NatWest Group (LSE: NWG) has been in the news for all the wrong reasons, knocking 4.5% off the share price in just a few days.
It’s all about Nigel Farage and Coutts (which NatWest owns), and it led to CEO Alison Rose’s resignation.
It overshadowed the bank’s first-half results a bit. But at least the NatWest share price didn’t fall any further on H1 results day, as other banks have done.
Profits and impairments
Just as Barcays and Lloyds Banking Group did earlier, NatWest reported an impairment charge to deal with the rising risk of bad debt. In this case, it hit £223m.
Also like Barclays, NatWest announced a new share buyback of up to £500m.
NatWest beat forecasts, with a profit of £3.6bn. That’s up from £2.6bn the previous year, and ahead of a predicted £3.3bn. A £1bn jump can’t be bad.
Chief Financial Officer Katie Murray spoke of the bank’s “high-quality deposit base, high levels of liquidity and a well-diversified loan book.“
Dividend rise
NatWest announced an interim dividend of 5.5p per share. That’s 57% ahead of the H1 cash in 2022, and it bodes well for the full year.
Analysts have a 5.7% dividend yield marked down for the full year. And with this big first-half boost, coupled with the bank’s big new buyback, I can’t help wondering if that might turn out to be conservative.
Whatever the full year might bring, this amount of cash being paid back to shareholders in a sector that’s supposed to be struggling looks pretty good to me.
Bank risks
Clearly, the banks face financial risk in the short to medium term. And I don’t want to read too much into NatWest’s £1bn profit boost. It is, after all, lifted by our (hopefully short-term) high interest rates.
In fact, NatWest lowered its net interest margin (NIM) outlook. It now expects “less than 3.20%, with a current view of around 3.15%“.
As it happens, that’s exactly what Barclays said about its NIM prospects earlier in the week. So that could make a small dent in H2 profits.
It’s RBS
I see a specific risk for NatWest too, and it was highlighted by news of the UK government’s £190m profit from this H1 dividend.
A full 38.5% of NatWest shares are still in state hands, making it the biggest shareholder. If and when those are unloaded, we might see a run on the NatWest share price.
It also brings to mind that this used to be the Royal Bank of Scotland. And it was the biggest player in the crisis that almost brought down the whole UK banking system.
Time to buy?
So on that cheery note, how do I rate NatWest bank shares right now? For me it’s easy. Despite the risk, I think bank’s stock is cheap.
I already bought a chunk of financial shares. But even then, the big UK banks are all on my wishlist for my next buy.
This post was originally published on Motley Fool
