When to buy shares in NatWest, Britain's worst bank

Rising interest rates should lift profits for the banking sector if inflation doesn’t get out of control, says Bruce Packard.

Barclays Bank & HSBC bank offices at Canary Wharf
There will be a brighter outlook for banks if commodity prices fall
(Image credit: © Alamy)

It’s hard to believe now, but UK banks’ share prices had a strong start to the year, up between 15% and 25% until mid-February. They reported results for the financial year ending December 2021 at the end of last month, with no obvious problems. We saw profits rebound and outlook statements suggest improving revenue and further capital returns to shareholders in the form of dividends and share buybacks. Then Russia invaded Ukraine and NatWest’s, HSBC’s and Lloyds’ share prices fell by more than 20% from their 2022 highs. Barclays has been hit even harder, down 30%. They have since rallied somewhat, but still remain down by between 12% (HSBC) and 22% (Barclays).

Direct exposure to Russia plays little part in this. UK banks have $3bn exposure to the Russian financial system, according to the Bank of International Settlements (BIS). While $3bn may sound like a lot of money, Austria (mainly Raiffeisen) has six times more exposure at $18bn. French (mainly Societe Generale) and Italian banks (Unicredit and Intesa Sanpaolo) have eight times more exposure at $25bn each. Societe Generale has said that it would be able to withstand the extreme scenario of having its Russian bank confiscated by the authorities, but so far banks have admitted losses that are in the tens of millions, not tens of billions.

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Bruce Packard
Contributor

Bruce is a self-invested, low-frequency, buy-and-hold investor focused on quality. A former equity analyst, specialising in UK banks, Bruce now writes for MoneyWeek and Sharepad. He also does his own investing, and enjoy beach volleyball in my spare time. Bruce co-hosts the Investors' Roundtable Podcast with Roland Head, Mark Simpson and Maynard Paton.