Natwest shares rise after strong results and deal for part of Metro Bank’s mortgage book

Natwest announced the acquisition of a part of Metro Bank’s residential mortgage book alongside results showing it performed ahead of expectations in the first half.

The FTSE 100 lender reported a pretax operating profit of £3bn in the first six months of the year, down from £3.6bn last year although ahead of the £2.6bn expected by analysts.

The fall came due to a six per cent fall in net interest income, which dropped to £5.4bn compared to last year’s figure of £5.7bn. Net interest income reflects the revenue banks make from lending minus the cost of deposits.

Compared to last year, Natwest reported lower deposit balances and “lending margin pressure”.

Natwest was among a bunch of banks to rake in record profits last year due to the Bank of England’s interest rate hikes.

However, the Bank Rate has remained at 5.25 per cent all through this year and most economists expect it to fall in the next couple of months, which has cut into lending margins. Earlier this week Lloyds reported a sizeable fall in profit as its interest income fell 10 per cent.

Although the performance across the first half as a whole was worse than last year, Natwest reported positive signs going into the second half.

Its net interest margin (NIM) – a key measure of profitability – widened to 2.10 per cent, five basis points higher than the first quarter. Total income was over five per cent higher than the first quarter due to “increased deposit income”.

On the back of the results, Natwest announced an interim dividend of 6p per share, up nine per cent on last year. Looking forward, it lifted its income guidance to £14bn from between £13-13.5bn previously.

Shares were up around seven per cent in early trade.

“The positive momentum and progress in the first half reflect the ambition across the bank to deliver its full potential,” boss Paul Thwaite said.

“Our customers are beginning to feel more confident, with activity increasing and asset quality remaining strong, and we are well positioned to help unlock growth across the UK through our unrivalled regional network,” he added.

Alongside its results, Natwest announced the acquisition of a part of Metro Bank’s residential mortgage book for £2.5bn. This will bring in around 10,000 customer accounts which will continue to be serviced by Metro Bank.

“This transaction is a further opportunity to accelerate the growth of our Retail mortgage book within our existing risk appetite, with attractive returns. It is in line with our strategic priorities and builds on our recent acquisition from Sainsbury’s Bank,” Thwaite said.

John Moore, senior investment manager at RBC Brewin Dolphin, said: “Natwest’s acquisition of Metro Bank’s residential mortgages portfolio builds on its purchase of Sainsbury’s Bank’s core banking operation, adding further scale to Natwest’s loan book.”

Metro Bank said the sale created capacity to reposition its book towards higher yielding commercial, corporate and SME loans. It said the deal was earnings and capital ratio accretive.