Outlook: NatWest

WHAT IS it about NatWest? The bank should be riding high on the coat-tails of the goldilocks economy, and indeed its half-year profits figures looked good in headline terms. On closer inspection, however, the picture is not so rosy. True, profits were up 18 per cent to pounds 1.14bn, well ahead of what the analysts had expected. But the share price reaction - a 4 per cent fall - told the story. The underlying figures show the bank to be far too dependent for that growth on volatile dealing profits while its bread-and-butter lending business has hardly grown. More worryingly, the bank fessed up to a 5 per cent rise in expenses which sits oddly with NatWest's much trumpeted commitment to concentrate on cost-cutting. Derek Wanless, the chief executive, sought manfully to explain that you have to spend first in order to save later, and insisted that before the year was out, costs would be flat compared with the previous year.

Anyone else might have got away with it. Unfortunately, for him, this is not yet a bank to which the City is minded to give the benefit of the doubt. Two years ago when Mr Wanless's job was on the line after a black hole emerged in the former NatWest Markets derivatives book, it rediscovered its old image as the action bank. NatWest Markets was sold and the bank announced an impressive five year retail transformation plan to get processing out of the bank branch and into specialist centres where it could be done more cheaply and effectively. Now the immediate threat has receded, the foot seems to have come off the gas. The bank is no longer on the sick list, but its rehabilition still has a way to go. At this stage in the recovery, it ought to have been announcing fresh cost reduction targets rather than encouraging the idea that it is about to go out and buy a life insurance business.

After yesterday's figures, the Royal Bank of Scotland might think of giving up on Barclays, which has now plugged the chief executive gap, and switch its predatory attentions to NatWest. It is a cruel world, and Mr Wanless is not out of the woods yet.