NatWest Gets Ready for Life After UK Government Ownership

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Freed from the clutches of government ownership, NatWest Group Plc is getting ready to chart its own course for the first time in almost two decades.

The UK has less than 1% remaining of its crisis-era holding in the lender and could sell out any day now. While the moment is mostly symbolic for Chief Executive Officer Paul Thwaite and Chairman Rick Haythornthwaite, getting the government off the shareholder register will be the final step in shedding NatWest’s reputation as a beleaguered bank that was almost destroyed by an acquisition spree 17 years ago.

The pair, who have steered the company as the government rapidly sold off its stake that was £9 billion in size roughly two years ago, are already building on the firm’s shift from recovery to expansion. 

They’ve acquired the majority of J Sainsbury Plc’s banking assets. They picked up a mortgage portfolio from Metro Bank Holdings Plc in a £2.5 billion deal last year. And, more recently, they reportedly showed interest in Banco Santander SA’s UK business.

In addition, they’ve crafted plans to go after a wider set of affluent Britons in the wealth management business. They’re also seeking a major role in bankrolling ambitious infrastructure projects that Prime Minister Keir Starmer’s Labour government is planning to boost the economy.

“From an acquisition perspective, if there’s the ability to add scale, add capability – we’ll look at it,” Thwaite told reporters on the sidelines of the company’s annual shareholder meeting in April, while cautioning that any deals aren’t likely to transform the bank’s overall direction and that the firm will remain disciplined. “Rick and I remain very ambitious for the business.”

Thwaite said the bar for further acquisitions remains very high and won’t take the bank into any new businesses or geographies. The Santander bid, for instance, would have only given the bank a greater presence in the UK consumer banking scene it already dominates.

“We’re not looking to change the direction of the bank or anything like that,” he said. “It’s a brilliant bank, it has three great businesses, it has lots of potential to grow. In some ways, boring is good in banks.” 

In many ways, the British government rescued a very different bank than the NatWest of today. Back then, the group was known as Royal Bank of Scotland, with a £2.2 trillion balance sheet and nearly 200,000 staff around the world — the result of RBS buying NatWest around the turn of the millennium, before it swallowed ABN Amro’s investment bank in 2007. 

The ABN Amro deal, which executives struck just months before the start of the financial crisis, was subsequently described as “the one distinguishing feature in the catalogue of shame, in which all bankers sit at the moment” by RBS’s then-deputy CEO Gordon Pell. 

In a series of emergency cash injections, Westminster became the majority shareholder in NatWest, ultimately controlling 84% as UK taxpayers shouldered the nearly £46 billion bailout bill. Without the rescue, the government feared contagion that could have destabilized the rest of the financial system. 

While fellow bailout recipient Lloyds Banking Group Plc regained its private status in 2017 and left the Treasury a windfall of £894 million, NatWest proved to be a different story as the high-street lender spent years struggling to improve its profitability. Even after the final sale, the government will be roughly £10 billion in the red on its support package for the bank, according to Bloomberg calculations. 

“It was hard to know what the dimensions were of the crisis you were trying to fix,” Stephen Hester, who stepped in as chief executive of the lender in 2008, recalled in an interview. “The financial world was coming apart at the seams.” 

During Hester’s tenure the bank cut more than 39,000 jobs and exited more than 20 countries, while facing years of legal proceedings for its role in the Libor-rigging scandal. Under European state aid rules, it was required to sell its payments unit WorldPay, missing out on billions of pounds of value growth within a few years of the disposal. At the start, the political scrutiny was intense, he said.

“In the first six to 12 months of the crisis, there was a huge amount of partnership between politicians and me and the bank because we were all trying to deal with the crisis as best we could,” Hester said. “As things calmed down, the differences between the political agenda and the rational business agenda started to increase.”

During the 2010s, the restructuring continued under CEO Ross McEwan and Chairman Howard Davies. By 2023, which was Davies’s final full year as chair, the bank booked a pretax profit of £6.2 billion – a testament to how far it had come since suffering losses of £41 billion in 2008. The majority of those earnings came from domestic retail and commercial banking, after the group dropped most of its investment banking operations. 

Now, the NatWest balance sheet is just £708 billion, with a headcount that’s less than a third of the number during its heyday.

Some of the retrenchment was in lockstep with other banks, even those that didn’t receive bailouts, as the entire industry fell into line with a global crackdown on practices seen as too risky. Barclays Plc, for instance, escaped without a state rescue but still disposed of several “non-core” units. 

Yet for NatWest in particular, it was clear the UK government was watching. Take bonuses: in 2011, then-Chancellor of the Exchequer George Osborne stressed that he expected the firm to rein in awards and “should be a back-marker in the industry, instead of the front-runner it once was.” The bank duly cut its bonus pool. 

Hester waived a bonus in 2012 after a row in the House of Commons over his pay, and every post-crisis CEO until Thwaite has forfeited some element of their awards over the years.

Just as the improving performance was taking the heat off the lender, NatWest got enmeshed in a political controversy, complicated further by the government’s presence on the shareholder register.

In 2023, wealth subsidiary Coutts’s decision to drop right-wing politician Nigel Farage as a client kicked off a firestorm, eventually forcing then CEO Alison Rose — Thwaite’s predecessor — to resign. Davies, for his part, came under criticism from politicians for backing Rose, whose departure came after she briefed a journalist on the matter. Today, he says, he would do nothing different.

“The board made what I thought were reasonable decisions and the regulators didn’t contest that,” Davies said. “It was unfortunate” that the state was still a controlling shareholder and “it was difficult for them to say nothing. I hope they would not take the same interest in it now as they did then,” he added. 

Farage settled with NatWest in March. A month later, the bank’s shares jumped to a 14-year-high after its results beat estimates in the first quarter, despite the headwinds the global economy faces.

The government’s selloff has accelerated in the past year, taking advantage as higher interest rates buoyed financial stocks. The sales, though, crystallized losses on the rescue, with NatWest shares only breaking above the roughly 500 pence-per-share initial cost of the bailout a few weeks ago. 

“I know it’s best to sell into a rising market but the sales have been much too speedy in recent years, in my view, and that’s another taxpayer cost,” said Philip Hampton, who chaired the bank until 2015. “On an individual note, I think Alison Rose was very badly treated, which confirms again how cheaply political government ownership can be.”

With assistance from Joe Mayes, Harry Wilson and Jack Witzig.

This article was generated from an automated news agency feed without modifications to text.



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