NatWest Group Rises Monday, Still Underperforms Market

NatWest Group (NWG) shares rose on Monday, driven by the bank's strong third-quarter results and an improved outlook. However, the stock continues to underperform the broader market, reflecting several challenges the bank faces. This article will explore the reasons behind NatWest Group's underperformance and discuss potential strategic moves the bank can make to improve its market position and stock performance.

Underperformance Factors

1. Impact of the Financial Crisis: NatWest Group was one of the major casualties of the financial crisis, and it took several years for the company to recover from the crisis. The company was bailed out by the UK government in 2008, and it was not until 2014 that the company returned to profitability.
2. Reduced Dividend Payments: In response to the financial crisis, the company reduced its dividend payments to shareholders. This reduced the income that shareholders received from the company, which may have contributed to the underperformance of the stock.
3. Government Ownership: The UK government owned a majority stake in NatWest Group for several years, which may have limited the company's ability to make strategic decisions and invest in growth opportunities. The government began selling its stake in the company in 2015, but it was not until 2025 that the government fully exited its ownership position.
4. Operational Challenges: NatWest Group faced several operational challenges in recent years, including a major IT outage in 2012 and a series of mis-selling scandals. These challenges may have contributed to the company's underperformance compared to the broader market.
5. Market Sentiment: The broader market sentiment may have also contributed to NatWest Group's underperformance. The company operates primarily in the UK market, which has faced several economic challenges in recent years, including Brexit and the COVID-19 pandemic. These challenges may have negatively impacted the company's performance and the broader market sentiment towards the company.

Dividend Policy and Stock Performance

NatWest Group's dividend policy has had a positive impact on its stock performance. The company has consistently paid dividends to its shareholders, with the exception of a brief period during the COVID-19 pandemic. This consistency has provided a stable income stream for investors, making the stock more attractive.

For example, in 2024, NatWest Group declared an interim dividend of 6p and a final dividend of 11.5p, representing a total dividend of 17.5p for the year. This is a significant increase from the previous year's total dividend of 10.5p. The company's dividend growth rate has been impressive, with a compound annual growth rate (CAGR) of 25.93% over the past five years.

The company's dividend policy has also contributed to its strong stock performance. NatWest Group's share price has increased by +92.64% in the last 52 weeks, and the stock has a dividend yield of 5.71%, which is higher than the average dividend yield of 4.3% for the FTSE 100 index. The company's dividend policy has also contributed to its strong earnings growth, with earnings per share (EPS) increasing by 31.56% in 2023 compared to the previous year.

Strategic Moves for Improvement

NatWest Group can consider several strategic moves to improve its market position and stock performance. Here are some key areas to focus on:

1. Mergers and Acquisitions (M&A): NatWest Group can explore strategic M&A opportunities to expand its market share, enter new markets, or acquire complementary businesses. The CEO has mentioned that the bank will look for "strategically congruent" and "financially compelling" M&A opportunities. For example, NatWest Group could consider acquiring smaller regional banks or financial technology (fintech) startups to enhance its digital capabilities and reach new customer segments.
2. Digital Transformation: To stay competitive in the rapidly evolving financial landscape, NatWest Group should continue to invest in digital technologies and innovation. This could involve:
* Enhancing mobile and online banking services to improve customer experience and convenience.
* Developing new digital products and services to cater to the needs of tech-savvy customers.
* Leveraging data analytics and artificial intelligence to improve risk management, fraud detection, and customer insights.
* Exploring partnerships with fintech companies to stay at the forefront of digital banking trends.
3. Cost Optimization: NatWest Group can identify and eliminate unnecessary costs to improve operational efficiency and profitability. This could involve:
* Streamlining operations and reducing overhead costs.
* Negotiating better terms with suppliers and vendors.
* Implementing process improvements and automation to increase productivity.
4. Diversification: To reduce reliance on a single market or product line, NatWest Group can diversify its revenue streams by:
* Expanding into new geographic markets, either organically or through M&A.
* Entering new business segments, such as wealth management, insurance, or asset management.
* Offering new products and services, such as sustainable finance, ESG investing, or green mortgages, to cater to evolving customer preferences.
5. Talent Acquisition and Retention: Attracting and retaining top talent is crucial for NatWest Group's long-term success. The bank can:
* Offer competitive compensation and benefits packages.
* Provide opportunities for professional development and career growth.
* Foster a positive work culture that values diversity, inclusion, and collaboration.
6. Sustainability and ESG: Incorporating sustainability and ESG factors into NatWest Group's business strategy can help the bank appeal to socially conscious customers and investors. This could involve:
* Developing green finance products and services.
* Implementing sustainable business practices and reducing the bank's carbon footprint.
* Engaging with stakeholders on ESG-related issues and reporting on progress.
7. Branding and Marketing: Enhancing NatWest Group's brand and marketing efforts can help the bank differentiate itself from competitors and attract new customers. This could involve:
* Investing in targeted marketing campaigns to reach specific customer segments.
* Leveraging digital marketing channels to engage with customers and build brand awareness.
* Partnering with high-profile events, sports teams, or influencers to increase visibility.

By focusing on these strategic moves, NatWest Group can improve its market position, enhance stock performance, and create long-term value for shareholders.