LONDON BRIEFING: NatWest Swings To 2020 Loss But Resumes Payouts

(Alliance News) - NatWest Group PLC on Friday posted a swing to loss in 2020 and confirmed that it will withdraw from the Republic of Ireland, with the lender in talks with other banks to dispose of assets belonging to its Ulster Bank unit.

The Financial Times on Thursday had reported NatWest was gearing up to gradually withdraw from Ireland, following a review of its business which began last year.

For the year ended December 31, NatWest posted a swing to pretax loss of GBP351 million from a profit of GBP4.23 billion in 2019. In the fourth quarter alone, NatWest was managed a profit, but pretax profit came in 96% lower year-on-year at GBP64 million.

Total income - a measure which includes net interest income as well as non-interest income such as fees - was sharply lower in 2020. Total income fell 24% to GBP10.80 billion from GBP14.25 million. In the fourth quarter alone, it was down 43% to GBP2.42 billion.

For 2020, the lender posted impairment losses amounting to GBP3.24 billion, up sharply from GBP696 million in 2019.

"Despite reporting a loss for the year, NatWest Group delivered a resilient underlying performance in a challenging operating environment. The bank continued to grow in key areas such as mortgages and commercial lending and our balance sheet remains strong, with one of the highest capital ratios amongst our UK and European peers. We have today announced our intention to pay a final dividend whilst reaffirming our commitment to regular capital returns for shareholders in the future," Chief Executive Officer Alison Rose said.

NatWest declared a 3 pence per share dividend for 2020, following peer Barclays, which on Thursday a 1p dividend plus a share buyback. UK lenders had cancelled final payouts for 2019 under orders from the Bank of England amid the Covid-19 pandemic.

NatWest had declared a final dividend of 3p and special distribution of 5p for 2019. This had followed a 12p special dividend at the interim stage in 2019, returning money from the sale of its stake in Saudi Alawwal Bank, and a 2p interim payout.

NatWest's common equity tier 1 ratio improved to 18.5% at December 31, from 18.2% at the end of September. A CET1 ratio is a key measure of a bank's financial strength.

Looking to 2021, the lender expects to incur "strategic costs" of around GBP800 million amid its "continued refocussing of NatWest Markets and resizing of the group's cost base".

"We expect NatWest Markets exit and disposal costs and the impact of Commercial Banking capital management actions to total a combined GBP300 million in 2021," NatWest added.

Looking further ahead, it expects a CET1 capital ratio of between 13% and 14% by 2023.

NatWest shares were trading down 0.9% early Friday.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: down 0.1% at 6,610.42

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Hang Seng: up 0.2% at 30,655.16

Nikkei 225: closed down 0.7% at 30,017.92

DJIA: closed down 119.68 points, or 0.4%, at 31,493.34

S&P 500: closed down 0.4% at 3,913.97

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EUR: up at USD1.2101 (USD1.2076)

GBP: up at USD1.3975 (USD1.3955)

USD: down at JPY105.57 (JPY105.72)

Gold: down at USD1,770.10 per ounce (USD1,776.28)

Oil (Brent): down at USD63.40 a barrel (USD64.49)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Friday's Key Economic Events still to come

0930 GMT UK CIPS-Markit manufacturing purchasing managers' index

1100 GMT UK CBI industrial trends survey

0930 CET Germany flash PMI

1000 CET EU euro area balance of payments

1000 CET EU eurozone flash PMI

0945 EST US manufacturing and services PMI

1000 EST US existing home sales

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UK retail sales plunged in January as tighter nationwide coronavirus restrictions closed non-essential shops, the latest figures from the Office for National Statistics showed. On an annual basis, UK retail sales fell 5.9% in January having posted growth of 3.1% in December. The print missed market consensus, cited by FXStreet, for just a 1.3% drop. Retail sales plunged 8.2% month-on-month in January having risen 0.4% in December. The latest reading market missed consensus, cited by FXStreet, of negative 2.5%. "The latest national lockdown led to a sharp monthly fall in January's retail sales, with April 2020 the only month on record to see a bigger slump," said Jonathan Athow, deputy national statistician for Economic Statistics at the ONS.

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UK public sector net borrowing, excluding public sector banks, was estimated to have been GBP8.8 billion in January, down from GBP26.1 billion in December. This is the highest January borrowing since monthly records began in 1993, and the first January deficit since 2011, the ONS said. The lofty figure comes as UK Chancellor Rishi Sunak prepares to deliver his second government budget statement in early March.

