NatWest (NWG) on Friday heralded positive momentum across the business as it lifted its annual outlook and announced a deal to buy a mortgage portfolio from Metro Bank (MTRO).
In response, shares in NatWest jumped 7.5% to 363.45p in London on Friday. It was the best performing stock in the FTSE 100, which was up 0.9%.
Metro Bank shares meanwhile climbed 5.8% to 40.05p.
The high street lender reported total income of £7.13 billion for the first-half of 2024, down 7.7% on-year from £7.73 billion. Net interest income dropped 5.6% to £5.41 billion from 5.73 billion. Pretax profit declined 16% to £3.03 billion from £3.59 billion.
In the second-quarter, total income fell 5.0% annually to £3.66 billion, but beat company-compiled consensus of £3.41 billion. Pretax profit, which declined 14% to £1.70 billion, beat consensus of £1.26 billion.
Impairment charges fell to £48 million from £223 million.
Net interest margin of 2.10% was 5 basis points higher than the first quarter primarily due to improved deposit margins, the firm said. But it was down from 2.23% from a year prior.
The CET1 capital ratio was little changed at 13.6% at the end of the second quarter compared with 13.5% in the previous three months.
NatWest raised its interim dividend by 9.1% to 6.0 pence per share from 5.5p.
Chief Executive Paul Thwaite pointed to growth across the business.
"We have attracted over 200,000 new customers and our acquisition from Sainsbury's Bank is expected to add around one million customer accounts on completion," he noted.
He hailed "positive momentum and progress in the first half", and said customers are "beginning to feel more confident, with activity increasing and asset quality remaining strong."
Looking ahead, NatWest now expects to achieve a return on tangible equity above 14%, its outlook raised from "around 12%".
Income excluding notable items to be around £14.0 billion, ahead of its previous forecast in the range of £13.0 billion to £13.5 billion.
Thwaite said he was "pleased" with the continued reduction of the government's stake, which has almost halved this year.
After the market close Thursday, Bloomberg reported Chancellor Rachel Reeves is leaning toward offloading a substantial portion of the government's £5.6 billion stake in NatWest to institutional shareholders rather than continuing with her predecessor's plans to offer it up to the UK public, citing people familiar with the matter.
The sale to institutional shareholders would come alongside the government's existing gradual winding-down of its shareholding through a series of open market sales, the people said.
Earlier this month, the government’s stake in the lender dropped below 20% for the first time since 2008.
NatWest said the deal with Metro Bank will see it acquire up a £2.5 billion portfolio of prime UK residential mortgages, with a weighted average current loan to value of around 62%.
Metro said it had agreed to sell the mortgage book to NatWest for £2.4 billion in cash.
CEO Thwaite said the deal would see NatWest welcome around 10,000 customers to the bank.
"This transaction is a further opportunity to accelerate the growth of our retail mortgage book within our existing risk appetite, with attractive returns. It is in line with our strategic priorities and builds on our recent acquisition from Sainsbury's Bank. We are focused on a smooth transition and have a strong track record of successful integration with Metro Bank, following our previous acquisition of mortgages in 2020."
In June, NatWest agreed to buy the retail banking assets and liabilities of Sainsbury's Bank from J Sainsbury (SBRY).
NatWest expects to acquire around £2.5 billion of gross customer assets, comprising £1.4 billion of unsecured personal loans and £1.1 billion of credit cards balances, together with around £2.6 billion of customer deposits.
NatWest also expects to add around one million customer accounts.
NatWest said the impact of the transaction, based on its CET1 ratio at June 30, equates to a reduction of less than 10 basis points.
Metro Bank CEO Daniel Frumkin said: "The sale is in-line with Metro Bank's strategy to reposition its balance sheet for higher risk adjusted returns on regulatory capital.
"The additional lending capacity provided by this sale will enable us to continue our shift into high yielding assets in niche and underserved markets and become a specialist lender of choice."
The transaction is earnings, NIM and capital ratio accretive, and creates additional lending capacity to enable Metro Bank to continue its asset rotation towards higher yielding commercial, corporate, SME lending and specialist mortgages, the company added in a statement.
By Jeremy Cutler, Alliance News reporter
