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NatWest returns from the wilderness

A once battered and discredited institution has spent 14 years rebuilding trust with investors and customers, and the fruits of that long slog are now ready to harvest
February 24, 2022

There is always a mild sense of trepidation when an investment idea bases its premise on the past not repeating itself. Any discussion on the relative merits of NatWest (NWG) means investors instantly recalling the havoc unleashed by the bank’s near-collapse in 2008 and massive recapitalisation via a £45bn government-funded bailout. While taxpayer largesse helped keep the cash machines running and the bank accounts of 19mn customers unfrozen, it has proved to be a millstone for the share price ever since.

237p
Tip style
Value
Risk rating
Low
Timescale
Medium Term
Bull points
  • Return to profitability
  • Boost from rising rates
  • Ample capital to return
  • Strong incumbent position
Bear points
  • Growing competition 
  • Cost-cutting targets missed

Fourteen years on, the slow drawdown of the government’s stake to just over half of the shares in issue means NatWest is now approaching ownership independence. This should present the bank, and its investors, with a big psychological boost. Combined with a rapidly improving rate environment courtesy of the Bank of England, plus the prospect of billions in excess capital being returned to shareholders, it could just about the right time to let bygones be bygones. However, there are still fundamental questions for investors to ponder. As fund manager Terry Smith is fond of saying, is it ever worth investing in a bank, rather than just having an account? And more importantly, what type of institution would investors be buying after years of restructuring, given the large threats that remain?

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