Bank earnings spike, edging closer to complete private control with NatWest.
Rewritten Article:
UK bank, NatWest, recently reported a staggering 36% surge in profits over the first quarter, reaching £1.8 billion. This outpaced analyst expectations of £1.6 billion, thanks in part to increased mortgage lending activity and higher deposits in the retail and commercial banking sectors. Despite this rosy financial picture, the bank set aside £189 million for bad loans due to economic uncertainty caused by Donald Trump's trade war.
This economic turmoil led to a £78 million provision for the commercial bank, with the bank noting an increase in demand to support clients’ risk management and funding needs during volatile markets. However, NatWest claims that default levels remained stable across its portfolios. Chief executive Paul Thwaite commented on the resilience of the bank's customers in the face of increased global economic uncertainty.
Thwaite's comments follow Lloyds' revelation that it had set aside more than anticipated to cover bad loans due to US tariffs. The bank, on the other hand, has a relatively minor exposure to businesses exporting to the US. Nevertheless, it remains vigilant for any potential second-order impact on the UK economy.
Trump's trade tariffs, which were announced last month and have since been paused for 90 days, have put some of NatWest's larger corporate clients in "wait and see" mode. These clients, often in manufacturing or automotive sectors, have temporarily paused certain activities. Smaller businesses and consumers, however, have shown no significant changes in behavior in response to recent market volatility.
Approximately 70% of NatWest's corporate businesses are in the service sector, which is less affected by US tariffs. The bank estimates that US-exporting clients account for a "low single-digit" percentage of its overall lending and assets, with these investments being primarily large, high-quality companies.
After 17 years since its crisis-era government rescue, NatWest is approaching full private ownership. As it moves closer to this milestone, CEO Thwaite has signaled his readiness to pursue growth opportunities, potentially through acquisitions. Thwaite has already spearheaded the acquisition of the bulk of Sainsbury's Bank and £2.5 billion of prime residential mortgages from Metro Bank. Additionally, his team discussed purchasing Santander's UK retail business, though such discussions have not been confirmed.
Alongside NatWest, Lloyds was among the signatories of a letter urging the UK to abolish the ringfencing regime, which obliges banks with more than £25 billion in deposits to separate their retail and investment banking arms. Introduced in reaction to the 2008 financial crisis, the ringfencing regime aims to prevent bailouts and protect consumers from being exposed to trading losses.
Insights:
- Trade tensions, while not explicitly implicated in available reports, pose a threat to UK financial stability by reducing growth prospects and increasing potential financial stability risks for banks like NatWest.
- The Bank of England's projections suggest that the trade war may strain corporate and consumer loan portfolios, with slower UK GDP growth to 0.5%-1% in 2025.
- UK banks like NatWest and Lloyds may face sectoral pressures due to Europe and the UK potentially experiencing mitigated goods inflation from redirected exports, but localized increases in non-performing loans are possible for banks with exposure to affected industries.
In summary, while Trump's trade war poses a threat to the UK financial sector, specific bad loan provisions aren't explicitly detailed in available reports. However, prolonged tariff-related economic uncertainty could ultimately lead to rising credit risks across the banking sector.
- Despite NatWest's impressive quarterly profits, the bank set aside funds for potential bad loans due to global trade uncertainties caused by the trade war.
- The economic uncertainty resulting from the trade war has led to an increase in demand for risk management and funding support from clients within NatWest's commercial banking sector.
- NatWest's CEO, Paul Thwaite, acknowledged the resilience of the bank's customers in the face of increased global economic uncertainty triggered by trade tensions.
- US tariffs have temporarily paused certain activities of some of NatWest's larger corporate clients, primarily in the manufacturing and automotive sectors, and have put them in a "wait and see" mode.
- Approximately 70% of NatWest's corporate businesses are in the service sector, which is less affected by US tariffs, and the bank's investments in US-exporting clients account for a "low single-digit" percentage of its overall lending and assets.
- With NatWest approaching full private ownership, CEO Thwaite has signaled his readiness to pursue growth opportunities, possibly through acquisitions in the finance and business sectors.
