NatWest acquired a 2.4-billion-pound mortgage portfolio from Metro Bank and upgraded its annual performance outlook, despite a 16% drop in first-half profit. This acquisition is part of a consolidation trend in Britain's banking sector. Metro Bank's sale, despite a 4% discount, provides much-needed liquidity. NatWest shares rose 6%, showing market confidence. The bank raised its 2024 return on tangible equity forecast to exceed 14% and expects annual income of approximately 14 billion pounds. CEO Paul Thwaite highlighted growing customer confidence and strong asset quality. The government's stake in NatWest fell below 20%, advancing the bank towards full private ownership.
NatWest recently acquired a 2.4 billion-pound (USD 3.09 billion) mortgage portfolio from Metro Bank and upgraded its performance outlook for the year, causing a surge in its shares despite a 16% decline in first-half profit. This acquisition is part of a broader trend of consolidation in Britain's competitive banking sector, with larger institutions acquiring assets from smaller rivals that struggle to achieve scale. In June, NatWest also purchased the banking business of UK retailer Sainsbury's. Nationwide Building Society will acquire Virgin Money, and Coventry Building Society will take over The Co-operative Bank.
Metro Bank's sale of the mortgage portfolio infuses much-needed liquidity, though it sells at a 4% discount on book value, resulting in a loss of approximately 105 million pounds. NatWest shares jumped 6% on Friday, reaching their highest level since February 2015, while Metro Bank saw a 2.3% increase. Analysts have responded positively to the Metro Bank deal from NatWest's perspective, recognising that acquiring prime mortgages indicates potential for inorganic loan book growth. Matt Britzman, an analyst at Hargreaves Lansdown, emphasised that NatWest stands to benefit from favourable sector trends.
Despite the first-half profit declining to 3 billion pounds, which was slightly below analysts' expectations, NatWest remains optimistic. The bank raised its 2024 forecast for return on tangible equity to above 14%, up from the previous expectation of 12%, signalling confidence in its performance for the rest of the year. Additionally, it anticipates annual income to reach around 14 billion pounds, an increase from the earlier forecast of 13 billion pounds to 13.5 billion pounds.
This update follows a similar announcement from Lloyds Banking Group, which reported a 14% decrease in first-half profit but expressed optimism for the economic outlook in the latter half of the year. NatWest CEO Paul Thwaite noted that customers are beginning to regain confidence, with increased activity and strong asset quality, positioning the bank to support growth across the UK through its extensive regional network. Earlier this month, NatWest disclosed that the government's stake in the bank fell below 20%, moving closer to full private ownership following its state bailout during the 2008 financial crisis.
Metro Bank, established to challenge the dominance of major banks after the global financial crisis, secured a 925-million-pound rescue deal last year following significant deposit outflows. Poor market conditions forced Metro Bank to abandon the sale of its mortgage portfolio in December. However, it revived the sale in recent months as it seeks to transform into a specialist lender focusing on specialised and underserved markets.
Amidst these developments, NatWest's strategic acquisitions and performance outlook reflect its strong positioning and adaptability within the banking sector. By capitalising on opportunities to expand its mortgage portfolio and enhance its service offerings, NatWest continues to fortify its market presence and drive forward its growth trajectory amidst a dynamic and competitive financial landscape.
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