Earning More, Priced for Less

Interim results for the half year ended 30 June 2026, published 31 July 2026. Valuation inputs per tear sheet dated 5 August 2026. All figures in sterling; per-share figures in pence.

NatWest Group is a UK retail and commercial bank. The bulk of what it earns comes from net interest income — the difference between what it charges borrowers and what it pays depositors. In the first half of 2026 that was £6,890m of the £8,862m of total income, roughly 78%. The remaining £1,972m is largely fees and commissions: current accounts, cards, payments, and increasingly wealth and investment management.

The lending and deposit book sets the scale of the thing. Loans to customers reached £435.9bn, up 4.1%, and customer deposits £448.6bn, up 1.3%. Total assets rose 4.3%. A bank of this shape makes more money when the gap between lending and deposit rates widens, and loses money when borrowers stop paying.

The second leg is wealth. NatWest already owned Coutts; with the acquisition of Evelyn Partners, completed on 30 June 2026, group assets under management and administration have more than doubled to £130.6bn. That business earns fees on assets rather than a spread on loans, which is the point of it.

NatWest came out with interim results on 31 July. Total income increased 11% to £8.86bn for the first half, which was pretty good. At the same time the net interest margin increased by 20 basis points to 2.48%.

The loan impairment rate was flat at 19 basis points. That is really good news, because the key concern I have about the banks is whether their loan impairments are getting worse right now. They are not. The company continues to guide to impairments of less than 25 basis points for the year and describes arrears as low and asset quality as strong.

Interim results — half year ended 30 June 2026

Net interest income increased 12.6% to £6.89bn. Operating expenses rose, but did not rise by as much, which matches the marginal increases in net interest margin. The cost:income ratio excluding litigation and conduct came down to 46.0% from 48.8%, helped by an additional £250m of cost savings in the half.

Elsewhere things seem to be moving okay. Total assets increased 4.3%, driven by a 4.1% increase in loans to customers, which reached £435.9bn. Customer deposits hardly rose at all, up 1.3% to £448.6bn.

The second quarter on its own was the stronger of the two. Pre-tax profit rose 29% to £2.29bn against a company-compiled consensus of £2.04bn, and total income of £4.50bn beat the £4.40bn forecast. Return on tangible equity in the quarter was 21.0%.

A note on the series: NatWest changed its headline margin measure from Bank NIM to Group NIM with effect from 2024, so the two are not directly comparable across the break and a single consistent twelve-half series is not available.

On the current Group basis the margin has risen in each of the last four halves, from 2.07% to 2.48% — a gain of 41 basis points. The driver is deposit margin expansion and structural hedge income rather than lending margins, which remain under pressure on mortgages.

The company expects total structural hedge income to increase by around £1.5bn in 2026 against 2025, and by a further £1bn in 2027, so this particular tailwind has some way left to run.

During the period the company acquired Evelyn Partners, which was the reason the CET1 ratio slipped from 14.0% down to 13.2%. Around 140 basis points of that movement related to the acquisition, offset by 137 basis points of capital generation before distributions.

Evelyn Partners is one of the largest wealth managers in the United Kingdom. It provides financial planning and investment management, and operates the consumer investment platform Bestinvest. It was formed from Tilney Smith and Williamson and rebranded in 2022, and was owned by funds advised by the private equity firms Permira and Warburg Pincus, who had been looking to exit since that year.

NatWest agreed to buy it on 9 February 2026 for an enterprise value of £2.7bn, funded from existing resources, and completed on 30 June 2026.

The size of the private banking business

Evelyn brings £69bn of assets under management and administration to NatWest's £59bn, for a combined £127bn on a pro-forma basis. Group assets under management and administration as reported at 30 June 2026 were £130.6bn, more than double the £58.5bn at the end of 2025. Combined customer assets and liabilities are around £188bn, roughly 20% of the group. The combination creates what the company calls the leading private banking and wealth management business in the United Kingdom, sitting alongside Coutts.

Evelyn Partners — full year 2025

As a privately owned company the earlier years are not set out in the transaction materials, so 2025 is the only full year disclosed and the AUMA growth rate is the best guide to the trend behind it. On the 2025 figures the £2.7bn enterprise value represents around 15 times EBITDA, which is a full but not extreme price for a fee-based business growing assets at more than 7% a year.

What it is likely to mean

The strategic point is the shift in income mix. The acquisition increases group fee income by around 20% before any revenue synergies, and moves a larger share of the business into a capital-light, fee-earning segment that does not depend on the interest rate cycle. For a bank whose recent earnings growth has come overwhelmingly from margin expansion, that will make a difference.

Expected impact of the acquisition

The guidance upgrade that came with these results reflects both the acquisition and the underlying performance. Full-year income was raised to around £17.9bn from a range of £17.2bn to £17.6bn, and return on tangible equity to more than 19% from 17%. The company also said it will consider a new share buyback at the annual results, six months earlier than previously planned.

All this meant that earnings per share rose from 30.9p last year to 38.1p this year.

The longer record is the striking part. Reported earnings per share have gone from a loss of -8.4p in 2020 to 67.4p in 2025, and the share count has fallen from 11,262.80m to 7,994.65m over the same period, a reduction of 29.0%. Both halves of that — rising profit and a shrinking share count — have been working in the same direction.

