Afternoon summary
Time to recap, at the end of a dramatic week.
NatWest’s chair has said he will not quit over the row about the closure of Nigel Farage’s account.
Sir Howard Davies said he would continue to chair NatWest’s board to provide “stability” after the resignations of Dame Alison Rose, and the boss of Coutts, this week.
Davies also told reporters that political pressure had meant Rose could not continue, and that the bank had lost a ‘great leader’ in the early hours on Wednesday when she stepped down.
He was speaking after NatWest beat City expectations this morning, by posting operating profits of £3.6bn for the first half of this year.
The bank will pay £500m in dividends to its shareholders, meaning a £190m payday for UK taxpapers:
NatWest cut its forecast for its net interest margin (the gap between what it charges borrowers and pays savers); a sign that some people have been running down their savings or moving them to more lucrative accounts.
Farage has backed campaigner Gina Miller after Monzo ruled her True and Fair party’s bank account would close in September.
This is just plain wrong at every level. I stand with @thatginamiller. https://t.co/cK1GcCRjcE
— Nigel Farage (@Nigel_Farage) July 28, 2023
The number of firms falling into insolvency in England and Wales surged to the highest level for 14 years in the past quarter, according to Government figures.
The high court has dismissed a legal challenge by five Conservative-led councils against the expansion of London’s ultra-low emission zone (Ulez).
AstraZeneca has beaten profit forecasts, helped by strong sales of its anti-cancer drugs.
In the US, the PCE measure of inflation has fallen, as price pressures ease across the Atlantic, raising hopes of a soft-landing for the American economy.
The Bank of England has engaged Ben Bernanke, the former chair of the US Federal Reserve, to lead a review of forecasting at the UK central bank.
Former Chair of the Federal Reserve of the United States, Dr Ben Bernanke rolls up his sleeves after agreeing to lead a review into the Bank’s forecasting and related processes... https://t.co/Lzfa49YknG pic.twitter.com/BfCPDPUCew
— Emma Fildes (@emmafildes) July 28, 2023
International Airlines Group, which owns British Airways, has announced record profits for the first half of 2023, with air fares up almost 10% on last year.
Several big lenders including Nationwide, HSBC and TSB have cut rates on their fixed mortgage deals in a sign that home loan costs may be close to peaking after surging to nearly 7%.
Rising insolvencies: What the experts say
Here’s some reaction to the jump in company insolvencies in England and Wales in the last quarter, to the highest in 14 yers.
Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon, says:
“Quarterly company insolvencies reached over 6,300 for the first time since 2009 in Q2 as many businesses struggled to contend with a sustained mix of pressures.
“Although company insolvencies have been steadily increasing over the last 18 months, largely driven by Creditors’ Voluntary Liquidations (CVLs), in Q2 there was a significant uplift in the number of compulsory liquidations which rose 67% year-on-year.
“The current low-growth, high-inflation and relatively high interest rate environment has meant many businesses have faced building pressure over the last 12 months which is now translating into distress.
Jeremy Whiteson, restructuring and insolvency partner at Fladgate, says:
The increase in CVLs may reflect that many business have been ground down by a series of economic challenges which have hit in waves and eroded their businesses, leaving their owners with nothing to save - the pandemic, Brexit, labour shortages, the economic effects of the Ukraine conflict (leading to increased food and food costs) and now, rising interest rates. However, the increased costs of administrations, where additional regulation, aimed at protecting creditors by requiring more extensive reporting and consultation- may also have had the unintended consequence of putting these procedures beyond the reach of many businesses.
However, troubled companies with continuing business also seems to have been affected. Administrations (at 409) were a 30% increase on the preceding quarter (when there were 314) and a 34% increase on Q2 2022. This is the highest number since the beginning of the pandemic. CVAs were up even more. At 56 this was a 47% increase on the preceding quarter and a 75% increase on Q2 2022.
And here’s Lucy Fulmer, Director and Head of Creditor Markets at PwC:
“The high number of compulsory liquidations in Q2 of this year is striking - 637 compared to 382 in the same quarter last year. This is driven by an increase in winding up petitions - formal applications from creditors to shut down companies - which our data shows have more than doubled to 2,400 in the first half of this year compared to the same period last year. A lot of this increase can be attributed to HMRC returning to pre-pandemic levels of enforcement action.
