NatWest profits hit again

NATIONAL Westminster Bank will tell investors on Tuesday, for the third time in two years, that profits were battered by one-time items - and add that the problems have been resolved. The question is: will investors accept it this time ?

The bank's 1997 net income is expected to have risen 53 per cent this year, although the figure is distorted by two disastrous disposals - the sale of the US subsidiary in 1996, and the sale of most of its investment bank, NatWest Markets in 1997.

Meanwhile, the management team headed by Derek Wanless, the chief executive, and Richard Delbridge, the finance director, is moving to trim costs and improve the return on equity. However, only modest improvement is expected for 1997.

"NatWest has a lot of very patient shareholders," said Mich- ael Trippitt, an analyst at Schroders, who recommends selling the shares.

"I think they want to see efficiency gains coming through more quickly and want to see some corporate activity (such as mergers of acquisitions)."

His views contrast with those of Peter Thorne and Simon Peters, at Paribas Capital Markets, who rate NatWest as their "key buy" among European bank stocks because it has positioned itself to improve returns in the coming year.

The bank's shares have risen 32 per cent in the past three months, in part because of rising speculation that it will be involved in a merger. Its shares on Friday rose 9p to 1,169p.

It approached Abbey National and Prudential Corp about possible mergers last year but was rebuffed. Barclays is openly interested in a merger, but NatWest is against one.

Britain's fourth largest bank - behind HSBC Holdings, Lloyds TSB Group and Barclays - is expected to post net income of pounds 716m, compared with pounds 469m in 1996.

This earnings period will be marred by the pounds 308m charge on the sale of the equities and corporate finance business of the investment bank, NatWest Markets; and the first-half earnings were soured by a pounds 77m loss sustained from an option pricing scandal.

In the first half of 1996, there was a pounds 690m charge on the sale of its US unit, NatWest Bancorp.

The question now facing the bank is whether the banking profits will be good enough to offset the problems with investment banking. On Tuesday, Barclays share price fell 6.1 per cent as its banking profit failed to compensate for losses on the sale of its investment bank, BZW.

Mr Wanless and Mr Delbridge have moved to improve efficiency and NatWest plans to reduce its branches to 1,750 from more than 2,000. The problem is that these are moves other banks took earlier in this decade, and NatWest is now catching up.

"People are still querying the strategy and wondering how the retail bank is going to come into shape in the next year or two," said Ian Poulter, analyst with Williams de Broe. He has a "hold" recommendation on NatWest.

Copyright: IOS & Bloomberg

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