6th Feb 2024 17:05
(Alliance News) - A NatWest Group PLC share sale is poised to begin this summer, as the UK government looks to get the nation investing again.
However, analysts says that the future of the lender's chief executive position is something would-be investors should be wary of.
Chancellor Jeremy Hunt had announced he was considering a retail offer for NatWest shares back in November, as the government seeks to trim more of its stake in the lender.
During his autumn statement, Hunt had said the UK government is "exploring" a possible retail share offer for NatWest over the next 12 months, though this would be subject to market conditions and "value for money".
The UK government first began building its majority stake in the bank in October 2008 during the financial crisis as it looked to inject funds into the banking system.
As a result, the government ended up holding an 81% stake in the lender - called Royal Bank of Scotland Group PLC at the time - thanks to a hefty GBP45.5 billion taxpayer bailout.
As of January, the UK government held just shy of a 36% stake in NatWest. Its holding in NatWest had fallen below the 50% threshold for the first time since 2008 back in March 2022.
UK Government Investments, which is owned by the Treasury, said it is currently in the process of working with advisers to carve up a plan for the share sale.
Holger Vieten, who is leading the work for the organisation, told a group of MPs: "At this point, we have been asked by the chancellor to explore a retail offer… and we are in the development and design stage. We are looking at various options as to how that could be implemented."
Vieten stressed that there is no exact date for when the sale will occur but revealed that it could be in the summer at the "very earliest".
Pushed to give a closer timeline, he agreed that that could mean June.
Hargreaves Lansdown analyst Susannah Streeter said it would be the "highest-profile public share offer since the Royal Mail" floated over 10 years ago.
"The hope is that retail investors will be enthused about the opportunity to own shares in the bank, which was taken over by the government at the height of the financial crisis, and has been sold back to institutional investors, bit by bit," Streeter added.
But NatWest's CEO position could be a hang-up for investors.
Alison Rose resigned from the role in July. The scandal concerning the closure of the Brexit-backing politician Nigel Farage's Coutts account culminated in Rose's resignation at the time. The board then commissioned an independent review into the bank's handling of the incident.
Paul Thwaite stepped in as chief executive on an interim basis, but NatWest has yet to announce who will be appointed to the role permanently.
CMC Markets analyst Michael Hewson commented: "NatWest would need to see confirmation of a permanent successor to Alison Rose confirmed, to create certainty around the stewardship of the business. The current temporary incumbent is Paul Thwaite who's been doing the job for 9-months now.
"Given the paucity of names who have been linked with the role perhaps it would be better for all concerned that rather than wasting money on looking for an external candidate perhaps the time would be better spent on confirming Thwaite in the position as it is now given, he's been doing the role since Rose departed nine months ago."
NatWest releases annual results on February 16. According to company-compiled consensus recorded on November 23, it is expected to report total income of GBP14.61 billion, up 11% from GBP13.16 billion in 2022. Pretax profit is to increase 16% to GBP5.97 billion from GBP5.13 billion.
Looking towards the share sale, HL's Streeter said: "Investors would, as always, be wise to exercise caution and do their research before jumping in. Although recent third quarter results from NatWest disappointed the market, longer term there is potential opportunity ahead.
"Investors had been expecting a dip in net interest margins, as consumers moved from very low interest- bearing accounts to higher rate longer-term products in search of better returns. The pace of switching was a surprise though, and there was a bigger dip in net-interest margins than expected."
Streeter continued: "However, NatWest isn't alone in facing this challenge. Provisions set aside for debt defaults were also better than first thought and full-year guidance remains intact. Given that shares lost ground amid changes at the top last year, at its current valuation, it's one of the more attractive names in the sector.
"NatWest should also be one of the biggest benefactors of a secret weapon known as structural hedging, a tool used to reduce the impact on earnings to sharp interest rate movements."
By Eric Cunha, Alliance News news editor
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