- Income and profit top estimates
- Structural hedges a benefit
- Full-year outlook improved
There was a strong sense of déjà vu this morning as NatWest (NWG) published better-than-expected third-quarter results and raised its outlook, just as it did at the half-year stage three months ago.
Once again, the shares responded positively, gaining 17p or 5% to 378.5p taking them to the top of the FTSE 100 leader board and their highest level since before the pandemic.
HELP FROM HEDGES
For the three months to September, total income rose 7.3% to £3.77 billion against a consensus forecast of £3.58 billion helped by the acquisition of Metro Bank’s (MTRO) mortgage portfolio and an increase in the net interest margin to 2.18% from 2.05% a year ago.
In common with the other big banks, behind the scenes an important part of the increase in NatWest’s net interest income and margin is the use of structural hedges which prolong the benefit of previous rate rises.
Group operating costs were down 5% year-on-year to £1.82 billion from £1.93 billion, while litigation costs were 70% lower at £41 million against £134 million and provisions for bad loans rose slightly to £245 million against £229 million.
Therefore, profit before tax was £1.67 billion, 26% higher than the previous year and well above analysts’ forecasts of £1.46 billion.
Paul Thwaite, who was confirmed as the bank’s permanent chief executive after stepping in last year to replace Alison Rose, said NatWest was ‘growing and simplifying the bank whilst managing our capital more efficiently’.
Thwaite added: ‘With customer activity increasing, defaults remaining low and optimism amongst businesses and consumers, we are well placed to succeed with our customers and for our shareholders in the months and years ahead.’
FORECASTS RAISED AGAIN
Having lifted its full-year guidance in July, the bank raised its forecast for total income from ‘around £14 billion’ to £14.4 billion which would represent a slight increase on last year’s figure of £14.34 billion.
At the same time, operating costs are expected to be ‘broadly stable compared with 2023’ return on tangible equity is seen topping 15% instead of the previous target of ‘above 14%’.
