NatWest profits double despite loss on branches

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The Independent Online
NATIONAL Westminster Bank more than doubled pre-tax profits to pounds 211m during the six months to 30 June.

But the bank took a pounds 74m loss in its UK branch business as bad debts kept rolling in, and it warned that any significant reduction in domestic bad debt charges depended on economic recovery.

NatWest increased operating profits by 11 per cent and reduced bad debt provisions for the group as a whole as a result of improved credit quality in its US and Australian operations.

Income rose 4 per cent as increased fees and commissions offset the decline in interest income from low loan demand. The bank contained costs, cutting jobs by 3,100 and closing 47 branches. By the year-end NatWest expects a net staff reduction of 5,000.

The dividend was maintained at 6.125p. Shares rose initially on the results but closed 4p lower at 320p after the market became aware of a pounds 71m claim against the bank by liquidators of a former customer.

Lord Alexander of Weedon, the chairman, said: 'The improvement in operating profits and containment of costs both augur well for the future and provide a foundation for growth when the economy starts to recover.'

But he added that the bank did not expect a significant improvement in UK bad debts in the second half.

Bad debt provisions for the group fell to pounds 864m from pounds 902m in the first six months of 1991.

NatWest Bancorp in the US, which last month reported half- year profits of pounds 44m, reduced provisions to pounds 41m from pounds 220m in the first half of 1991. Banking analysts said the turnaround in the US operations after a string of losses was crucial to NatWest's improved performance this time.

Bad debts in the UK totalled pounds 638m compared with pounds 556m in the first half of 1991 and pounds 656m in the second half. More than 70 per cent related to companies, especially in the small business sector where NatWest is the market leader and currently lending pounds 11bn. Most bad debts were in the South of England.

NatWest also made a pounds 13m provision for home loans.

A pounds 74m loss in its core UK division compares with pounds 19m profit in the same period last year.

The bank attributed the poor performance to the recession, high interest rates, the depressed property market, unemployment and low consumer confidence.

The number of companies in NatWest's intensive care unit has increased by about 15 per cent from a year ago to around half a million, with non-performing loans nearly doubled to pounds 1.8bn.

NatWest Markets, the bank's restructured corporate investment banking business, reduced its profits to pounds 141m from pounds 232m in the same period a year ago, held back by increased bad debts of pounds 55m. .

The equities business, County NatWest, increased trading income by 7 per cent and operated profitably in the first half.

Derek Wanless, group chief executive, said yesterday: 'Equities in the first half were still not at an adequate return. But we can see potential on costs and income.'

The bank announced the resignation of Sir Geoffrey Littler, chairman of County NatWest, and John Drury, a main board director, who helped to bring treasury, capital markets and equities operations together under the new structure.

International businesses increased profits to pounds 100m from pounds 22m. Coutts private banking increased profits while European businesses made a loss. Lombard North Central, the finance house, made a pounds 45m profit but took pounds 79m in provisions.

(Photograph omitted)