NatWest shares dive six per cent as £1.3bn profits fail expectations and fear grows of banking ‘slump’

NatWest became the second FTSE 100 bank to take a beating as its forward guidance disappointed investors and analysts alike. 

NatWest’s share price was trading more than six per cent lower this afternoon, despite delivering its biggest profits since the financial crisis in 2022, as it forecast a difficult 2023.

“The outlook for this year remains challenging with the decline in economic activity expected and a further tightening of real incomes, which will inevitably affect spending and borrowing,” said NatWest chair Howard Davies.

Like Barclays on Wednesday, investors were disappointed by the bank’s guidance for its 2023 net interest margin, which measures the difference between what it pays out and receives in interest. 

In the final quarter NatWest’s net interest margin widened to 3.20 per cent from 2.99 per cent in the previous quarter. However, it expects the figure to remain at 3.20 per cent through 2023, although it stressed the economic outlook remains “uncertain”.

Senior Banking Analyst at Bloomberg Intelligence Philip Richards described NatWest’s earnings outlook for 2023 as “tepid” and “disappointing”. 

“Consensus upgrades may have run their course, given its 2023 net interest margin guidance of 3.2 per cent vs. consensus of 3.4 per cent”.

Why are banks taking a beating?

Analysts at JP Morgan said “reality bites” for NatWest and described its guidance as “weaker than market expectations” even considering Barclays’s results had already lowered the bar. 

NatWest’s outlook for return-on-tangible-equity (RoTE), a key measure of bank profitability, also raised more questions than it answered. they said.

Market consensus had been for a 15.8 per cent RoTE in 2023, but NatWest gave a much wider range of between 14 per cent and 16 per cent. Analysts at Barclays said the guidance “may underwhelm”, although they noted it was “likely to be underpinned by conservative assumptions.”

However, NatWest CEO Alison Rose defended the guidance, saying it implies “a very strong performance” for 2023.

“The strategy is delivering this very strong performance that we’re outlining. We’ve been clear about the economic scenarios that we base that guidance on and clearly there is still uncertainty ahead,” she said.

Shares in Lloyds also fell today as investors feared that the bank would face the same problems when it releases results next Wednesday.