After a significant cut in government shareholding, a leading US investor began to pour cash into NatWest after allaying fears of state interference in the bailed out banking group.
Los Angeles-headquartered Capital Group, which is one of the world’s oldest and largest investment firms, with more than £2.5tn under management, has bought more than PS110m worth of NatWest shares, days after the government cut its position, pushing the group into the bank’s top 30 shareholder list.
Capital was considering purchasing a stake in the company for several months after a strong profit and a February meeting with Paul Thwaite.
NatWest made its largest annual profit last year since the beginning of the financial crises in 2007. High interest rates helped. A City source claimed that investors such as Capital were put off by the 30% government stake. This meant that it was still classified as a controlling investor.
The government’s holding is the result of its £46bn bailout of NatWest (formerly Royal Bank of Scotland Group), which led to the state acquiring an 83% stake in this lender during the 2008 financial crisis.
In late March, the government’s share fell below 30%. This opened the door for a new wave of US investment.
Benjamin Toms is an analyst with RBC Capital Markets. He said, “Politics has been a part of banking for many years in Europe and the UK, and this has caused some concern among investors.” The government can exert more influence if it owns a large stake in the bank.
There’s concern that the government could have a large stake in your company, even though in reality it wouldn’t matter much as a minority holder.
Capital Group vehicles purchased 33m shares in March, just days after the government stake was reduced. This amounted to 0.4% of the company, based on the latest public data. Capital is believed to have continued its spree of buying since then.
MFS Investment Management is the second largest shareholder behind the UK government. It holds a stake of 5.1%. Norges Bank Investment Management has a stake of 3.7%. And the Vanguard Group owns a stake worth 2.3%.
Ministers have largely stayed out of NatWest’s management, with the exception of interventions during the financial crisis on executive compensation and discussions around the departure of former chief executive Stephen Hester in 2013.
Concerns about government influence arose last summer when ministers demanded the resignation Alison Rose’s chief executive position after a dispute with former Ukip leader Nigel Farage regarding the closure of Nigel Farage’s accounts at Coutts private bank.
In 2018, the Labour Party announced plans to stop further stake sales, and to use RBS as a funding source for small businesses. Keir Starmer, the current Labour leader, has not made any plans similar to this.
Rick Haythornthwaite said at the AGM held last month that there is a perception there has been more intervention by His Majesty’s Treasury than actually exists. Removing the overhang from our economy is a valuable thing… I believe that this can only be a good thing as we look to the future.
Capital Group’s investment is welcomed by the Conservative government in the UK, which is eager to return NatWest into private ownership by 2025-2026. It is also preparing a campaign to sell a portion of its stake directly to retail clients as soon as this summer.
Capital Group’s spokesperson stated that the company would not comment on specific companies or holdings. NatWest declined comment.
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