The government could kick off a sale of NatWest shares to the general public as early as June but there are warnings that lower tax thresholds could take away much of the benefit of backing the bank.
Holger Vieten, director of UK Government Investments (UKGI), the company responsible for government investments, told MPs this week that the process "potentially could happen" as early as June.
It means the retail offer, open to ordinary investors, could take place before the general election.
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Vieten said UKGI had hired advisers, including legal and banking experts, to work out options for the share sale before a proposal would be presented to ministers.
The Treasury is rumoured to be planning to announce the share sale alongside its Spring Budget this week.
Ministers are said to be keen to sell part of the state’s holding in the high-street bank to retail investors before the summer break, following the selection of a permanent chief executive.
Paul Thwaite, NatWest’s interim chief executive, took over from Dame Alison Rose when she stepped down in the wake of the Nigel Farage debanking row. His one-year appointment means he is set to lead the bank until at least July.
Chancellor Jeremy Hunt said in last year’s Autumn Statement that a NatWest retail share offer could happen in 2024, as the government was committed to exiting its shareholding, “subject to market conditions and sales representing value for money”.
The Treasury has a 35% stake in the bank, down from a peak of 84% in 2008.
Any NatWest retail offer is expected to include a discounted share offer, evoking the “Tell Sid” privatisations of the 1980s.
But investment platform AJ Bell has warned that the share offer could launch just as dividend and capital gains allowances are reduced, giving small shareholders an unexpected tax bill.
How would a NatWest retail share offer work?
The Treasury has previously said it intends to fully exit its shareholding in NatWest by 2025/2026. It could utilise a range of disposal methods, including accelerated bookbuilds and directed buybacks with NatWest and also via continuing sales through the ongoing trading plan.
It also said, last autumn, that it would explore options to launch a share sale to retail investors within the next 12 months.
Richard Hunter, head of markets at interactive investor, tells MoneyWeek: “Details of any share offer remain sketchy. Any comments from the government seem to suggest that a retail offer could ignite share ownership among younger people, for example, as opposed to the current cryptocurrency fad.”
He adds: “Any offer would inevitably have to be at a discount to the current share price to entice investors, and subject to the risk warnings that owning shares in individual companies brings (as opposed to funds, for example, where a basket of shares diversifies the risk).”
Should you buy NatWest shares in the retail offer?
The government's plan to sell shares in NatWest to retail investors at a discounted price offers potential opportunities, but investors must weigh various factors.
Sam North, market analyst at eToro, comments: “While the share price has risen over the last few weeks, there is still a significant decline in NatWest's shares over the past year, influenced by weak financial results and controversies involving former executives, underscoring the importance of evaluating the bank's current stability and recovery prospects.
“Additionally, the impending appointment of a permanent CEO and the government's commitment to fully privatise NatWest by 2026 are crucial considerations for investors.”
NatWest is currently trading at around 246p per share. “This is up off of its lows seen in October last year, when it traded around 168p. However, not too long ago, back in January last year, it was trading as high as 313p,” notes North.
Hunter points to a decline in the net interest margin (the profit between lending to investors and paying interest on deposits), which has disappointed investors.
NatWest shares have fallen by 28% over the past year. “It appears that after years of virtually nil returns on cash balances, investors have been actively seeking higher rates of interest on their savings elsewhere,” says Hunter.
A discounted share price may seem attractive, and there will likely be lots of marketing and fanfare when the NatWest retail offer launches.
But investors should look beyond the discount, and consider whether holding NatWest shares is actually a good investment. As well as considering the health and future prospects of the bank, they should factor in the economic and market conditions, as well as the trends in the banking sector.
North comments: “Investors should balance the discounted pricing opportunity with a comprehensive analysis of NatWest's financial health, leadership stability, and the risks associated with its industry and regulatory environment. From a sentiment point of view, traders and investors might well keep a close eye on 200p per share as a ‘line in the sand’.
“As long as the price trades above it, investors will generally feel comfortable owning the firm; however, if we start trading below it for any reason, sentiment can swiftly shift for the worst.”
It’s also important to understand how any government sale will work, and pay close attention to the small print of the retail offer.
According to Hunter, the market consensus for the shares remains positive “given the robust nature of the bank’s balance sheet and the possibility of more shareholder returns”. NatWest also offers a sector-beating 7% dividend yield.
Even if details of share offer materialise this week, AJ Bell warns it could result in a tax raid for investors.
The capital gains tax allowance is set to be cut from £6,000 to £3,000 from the new tax year in April, while the dividend allowance will drop to £500.
Anyone who invests more than £7,460 in the prospective NatWest share offer outside of an ISA faces paying tax on their dividends as the current yield of 6.7% will use up all of the £500 dividend allowance in place from April, AJ Bell warns.
On a £10,000 investment in NatWest, a higher rate taxpayer faces a dividend tax bill of £1,385 over the next 10 years if they haven’t used up their dividend allowance elsewhere.
If they have other dividends using up their allowance, that tax bill rises to £3,073, the investment platform said.
“The chancellor announced plans for a public sale of NatWest to much fanfare in the Autumn Statement last November, claiming that ‘it’s time to get Sid investing again," says Laith Khalaf, head of investment analysis at AJ Bell, comments:
“What he didn’t mention is the cuts he has made to the dividend and CGT allowances will leave many small shareholders with a bigger tax bill if they invest in companies like NatWest."
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