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.
- Return to profitability
- Boost from rising rates
- Ample capital to return
- Strong incumbent position
- 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?