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British bank NatWest has reported a 27 per cent decline in first-quarter profits, attributed to increasing competition for savings, mortgage and lending products over the past year.
In its quarterly report, the bank reported a pre-tax operating profit of £1.3bn, a drop from £1.8bn recorded in the previous quarter, consistent with analyst forecasts. Despite this decline, revenues remained slightly above market expectations, totalling £3.5bn.
Its net interest margin experienced a modest increase at the group level, rising from 1.99 per cent to 2.05 per cent compared to the previous quarter. However, within its retail banking segment, this margin slightly decreased to 2.22 per cent due to increased competition in the country’s mortgage market.
In terms of risk management, NatWest set aside £93mn in provisions for bad loans, significantly lower than the £186mn expected by analysts.
“NatWest is the best of the bunch. Lloyds and Barclays led the way this week and NatWest certainly hasn’t disappointed with first-quarter results that are very nearly a clean sweep versus expectations,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
Shares in NatWest have soared by over 31 per cent since the beginning of the year, buoyed by the appointment of a new chief executive and chair following a scandal involving the closure of politician Nigel Farage’s account with its private bank Coutts.
Moreover, the UK government, NatWest’s largest shareholder since the 2008 financial crisis bailout, recently reduced its stake below 30 per cent, signalling a step towards private ownership.
CEO Paul Thwaite said he was “pleased” with this development: “Returning NatWest Group to private ownership is a shared ambition and we believe it is in the best interests of both the bank and all our shareholders,” he added.
The UK government is expected to decide on a potential further sale of its shareholding, returning the bank to full public ownership, as early as this summer.
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A regulatory effort in the US aimed at curbing the influence of major investors on individual banks has hit a roadblock, as neither of the two competing proposals gained majority support at a recent open meeting of the Federal Deposit Insurance Corporation.
A vote on the proposals, one from Republican member Jonathan McKernan and another from Democrat Rohit Chopra, was shelved on Thursday.
McKernan proposed establishing an FDIC-led compliance programme for large index fund managers seeking to be “passive” investors in FDIC-supervised banks. Meanwhile, Chopra, backed by FDIC chair Martin Gruenberg, aimed to release a rule change for public comment that would expand FDIC oversight over banks when any investor type exceeds the 10 per cent threshold.
Concerns about the power of large investors have sparked debate among activists on both sides of the political spectrum. Republicans have criticised the use of environmental, social, and governance factors in investing, labelling it “woke capitalism”, while Democrats have expressed concerns about investors exerting undue influence on banks and potential antitrust issues.
Disagreements at the FDIC’s meeting centred on whether formal rule changes and co-ordination with other US banking regulators are necessary to address the issue. Meanwhile, industry groups argue there is no need to change the current system.
Michael Hsu, acting Comptroller of the Currency, declined to support either proposal. Instead he advocated for collaboration among all three major US bank regulators to develop a unified approach to overseeing bank control.
Consequently, the board opted not to vote on either proposal, aiming to reconcile their differences.
McKernan remains adamant about the need to address concerns regarding major investors such as BlackRock and Vanguard potentially influencing bank actions. Chopra expressed willingness to continue discussions, highlighting the importance of public input in finding a resolution.
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The Basel Committee on Banking Supervision announced significant updates to its rulebook on Thursday, aiming to enhance risk detection in the face of evolving challenges such as climate change, the rise of non-bank entities and the digital transformation of finance.
“The revised standard reflects changes to promote operational resilience, reinforce corporate governance and risk management practices, and address new and emerging risks, including the digitalisation of finance and climate-related financial risks,” the committee said in a statement.
Notably, the new standard emphasises the responsibility of a bank’s board in ensuring banks maintain a sustainable business model, especially in light of bank failures witnessed in the US and Switzerland last year. It also introduces a new definition of climate-related financial risks.
Furthermore, the committee announced plans to release public consultations next week on guidelines for banks to manage risks associated with clients and counterparties. Regulators are scrutinising the expanding non-bank sector, which includes private equity, insurers and investment funds, urging improved data transparency and risk assessment.
The committee said it will publish a report in May addressing the digitalisation of finance and its regulatory implications.
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Property values in London’s Canary Wharf financial district have experienced a decline of £1.2bn over the past year, according to annual results released by the landlord on Thursday.
Canary Wharf Group, jointly owned by investors Brookfield and the Qatar Investment Authority, revealed in its 2023 earnings report that its overall property portfolio declined in value from £8bn to £6.8bn.
London’s commercial real estate sector has faced formidable challenges in recent years, grappling with surging debt costs and dwindling occupancy rates in the aftermath of the Covid-19 pandemic.
Canary Wharf, established in the 1980s as an alternative to the City of London, boasts prestigious tenants such as JPMorgan and Citi. However, it has suffered setbacks due to the planned departures of major tenants including HSBC and law firm Clifford Chance.
Despite these exits, several prominent financial institutions, including Morgan Stanley and Barclays, have chosen to remain.
In a bid to rejuvenate the area and diversify away from office space, Canary Wharf has embarked on ambitious residential and laboratory construction projects. Additionally, the landlord announced securing £553mn in new loans and refinancings to address its hefty £3.7bn net debt burden.
The challenges in the commercial property market extend beyond Canary Wharf, with MSCI reporting that the first quarter of 2024 saw the highest number of failed property deals in Europe since 2010, a period when the sector was still grappling with the impact of the global financial crisis.
Lingering inflationary pressures and interest rate uncertainties have dampened hopes for a swift recovery.