“Consumer sentiment also remains a concern, particularly in the retail, food service and leisure industries, whilst the construction sector is grappling with credit risk brought about by inflationary pressure, labour shortages and increasing interest rates. The hospitality and leisure sector made up 17% of insolvencies in H1 2023, and increased by 38% compared to H1 2022. However, with the start of the summer holidays and energy prices falling, we hope to see the sector begin to recover as the year progresses.”
Elsewhere in the banking sector, several big lenders including Nationwide, HSBC and TSB have cut rates on their fixed mortgage deals.
It’s a sign that home loan costs may be close to peaking after surging to nearly 7%.
The reductions follow data last week that showed inflation fell further than expected in June, helping to calm financial markets and trim expectations of the number of interest rate rises still required to tame inflation.
Nils Pratley: It will be surprising if NatWest’s Howard Davies hasn’t gone by Christmas
Can Howard Davies cling onto the top job on the NatWest board until 2024?
Our financial editor, Nils Pratley, thinks not – even though Davies himself hoped to hang on until July 2024, before the Farage bank row blew up.
Nils writes:
Davies has probably escaped the need for an instant resignation only by virtue of the fact that he was going anyway. Plan A, which pre-dates the Coutts fiasco, was for him to leave by July next year for the conventional reason that his nine-year term will be up at that point. An obvious strategy now would be to accelerate the timetable and get out as soon as is practical.
Since the search for a new chair has already been running for a few weeks, it should not take ages to find a new face, even if the pool of likely volunteers may have shrunk over the past week. One suspects Davies will want to be out in the autumn, or at least to have named his successor by then. And it will be amazing if he’s still there by Christmas. Under a new chair the necessary broader overhaul of the boardroom after the incompetence of the past month can begin.
Farage supports Gina Miller over bank account access
The row over access to UK bank accounts is creating some unlikely alliances.
Nigel Farage has thrown his backing behind anti-Brexit campaigner Gina Miller, after it emerged this morning that Monzo bank is to close the bank account of Miller’s True and Fair party.
Farage says he stands with Miller, who famously challenged the UK government in 2016 over its authority to trigger the process of leaving the European Union without parliamentary approval.
This is just plain wrong at every level. I stand with @thatginamiller. https://t.co/cK1GcCRjcE
— Nigel Farage (@Nigel_Farage) July 28, 2023
Miller warned this morning that “we don’t have a functioning democracy” if new political parties cannot access banking services.
More than 1,000 Manchester Stagecoach drivers have voted overwhelmingly for industrial action, the Unite union has announced.
Strike action will take place on 11, 12, 13 and 14 August, and will “severely” affect bus services across the whole of Manchester, Unite says.
The drivers have rejected an offer of 4% from June 2023 with a further 4% cent in December, which Unite points out is below the RPI inflation rate of 10.7% (although it pretty much matches June’s CPI inflation reading of 7.9%).
US PCE inflation measure falls
America is continuing to win its battle against inflationary pressures.
The US PCE price index, which tracks cost changes, rose by 3% in the year to June, data just released shows, down from 3.8% in May.
That matches the official reading for consumer price inflation in June, which dropped to 3% this month too – nearer to the 2% target.
CPI and PCE inflation have both totaled 3% over the last year. pic.twitter.com/BX3d3nVwpG
— Marc Goldwein (@MarcGoldwein) July 28, 2023
Prices for goods decreased by 0.6% while prices for services increased 4.9%.
Food prices increased 4.6% while energy prices tumbled 18.9% compared to a year earlier.
Core PCE, which excludes food and energy, rose by 4.1% from one year ago. This measure is closely watched by the Federal Reserve.
Core pce slows month to month and year/year. Good news on inflation - but still not down to the Fed's 2% target. pic.twitter.com/rz7OeB79Wi
— Kathy Jones (@KathyJones) July 28, 2023
Inflation pressures continue to abate. PCE up 3% YOY through June. Core PCE up 4.1%. Both down from last month. https://t.co/Kx3eZjSZhX
— Paul R. La Monica (@LaMonicaBuzz) July 28, 2023
Bernanke to review Bank of England's forecasting prowess
Newsflash: Dr Ben Bernanke, the former head of America’s central bank, the Federal Reserve, is to lead a review into the Bank of England’s forecasting.
