• The sale of shares in NatWest to the general public could happen as early as June.
  • UK Government Investments (UKGI) has confirmed the timescale is potentially within reach.
  • This would be the highest-profile public offer since the Royal Mail (RMG) Initial Public Offering (IPO) in 2013
  • There are still plenty of unanswered questions so the scheme is less ‘Tell Sid’, more ‘Ask Jez’.
  • Although third quarter results from NatWest disappointed the market, longer term there is potential opportunity ahead.

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

‘’The government is gearing up to launch the highest-profile public share offer since the Royal Mail IPO more than a decade ago. With confirmation from UK Government Investments (UKGI) that the sale of NatWest shares could happen as early as June, it’s clear it’s all systems go to get the process off the ground.

Between 2008 and 2009, it cost the government £45.5 billion to bail out the then Royal Bank of Scotland. This was at an average of 520p per share, much higher than the current price. Back in November, the Chancellor said any sale would be subject to market conditions and achieving value for money. It’s hard to see how that will be achieved, particularly given the current share price of 219p.

LIS Show – MPU

The hope is that retail investors will be enthused about the opportunity to own shares in the bank, which was taken over by the government at the height of the financial crisis, and has been sold back to institutional investors, bit by bit.

There are concerns sentiment towards the sale would be muted if there isn’t confirmation of a new permanent Chief Executive to replace Alison Rose who was forced to step down, after admitting she was the source of inaccurate information given to a BBC journalist. Paul Thwaite, CEO of the Commercial and Institutional business, was appointed to step into the role, but this was understood to be a temporary 12-month arrangement.

Exactly how the share scheme would be run is still a source of speculation. It’s likely there will be more details laid out by Jeremy Hunt, the Chancellor in the Budget on 6 March. There are some clues from the shelved Lloyds plan. Speculation at the time was that people would have had the option to apply for between £250 and £10,000 worth of shares, and a discount of around 5% would then have been applied. It’s also still unclear what the share sale will mean for existing investors, and whether there may be another form of rights issue run alongside with a discount to reward holders.

Galvanizing interest among ordinary investors in owning slices of company is hugely welcome, given that retail investors are often left out of high-profile IPOs. The government clearly wants to reignite the interest the ‘Ask Sid’ British Gas campaign of the 1980s appear to spark. Boosting understanding of how investment can drive long term returns for investors, and also highlighting the opportunities on the London markets. But with so many unanswered questions surrounding the sale, Ask Jez is more the order of the day.

Investors would, as always, be wise to exercise caution and do their research before jumping in. Although recent third quarter results from NatWest disappointed the market, longer term there is potential opportunity ahead. Investors had been expecting a dip in net interest margins, as consumers moved from very low interest- bearing accounts to higher rate longer-term products in search of better returns. The pace of switching was a surprise though, and there was a bigger dip in net-interest margins than expected. However, NatWest isn’t alone in facing this challenge. Provisions set aside for debt defaults were also better than first thought and full-year guidance remains intact. Given that shares lost ground amid changes at the top last year, at its current valuation, it’s one of the more attractive names in the sector. NatWest should also be one of the biggest benefactors of a secret weapon known as structural hedging, a tool used to reduce the impact on earnings to sharp interest rate movements. Using assets to build a fixed-income cash flow is designed to help shield against volatility caused by monetary policy. As contracts mature and balances get reinvested at higher rates, the income received moves higher and this tailwind should speed up as there is a move away from older lower rates.’’

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Susannah Streeter,
Head of Money and Markets, Hargreaves Lansdown

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