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NatWest's profit rises 18%
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August 3, 1999: 8:12 a.m. ET
U.K.'s third-largest bank beats expectations, but shares fall
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LONDON (CNNfn) - National Westminster Bank, the U.K.'s third-largest bank by assets, beat expectations with an 18 percent rise in pre-tax earnings to 1.14 billion pounds ($1.84 billion) for the first half.
Analysts polled by Reuters expected profits of around 1 billion pounds. But despite the apparent solid results the shares were 1.7 percent lower at 1,225 pence in midday trade in London as analysts worried about the cost base and growth in its core business.
Diluted earnings per share jumped 14 percent to 45.1 pence, with the main driver coming from the group's treasury and investment divisions.
Global Financial Markets, the treasury operation, booked a 32 percent rise in pre-tax earnings to 205 million pounds. The investment banking division, Greenwich NatWest, saw pre-tax profits soar 81 percent to 98 million pounds.
The core U.K. retail banking operation saw profits rise almost 7 percent to 665 million pounds.
The EPS figure was boosted by a 596 million pound share buyback program in the first half, with further repurchases planned during the rest of the year, the bank said.
Stripping out disposals and 55 million pounds in finance leases taken in the first half of 1998, profits from the core business grew 11 percent to 1.13 billion pounds.
Provision for bad debt fell by 39 percent overall to 126 million pounds, although in the ongoing operations this figure fell only 17 percent.
NatWest's new chairman, David Rowland, said the results showed the progress the group had made.
"We are investing significantly across the group. The program to transform the retail bank is now well on the way to delivering improved service to customers at improved unit cost," Rowland said.
NatWest plans to allocate around 70 percent of its 570 million pound investment program this year to the U.K. retail banking division. Overall group operating expenses grew by 106 million pounds to 2.35 billion pounds but almost 80 percent of this was due to so-called revenue investment.
This left analysts worried about the bank's cost base. ""The main concern is on costs . . . it looks like revenue spend is becoming a permanent cost feature," one banking analyst at Dresdner Kleinwort Benson told Reuters.
"We are also slightly concerned over the lack of growth in retail banking and insurance, and the overall loan volume growth was subdued," the analyst added.
NatWest is still in the market for acquisitions. "There are areas where we could be stronger and we're always on the lookout for an acquisition if it makes economic sense. Strategically, the areas would be life assurance and the mortgage market," chief executive Derek Wanless told Reuters.
Natwest raised its interim dividend by 11 percent to 13.1 pence. 
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