UK Bank Earnings: NatWest Group Earnings Call
24-07-2024
NatWest Group will publish their latest quarterly figures this Thursday. The bank has successfully navigated a change in leadership following the departure of CEO Alison Rose amid the Nigel Farage ‘debanking’ scandal. During its Q4 earnings call earlier this year, NatWest reported its biggest annual profit since the 2007 financial crisis and confirmed that newly appointed boss Paul Thwaite will take over permanently as chief executive.
As the UK’s largest mortgage lender, its bumper profits in 2023 came as no surprise, as the bank reaped the rewards of a rising interest rate environment – logging a net interest income of £11bn, up 12.3% from the £9.8bn reported in 2022. This was reflected in the share price with the Q4 earnings call on the 15th of Feb, sending NatWest shares up by 7% the following day.
NATWEST YEAR-TO-DATE EARNINGS
The high street lender announced a £300 million share buyback program in February and has already purchased over half a million shares from UBS as recently as the 22nd of July. The partly state-owned lender has been determined to return to private ownership, and the government has announced its intention to finish selling its remaining 30% stake in the bank. NatWest has carried out four off-market buybacks from the government since 2021, most recently purchasing £1.24bn worth of shares on the 31st of May reducing their overall stake to 22.5%. However, despite the previous conservative government’s pledge to sell the entirety by 2026, the new Labour government has made no such agreement.
Year-to-date NatWest has performed increasingly well, up 52.54%. If you believe that interest rate cuts and the delayed government sell-off may take the shine off their share price, then you could consider buying a put option to protect your equity position.
Protective Put
Trade Idea
Protective Put
The following put contract protects £3,350 worth of stock against a more than 7% decline for £90.
NatWest Group Cash Price = £3.35 (as of 24/07/2024 at time of writing)
Total consideration: £90 (excl. fees and commissions)
1 (number of contracts) x £0.09 (contract price) x 1000 shares (contract size) = £90 debit
A 20% decrease in the current share price to £2.68 by 20-Sep-2024 expiry would value the put option at £520; yielding a 477% return on your initial investment – protecting the value of your underlying equity position.
The 320 put option would break even if the NatWest share price decreases to £3.11 at expiry on 20-Sep-2024
Maximum loss: £90 (excl. fees and commissions)
Defined risk profile, maximum loss of a long option position is equal to the premium paid.
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