Chairman of NatWest's U.S. Unit Says It's Improving, Won't Be Sold
NEW YORK - National Westminster Bancorp is slowly turning the corner from recent heavy losses and is out from under the threat of being sold, said John Tugwell, its chairman and chief executive.
Mr. Tugwell, who is also a director of the London-based parent, National Westminster Bank PLC, said in an interview that cost controls and lower loan-loss provisions will help keep losses in the third and fourth quarters below those in the first half.
But Mr. Tugwell warned that he does not expect a return to profitability until 1992, given uncertain economic conditions and evidence that further bad-debt charges will be needed.
These are likely to be concentrated in National Westminster Bank USA, the U.S. holding company's principal subsidiary in New York.
A reduction in lending, which is expected to shrink the U.S. company's balance sheet by as much as $1.5 billion by yearend, from $23 billion at the end of June, will also strip out some of the loan-generated fee income, Mr. Tugwell said.
"There is a dearth of good lending opportunities," he said. "That's where we need help from a recovery in the economy."
The U.S. operation lost $85 million in the second quarter and $191 million in the first quarter.
Reuters reported from
National Westminster Bank PLC's recent issues of preference shares have temporarily eased pressure for a rights issue to increase capital. But analysts say the threat could resurface if an economic recovery is delayed.
NatWest raised more than $510 million this month in sterling and dollar preference shares. But this has not dispelled the possibility of a rights issue, said Hugh Pye at Robert Fleming Securities.
Concerns About Capital
Mr. Pye said that despite the preference share issues NatWest's Tier 1, or core, capital lags behind that of its closest competitors, Barclays PLC and Lloyds Bank PLC.
To comply with capital adequacy ratios of the Bank for International Settlements. Tier 1 capital must total at least 4% of certain risk-weighted assets. The preference share issues will raise NatWest's Tier 1 ratio to about 5.4% from 5%.
But there are fears that the ratio could fall back close to 5% - considered a bare-minimum comfort level - by the end of the year, under the pressure of losses in the second half and some expected balance-sheet growth.
Fears May Be Durable
Fears that a further issue might be required "won't go away until the market feels comfortable about NatWest's earnings recovery," said analyst Graham Jinks of BZW in London.
"The banks need to have lending capital for the other side of the recession," said analyst Richard Coleman at broker James Capel. "NatWest's preference share issues add weight to their claim that they have no plans for a rights issue, but one cannot rule out this possibility."
Mr. Coleman said one way NatWest might be likely to avoid the need for a rights issue would be to dispose of its Irish subsidiary, Ulster Bank Ltd. The unit "is not part of NatWest's strategy," he said. A sale could provide as much as $600 million in capital. [Tabular Data Omitted]