The BoE says the review will aim to “develop and strengthen” the Bank’s support for the Monetary Policy Committee’s approach to forecasting and monetary policy making in times of uncertainty.
This follows criticism that the Bank failed to predict the surge in inflation over the last year or two, meaning it was too slow to tighten monetary policy by raising interest rates.
Bernanke, who ran the Fed from 2006 to 2014 and won the 2022 Nobel prize in economics, says:
“Forecasts are an important tool for central banks to assess the economic outlook.
But it is right to review the design and use of forecasts and their role in policymaking, in light of major economic shocks. So I am delighted to be leading this work for the Bank.”
A month ago, the Bank’s chief economist, Huw Pill, said the Bank’s forecasting models became become “unworkable” in the current crisis, as they failed to fully appreciate the the interaction of high energy prices and a tight jobs market.
Updated
In the energy sector, profits at oil giant ExxonMobil have halved, following the drop in crude prices.
America’s biggest oil company has reported a net income of $7.9bn for the second quarter, down from the record $17.9bn profit it posted in Q2 2022.
The number of people across England and Wales registering for “breathing space” from their debts jumped by 26% in the second quarter of this year compared with the same period in 2022, according to the Insolvency Service.
Some 21,232 breathing space registrations were recorded in the second quarter of 2023.
Within the total, 20,919 were standard registrations and 313 were mental health breathing space registrations.
A standard breathing space is available to people with problem debt and gives legal protections from creditor action for up to 60 days.
A mental health crisis breathing space is available to someone who is receiving mental health crisis treatment. It lasts as long as the person’s mental health crisis treatment, plus 30 days.
Full story: NatWest chair vows to stay on to provide ‘stability’ after Farage controversy
Here’s our news story about Howard Davies’ plan to remain NatWest chair to provide the bank with stability, and the bank’s hiring of external lawyers to investigate the closure of Nigel Farage’s Coutts accounts.
It explains:
Davies, who was already due to retire from his post in summer 2024, told journalists on Friday morning that the search for his successor would continue in a “completely normal” manner, despite the prime minister failing to publicly back him a day earlier.
“My intention is to continue to lead the board,” Davies said.
“My understanding is that we do have the support of our main shareholder and of the regulators, for us to continue to steer this bank forward,” he said, referring to the government’s 38.5% stake, a hangover from its 2008 state bailout.
More here.
Updated
AstraZeneca beats forecasts despite Covid-19 vaccine sales drying up
Pharmaceuticals group AstraZeneca has, like NatWest, beaten profit expectations this morning, despite a tailing off in revenues from Covid-19.
AstraZeneca reported a 25% rise in core earnings per share for the second quarter of the year. Revenues rose 4% to $22.3bn, despite a decline of $2.2bn from Covid-19 medicines.
AstraZeneca reported no sales of Vaxzevria, its Covid-19 vaccine, in the second quarter.
Instead, its blockbuster cancer drugs lifted sales, with oncology revenues up 22% thanks to a “strong performance across key medicines and regions”.
AstraZeneca chief executive Pascal Soriot told reporters this morning that the company was “very encouraged” by interim data from the trial of a key lung cancer drug, called datopotamab deruxtecan.
At the start of July, AstraZeneca’s shares fell 8% after the firm said it was too soon to say with statistical significance if patients taking datopotamab deruxtecan would also live longer. Investors were disappointed then that the company did not say the data was “clinically meaningful”.
Today, AstraZeneca’s shares are up 4%.
2023 has been a pretty profitable year for the banks, although there are now signs that the windfall from higher interest rates is fading…
Await HSBC (Tuesday) but so far profits before tax made every single day of the first half of 2023 by three biggest banks
— Paul Lewis (@paullewismoney) July 28, 2023
Lloyds £21.4million a day
Barclays £25.2million a day
NatWest £19.8million a day
Matt Britzman, equity analyst at Hargreaves Lansdown, says NatWest has had a “week to forget” as the row over Nigel Farage’s account closure saw it lose CEO Alison Rose and Coutts chief Peter Flavel.
He adds that the drop in NatWest’s net interest margin in the last quarter, and the lower guidance on this metric for the year (see earlier) is a disappointment.