Financial history

• Impairments staying where they are: flat at 19 basis points, with company guidance of less than 25 basis points for the year, arrears described as low and asset quality as strong. This is the key concern I have about the banks, and right now it is not deteriorating.
• The margin trajectory: up in each of the last four halves on the Group basis, from 2.07% to 2.48%, driven by deposit margin expansion and structural hedge income — not by lending margins, which remain under pressure on mortgages.
• The hedge tailwind still to come: around £1.5bn more structural hedge income in 2026 against 2025, and a further £1bn in 2027.
• Costs falling as a share of income: cost:income down to 46.0% from 48.8%, helped by an additional £250m of savings in the half.
• The mix shift into fees: Evelyn adds around 20% to group fee income before revenue synergies and doubles AUMA to £130.6bn, moving more of the business into capital-light income that does not depend on the interest rate cycle.
• Capital return: the interim dividend up 26.3% to 12.0p, a 4.5% yield on the shares, and a possible new buyback to be considered at the annual results — six months earlier than previously planned.

My view

NatWest seems to really have managed to get their act together. They are doing really well. They have got high dividends at 4.5%, reasonably good dividends, and they seem to be quite lowly valued still on this basis.

The company is also going through a reasonably good period of slowly improving their figures. The margin is rising, costs are falling as a share of income, impairments are flat, the balance sheet is growing, and the wealth acquisition diversifies the income mix away from pure interest rate dependence.

The shares have seen some significant rises on the back of these results. Between 29 July and today they have risen 6.5% already. So they are doing very well off the back of this, but I think there is a lot more still to come.

This is quite a crass way of looking at what earnings per share will be for the full year, but in 2025 the first half took up 45% of the total year's earnings per share. I am using the same ratio and assuming that the 38.1p for the first half of this year is 45% of the total. That gives a full-year estimate of 84.6p.

The assumption is not really anticipating anything much different changing through the second half. I am not expecting economic conditions to massively decline or change, and I do not expect interest rate changes overall. The 2025 shape supports it: first-half earnings per share of 30.9p against a full year of 67.4p is 45.8%, so the second half has historically been the larger of the two.

The company has done exceedingly well on average annual earnings per share growth — 31% on average over the last four years. I am giving it a growth rate of 9%, markedly lower than that average. I am also giving a 5% uplift because everything is working very nicely for NatWest, and short of major and significant changes in the macroeconomic situation, which I am not actually anticipating, they are doing very well.

The risk factor is 25%, but I very much do think these figures are going to come to fruition, so the probability is 60%.

Two things sit slightly against the 84.6p estimate and are worth holding in mind. Evelyn Partners completed on the last day of the first half, so the second half carries both its income, guided at £275m for the year, and around £150m of costs to achieve the synergies, which the 2025-based ratio cannot capture in either direction. And the possible buyback at the full-year results would reduce the share count further, which works the other way and would support the per-share figure.

VALUATION SNAPSHOT

The arithmetic runs as follows: 84.60p of earnings, grown at 9% and capitalised at 8x, gives 60.91p; added back to the 84.60p and multiplied by 8 again gives a formula valuation of 1,164.10p. The 5% uplift takes that to an actual valuation of 1,222.30p. Against a share price of 716.00p, that is a value opportunity of +70.7%.

• Loan impairments turning: the impairment rate is flat at 19 basis points and guidance is for less than 25 basis points for the year, but this is the key concern I have about the banks. If arrears stop being low and asset quality stops being strong, the earnings base moves quickly.
• The full-year estimate is a crass extrapolation: 84.6p rests on the first half being 45% of the year, as it was in 2025. It is an assumption about shape, not a forecast built from the bottom up.
• Evelyn's second-half arithmetic cuts both ways: the deal completed on the last day of the half, so the second half carries the income, guided at £275m for the year, and around £150m of costs to achieve the synergies. The 2025-based ratio cannot capture either.
• Macroeconomic or interest rate change: the 5% uplift is given on the basis that there is no major and significant change in the macroeconomic situation, which I am not anticipating. A change in that picture removes the justification for it.
• Lending margins are still under pressure: the margin gain comes from deposit margins and the structural hedge, not from mortgages, where pressure remains.
• Capital consumed by the deal: CET1 fell to 13.2%, with around 140 basis points of that relating to the acquisition. Capital spent on Evelyn is capital not returned to shareholders.
• The risk factor is 25%: that is my own stated allowance for the whole set of these going wrong, against a 60% probability that the figures come to fruition.

• Impairments above guidance: a full-year impairment rate running through 25 basis points, or arrears no longer described as low, would go directly at the central reason I am comfortable holding banks here.
• A second half that misses the 45% shape: if the year does not land near 84.6p of earnings per share, the 1,222.30p valuation falls with it.
• The structural hedge tailwind not arriving: the roughly £1.5bn uplift in 2026 and the further £1bn in 2027 are what make the margin trajectory look durable rather than cyclical.
• A material change in interest rates or the macro backdrop: I do not expect interest rate changes overall, and the 5% uplift is predicated on that.
• No buyback at the annual results: the company said it will consider a new buyback six months earlier than planned. Not doing so would remove the share-count support for the per-share figures.
• Evelyn integration costs running past £150m: or the £100m of annual run-rate cost synergies failing to materialise, which would undercut the accretion case for the acquisition.