- Bonus cap removal assumes a healthy finance sector
- Regulatory safeguards can be easily upended by a sudden crisis
One of most cataclysmic times of my professional career was watching the slow immolation of the UK banking system between the first profit warning from HSBC (HSBA) on US sub-prime mortgages in early 2007, to seeing the lines of customers queueing up outside the Moorgate branch of Northern Rock in September 2007 before the final twilight of RBS in October 2008. The fall of RBS continues to be a traumatic and hurtful memory, so much so that the name itself has disappeared as the official brand of a revived NatWest (NWB).
There were disturbing, if faint, echoes of that time after a recent cautious trading update from NatWest caused a double-digit share price fall. The biggest difference, which is maybe a sign of basic progress, is that this time around nobody was questioning the bank’s basic solvency. In other words, NatWest’s high capital buffers, ringfenced structure and generally simplified business model have the confidence of its depositors and counterparties, which means the actions of the share price are related purely to its performance in the context of market and economic conditions.