Britzman says:
“It’s been a week to forget at NatWest as it’s had to lose two of its top execs because of the Nigel Farage account closure debacle.
Today’s results probably don’t do the group any favours either, despite a slight beat on the bottom line. We know markets are laser-focused on net interest margin and at 3.13% for the second quarter that was below expectations, leading to a miss on net interest income.
But perhaps more importantly, full-year guidance has been dragged lower reflecting the ongoing deposit shift to accounts that offer better rates as consumers do all they can to make cash savings go further. NatWest should be a little more robust than peers in this regard, owing to the fact more of its deposits are held by small and medium-sized businesses which tend to keep more cash current accounts that are more profitable for banks.
The UK borrower continues to look robust and this was one area of strength in today’s results. NatWest increased its expectations of future loan defaults by £223m over the half, though a lower-than-expected number for the second quarter reflects default levels that remain low across the portfolio. As we saw with Barclays, a new buyback will go some way to easing investor sentiment, but with NatWest much more reliant on interest income, the downgrade to margin guidance will be disappointing for many.”
England and Wales report highest number of company insolvencies since 2009
More businesses in England and Wales collapsed in the second quarter of the year than in any three month period since 2009, according to the latest figures from the Insolvency Service.
The government agency said the number of company insolvencies in the three months to the end of June was 9% higher than the previous quarter and 13% higher than the same period last year.
Company insolvencies reached 6,342 in the quarter, comprising 5,240 creditors’ voluntary liquidations (CVLs), 637 compulsory liquidations, 409 administrations and 56 company voluntary arrangements (CVAs).
In total, in the first half of 2023, there were almost 13,000 corporate failures, the agency said.
Business groups have blamed high inflation, rising rents and the cost of living crisis affecting customers for the increase in the number of firms going to the wall.
In the last year the construction industry registered the largest number of insolvencies, closely followed by wholesale and retail trade and hotels and restaurants. Manufacturing made up 8% of cases.
Sam Fenwick, a partner at the law firm Wedlake Bell said:
“More and more businesses are struggling to make ends meet due to increased overheads and their customers having less money to spend.
He added:
“Directors are increasingly throwing in the towel, particularly in smaller businesses.”
The latest growth data from the eurozone paints a mixed picture this morning.
The good news is that France’s gross domestic product grew by 0.5% in the April-June quarter, faster than expected, after 0.1% growth in Q1.
Spain’s economy grew 0.4%, slightly slower than the 0.5% recorded in Q1.
But Germany’s economy stagnated, with no increase in GDP in the last quarter, after it fell into recession over the winter.
German Economy Stalls in Q2
— TRADING ECONOMICS (@tEconomics) July 28, 2023
The German economy stalled in the second quarter on 2023, following a contraction in each of the previous two quarters and compared to market forecasts of a 0.1% growth, flash estimates show...
More here: https://t.co/KzieO2dmwM pic.twitter.com/8I07QEkRfX
BBC: Gina Miller's political party bank account to be closed
Politicians on the right of the political spectrum aren’t the only ones to fall victim to ‘debanking’, it seems.
According to the BBC, anti-Brexit campaigner Gina Miller was told a bank account for her political party would close without explanation.
The BBC reports:
Monzo initially refused to tell Ms Miller why her “True and Fair” party account would be closed in September.
After the BBC contacted the bank about the case, it said it did not allow political party accounts and had made a mistake in allowing it to be opened.
Monzo said it recognised the experience would have been “frustrating for the customer and we’re sorry for that”.
More here.
Gina Miller's political party bank account to be closed https://t.co/qALQdwUMjr
— BBC Politics (@BBCPolitics) July 28, 2023
It’s not exactly the same as Nigel Farage’s situation, as the ex-Ukip leader saw his personal account closed. But it will put more focus on the issue.
Updated
London Ulez: court dismisses challenge by five councils over expansion
Away from NatWest, the high court has dismissed a legal challenge by five Conservative-led councils against the expansion of London’s ultra-low emission zone (Ulez).
Our transport correspondent Gwyn Topham explains:
The zone, which the mayor of London, Sadiq Khan, has said is a vital move to tackle toxic air, is due to be extended throughout the whole of Greater London at the end of August, making owners of the most polluting cars pay to drive.
