ii view: NatWest rewards long-suffering shareholders

Challenges persist but this is now a very different bank from 2008. Buy, sell or hold?

Full-year results to 31 December 2021

• Operating profit of £4 billion, up from a loss of £481 million in 2020
• Net impairment release of £1.3 billion
• Cost income ratio down to 73.4% from 74.4% a year earlier
• Final dividend up 150% to 7.5p per share 
• Total full year dividend of 10.5p per share, up from 3p per share in 2020
• New share buy-back programme of up to £750 million
• Capital cushion (CET1) of 18.2%, down from 18.7% in Q3

Chief executive Alison Rose said:

“NatWest Group delivered a strong performance in 2021 as we returned to profitability, made progress against our strategy and distributed more than £3.8 billion of capital to our shareholders, including £1.7 billion to the taxpayer.

“As our economy recovers and the trend towards digital services accelerates, we are investing to deliver long term value in the bank and drive sustainable growth. We will do this by building closer and deeper relationships with our customers and by supporting their evolving needs and expectations at every stage of their lives.”

ii round-up:

Bank and financial services company NatWest Group (LSE:NWG) today employs over 50,000 people.

Formerly Royal Bank of Scotland, it is today headed by Alison Rose, the former deputy head of NatWest Holdings.

Serving around 19 million customers, its brands include NatWest itself, RBS International and Coutts.

For a round-up of these latest results, please click here. 

ii view:

NatWest is a retail and commercial bank with operations in the UK and the Republic of Ireland. Its journey through and out of the financial crisis has few rivals. Simplifying and reducing its operating footprint, cutting risky assets, building capital and reducing costs has been a gargantuan and painful task. Its latest move involves a phased withdrawal from Ireland. During the year, it signed agreements with both Allied Irish Banks and Permanent TSB, accounting for around 60% of its Ulster Bank loan book in the Republic.  

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For investors, the flip side of simplification is a far less diversified bank, at least geographically. A cost income ratio of over 70% still offers room for improvement, the bank has been fined for failed money laundering procedures, and the government’s significant share stake remains an overhang. 

On the upside, the bank has returned to operating profit, its withdrawal from Ireland further simplifies its operations, with broader cost savings still being pursued, while management’s commitment to improving performance and returns is ongoing. A capital cushion now above its stated target range should also help shareholder returns, with the shares now sat on an estimated future dividend yield of over 4% and commencing a share buyback programme. In all, and while economic outlook uncertainty should not be dismissed, this significantly transformed UK bank is in much better shape and outperforming many rivals, at least in share price terms.   

Positives  

• Solid balance sheet
• Attractive dividend (not guaranteed)

Negatives

• Ongoing pandemic and economic outlook uncertainty
• Lacks the diversity of some rivals

The average rating of stock market analysts:

Buy