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BROKER RATING CHANGES

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BERNSTEIN CUTS UNILEVER PRICE TARGET TO 4000 (4300) PENCE - 'UNDERPERFORM'

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CREDIT SUISSE RAISES BELLWAY PRICE TARGET TO 4020 (3952) PENCE - 'OUTPERFORM'

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INVESTEC CUTS PAYPOINT TO 'HOLD' ('BUY') - TARGET 602 (1435) PENCE

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INVESTEC CUTS SENIOR TO 'SELL' ('HOLD') - TARGET 85 (94) PENCE

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UBS INITIATES FEVERTREE DRINKS WITH 'BUY' - TARGET 2750 PENCE

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COMPANIES - FTSE 100

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Alongside its 2020 earnings, NatWest said it will "begin a phased withdrawal" from the Republic of Ireland, a "multi-year process", while remaining in Northern Ireland. "Following careful and comprehensive deliberation by the NWG board, NWG has concluded that, despite the significant progress that has been made in recent years, Ulster Bank in the Republic of Ireland will not be in a position to achieve an acceptable level of sustainable returns over its planning horizon," NatWest added. "As a result, NWG intends to begin a phased withdrawal from the Republic of Ireland over the coming years that will be managed in an orderly and considered manner. Ulster Bank Ltd's banking business in Northern Ireland is unaffected." NatWest said it will aim to keep job losses and customer disruption at a minimum during the process. It has agreed to sell a EUR4 billion portfolio of performing commercial loans to Dublin-based AIB Group. The sale remains subject to due diligence. NatWest is also in early talks with Permanent TSB Group Holdings and others about their potential interest in buying other Ulster retail and small and medium enterprise assets. "These discussions may or may not result in agreement. Our preference is to continue to focus our discussions with counterparties who can provide customers with full banking services in the Irish market," NatWest said. Dublin-based Permanent TSB noted the announcement and commented on its aim to "grow its position in the retail and SME markets in Ireland and continue to be a force for competition". It confirmed it is in early talks with NatWest.

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SEGRO said it delivered a strong set of financial results in 2020, with record lettings driven by the increasing demand for prime industrial properties from a wide occupier base. For 2020, pretax profit was GBP1.46 billion, up 62% from GBP902 million in 2019 and adjusted pretax profit was GBP296.5 million, up 11% from GBP267.5 million in 2019. The company saw a record leasing and asset management performance with GBP77.9 million of new headline rent in 2020, including GBP41.1 million of new pre-let agreements. SEGRO declared a full-year dividend of 22.1 pence, up 7% from 20.7p paid in 2019. "The pandemic has reinforced the importance of efficient and resilient distribution networks to facilitate the provision of a wide variety of goods and services, leading to increased demand for warehouse space. 2020 saw a record level of investment for SEGRO as we seek to capitalise on these favourable trends, giving us confidence in our ability to drive further growth in rental income, earnings and dividends over the coming years," said Chief Executive David Sleath.

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COMPANIES - FTSE 250

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Future said in the four months to the end of January it has continued to benefit from high levels of online engagement in the period, notably during Black Friday and Christmas. The company said its Media division revenue grew strongly driven by continued momentum in eCommerce and digital advertising. The Events arm, which represent a small portion of total revenue, continued to be hurt by Covid-19 restrictions, while the Magazine division performed in-line with the trends seen from last year. Following the integration of the TI Media business, Future said is on track to achieve the previously announced GBP20 million synergies. Future also has completed its purchase of price comparison firm GoCo and is confident it will create substantial value for shareholders. "Following a robust start to the year, we expect full year profitability to be materially ahead of current market expectations. We remain well positioned to continue executing our strategy and delivering on the ongoing growth momentum we have sustained over recent years," said CEO Zillah Byng-Thorne.

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Assura said it has completed the acquisition of primary care developer Apollo Capital Projects Development. CEO Jonathan Murphy said: "The acquisition of Apollo will further enhance our sector-leading in-house development capabilities and substantially expand our pipeline, which is already the largest in our history. "Expanding our offer to the NHS as its partner of choice has never been more vital than it is today. As Apollo's colleagues integrate into Assura, we look forward to working together to continue creating outstanding spaces for health services in our communities."

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COMPANIES - MAIN MARKET AND AIM

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AIB confirmed the discussions with NatWest and also said it has agreed to sell a non-performing loan portfolio in long-term default to Mars Capital Finance Ireland DAC for EUR400 million. "This is another important step in reducing our non-performing exposures," AIB added. The loan book had a value of EUR600 billion and a fully loaded risk weighted assets position of EUR400 billion when measured back in September.

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COMPANIES - GLOBAL

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Allianz hailed its "strong" final quarter which saw it close off 2020 with record assets under management, though its Property-Casualty insurance arm was hit by Covid-19. In the three months ended December, the Munich-based financial services firm said its revenue inched 0.3% higher to EUR35.6 billion from EUR35.5 billion a year earlier. Quarterly net income was 2.7% lower however, at EUR1.90 billion from EUR1.95 billion. Fourth quarter revenue rose 3.4% in Asset Management and by 2.0% in Life/Health insurance arm. The Property-Casualty insurance unit posted a 2.8% annual revenue fall in the fourth quarter. For the whole of 2020, Allianz posted a 1.3% revenue fall to EUR140.5 billion from EUR142.4 billion in 2019. Net income dropped 14% to EUR7.13 billion from EUR8.30 billion.

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Friday's Shareholder Meetings

Active Energy Group PLC - GM re fundraising and convertible loan notes restructuring

Energean PLC - GM re purchase of Energean Israel

PetroNeft Resources PLC - EGM re replacing Crest with Euroclear Bank

Watkin Jones PLC - AGM

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By Tom Waite; thomaslwaite@alliancenews.com

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