NatWest Group PLC confirmed that it intends to begin a phased withdrawal from Ireland over the coming years, as a steep decline in noninterest income pushed it to a loss in the fourth quarter of 2020 from a year-ago profit.
The U.K.-based banking group said its decision to pull out from the Republic of Ireland came after it concluded that unit Ulster Bank Ireland DAC will not be positioned to achieve an acceptable level of sustainable returns for the group's shareholders, following a strategic review of the business. Ulster Bank Ltd.'s banking business in Northern Ireland will be unaffected by the move, NatWest said, adding that it will aim to minimize job losses resulting from its exit.
The group reported a loss attributable to ordinary shareholders of £109 million in the fourth quarter, compared to a profit of £1.41 billion a year earlier.
Basic loss per share for the period was 0.9 pence, compared to the year-ago EPS of 11.7 pence. The S&P Capital IQ consensus normalized EPS estimate for the quarter was 2 pence, based on four analysts reporting.
Net interest income fell year over year to £1.97 billion from £2.04 billion, as did noninterest income, to £564 million from £2.20 billion. Total income amounted to £2.54 billion, down from £4.23 billion in the fourth quarter of 2019.
Fourth-quarter litigation and conduct costs reached £194 million, up from £85 million in the same period a year earlier. Strategic costs dropped on a yearly basis to £326 million from £537 million, as did impairment losses, to £130 million from £160 million. Operating expenses for the quarter totaled £2.34 billion, down from the year-ago £2.53 billion.
For the 2020 full year, the group swung to an attributable loss of £753 million from a profit of £3.13 billion in the prior year, mainly due to significantly higher impairment losses, which surged over the period to £3.24 billion from £696 million. NatWest's noninterest income also sunk by a large amount, dropping year over year to £3.05 billion from £6.21 billion.
Basic loss per share for the year was 6.2 pence, against EPS of 26.0 pence in 2019. Return on tangible equity was negative 2.4% in 2020, compared to the year-ago 9.4%.
The group's common equity Tier 1 ratio — a key measure of financial strength — stood at 18.5% as of Dec. 31, 2020, compared to 18.2% at the end of September and 16.2% as of 2019-end.
Despite its hefty losses, NatWest proposed a final dividend of 3 pence per ordinary share for 2020, subject to approval at its April 28 annual general meeting. If approved, the amount will be paid out May 4 to shareholders on the register at business close March 26. The group said it intends to maintain ordinary dividends of roughly 40% of attributable profit and plans to distribute at least £800 million per annum through 2023 via a combination of ordinary and special dividends.
NatWest said it plans to incur strategic costs of about £800 million in 2021 from the continued refocusing of NatWest Markets PLC and the resizing of the group's cost base, adding that exit and disposal costs related to the unit and the impact of commercial banking capital management actions will likely total a combined £300 million for the year. The bank said it also expects to achieve an RoTE of 9% to 10% and a CET1 capital ratio of 13% to 14% by 2023.
As part of its planned Irish exit, NatWest said it agreed on a nonbinding memorandum of understanding with AIB Group PLC unit Allied Irish Banks PLC for the sale of an approximately €4 billion portfolio of performing commercial loans and the transfer of employees wholly or mainly assigned to the loan book to the Irish lender.
NatWest said it is also in early discussions with Irish bank Permanent TSB Group Holdings PLC, among other strategic banking counterparties, over their possible interest in acquiring certain retail and small business assets, liabilities and operations, noting that it prefers to continue talks with counterparties capable of providing customers with full banking services in the Irish market.
