Britain offloads last NatWest stake after crisis-era rescue

By Lawrence White and Michael Holden

LONDON (Reuters) -NatWest has returned to full private ownership after a 45 billion-pound ($60.59 billion) state rescue at the height of the 2008 financial crisis, ending a costly, taxpayer-funded government investment that reshaped the lender and industry.

Britain's government sold its remaining less than 1% stake in the bank, according to a Treasury statement on Friday, after selling shares in small blocks in recent years. It held as much as 38% recently as December 2023. "Nearly two decades ago, the then government stepped in to protect millions of savers and businesses from the consequences of the collapse of RBS," finance minister Rachel Reeves said in a statement.

"That was the right decision then to secure the economy and NatWest's return to private ownership turns the page on a significant chapter in this country's history."

NatWest's reprivatisation marks an inflection point in its post-crisis recovery, as it transformed from a globe-spanning investment bank to a slimmed down, more traditional mortgage and business lender focused on its home market.

NatWest's share price has risen more than 30% so far this year to 523 pence, above its 502 pence bailout price. However, previous government selldowns were conducted at prices below that threshold, leading to a loss on the overall rescue.

The government has lost around 10.5 billion pounds on the 45 billion pound rescue, once proceeds from share sales, dividend payments to the finance ministry, fees and other income are all aggregated, according to Britain's finance ministry.

A SYMBOL OF EXCESS

NatWest's expansion in the years before the financial crisis came to symbolise the excesses of that era, as it grew from a small Scottish lender in the 1990s to one of the world's biggest banks, with a balance sheet of over 2 trillion pounds by 2008, almost double Britain's annual economic output at the time.

The bank then known as RBS, before its rebranding in 2020, had by 2017 sold assets ranging from a fleet of aircraft in Beijing and the largest hospital in Sydney, to a golf course in Florida that was 110 km (63 miles) away from the nearest road, and a graveyard in the U.S. Deep South.

The bank now returned to private ownership is a much slimmed-down lender focused on its domestic business, where it ranks as Britain's third-biggest mortgage provider behind Lloyds Banking Group and Nationwide Building Society, according to UK Finance data.

Britain implemented so-called ring-fencing rules after the crisis aimed at protecting ordinary savers' deposits from banks' riskier activities, as well as trying to spur competition in the sector by encouraging a slew of smaller so-called challenger banks.

With those having largely failed to disrupt the incumbents, NatWest's challenge now is to grow fee-based income from businesses such as wealth management, at a time when big rivals such as HSBC are crowding into that same strategy amid declining lending income as Britain's central bank cuts policy rates.

Current CEO Paul Thwaite has emphasized priorities to simplify the bank yet further and to support economic growth through mortgage and business lending.

That chimes with pressure from the left-leaning Labour government on banks to help kickstart the country's subdued economic growth, with the lingering threat the ruling party could yet tap cash-rich banks to help plug gaps in the state budget via further taxes.

"NatWest has rebuilt its reputation, yet has still been something of a political football," said Alex Potter, investment director, developed market equities at Aberdeen.

The lender will continue to come under pressure to help actively drive the government's growth agenda, he said. 

NatWest executives have said in recent weeks that the state exit will not change how the bank does business, but bankers and advisers expect it could try to accelerate that growth strategy via further acquisitions after several such deals in 2024.

($1 = 0.7427 pounds)

(Reporting by Lawrence White and Michael Holden; Additional reporting by Sinead Cruise. Editing by Hugh Lawson, David Evans, Elisa Martinuzzi and Susan Fenton)