NatWest shares tumble following margin guidance cut and Farage account controversy

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NatWest shares tumble following margin guidance cut and Farage account controversy
Credit: © Reuters.

NatWest Group (LON: NWG )'s shares fell by 12% on Friday, reaching their lowest level since February 2021, following an admittance of failings in handling Nigel Farage's account and a downward revision of its net interest margin guidance. The fallout led to the resignation of ex-CEO Alison Rose and increased regulatory scrutiny by the U.K.'s Financial Conduct Authority (FCA).

The plunge in share price was triggered by allegations from Nigel Farage that his political views led to his dismissal from Coutts, a NatWest-owned bank. A review by Travers Smith confirmed the legality of Farage's account closure, terming it "predominantly a commercial decision." However, the review highlighted communication and decision-making flaws that could potentially lead to "regulatory breaches" at NatWest and Coutts.

The FCA has intensified its scrutiny on the governance and controls of both NatWest and Coutts following these findings. The bank, which is 41% government-owned, mirrored Barclays (LON: BARC )' recent adjustment by revising its 2023 net interest income margin to over 3%, suggesting lower profits for 2024.

In addition to these challenges, NatWest lowered its total income expectation for 2023 to £14.3 billion from £14.8 billion previously. The bank's Q3 results showed a lower-than-expected net interest margin of 2.94%, attributed to changes in deposit mix, mortgage margins dilution, and possible reputational damage. Despite this, the group's operating pretax profit was £1.33 billion, slightly under the expected £1.36 billion, with a common equity Tier 1 ratio of 13.5%, indicating balance-sheet strength.

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