NatWest (NWG) were stung as the bank’s share price plunged nearly 5% to 219.9p despite third quarter results beating consensus forecasts.

The high street bank reported pre-tax profit of £1,074 million, smashing the £677 million expected by analysts, while earnings per share similarly outstripped estimates, at 5.8p versus 3.4p.

Investors appear to have taken to heart the adage that it is better to travel than to arrive following NatWest’s 30% share price rally in 2021 as the whole UK banking sector re-rated.

But there will also be disappointment that headline profitability has been flattered by a £282 million net provision lease. This continues a trend that has been apparent across the UK banking sector, with provisioning estimates in a post-pandemic world failing to reflect the rapid economic recovery.

PROFIT MARGINS SQUEEZE

There was also a seven basis points decline in the net interest margin, a key measure of underlying profitability for banks. Net interest margins indicates the difference between interest rates charged on loans versus what is offered to savings customers.

Annualised quarterly return on tangible equity of 8.5% compared with a consensus figure of 5.5%. The group has completed £420 million of the £750 million share buyback announced last year.

‘At current levels we continue to prefer Lloyds Banking (LLOY), as we believe it has a higher return mix of businesses,’ said Shore Capital analyst Gary Greenwood.

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