Natwest Like Never Before: Natwest goes private

April 6, 2022

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2 min read

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What's going on here?

The major retail and commercial bank Natwest is returning to majority private control, as it buys back ÂŁ1.2bn in shares.

What does this mean?

Just over 13 years after the bank’s bailout with taxpayers’ money during the financial crisis, Natwest is making its way back to the private sector after purchasing 550 million of its shares from HM Treasury. Natwest had purchased the shares at last Friday’s closing price of 220.5p per share. This buy-back brings the UK Government’s stake in the bank down to 48% from an 84% stake in 2008. During the financial crisis in 2008, the Government had to purchase shares from the former Royal Bank of Scotland to prevent the bank from collapsing.

What's the big picture effect?

Whilst this poses no real practical change for the public, Natwest’s private majority is somewhat symbolic of its growth since the financial crisis and its recovery following the pandemic. Over the past few years, the bank’s share price has been steadily improving, alongside those of many other banks. In March 2021, Natwest managed to raise approximately £1.1bn after selling shares at 190.5p. Last month, the bank’s share price had risen to 253p, over double its share price in September 2020. Covid-19 support schemes and furlough prevented large-scale defaults on payments, which allowed the bank to bounce back from a 95p share price.

In July 2021, the Treasury had announced plans to sell shares in Natwest through a pre-arranged trading plan to drip-feed shares into the market (i.e. gradually selling shares instead of selling them in large chunks at a discounted price). Since 2015, the Treasury has reduced state ownership through four share sales. This forms part of the Government’s wider efforts to reduce state ownership of institutions that needed bailing out to keep afloat following the 2008-2009 financial crisis. Natwest’s journey back to majority private ownership has taken longer in comparison to that of Lloyds Banking Group, which returned to private ownership back in 2017 after the Treasury embarked on a similar style of drip share sales.

The Government had targets to fully return Natwest to private ownership by 2025-2026, but the recent reduction in the Government’s stake could help to reach this goal even faster. However, the Treasury was adamant on selling these shares at a price that would bring value to the taxpayer and the public purse. Unfortunately, Natwest’s purchase is a loss to the taxpayer; whilst the UK Government bought Natwest’s shares at a rate of 500p in 2008, Natwest has bought them back for nearly half the price. This serves as confirmation that the state will not recoup the £46bn that was pumped into the former Royal Bank of Scotland as part of its bailout.

Generally, Natwest’s progression back into the private sector symbolises a positive outlook for the UK’s economic recovery. Moving forward, higher interest will facilitate lending, but increased living costs for consumers will reduce demand for credit. CEO Alison Rose noted the purchase was a good use of capital and that bringing state-ownership below 50% demonstrated the bank’s progress and growth.

Report written by Natasha Dayananda

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