NatWest Group's shares experienced a sharp decline on Friday, leading to a temporary halt in trading. The fall was triggered by weak earnings and potential regulatory breaches identified by the Financial Conduct Authority (FCA). This marked the steepest single-day fall for the bank since 2020, according to London Stock Exchange Group (LON:LSEG) data.
The FCA's investigation into NatWest and its wealth management subsidiary Coutts unveiled systemic issues related to account closures, customer complaints, and governance mechanisms. This probe followed a scandal involving the sudden closure of Brexit figurehead Nigel Farage's Coutts account. Farage subsequently filed a subject access request for a dossier discussing his political views.
The controversy led to the resignation of CEO Alison Rose after she admitted to disclosing Farage's account details to a BBC reporter, an event documented by Simon Dawson. The FCA plans to expand its investigation into potential regulatory breaches in the banks' processes.
In response to the FCA's findings, NatWest, which is 39% state-owned, committed to implementing all review recommendations and introducing further changes. These measures aim to ensure that customers' lawfully protected beliefs or opinions do not influence banking decisions.
Following a meeting with Chancellor Jeremy Hunt, Chairman Howard Davies acknowledged serious failings in relation to Farage's case but insisted there was a lawful basis for the decision while maintaining client confidentiality.
Less than a year ago, NatWest reported an increase in profits to £5.1 billion under then-CEO Dame Alison Rose. Her total remuneration of £5.25 million marked the first CEO bonus since 2008. Despite this past success, the bank's shares have plummeted by 16%, heavily influenced by the fallout from the Farage scandal and a gloomy forecast for lending margins.
This challenging scenario is further complicated by an impending legal tussle with Dame Alison over her potential £10 million severance package. Amidst this controversy, Chairman Sir Howard Davies and his board are working to protect shareholder and taxpayer interests.
InvestingPro Insights
According to real-time data from InvestingPro, NatWest Group's (NWG) market capitalization stands at $39.06 billion USD. With a P/E ratio of 9.28, the company's valuation is relatively low compared to its earnings. The revenue growth for the last twelve months as of Q2 2023 is 16.1%, indicating a strong financial performance despite the recent controversies.
However, two key InvestingPro Tips provide a more nuanced perspective. Firstly, NWG's management has been aggressively buying back shares, which can be a sign of confidence in the company's future performance. Secondly, the company's earnings per share have consistently increased, a positive indicator for potential investors.
On the flip side, the company’s poor earnings and cash flow may force dividend cuts in the future. Also, the stock is currently in oversold territory as per the Relative Strength Index (RSI), which might be a reaction to the recent controversies and the FCA investigation.
For more detailed insights and additional tips, consider checking out the InvestingPro page for NWG. There, you will find 13 more valuable InvestingPro Tips that could help guide your investment decisions.
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