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NatWest Group PLC ADR NWG

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Bank of England Lifts Dividend Suspension; Return to Capital Framework Process in 2021

Niklas Kammer, CFA Equity Analyst

Analyst Note

| Niklas Kammer, CFA |

Regulators at the Bank of England have eased capital distribution restrictions for the large U.K. banks under our coverage, allowing for the resumption of dividends, albeit at a reduced rate. Under the new guidelines, banks can distribute up to the higher of 20 basis points of risk-weighted assets as of 2020 year-end or 25% of cumulative 2019 and 2020 profits. Based on our estimates, this translates to a maximum distributable amount for Barclays, Lloyds, and NatWest of about GBP 800 million, GBP 790 million, and GBP 560 million, respectively, and a slightly above 3% yield at current market capitalizations. Crucially, the banks have the capacity to pay the maximum allowed and more. Using pre-COVID-19 minimum capital requirements as a yardstick and excluding all COVID-related transitional arrangements, the U.K. banks have GBP 3 billion (Barclays), GBP 3.7 billion (Lloyds), and GBP 11.1 billion (NatWest) in excess capital on hand. In 2021, U.K. banks will return to the standard distribution process based on the Basel framework allowing for dividends if capital levels permit. We maintain our fair value estimates and moat ratings for all three U.K. banks.

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Company Profile

Business Description

NatWest Group is a universal bank headquartered in the United Kingdom, where it derives around 90% of its total income. The bank operates a retail, commercial, and private bank in the U.K., offering clients lending and payment services as well as asset management services. The three segments combined consume about 65% of the group’s risk-weighted assets. It also provides financing, risk management, and trading solutions around the world to global financial institutions and large corporates in its NatWest markets segment.

Business House G Gogarburn
Edinburgh, EH12 1HQ, United Kingdom
T +44 1316260000
Sector Financial Services
Industry Banks - Diversified
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type
Employees 62,700