Frugal NatWest puts European bank peers to shame

Annual CBI Conference in London
Alison Rose attends the annual CBI Conference in London, Britain November 18, 2019. REUTERS/Simon Dawson

LONDON, Feb 18 (Reuters Breakingviews) - NatWest (NWG.L) Chief Executive Alison Rose wants to keep slashing expenses. Many of her fellow bank bosses don’t. She’s right.

The 26 billion pound UK lender on Friday unveiled new financial targets. Rose wants to reduce costs by 3% this year and next to ensure a return on tangible equity (ROTE) “comfortably above” 10%. Compare that with BNP Paribas (BNPP.PA) and Nordea (NDAFI.HE). Their business plans project expenses growing at 1.5% a year. Standard Chartered’s (STAN.L) cost base could swell by 4%.

Investing for growth makes sense, especially with interest rates on the rise read more . But focusing on cuts is arguably a safer route to higher returns. If Rose decided to keep costs flat, her ROTE next year would be less than 9%, based on Breakingviews calculations using consensus estimates for revenue and loan defaults. Factor in her planned slashing, and it rises to 10%. Cuts are also easier to achieve than wooing fickle private-banking customers from rivals trying to do the same. (By Liam Proud)

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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