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The recent closure of Nigel Farage’s Coutts bank account, a pro-Brexit commentator and former politician, has sparked a major political controversy in the UK. This incident has already resulted in the removal of Coutts boss Peter Flavel and Alison Rose, CEO of NatWest, the parent company.
While chairman Howard Davies has pledged to remain in his position, Rishi Sunak, displaying the decisive nature of pragmatic politicians, has refused to support him. However, it would be in the shareholders’ best interest, including the government with a 40% stake, for Sir Howard to transition to a successor in an orderly manner.
In the meantime, the prime minister should expedite the divestment of the government’s stake. This process is riddled with conflicts of interest, as evidenced by the Farage incident.
For instance, it is challenging to determine if the lower-than-anticipated net interest margins are purely a result of commercial pressure. Government officials have been advocating for better interest rates for savers.
During the second quarter, NatWest reported a 3% decrease in net interest income, with the net interest margin dropping by 14 basis points to 3.13%. The full-year NIM guidance has now been revised to 3.15%, down from the previous 3.2%.
This decline in NIMs partly reflects improved interest rate transmission to savers. NatWest passed on 75% of rate increases in the second quarter, compared to a cumulative 50%.
It’s possible that Sir Howard may once again exit an esteemed institution hastily, similar to his departure from the London School of Economics in 2011 due to controversy surrounding his ties to Libya. His public support for Rose may once again prove to be a faltering political judgment.
On the other hand, the government needs to confront its own hard truth. With tightening NIMs, there is no chance of reducing its NatWest stake at the market floor price of £2.60.
The state cash injections received in 2008 and 2009 at approximately £5 were, in fact, bailouts rather than investments. NatWest now stands as a stable business, and it is in the UK’s best interest to expedite the sale and establish a normal relationship with NatWest.
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