British state-backed bank NatWest has taken a significant step towards full private ownership by agreeing to repurchase £1.3 billion ($1.6 billion) worth of its shares from the government. This move comes 15 years after the bank was bailed out during the global financial crisis. The deal will reduce the government’s stake in the former Royal Bank of Scotland from approximately 41.4% to 38.69%.
In March 2022, NatWest returned to majority private ownership following a similar block sale. The government aims to fully privatize NatWest by 2026. NatWest shares rose 0.9% in early trading following the announcement.
Progress Towards Full Privatization
Andrew Griffith, the economic secretary to the Treasury, expressed his satisfaction with the transaction, stating, “Today’s sale is another major milestone in returning NatWest to full private ownership as promised.” The agreement sees NatWest repurchasing the shares at 268.4 pence per share, resulting in a further loss for taxpayers. In 2008, the government bailed out the bank for £45 billion at a price of 502 pence per share. However, despite the financial implications, the move is seen as a positive step in the bank’s journey towards complete privatization.
Challenges in the Banking Sector
The banking sector has faced challenges this year due to industry-wide turmoil triggered by the failures of several U.S. regional lenders and the emergency takeover of Credit Suisse. Nevertheless, banking shares have shown signs of recovery in recent weeks. NatWest shares have risen approximately 15% compared to the same period last year. The decision to sell the shares now reflects the government’s assessment that the timing is favorable. Victoria Scholar, Head of Investment at interactive investor, noted, “The government clearly decided that now is a good moment to sell.”
Government’s Continued Privatization Efforts
In April, the British finance ministry extended a trading plan allowing for a series of smaller sales to investors by two years. This extension demonstrates the government’s commitment to advancing the privatization process, even in the face of market volatility. The recent share buyback marks the sixth block sale of NatWest stock by the government. In 2008, the government held an 84% stake in NatWest at the peak of its ownership.
Government’s Rationale and Future Outlook
The government has consistently justified the rescue of NatWest during the financial crisis, asserting that profitability would not have been achievable without intervention. The transaction to repurchase shares has been anticipated and does not impact the forecasts of banking analysts at Shore Capital, who believe NatWest’s core capital ratio will remain at around 14.4%.
NatWest CEO Alison Rose highlighted the significance of the share buyback in advancing the bank’s strategic priorities and the path to privatization. With government ownership now below 40%, the transaction demonstrates positive progress toward achieving full privatization.
In conclusion, NatWest’s agreement to repurchase £1.3 billion worth of its shares from the government represents a major step forward in its journey towards complete private ownership. The move follows a similar block sale in 2022 and is in line with the government’s goal of returning NatWest to private ownership by 2026. The decision to proceed with the buyback reflects the government’s confidence in the bank’s trajectory and the improving conditions in the banking sector. NatWest’s CEO and analysts remain optimistic about the strategic priorities and future prospects of the bank as it continues on its path to privatization.