The outer London boroughs of Bexley, Bromley, Harrow and Hillingdon, along with Surrey county council, launched legal action in February. At the high court earlier this month, barristers argued that Khan had failed to adequately consult, overstepped his powers, and had provided a flawed £110m scrappage scheme.
Our Politics Live blog has all the reaction to th decision:
Full story: NatWest to pay UK government £190m as Farage crisis rocks bank
NatWest will make a fresh £190m payout to its largest shareholder, the UK government, after Downing Street had an influence in the resignation of Alison Rose as the bank’s chief executive amid a row over Nigel Farage’s accounts.
The crisis-hit group said it was planning to pay dividends worth £500m to its investors after another strong quarter in which pre-tax profits rose by a higher than expected 27% to £1.8bn in the three months to June. That was compared with £1.4bn a year earlier, as the bank benefited from rising interest rates that allowed it to charge borrowers more for loans and mortgages.
The shareholder payout will benefit the UK government, which still holds a 38.5% stake in the lender after its £45bn state bailout during the 2008 financial crisis. NatWest also announced a £500m share buyback on Friday morning but that will only benefit investors whose shares are traded on the public stock market, meaning it will not affect the taxpayer’s stake.
It comes during a chaotic week for NatWest Group after the departure of Rose and the ousting of the boss of its private bank Coutts, which triggered a scandal after closing Farage’s bank accounts earlier this year.
Their departures followed interventions by the chancellor and the prime minister this week, who made it clear they wanted change at the top of the bank.
While indiscretion may have led to her departure, the latest results from NatWest suggest former CEO Alison Rose was making “a decent fist of her day job”, says Russ Mould, investment director at AJ Bell.
Moult says:
“After years of struggle following its forced nationalisation during the 2007/8 financial crisis, Rose had probably got the bank as close to normality as any of her predecessors and there will be real frustration that NatWestis back in crisis mode, undoing much of that good work.
This is not an unblemished update. The trimming of guidance on the company’s net interest margin hints at the problems for banks, under big political and regulatory pressure, of charging more to borrowers without offering more to savers too, particularly with mounting competition in the savings market.
And, while earnings beat expectations, this reflected several one-off items and did not reveal too much about the underlying performance of the bank.
The scandal over confidentiality and the way it has played out is a reminder to other investors that the Government remains a major shareholder and, as such, has real influence on the way the bank is run. This is not a reminder the market is likely to receive positively.
While bad debts remain under control for now, the pressures on UK households are acute and this remains an issue which could flare-up for NatWest and the other banks.
NatWest’s share are ralling this morning, recovering some of their losses from earlier this week.
They’re up 1.75% at 244p, after the bank beat profit forecasts and announced a £500m share buyback this morning.
Law firm Travers Smith to probe NatWest's handling of Farage affair
NatWest has appointed law firm Travers Smith to independently probe its handling of the Farage affair, our City editor Anna Isaac explains.
This review will have three aims: to check how Farage’s accounts at private bank Coutts were closed; why they were shut down; and how such a controversial set of statements about his political views and actions were compiled.
It will also look at how the bank communicated with him about his accounts at the bank and their closure.
The investigation is also set to examine the “timing and content” of updates about Farage’s accounts from Coutts to Natwest group level - suggesting this could include memos or briefings from former chief executive Peter Flavel to ex-group boss Dame Alison Rose.
One of its more sensitive tasks will be to put a spotlight on the circumstances and nature of any leaks to the press, and what confidential information may have been passed from the banking group to the media, including the BBC.
Beyond the handling of Farage’s accounts, the probe will also look at all accounts closed at Coutts over the past 24 months. It will follow a similar approach as with the Farage-specific investigation: looking at questions of how and why accounts were shut, and what was said to all other customers whose accounts were shut down.
Updated
Davies: Business is continuing as normal.
Howard Davies ended his call with journalists about this morning’s results by insisting that this morning’s results are “positive” (Natwest posted a rise in profits to £3.6bn for the first half of the year).
People will want to look at its ‘net interest margin’, after NatWest cut its guidance on this profitability measure this morning (see earlier post), Davies predicts.
