The FTSE 100 experienced a slight decline on Friday, with NatWest contributing to a challenging week for the banking sector by revising its forecast downward.
At 8:15 am, the primary index of the London Stock Exchange had fallen by 7.86 points or 0.1%, settling at 7,346.71, whereas the FTSE 250 experienced a 4.57-point drop, reaching 16,778.52.
NatWest Group PLC (LSE: NWG) saw a significant drop of 16% in its opening price, falling to 172.15p. This came after the bank reported a decrease of 19 basis points in its net interest margin (NIM) for the third quarter, resulting from customers transferring their funds to savings accounts with lower margins in pursuit of higher interest rates.
@MrMBrown, the principal market analyst at CMC Markets UK, highlights that the #NatWest share price has had a tough year, and conditions deteriorated further this morning. The shares took a dive, reaching their lowest point in 30 months, following the bank’s decision to revise… https://t.co/DCbMzkeofY pic.twitter.com/7oTPU709KJ
— Share_Talk ™ (@Share_Talk) October 27, 2023
The bank adjusted its full-year NIM forecast, now anticipating it to be “greater than 3%”, a decrease from the previous estimate of around 3.15%.
In addition, NatWest is currently addressing issues stemming from the Nigel Farage banking incident, acknowledging “serious failings” in its handling of the situation, even though an independent inquiry concluded that the account closure was legal.
Matt Britzman, an equity analyst at Hargreaves Lansdown, expressed disappointment with the results, highlighting the dip in net interest margin to below 3% and the lowered forecast. He observed an increase in deposit levels, but emphasized that this is a less lucrative avenue of business compared to non/low-interest current accounts.
He added, “Mortgage challenges are also taking a toll, particularly as highly profitable deals secured during the pandemic are concluding, leading to a decrease in net interest margin.”
Analysts at Jefferies were not taken aback by the NIM reduction, but they pointed out the unexpected element in the results—the CET1 miss on higher risk weighted assets (RWAs): “Investors will undoubtedly react negatively to both the 30bps capital shortfall and the 2025 RWA forecast, which is at the upper end of previous predictions,” stated the brokerage firm.
In contrast, there was encouraging news for the owner of British Airways, IAG, which saw its stocks rise following what Peel Hunt described as “extraordinary results.”
The brokerage highlighted, “The record 3Q results surpassed both our own and the consensus estimates, driven by stronger revenue from higher passenger yields.”
They detailed the financial performance, noting, “Revenue reached €8,646 million, approximately €230 million more than anticipated, solely due to passenger contributions, with cargo and other sectors performing as expected. Costs rose by around €40 million due to increased fuel prices, but operating profit saw a significant increase, reaching €1,745 million—€190 million higher than projected.”
