Lender NatWest (NWG) posted Q1 results which narrowly beat the consensus across the board and raised its FY guidance. However, the shares, which had already lost 10% this year, dropped a further 3.7% to 564p.
Positive Q1 performance
For Q1, the bank posted total income of £4.4 billion, flat on Q4 2025 but slightly ahead of estimates. Net interest income undershot forecasts, but fees and other income were ahead, accounting for the top line beat.
Operating costs of £2 billion were well below forecasts thanks to additional savings of £100 million during the quarter. The cost-to-income ratio fell 2.1% to 46.5%, which compares very favourably with 56% at Barclays (BARC) and 52% at Lloyds (LLOY).
Impairment charges of £283 million were up almost £150 million on Q1 2025 but still in line with the consensus. The increase was due to the bank lowering its growth forecasts for the economy following the Middle East conflict.
Return on tangible equity was comfortably above consensus at 18.2% while EPS of 17.9p also beat forecasts. For FY26, the bank now sees total income towards the top end of its £17.2 billion to £17.6 billion range.
Investors in UK banks must feel like it’s Groundhog Day after NatWest and Lloyds both dropped despite beating forecasts and raising their outlooks. As with Lloyds, though, we suspect today’s negative reaction is down to the bank’s more cautious view on the economy.
In its revised base case scenario, NatWest now sees inflation topping 3.5% due to higher energy prices. That will put real incomes under pressure, so it has dropped its FY26 UK growth forecast to 0.4%. Unemployment may reach a higher peak than previously thought, but rising inflation means no bank rate cuts, so asset prices may fall.
Bear in mind this is just the base case – the bank has also changed its extreme downside scenario. The bottom line is today’s reaction isn’t about NatWest per se or its results, its about the UK in general. Banks are basically cyclical, so if the economy looks less rosy then selling bank stocks makes sense from a macro viewpoint.
Interestingly, the best-performing of the Big Four in 2026 is HSBC (HSBA), which is mostly exposed to Asia not the UK. Its shares are up 14% year-to-date, so it will be the centre of attention when it reports FY earnings next Tuesday.
Read the press release here:
https://investors.natwestgroup.com
