Sat. May 28th, 2022

NatWest is to buy back about 5 per cent of its shares from the UK government for £ 1.2bn, reducing the Treasury’s voting rights in the lender to less than 50 per cent for the first time since 2008.

The off-market purchase of almost 550mn shares, equivalent to 4.9 per cent of the stock in issue, means the Treasury will be left with a 48 per cent stake in NatWest. The UK lender will buy the shares at Friday’s closing price in London of 220.5p. The transaction is expected to be settled on Wednesday.

Shares in the bank rose 1.7 per cent in morning trading on Monday. They have risen more than 18 per cent over the past year.

The British government has owned the majority of NatWest, which used to be called Royal Bank of Scotland, since it was rescued at the height of the financial crisis with a £ 46bn bailout.

It has repeatedly pushed back its deadline to offload the rest of its stake as political and economic uncertainty hit the bank’s share price. In 2021, the government announced it had appointed Morgan Stanley to manage the sale of its stake in NatWest.

“What happened today is largely as expected, although the confirmation it happened is welcome,” said Ian Gordon, banking equity analyst at Investec, adding that it left the government on course to exit the bank in full by around the end of 2025.

There was some debate within the market that the share buyback might have been delayed until the end of April, he said, following first-quarter results.

RBS and the government have said in the past that it was inevitable the Treasury would suffer a loss as it reduced its stake because NatWest is a significantly smaller bank than it was before the financial crisis, and the purchase in 2008 was a rescue deal rather than an investment.

When asked in February about what impact the end of government ownership would have on the bank, chief executive Alison Rose said that “practically it will make no difference”.

A booming mortgage market and more than £ 1bn of loan impairments being written back helped the bank to a net profit of £ 2.95bn last year, a sharp reversal from a £ 753mn loss in 2020. It also announced an on market share buyback plan of £ 750mn.

However, its fourth-quarter results were hurt by its trading business NatWest Markets, which made an operating loss of £ 302mn.

The lender’s reputation took a hit in December when it became the first institution to plead guilty in a criminal prosecution under anti-money laundering laws. It was fined £ 264.8mn.

Under the terms of a memorandum of understanding announced in April 2018, the share purchase means NatWest will pay £ 427mn into its main pension scheme.

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