FTSE 100 slips as NatWest tumbles despite profit beat

FTSE slips as NatWest tumbles

The expected gains in the FTSE 100 failed to materialise as weak banking stocks following results from NatWest meant the buoyant gains across the pond were not reflected in the square mile.

At 8.15am London’s blue-chip index was down 8.86 points, or 0.1%, at 7,822.72 although the mood was brighter in the FTSE 250 which rose to 19,304.89, up 56.88 points, or 0.30%.

Banking stocks weakened after NatWest (LON:NWG) slipped 6.5% despite the high street lender reporting better-than-expected first-quarter profits.

Analysts said the profit figure was offset by a fall in deposits and weaker net interest income.

Gary Greenwood at Shore Capital said the results showed “an earnings beat versus consensus driven mainly by a combination of better than expected non-interest income and lower than expected impairments.”

But he noted net interest income and margin “was weaker than consensus expected, which may disappoint the market, especially given the consensus appeared to have got a little carried away in its optimism.”

He also highlighted a modest deposit outflow which was worse than expected.

Richard Hunter, head of markets at interactive investor, commented “Set against the wider banking turmoil of recent months the solid and dependable, if a little unexciting, performance which NatWest has delivered is just what the doctor ordered for more risk-averse investors.”

Other banking stocks fell with Lloyds Banking Group (LON:LLOY) down 2.4% and Barclays (LON:BARC) down 0.4%.

Better news for shareholders in Pearson (LON:PSON). Shares rose 3% after the education published announced a £300mln share buyback and said it was on track to meet annual guidance.

Prudential (LON:PRU) was another share on the rise, up 3.3%, after it said sales had risen reflecting growth in China and Hong Kong as markets improved post-COVID.

Deutsche Bank swoops for Numis

A deal in the Square Mile to report. Germany’s biggest bank, Deutsche Bank (ETR:DBKGn) has swopped for Numis Corp (LON:NUM) in a £410mln deal.

The recommended all-cash bid values each Numis share at 350p each – 339p in cash, an interim dividend of 6p per share and an extra interim dividend of 5p conditional upon the deal becoming effective.

The price represents a premium of 72% to last night’s closing price.

Numis said it considered the terms “fair and reasonable.” Its shares soared 67% on the news.

Prudential APE sales rise 35% as China bounces back

Prudential PLC has also updated the market reporting annual premium equivalent sales rose 35% to US$1,559mln driven by growth in China and higher domestic in Hong Kong alongside growth in other business units.

“The strength of our distribution capabilities and the diversification of the business across country, product and channel contributed to our performance in the first quarter. 10 out of the 13 life insurance markets in Asia, as well as Africa, achieved double-digit growth in new business profit,” Chief Executive Anil Wadhwani said in a statement.

“Business momentum, particularly in Hong Kong, has continued to date in the second quarter and we maintain our prudent approach to asset allocation and credit risk,” he continued.

Prudential said new business profit was up 30% to US$743mln.

Pearson on track and pledges £300mln buyback

Pearson PLC said it was on track to meet annual guidance and announced a £300mln share buyback to start in the second half of the year as total group sales rose 2%.

In a trading update, the education publisher reported performance in each of Pearson’s divisions “in line with or ahead of our expectations.”

The company said it was on track for delivery of £120mln of cost efficiencies this year.

Andy Bird, Pearson’s Chief Executive, said: “Pearson has had a strong start to the year with results ahead of our expectations.”

Assessment & Qualifications sales grew 6%, English Language Learning sales increased 66%, Workforce Skills sales grew 8%, but Virtual Learning sales decreased 14% and Higher Education sales were down 5%.

Pearson said its financial position remains robust, with low net debt and strong liquidity.

NatWest Profit tops City forecasts

Strong numbers from high street lender NatWest Group PLC (LON:NWG) this morning.

The FTSE 100 listed bank reported strong growth in revenue and profit in the first quarter but said deposits had fallen as competition heats up.

The bank described the performance as “strong” with operating profit before tax of £1.82bn, up from £1.22bn a year ago, and ahead of City forecasts of £1.6bn.

Chief Executive, Alison Rose, commented: “NatWest Group’s strong performance in Q1 2023 is underpinned by our robust balance sheet, our high levels of capital and liquidity and our well-diversified loan book.”

Total income jumped 37.2% to £1.04bn reflecting the impact of volume growth and yield curve movements.

The high street bank continued to benefit from a rise in net interest margin which climbed 7 basis points quarter-on-quarter to 3.27% while the return on tangible equity was 19.8%, nearly double last year’s 11.3%, but down from 20.6% in the fourth quarter.

It said guidance for current financial year remained unchanged.

But customer deposits reduced by £11.1bn, or 2.6%, in the quarter reflecting around £8bn higher customer tax payments, competition for deposits and an overall market liquidity contraction.

Lending to customers edged higher by 1.6% to £352.4bn reflecting £3.9bn of mortgage growth in Retail Banking and a £1.6bn increase in Commercial & Institutional.

The CET1 ratio improved 20 basis points to 14.4% while operating expenses jumped 12.5% due to higher staff costs and the exit from the Republic of Ireland.

A bad debt provision of £70mln was made but the bank said levels of default remain stable at low levels.