NatWest (LON: NWG) share price crashed by over 2% on Wednesday after the disappointing earnings by Barclays. The stock plunged to its lowest point since January 24th as the focus shifts to the company’s earnings scheduled for Friday. Other UK bank stocks like Barclays, Lloyds, and Standard Chartered were also in the red.
London banks had a difficult day on Wednesday after Barclays’ earnings missed analysts’ forecasts. The company’s net income crashed to £1.04 billion as investment banking revenue declined. It also attributed the weak performance to a costly US trading blunder, which led to litigation charges of about £1.6 billion.
Therefore, British banks like NatWest are falling because of the close correlation that exists between companies in the same industry. However, I believe that investors are overreacting. For one, Barclays UK saw its profit jump by 13%.
NatWest and Lloyds Bank are significantly different from Barclays since their business focus is domestic. Also, they mostly focus on consumer and corporate lending. They don’t have an investment banking division.
Therefore, as we have seen from similar banks like Deutsche Bank and Barclays UK, there is a likelihood that NatWest will publish strong results. These results will be helped by the rising interest rates in the UK and the fact that delinquencies have been relatively muted. Besides, the unemployment rate remains at a low of 3.4%.
In its most recent results, the company said that its operating profit rose to £4 billion while profit attributable to investors rose to over £2 billion. For the group, net interest income jumped to over £2 billion.
NatWest, like other UK bank, faces the challenge of the current state of the economy, with most analysts expecting a recession. However, I think that these recession concerns are a bit exaggerated for now. Therefore, the bank has a strong balance sheet and is set to publish strong results.
The NatWest stock price has been in a remarkable comeback since October last year. This rally seems to be fading now that the stock has formed what looks like a double-top pattern around the 300p level. The down-gap formed on Wednesday made it move below the 50-period and 25-period moving averages.
On the positive side, the shares remains above the ascending trendline shown in black. This line connects the lowest points since October. The stock is also at a psychologically-important point. Therefore, the stock will likely retest the uptrend at 290p and then resume the bullish trend.
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