But, he says, “the bank is in a good financial condition”, insisting:
We have not seen deposit outflows or customer outflows on any scale which concerns us.
And the NatWest chair insists that business continues as normal.
Davies signs off by saying that Natwest is open for business for its customers, explaining:
I want to end where I began by reassuring our customers, and our shareholders, that the business of this bank is continuing as normal and will do because it’s crucial from the British economy point of view and for the 19 million customers we serve, that they know that, in spite of all this, we are open for business and ready to serve them.
Updated
NatWest is also asked about Alison Rose’s exit pay, following reports that she could receive a ‘multi-million-pound pay-off’.
Howard Davies says he can’t say precisely when details of the package will be published, explaining:
The independent review will take place and then we’ll have to consider it.
Davies adds that he doesn’t see a reaon to depart from the normal practice of reporting executive pay.
He also explained, earlier in the call, that decisions on Rose’s pay can’t be made until the independent review has been completed.
Updated
Howard Davies is then asked whether there is merit in him leaving early to draw a line under crisis, or whether it’s right to wait.
Davies replies that a search for a replacement chair is underway – but insists this is a completely planned process [reminder: he said in April he would leave by July 2024].
Davies says that his assessment, which was supported a day or two ago by the economic secretary, is to let that process continue.
That is a sensible position, Davies insists, as it maximises the chances of finding a good successor who can take NatWest forward.
Updated
And with regards to the Financial Conduct Authority’s involvement on the Farage bank account debacle, Howard Davies confirms the regulator have raised concerns with the bank.
With regard to account closures, these issues should be independently reviewed; we can certainly assure that will happen, Davies adds.
Davies says NatWest’s independent review into the closure of Nigel Farage’s Coutts account will have three dimensions.
It will cover: the decision to close the accounts of Mr Farage; the circumstances around the BBC article (which initially said it was a commercial decision); and to review other Coutts account closures.
Onto the appointment of Paul Thwaite as NatWest’s CEO earlier this week to succeed Alison Rose.
Howard Davies says the bank always has an emergency plan ready for unexpected departure.
This plan was considered a few months ago, and NatWest decided Thwaite was the right person to be emergency successor.
This was discussed with Paul himself, Howard Davies says; Thwaite obviously wasn’t expecting this to happen, but was prepared to take the role on.
This position was also discussed with regulators, Davies adds, as they would expect a bank to have a succession plan in place.
Howard Davies is also being grilled about when he found out about the bank’s discussion with the BBC about Nigel Farage.
He explains that during the course of the last week the story began to develop that BBC business editor Simon Jack’s piece had been sourced within the bank.
This was discussed with Alison Rose, and the board felt it needed to have a clear statement from her about what said in that conversation. The board then met on Monday to discuss it [it was released on Tuesday afternoon].
When asked whether Farage’s accounts at Coutts had been reinstated, Howard Davies says it is “not appropriate for me to speak about the state of his accounts”.
Davies: political reaction forced "great leader" Alison Rose out
NatWest chair Howard Davies says the political reaction to the decision to retain Alison Rose as CEO on Tuesday night meant her position was untenable (prompting her resignation around 1.30am Wednesday morning).
He told reporters:
We took the view on Tuesday that even though mistakes had been made, it was on balance right to retain Alison Rose as our CEO.
But the reaction was such as to convince her and the board that her position was untenable.
Davies added that:
I clearly regret the way things have turned out. We’ve lost a great leader as a result, but I now have to look forward.
Davies on the decision to stick with Rose: "We believed it was a rational decision to make at the time ... however the political reaction was such that Alison and I concluded her position was untenable." @TimesRadio #NatWest
— Dominic O'Connell (@dominicoc) July 28, 2023
Davies added that the board was “unanimous at all points” (both the initial decision to support Rose, and the later u-turn that she would resign).
Updated
NatWest chair: I intend to continue to lead the board
Howard Davies has apologised for the uncertainty created by recent events but insisted that “My intention is to continue to lead the board”.
Speaking to reporters this morning, Davies says NatWest’s board met yesterday and agreed to the terms of reference for an independent review into the handling of Nigel Farage’s accounts at Coutts.
This review will examine the way in which information about that issue has been handled within the bank. The terms of reference of that review will be released today and the finding will be released “in due course”, says Davies.
