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NatWest’s cash splash is an investor distraction

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RBS CEO Alison Rose attends the annual CBI Conference in London, Britain November 18, 2019.

LONDON, July 30 (Reuters Breakingviews) - NatWest (NWG.L) boss Alison Rose will discover that money doesn’t solve all problems. The state-owned lender on Friday announced a share buyback of up to 750 million pounds. Together with dividends, it will pay out at least 2.9 billion pounds to shareholders in 2021. That’s equal to a whopping 12% of the company’s market capitalisation. And there might be another 5 billion pounds to 7 billion pounds to come given Rose’s common equity Tier 1 ratio goal of around 13%, compared to 18% currently.

Such splurges can only hide mediocre profitability for so long. Rose’s 9% return on tangible equity target by 2023 – below a probable 10% cost of capital - is poor for a bank which has been in cleanup mode for over a decade. Rival Lloyds Banking Group (LLOY.L), by contrast, targets a 10% ROTE this year. Costs which ate up 66% of revenue in the first half were higher than competitor Barclays (BARC.L) read more , which also runs a U.S. bank. Payouts will only temporarily distract from such concerns. (By Christopher Thompson)

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Editing by Swaha Pattanaik and Karen Kwok

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