NatWest unveils its new look

The Investment Column

The old NatWest juggernaut has been overhauled, worn-out accessories have been discarded and road tests are about to begin on the new model. The question investors need answered is whether it will actually run better than the old one?

The new NatWest will focus on UK and Irish domestic banking, investment banking in London, New York and Asia and private banking for the prosperous, using the Coutts brand name. Bancorp has been sold in the US and the Spanish subsidiary is about to go.

The half-year results are heavily distorted downwards by taking the write- off of the goodwill for Bancorp through the profit and loss account and by the pounds 224m gain on the sale of the stake in 3i. Ignore that, and look at the continuing businesses, where a 23 per cent increase in pre-tax profit to pounds 879m compares with a year earlier.

A milestone was also passed, with more than half the income for the first time coming from fees and commissions rather than interest margins.

Bad debt provisions were up 20 per cent, to pounds 270m, but more than half the rise was because the Lombard finance house was lending too much to young people to buy mobile phones and the like, which has now been put right with tougher controls. That should rate as a good sign, since NatWest caught the problem early and put it right.

But what it needs to do now is to emulate LloydsTSB in the home market by getting costs down further, building the life insurance business - where an acquisition is still proving hard to find - and catching Morgan Stanley and Goldman Sachs in international investment banking.

The former is a possibility, but it will not be fast track stuff on present timetables. In the latter, NatWest has made more progress than generally acknowledged across most of its businesses, but lacks the corporate finance strength and has a lot to prove with its new American acquisitions.

With the buy-back holding back the price - institutions will not be trading for fear of losing their tax rebates - the shares have nowhere to go at the moment. But as the dust settles after the acquisition spree, NatWest shares are a better medium-term bet than Lloyds.