NatWest turns overseas to combat the doldrums

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The Independent Online
National Westminster Bank is investing heavily in share dealing and overseas to combat stagnant income at home. But analysts say it is a 12- month gamble - and if it does not come off, the bill will be picked up by high street customers.

Yesterday, NatWest revealed last year's profits were driven almost entirely by a halving of bad debt provisions. At the pre-tax level profits rose by 61 per cent to £1.592bn but analysts were unsettled by the bank's aggressive approach to running up costs. It is growing away from reliance on British high street banking, where it made only a third of its profits last year.

Derek Wanless, chief executive, said the bank was determined to expand its investment banking, and international and US banking arms. He said existing businesses held no promise of growth. This heavy investment forced up costs while income remained flat, so that NatWest's trading surplus, before bad debts, fell 11 per cent.

In the same period Lloyds Bank's trading surplus fell by 6 per cent. NatWest's shares yesterday fell 10p to 483p, but analysts said they would give the bank another year to see if the investment drive works.

The dividend was raised higher than expectations by 17 per cent to 21.6p. The bank's return on equity rose from 10.8 per cent to 18.7 per cent.

Rod Barrett of Goldman Sachs said that allowing the cost/income ratio to rise from 65.6 per cent to 69.2 per cent was a risky, high-profile policy.

Mr Wanless also hinted that NatWest Markets, a division that held up well in an extremely bad year, would not be averse to suitable acquisitions at the right price.

UK operations have beenorganised into six profit centres - retail, corporate, credit cards, mortgages, life assurance and general insurance - in an effort to hone the business.

Banking prospects, though, remain gloomy as much of the UK economy remains in the doldrums despite government optimism. "Those companies which are involved with exports are doing well and investing," Mr Wanless said.

NatWest, chaired by Lord Alexander, cut 6,700 jobs last year, more than any other UK bank, and trade unions put this year's planned job cuts at around 3,000.

Mr Wanless ruled out any acquisition of a UK building society, the route chosen by Lloyds Bank.

The bank prefers instead to build up NatWest Home Loans, which took 6 percent of new mortgage lending last year.

Profits at NatWest Markets, the investment banking side threatened with closure three years ago, dropped to £359m from a peak of £453m in 1993. Losses on bond dealing had been minimal, compared with appalling losses at other investment banks, NatWest said.

Dealing profits should recover on the back of a growing client base after their decline in 1994, Martin Owen, NatWest Markets chief executive, said. Total dealing profits dropped to £451m in 1994 from £508m the previous year. On the dealing front, foreign exchange profits declined most sharply to £187m from £239m in 1993.

Mr Owen cited reduced volatility in the forex markets in the second half of the year and narrowing spreads. NatWest's wholly-owned Irish unit, the Ulster Bank, is still actively pursuing a bid for Ireland's TSB Bank, according to Ronnie Kells, chief executive.

Bank chairmen: the pay and the profits

Total remuneration, including pension payments (£)

Pre-tax profit (£m)