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NatWest said it would be more profitable than previously expected this year, extending a share price run that has made the state-backed lender the best performing stock in the FTSE 100 this year.
The bank reported operating profits before tax of £1.7bn in the quarter, surpassing analysts’ expectations of £1.3bn. It now expects its return on tangible equity, a key measure of bank profitability, to be more than 14 per cent, up from a previous forecast of 12 per cent.
Shares in the bank jumped as much as 8 per cent in early trading on Friday, taking their gains this year to more than 60 per cent.
NatWest also announced the acquisition of £2.5bn of prime residential mortgages from Metro Bank that it said would add about 10,000 customers.
The acquisition comes after NatWest last month announced it would buy the bulk of Sainsbury’s Bank, giving it access to an expected 1mn new accounts and £2.5bn worth of unsecured loans.
“We have made good progress against our strategic priorities, taking decisive action to grow and simplify our business,” said chief executive Paul Thwaite. “Our customers are beginning to feel more confident, with activity increasing and asset quality remaining strong.”
Although revenues fell to £3.7bn in the quarter from a year earlier as the benefits from higher interest rates waned, they still beat expectations of £3.4bn.
The lender was boosted by higher retail deposit and credit card lending as well as growth in its commercial bank, which helped offset a reduction of its total mortgage balance.
The group also released £96mn it had previously set aside for bad loans as it revised its economic outlook and flagged “limited increases in arrears in line with expectation” at its retail bank.
NatWest also updated its economic forecast as it expected fewer Bank of England rate cuts this year, two compared with a previously forecast five.
The lender also said it had spent £24mn preparing for a plan drawn up under the previous Conservative government in which the state would sell some of the state’s remaining stake to retail investors. It is unclear whether the new Labour government will seek to bring the project back.
Thwaite said the government might offer more clarity on the plans around the time of Labour’s first fiscal event, adding that he was pleased with the government’s speedy selldown of its shares. The Treasury nearly halved its stake in the bank from 38 per cent in December to less than 20 per cent in July.
Alongside its results, the lender announced some governance changes. Senior independent director Mark Seligman will not seek re-election to the board at its annual meeting, while Ian Cormack, another board member will step down, the bank said.
The changes come after the lender’s board was last year embroiled in a scandal around its handling of Nigel Farage’s “debanking” that led to the toppling of former chief executive Alison Rose. Former Mastercard and Ocado chair Rick Haythornthwaite has since joined the board as chair in January.
NatWest’s net interest margin — the difference between the interest it charges on loans and the rate it pays on customer deposits — rose to 2.1 per cent from 2.05 per cent in the previous quarter.
