NatWest Group(US:NWG)2024-07-26 20:44Financial Data and Key Metrics Changes - The company reported income of £7 billion and operating profit before tax of £3 billion for the first half of 2024, with attributable profit of £2.1 billion and a return on tangible equity (RoTE) of 16.4% [34][39] - The interim dividend was announced at 6p, representing a 9% increase from the previous year, supported by a reduction in the number of ordinary shares from 8.9 billion to 8.3 billion [30][35] - The tangible net asset value per share improved by 16% to 304p, with expectations for continued growth into 2025 and 2026 [30] Business Line Data and Key Metrics Changes - Retail Banking saw a charge of 12 basis points reflecting stable Stage 3 inflows, while Commercial & Institutional generated higher lending and financing fees [42][50] - Lending in the commercial mid-market business grew by £1.8 billion, and unsecured borrowing increased by around 19% due to acquisitions [7][44] - The mortgage portfolio from Metro Bank, valued at £2.5 billion, is expected to close in the second half of the year, enhancing the company's position in the mortgage market [31][44] Market Data and Key Metrics Changes - The company experienced deposit growth of over £6 billion across its three businesses, with total deposits reaching £425 billion [28][73] - The average interest rate on customer deposit funding stabilized at 2.1%, reflecting modest changes in mix and limited adjustments to deposit product rates [74] - The structural hedge is expected to deliver higher income in 2024 than in 2023, with £2.9 billion locked in for 2025 and 2026 [48][76] Company Strategy and Development Direction - The company is focused on disciplined growth through acquisitions that are EPS and RoTE accretive, with a target to reach £100 billion in climate and sustainable funding by the end of 2025 [2][28] - The strategic priorities include disciplined growth, bank-wide simplification, and active balance sheet and risk management [63][62] - The company aims to maintain a CET1 ratio of 13% to 14% while targeting a payout ratio of around 40% [40][81] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the economic outlook, noting improved consumer and business confidence, which has not yet led to interest rate cuts by the Bank of England [41][39] - The company anticipates continued NIM expansion, driven by business performance, although rate cuts may moderate this growth [24][86] - The management remains focused on generating capital to reinvest in the business and return value to shareholders [61][39] Other Important Information - The company has reduced risk-weighted assets (RWAs) by £5.5 billion, with a target of around £200 billion by the end of 2025 [52][81] - The company is actively managing its risk-weighted assets and has delivered a £4.3 billion reduction in the first half through various means [32][56] - The company is enhancing its digital transformation efforts, including improvements in customer journeys and the introduction of generative AI in customer interactions [38] Q&A Session Summary Question: What is the outlook for organic growth? - Management indicated that while they do not provide specific guidance on individual lines, they are focused on disciplined growth and have seen positive results in deposit growth and market share [4][130] Question: How does the company view the impact of rate cuts on NIM? - Management expects ongoing benefits from the hedge to offset deposit mix changes, but acknowledges that rate cuts will slow the pace of growth seen in the first half [86][24] Question: What is the company's strategy regarding capital management and distributions? - The company prioritizes ordinary dividends and has announced a 6p interim dividend, with plans to evaluate future distributions in conjunction with the Board [96][118]