NatWest Q3 profit soars despite £294m provision for money laundering fine
By Frank Prenesti
Date: Friday 29 Oct 2021
(Sharecast News) - NatWest Bank reported better-than-expected third quarter profits as it released cash set aside to cover bad loans during the Covid crisis and despite a charge of almost £300m to cover a fine for money laundering.
The company on Friday said operating pre-tax profits rose to £1.07bn from £355m a year ago, compared with estimates of £677m and £1.5bn reported in the second quarter.
Litigation and conduct costs were £294m, including a provision for an anticipated fine after pleading guilty earlier this month to failing to prevent the laundering of £365m deposited into the account of a Bradford jeweller.
The Financial Conduct Authority said the state-owned lender failed to monitor suspect activity by a client that deposited the money over a five year period, including £264m in cash. Lawyers for the regulator have warned NatWest could face a potential penalty of £340m.
It was the first time a financial institution had faced criminal prosecution under 2007 anti-money-laundering laws in the UK and the final figure will be determined by a judge at a hearing expected to take place in December.
Chief executive Alison Rose was cautious on the future economic outlook, citing inflationary pressure on clients and supply chains bottlenecks.
"Although we are seeing challenges in the economy and for our customers - especially around supply chains and the cost of living - a number of key indicators remain positive; growth is good, unemployment is low and there are limited signs of default across our book," she said.
Barclays, HSBC and Lloyds have all reported bumper profits this month, assisted by the release of bad loan provisions set aside during the pandemic.
NatWest's trading business lost £160m amid thin fixed income trading and the bank said it no longer expected to hit its target of cutting NatWest Markets' risk-weighted assets to £20bn this year.
Brokers at Numis said profits before provisions were 5% weaker driven by a 9% miss on other income.
"Consensus looked high coming into these numbers, implicitly assuming as it did that NatWest markets (NWM) fixed income revenue may rebound a little in Q3. It didn't - in particular, the fixed income revenue was a NEGATIVE £38m and that is likely all of the delta," they said on Friday.
"How the market views this will partly depend on whether it is willing to stick with management guidance on medium-term NWM revenues of £800m - £1bn. It's patience may be wearing a little thin - we have forecast nearer £700m for some time now but our non-interest income numbers are below the market's."
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