He adds:
“My intention is to continue to lead the board and ensure that the bank remains sound and stable and able to support our 19 million customers”.
In April, Davies said he planned to step down as NatWest’s chair by July 2024.
Earlier this week, Farage called for all NatWest’s board to go, after it released a statement backing Rose, hours before her resignation.
Updated
NatWest CEO's departure 'a heavy price to pay' for error of judgment, says Standard Chartered CEO
NatWest CEO Alison Rose’s resignation this week was a “pretty heavy price to pay for an error of judgment”, said Bill Winters, chief executive at Standard Chartered, the emerging markets-focused bank.
Speaking during an earnings call this morning, Winters said Rose’s apology should be accepted and it would be “surprising” if a reform to step up regulatory oversight in this area was needed, Reuters reports.
Updated
Key event
Sir Philip Augar, financial author, says NatWest is now a “stable and secure financial institution”.
Fifteen years ago, in the financial crisis, it was going bust, Augar reminds the Today Programme, (prompting the government to bail out Royal Bank of Scotland, as it was then called).
Augar says:
It’s ironic really that the management who steered NatWest through these later stages to stability are now under such heavy political pressures.
Augar adds that confidentially is a “core mantra” of banking. Breaching that (as Alison Rose did to the BBC) is a “pretty serious issue”.
Similarly, debanking people for political views goes against democratic principles, he adds.
So there were “really serious issues” for management to answer.
But even so, he says the decision on whether Rose stayed or went “must have been a very close call” for the board – and in the end she was tipped over the edge by political pressure “without doubt”.
Conservative MP Harriett Baldwin, who chairs parliament’s Treasury Committee, says this week’s banking results suggest there is “still some room to go on” until banks have passed on higher rates to their savers, as well as their borrowers.
She tells the Today programme that her committee is concerned that savers aren’t receiving a fair rate.
NatWest's net interest margin shrinks
NatWest’s net interest margin – the gap between low savings rates and the high interest charged to mortgage and loan borrowers – has narrowed.
Its NIM has dropped to 3.13% in April-June, down from 3.27% in January-March.
NatWest says this is due to “asset margin pressure and changes in deposit mix from non-interest bearing to interest bearing balances.”
That suggests savers have been taking action, moving cash from low-yielding accounts into other accounts which are more lucrative, and also running down savings to pay debts.
2nd, after Barx, in as many days to revise NIM f’cast lower…sign that clients are removing deposits to chase yield elsewhere, and that savings balances increasingly being used to pay mortgages as rates rise
— Michael Brown (@MrMBrown) July 28, 2023
*NATWEST SEES FY NET INTEREST MARGIN ABOUT 3.15%, SAW ABOUT 3.2%
NatWest has now lowered its forecast for full-year NIM to be less than 3.20%, with “a current view of around 3.15%”.
It adds:
This remains subject to market conditions including the assumption of a Bank of England base rate of 5.50% from Q3 2023 through to the end of the year.
Banks have been accused of ‘blatant profiteering’ by passing on Bank of England interest rate hikes quickly to borrowers - but slower to savers.
Updated
NatWest has set aside more money to cover loan defaults.
It has taken a £153m charge against impairments for the second quarter of 2023, on top of the £70m set asides in Q1, meaning a net impairment charge of £223m for the first half of the year.
NatWest says this increase is driven by increased economic uncertainty, but adds that “defaults remain stable and at low levels across the portfolio”.
NatWest announces £500m share buyback
Having grown its profits this year, NatWest has announced it will buy back up to £500m of its shares from the market.
This is a way of returning cash to shareholders, on top of dividends.
The bank says:
We have announced distributions of £2.3bn to shareholders in the first half of the year and accrued a further £0.3bn towards the final dividend payment in Q2 2023, bringing total distributions deducted from capital to £2.5bn for H1 2023.
UK government to get £190m from NatWest
UK taxpayers will benefit from NatWest’s performance this year, under the leadership of the now-ousted Alison Rose.
NatWest has announced an interim dividend of 5.5p per share this morning, which will return around £492m to shareholders.
As the UK government owns 38.53% of NatWest, this means £190m will go to the government on 15th September.
