“We have a vital role to play in helping the 19 million people, families and businesses we serve in communities throughout the UK to thrive. Because when they thrive, so do we.”

The group's profits were boosted by its decision to unlock £242m that it had set aside during the pandemic to cover loans that might go sour. But it has also set aside £294m to cover a potential fine for breaking money laundering rules.

Richard Hunter, head of markets at investment platform Interactive Investor, noted: “The theme of the [bank] reporting season has been a release of credit impairments and NatWest is no different, with a release of £242m for the quarter given an improved macroeconomic outlook.

“This has contributed to a pre-tax profit figure of £1.1bn, and is comfortably ahead of expectations.

“There are, however, a number of niggling metrics which mean that these results are rather less inspiring than those of its rivals. The return on tangible equity figure of 8.5 per cent has slipped from 11.7 per cent the previous quarter, while net interest margin has also dipped, to 1.54 per cent from 1.61 per cent.

“In all, the numbers are safe but lack sparkle,” he added.

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