- Chief executive's comments fuel concern
- Bank notches up more bad loan provisions
- 2023 guidance disappoints analysts
Alison Rose, chief executive of NatWest (NWG), may be ruing her downbeat view on the outlook for this year which seems to have overshadowed what were broadly seen as a strong set of results for 2022.
Having rallied almost 50% from their mid-October low, shares in the bank slumped as much as 30p or 9.5% to 283.3p, making them the worst performer in the FTSE 100 by quite some margin, as investors booked profits and headed for the exit.
WHY ARE NATWEST SHARES DOWN SO MUCH?
Despite a strong performance last year, including a jump in the net interest margin, better loan growth and higher trading income, investors latched onto the opening comments by the chief executive which sounded a clear note of caution over the future.
‘Despite not yet seeing significant signs of financial distress among our customers, we are acutely aware that many people and businesses are struggling right now and that many more are worried about what the future holds’, said Rose in the results summary.
While levels of default were low, the bank revealed it had taken another £377 million of provisions for potential future bad loans as it adjusted its macro-economic forecasts ‘with more weight being placed on the downside scenario’.
Although total income was up 26% to £13.1 billion and pre-tax operating profits jumped 33% to £5.1 billion, analysts expressed concerns over the bank’s stubbornly-high cost base which remains over £7.5 billion.
Also, the outlook for this year in terms of net interest margin, total income and return on equity look to be below market forecasts.
Even news of a share buyback of up to £800 million this year, taking total capital returns from capital in 2022 to £5.1 billion or 53p per share, did nothing to stem the sell-off.
EXPERT VIEWS
Joseph Dickerson, banks expert at Jefferies, described the 2023 guidance as ‘problematic’, particularly the net interest margin which is seen averaging 3.2% compared with 3.25% last year and the cost-to-income ratio which is forecast at around 52% against analyst projections of below 50%.
Russ Mould, investment director at AJ Bell, concurred. ‘Income for 2023 is now guided to be lower than expected, with the key net interest margin metric also falling short. Costs are also set to be higher than forecast.
‘With the rate cycle nearing its peak the recent momentum in banking shares could be difficult to maintain’ added Mould.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (James Crux) own shares in AJ Bell.
