NatWest boss warns of bond market backlash against bank windfall tax

The chief executive of NatWest has warned Rachel Reeves against slapping a windfall tax on banks, as the sector’s profits soar. 

Paul Thwaite said on Friday the Chancellor should be aware ‘of the signals it sends’ to bond investors who lend money to the Government.

Britain’s four biggest lenders, including NatWest, are on track for another bumper year after making £46billion in 2024 as they gain from interest rates staying higher for longer.

This has led to renewed calls for banks to hit with a levy on their profits to help Reeves balance the books in her Budget next month.

Speaking as NatWest unveiled profits up by a quarter to £4.4billion so far this year, chief executive Thwaite acknowledged the ‘difficult choices’ facing the Chancellor.

But he added: ‘The Government should be thoughtful about the signal (a windfall tax) sends to investors,’ he said.

‘Strong domestic banks are the backbone of the UK,’ he added.

Thwaite’s remarks echo those earlier this week of Barclays boss C. S. Venkatakrishnan, who said UK banks were taxed at almost double the rate of their Wall Street peers.

Lloyds boss Charlie Nunn also warned that banks need to be ‘healthy’ if they are going to have ‘the confidence to continue to lend to the real economy’.

Banks have threatened to raise borrowing costs or cut savings rates if a one-off tax was introduced but economists say that would have only a neutral effect on the economy if they did.

NatWest is now free from taxpayer ownership after the government sold its remaining shares in May, 17 years after the lender – then called Royal Bank of Scotland – was bailed out during the 2008 financial crisis.

Thwaite took over from Alison Rose last year after she discussed details with a journalist of UK Reform leader Nigel Farage’s bank account with Coutts, NatWest’s upmarket lending unit.

Farage has led calls for the Bank of England to cut the interest rate it pays commercial banks like NatWest on the reserves they hold risk-free at the central bank.

Analysts say such a move could raise a substantial chunk of the estimated £30billion to £50 billion the Chancellor needs to find to keep within her fiscal rules – and to keep bond investors lending to the Treasury.

Thwaite said the bank’s performance was ‘strong’ as he upgraded earnings guidance for the full year.

Net interest margin – the difference between what a bank charges borrowers and pays saver –widened to 2.21pc from 2.11pc as interest rates stayed high.

Thwaite said NatWest has no exposure to the two failed US companies , Tricolor and First Brands, whose collapse has sparked concerns about so-called ‘shadow banks’.

NatWest’s total lending to non-banks like insurers and asset managers was less than £5billion, he added.

Matt Britzman, senior equity analyst at broker Hargreaves Lansdown said: ‘NatWest delivered a strong set of results, comfortably beating expectations.

‘This is another reminder that UK-focused banks are quietly performing better than many give them credit for.,’ he added.

‘For investors, these results reinforce the idea that the domestic banking story still has more room to run,’ Britzman said.

NatWest shares were up 3.5 per cent to 364.4p in early trading, having added more than 55 per cent over the last 12 months. 

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