NatWest Group Plc Q2 FY2024 earnings call

• Business updates: Announced acquisition of mortgage portfolio from Metro Bank and transaction with Sainsbury's, grew customer base by over 200,000, closed Poland hub, and reduced government shareholding. - Financial performance: Strong first half with income £7B, costs £4B, operating profit before tax £3B, attributable profit £2.1B, return on tangible equity 16.4%. - Strategic priorities: Disciplined growth via organic/inorganic activity, bank-wide simplification including closing hubs and digital transformation, and active capital allocation and risk management. - Dividends: Announced interim dividend of 6p, up 9%, with buybacks completed.

The firm's segments include Retail Banking, Commercial & Institutional, and Private Banking. In Retail Banking, mortgage balances fell but gross new lending increased over 20% in Q2, and unsecured balances increased. Commercial & Institutional saw lending to mid-market customers grow by £1 billion, excluding government schemes, while balances in Corporate & Institutions decreased. Private Banking had assets under management grow by £2 billion or 4.6%, leading to higher investment management fees. Revenue contributions were from these three segments, with deposit growth across businesses and various lending and fee income streams.

• Upgraded 2024 total income excluding notable items to around £14B. - Expect return on tangible equity greater than 13% in 2026 while operating within CET1 ratio of 13%-14% and targeting payout ratio of around 40%.

• Market conditions and pricing pressure in mortgage market. - Regulatory changes such as Basel 3.1 rules and CRD IV model changes. - Impact of interest rate cuts on deposit margins and lending activity.

Q: On deposit margin and outlook, Paul and Katie discussed deposit growth in all three customer businesses and that deposit balances are expected to trend in line with the sector.

Q: On capital management, Katie talked about RWA management including SRT transactions and that RWA management actions support capital generation.

Q: On 2026 targets, Paul stated they are reaffirming the return target for 2026 as greater than 13% and it's early to change that.

Q: On hedge, Katie explained the mechanistic approach to managing the product hedge and the impact of redemption yields.

Q: On organic growth, Paul and Katie discussed that growth will come from disciplined lending, acquisitions, and growing in line with or ahead of market.

Q: On mortgage spread compression and government shareholding, Paul said mortgage book margin is comfortable and they're agnostic to government share sale methods.

Q: On hedge details and cost investment, Katie discussed the equity hedge's impact and that costs are broadly stable excluding one-offs with capacity to invest from existing cost base.