NatWest Plans Buyback After Reversing More Loan Provisions

(Bloomberg) -- NatWest Group Plc is reversing more of the provisions it took early in the Covid-19 pandemic as the British economy rebounds, helping it beat earnings forecasts in the second quarter and return cash to shareholders.

The U.K.’s biggest corporate lender posted an operating profit before tax of 1.6 billion pounds ($2.2 billion) in the second quarter, compared to a loss a year ago, as mortgage demand stayed high and Britons emerged from more than a year of lockdowns.

“My clear preference is to distribute capital to shareholders,” Chief Executive Officer Alison Rose said in a Bloomberg Television interview Friday.

The Edinburgh-based lender said it will pay a dividend of 3 pence per share and buy back stock worth as much as 750 million pounds, after the Bank of England removed restrictions imposed at the height of the pandemic to make sure lenders could weather deep losses. NatWest said it aims to distribute a minimum of 1 billion pounds per year from 2021 to 2023, via a combination of ordinary and special dividends.

Provision Release

The bank released 605 million pounds that was set aside to cover souring loans, more than analysts expected and adding to the funds it released in April. Last year, the bank earmarked about 3.2 billion pounds for potential defaults as Covid-19 restrictions pushed millions of borrowers to take emergency debt or payment holidays.

Shares in NatWest, known as Royal Bank of Scotland until last year, traded 1.3% lower at 8:35 a.m. in London. The stock has gained about 20% so far this year.

What Bloomberg Intelligence Says:

NatWest’s capital returns -- critical to the investment thesis -- are gathering momentum as the lender declared plans for a 750 million-pound buyback and raised the minimum dividend 25%, bringing 2021 distributions to at least $4 billion. CET1, full loaded, of 17.5% post-buybacks and dividend highlights the huge scope for further returns.

-- Jonathan Tyce, BI banking analyst

NatWest joins rivals Barclays Plc and Lloyds Banking Group Plc this week in unwinding some of their preparations for a wave of bad loans during the pandemic. Banks have reported strengthening demand for home loans and low levels of impairments as Britons get back to work and leisure without restrictions.

Despite the lender moving toward more flexible working, Rose said there were no plans to downsize the lender’s two main campuses in Edinburgh and London.

“Our offices are evolving into more hybrid spaces, more flexible working but there will always be a need for offices,” Rose said on Bloomberg Television. “Our footprint will evolve but our two big campuses are not going to change.” She said on a separate earnings call that vaccinations wouldn’t be compulsory for staff.

The U.K. will sell more of its 12.5 billion-pound ($17 billion) stake in NatWest over the next year, potentially returning the bank to majority private ownership for the first time since the financial crisis over a decade ago.

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