Shares in NatWest Group (NWG) rallied 1.5% to 193p after the bank announced it had agreed to buy back just under 5% of its shares from HM Treasury at market prices.
The bank paid the government £1.125 billion for 590.73 million shares, or 4.86% of its outstanding capital. That works out at 190.5p per share, which was last night’s closing price.
The agreement, which comes several months earlier than most analysts had expected, leaves the government with just under seven billion NatWest shares, equivalent to 59.77% of its capital.
The bank will cancel 390 million shares and hold the remaining 200 million as treasury stock, which it can use for employee share ownership schemes.
By buying in shares, NatWest triggered an agreement to contribute £500 million towards its main pension scheme, which reduces tangible equity per share. However, by cancelling around two thirds of the shares, the tangible equity per remaining share still goes up by around 4p.
Jefferies analyst Joseph Dickerson called the decision to start buying back the government’s stake ‘a clear positive signal’ which ‘lends greater conviction to our Buy case’.
Gary Greenwood, banks analyst at Shore Capital, who has a Hold recommendation on NatWest, welcomed the news but said it was ‘consistent with our expectations and does not materially change our forecasts or fair value, which currently stands at 190p’.
Separately, Barclays (BARC) announced that it was starting its £700 million share buyback today. If the shares remained at their current level of 182p and the bank exercised its buyback in full, it would mean purchasing roughly 385 million shares or 2.2% of its capital. Barclays is also cancelling its shares, which will lift tangible net equity value.
