The surge in NatWest shares can be attributed to an increase in stamp duty transactions and financial market turmoil that resulted in higher income for the bank.
NatWest Scores Major Q1 Profit Victory, Outperforming Analysts' Expectations
The banking titan, NatWest, blew past analysts' predictions, posting a whopping £1.8 billion pre-tax profit for Q1 2025. Not bad for a company that was expected to earn only £1.6 billion.
Early Friday, shares in the lending giant soared over three percent during trading. The total income surged 3.8 percent to an impressive £4 billion.
A housing market frenzy, triggered by the Chancellor Rachel Reeves' stamp duty changes, sent NatWest's net loans to customers, excluding central items, skyrocketing by £3.4 billion to a mind-boggling £371.9 billion.
NatWest's net interest margin, a crucial metric for bank profitability from lending, expanded a remarkable eight basis points from the end of 2024, landing at 2.27 percent.
The bank's trading income increased a staggering £218 million from the fourth quarter of 2024, hitting £284 million, powered by geopolitical tensions instigated by President Donald Trump's bellicose rhetoric.
Donald Trump's tense talk sparked numerous market sell-offs as investors freaked out over potential recession fears.
NatWest pocketed £56 million in commercial and institutional revenue, a 2.7 percent hike compared to the fourth quarter of 2024. The bank attributed this growth to brisk customer activity in markets.
Operating expenses plummeted 8.5 percent lower to £2 billion, as the bank pointed to "seasonally high costs" of the last quarter. Costs were £93 million lower than the first quarter in 2024.
John Moore, senior investment manager at RBC Brewin Dolphin, shared his thoughts: "NatWest's recent success story has been all about cost-cutting, simplification, and maintaining a lean, solid balance sheet. This provides a sturdy foundation for expansion and growth."
He continued, "With some of NatWest's competitors potentially pullingout from the UK, acquisition opportunities or other forms of expansion could present themselves, offering further scale while adhering to the bank's strategic principles."
NatWest Braces for the Fallout of Economic Storm
While Trump's 'Liberation Day' levies narrowly missed the first quarter, NatWest, like FTSE 100 peers such as HSBC, Barclays, and Lloyds, made provisions for anticipated credit losses.
Expected credit loss climbed £100 million to £3.5 billion. The bank announced, "We retain post model adjustments of £0.3 billion related to economic uncertainties, accounting for 8.7% of total impairment provisions."
Looking ahead, NatWest has raised its guidance for 2025. The bank expects income to reach the upper end of its previously set range of £15.2 billion to £15.7 billion.
They also forecast return on tangible equity to be at the higher end of 15 to 16 percent.
In the coming months, NatWest is set to move fully into private ownership, as the government continues its process of winding down its historic stake in the bank.
Paul Thwaite, NatWest's CEO, commented, "In the face of heightened global economic unpredictability, our customers have shown remarkable resilience, resulting in good activity levels throughout Q1 2025."
He added, "Our solid balance sheet empowers us to help customers navigate through any challenges, while simultaneously investing in our business and rewarding shareholders. At a time when economic growth is a priority, NatWest Group is positioned to play a crucial role as a vital and trusted partner for our customers and the UK as a whole."
- The unexpected profitability of NatWest in Q1 2025, with a pre-tax profit of £1.8 billion, surpassed the analysts' expectations and led to a three percent increase in the company's shares in the banking market.
- The housing market frenzy, influenced by the changes in stamp duty by Chancellor Rachel Reeves, contributed to a significant rise in NatWest's net loans to customers, reaching a staggering £371.9 billion.
- Paul Thwaite, the CEO of NatWest, acknowledged the economic uncertainty but expressed confidence in the bank's ability to assist customers, invest in its business, and reward shareholders, making it a vital partner for the UK during economic growth.
- Reeves' changes in stamp duty, the tense talk between Donald Trump and geopolitical tensions, and the brisk customer activity in banking markets all played a part in boosting NatWest's net interest margin and trading income.
- With the upcoming move to full private ownership and the raising of its 2025 guidance, NatWest Group intends to continue cost-cutting, simplification, and maintaining a lean, solid balance sheet while expanding its operations and adhering to its strategic principles.