NatWest: We know some people are really struggling
Katie Murray, NatWest’s chief financial officer commented, says the bank has registered a “strong performance” in the first half of 2023.
Murray says NatWest’s loan arrears (customers falling behind in repaying their debts) remain low, but many people, families and businesses are “really struggling”.
Murray says:
“NatWest Group’s strong performance for the first half of the year is underpinned by our robust balance sheet, with a well-diversified loan book, robust liquidity and stable deposit base.
“As a result, we are able to continue lending to our customers and delivering sustainable returns and distributions to our shareholders, even in the current uncertain environment.
“Although arrears remain low, we know that people, families and businesses are anxious about their finances and many are really struggling. We are being proactive in our support for those who are hardest hit, helping to build the financial resilience of the customers and communities we serve.”
NatWest beats profit forecasts
NatWest’s results for the first half of 2023 are hitting the wires now.
And it has grown its profits year-on-year, and by more than forecast.
Operating profits, before tax, have risen to £3.589bn, up from £2.62bn in the same period a year ago. That’s better than the £3.3bn which City analysts had expected.
AJ Bell investment director Russ Mould.predicts that NatWest’s results for the first six months of the year “should be fine”.
He told BBC Radio 4’s Today Programme;
Analysts are looking for a healthy increase in pre tax profits to north of 3 billion pounds.
Analysts will be looking for any sign of a slowdown in loan growth and deposit growth, Mould adds, or rises in bad loans.
The City will also look at the “all important and politically and publicly very sensitive net interest margin” (which shows how much banks earn in interest on loans compared to the amount it is paying in interest on deposit).
Introduction: NatWest to report financial results
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
NatWest faces another day in the spotlight as the British bank reveals how it performed in the last quarter, and faces ongoing scrutiny over its treatment of former UK Independence party leader Nigel Farage.
NatWest is due to release its financial results at 7am. City analysts predict it will post an operating pretax profit of £1.49bn for the second quarter of 2023.
That would take earnings so far this year up to £3.3bn, up from £2.6bn in the same period last year.
NatWest, which has lost its CEO Alison Rose and the head of Coutts, Peter Flavel, in the last two days, may try to restore a sense of order as it updates investors about its performance.
Flavel quit yesterday, admitting that Coutts had “fallen below the bank’s high standards of personal service” in the way it handled Farage’s case.
It was only a matter of time before Peter Flavel, Coutts CEO, stood down.
— Nigel Farage (@Nigel_Farage) July 27, 2023
The ultimate responsibility for the dossier de-banking me for my political views lies with him.
I even wrote to Mr Flavel twice before going public and didn’t receive an acknowledgment.
These are the 2 emails I sent to Coutts CEO Peter Flavel, before going public on this story, that he completely ignored.
— Nigel Farage (@Nigel_Farage) July 27, 2023
An extraordinary kind of arrogance from a man asleep at the wheel. pic.twitter.com/D1zhZOqNyD
But pressure continues to build on chairman Howard Davies; yesterday, Rishi Sunak offered some rather lukewarm words when asked if he backed Davies.
Davies is expected to lead today’s call with investors (the largest being the UK government), alongside new interim CEO Paul Thwaite and the chief financial officer, Katie Murray.
The ongoing turmoil has already weighed on NatWest’s shares, which fell another 0.8% on Thursday, taking their total losses since Rose’s departure to about 4.5%, knocking £1bn off the market value of the bank.
The losses will be shared by the taxpayer, as the government holds 39% of the bank’s shares, having bailed out the group during the 2008 financial crisis. The intention is to continue reducing the government’s stake, which was originally just over 50%. Concerns about the banking sector after the collapse of Credit Suisse, and the current disruption, will have left investors shaken.
NatWest results will serve as a final report card on the performance of Alison Rose, who was forced to resign after admitting she had spoken to the BBC about Farage’s account.
But they will also give important insight into the state of the banking sector, and indeed the UK economy, as rising interest rates put pressure on mortgage holders.
NatWest may put aside more money to cover rising bad debts, as more borrowers struggle with debt repayments.
The agenda
7am BST: NatWest releases its financial results for the first half of 2023
9am BST: Germany’s Q2 2023 GDP report
10am BST: Eurozone consumer and business confidence report for July
1.30pm BST: US PCE price index inflation measure for June
