NatWest Shares Drop After Guidance Cut; Farage Account Closure Review Flags 'Serious Failings' — 2nd Update

By Elena Vardon

NatWest Group shares tumbled after the bank cut its full-year net interest margin guidance and admitted "serious failings" in its treatment of Brexit campaigner Nigel Farage after an investigation into the handling of his account.

At 0939 GMT, shares were down 11% to 182.7 pence having hit as low as 168 pence earlier in the session, their lowest price since February 2021.

The lender on Friday said it accepts and will implement the recommendations of the review, which it said found that the closure of Farage's account at the NatWest-owned private bank Coutts was lawful.

The board commissioned U.K. law firm Travers Smith to look into the bank's handling of Farage's account and the then-chief executive Alison Rose's conversation with a journalist about the matter, which led to her stepping down in July as the bank was consumed in a political drama. Farage claimed he was dropped as a client of Coutts for his political views. NatWest said the review concluded that it was "predominantly a commercial decision".

"Although Travers Smith confirm the lawful basis for the exit decision, the findings set out clear shortcomings in how it was reached as well as failures in how we communicated with him and in relation to client confidentiality," Chairman Howard Davies said.

The U.K.'s Financial Conduct Authority said the report highlighted what it called potential "regulatory breaches" at NatWest and Coutts. "We confirmed to both firms that we are now reviewing how the firms' governance, systems and controls are working to identify and address any significant shortcomings," the regulator said in a statement. It said it has been intensifying supervisory work on them since the events.

Meanwhile, the lender--which is 41% owned by the U.K. Government according to FactSet data--posted its third-quarter results, and said it now sees net interest income margin for 2023 of more than 3%. This compares with its recently trimmed view of around 3.15%. Peer Barclays lowered its net interest margin expectation for its U.K. division on Tuesday, which disappointed the market and dragged its shares and those of other domestic banks lower.

Analysts noted that the weakness in NatWest shares on Friday was likely driven by the new guidance's implication of lower estimates for 2024 profits and suggest that the benefits of high interest rates might have peaked.

NatWest also lowered its total income expectation for 2023 to 14.3 billion pounds ($17.34 billion) from GBP14.8 billion previously. For the three months ended Sept. 30, total income rose to GBP3.49 billion from GBP3.23 billion in the same period the previous year, but missed the GBP3.585 billion forecast by analysts. Net interest income for the quarter was GBP2.685 billion compared with consensus expectations of GBP2.80 million.

Its net interest margin for the quarter was 2.94%, against expectations of 3.07%, and 3.13% in the second quarter. It attributed the drop to changes in deposit mix and continued mortgage margins dilution, though some analysts note that regulatory pressure that is increasing competition as well as reputational damage may be playing a role in customers taking their deposits elsewhere.

The group posted an operating pretax profit of GBP1.33 billion compared with GBP1.09 billion for the third quarter of 2022, against the GBP1.36 billion expected in a company-compiled consensus.

Its common equity Tier 1 ratio--a key measure of balance-sheet strength--stood at 13.5% at Sept. 30, while consensus had penciled in a 13.8%.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

October 27, 2023 06:00 ET (10:00 GMT)

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