NatWest has bought a £2.5 billion mortgage portfolio from Metro Bank in a further push by the taxpayer-backed lender to grow its retail business.
The purchase of the book of prime UK residential home loans adds about 10,000 customers and follows NatWest’s deal last month to buy the retail banking assets of Sainsbury’s, the supermarket group.
The Sainsbury’s deal was the first significant strategic move made by Paul Thwaite since he took charge of NatWest in tumultuous circumstances a year ago, when his predecessor, Dame Alison Rose, was pushed out as chief executive amid the Nigel Farage debanking scandal.
Metro, which almost collapsed last autumn, has sold the mortgage book as part of efforts to bolster its balance sheet and will receive up to £2.4 billion in cash for the portfolio from NatWest.
Thwaite said: “This transaction is a further opportunity to accelerate the growth of our retail mortgage book within our existing risk appetite, with attractive returns. It is in line with our strategic priorities and builds on our recent acquisition from Sainsbury’s Bank.”
The Metro deal was announced alongside half-year results from NatWest which showed that operating pre-tax profits fell by 15.6 per cent year on year to £3 billion in the six months to the end of June.
Like other banks, NatWest is coming under pressure from fierce competition in the mortgage market and moves by savers to move their cash to accounts that pay higher rates of interest. This is squeezing margins, which had surged since late 2021 after the Bank of England rapidly lifted interest rates to contain inflation. On Thursday Lloyds Banking Group reported a 14 per cent fall in half-year profits to £3.3 billion.
NatWest, which is about 20 per cent government-owned, said its net interest margin declined to 2.07 per cent from 2.23 per cent a year earlier. This margin is a gauge of profitability that tracks the difference between what a bank earns from loans and pays for deposits.
Yet despite this, the fall in its profits was not as bad as the City had feared, with analysts having forecast a sharper decline in the first half to £2.6 billion. NatWest was helped by more benign impairments for bad loans. While analysts had expected the bank to take a second-quarter charge of £161 million, NatWest instead wrote back £45 million of provisions in the three-month period.
In a fillip to investors, NatWest also upgraded its guidance for its financial performance over the full year. It now forecasts that it will generate a return on tangible equity of more than 14 per cent in 2024, having previously told the stock market to expect around 12 per cent.
It has been helped by interest rates staying higher for longer than had previously been expected, which provides support for its margins. At the beginning of the year NatWest had assumed that the Bank would push through five rate cuts in 2024 but borrowing costs have yet to come down and the lender now expects two decreases.
The government’s stake in NatWest is a legacy of the lender’s £45.5 billion taxpayer bailout during the 2007-9 financial crisis. The shareholding is coming down rapidly as the government sells off stock, and has almost halved since the end of last year.
NatWest declared an interim dividend of 6p a share, up 9 per cent on a year ago, which will hand back £500 million to shareholders.