NatWest’s top managers will tomorrow be presented with plans to slash up to £3bn of costs over the next five years — including closing more branches — as banks brace for a wave of bad debts.
The presentation to the executive committee at the state-backed bank, which changed its name from RBS last week, will set out a blueprint to reduce annual operating expenses from £7bn to £4bn.
NatWest chief executive Alison Rose wants to cut costs as record low interest rates of 0.1% and other pressures caused by the coronavirus crush banks’ income.
Lenders are set to report torrid second-quarter results this week. They will show a dramatic fall in income in the three months to the end of June, and hefty provisions for potential losses on loans once the government’s job support scheme stops in October.
Analysts expect NatWest Group to earmark up to £1.5bn for bad loans, which could tip the bank into the red in its second-quarter results on Friday. It posted a profit of £1.3bn a year ago.
The dramatic cost-cutting plan involves using slicker technology, which could lead to job losses and branch closures. The bank has more than 800 branches that have seen customer footfall drop because of the coronavirus.
“Nothing is planned on branches this year, but over the next five years all banks will take decisions on branches if the trend during Covid continues,” a source at NatWest said.
Consumer group Which? warned last week that rules to protect branches from closures were “merely a box-ticking exercise” and have done little to save networks, which have been cut by a third in the past five years.
NatWest last week told about 50,000 staff that they should continue working from home until the start of next year, despite prime minister Boris Johnson’s attempts to get people to return to work. NatWest has shrunk its property footprint in London and Edinburgh, home to its grand Gogarburn HQ — a legacy of the Fred “the Shred” Goodwin era. Rose, 50, is based solely in London.
“All banks are going to look carefully at costs,” said John Cronin, an analyst at Goodbody. “The income challenge is severe. Covid-19 has created greater urgency.”
The cost-cutting plan is understood to be one of a broad range of longer-term options being explored by NatWest’s strategy team, led by Oliver Holbourn, who was in charge of managing taxpayers’ 62% stake before joining the bank in 2018.
NatWest said: “We do not have any plans of this type. We set out our strategy in February, which includes a £250m cost reduction target, and we are committed to delivering on that.”
In March, the Treasury pushed back its deadline for selling its stake in the bank by an extra year because of the impact of the coronavirus. The government said it would aim to offload the holding by March 2025. Shares closed at £1.15p, far below the £5 per share paid to bail out NatWest in 2008 at a cost of £46bn.
