We’ve seen a big sell off today ahead of this week’s full year numbers from NatWest on the news that the bank is buying wealth manager Evelyn Partners for £2.7bn, while announcing a £750m share buyback for Q4, with the prospect of the next one being pushed into to H1 27.
This suspension of further buybacks into the fiscal year 2027 appears to have prompted a sharp sell-off in the share price, which seems somewhat counterintuitive.
Of course some of this share price weakness could well be due to some profit taking ahead of this week’s full year results, with the suspension of further share buybacks into 2027 also a factor.
While some analysts have suggested that returns for investors will be less attractive from the M&A than keeping buybacks. prompting some of today’s share price weakness, this seems incredibly short-sighted.
If you want to return capital to shareholders, management can either increase the dividend or invest in the business. In my opinion buybacks are a symptom of a management that is lazy and lacks ideas, whereas investing in the long term future of the business should add value if done correctly.
Look at HSBC and the initial share price reaction to the announcement back in October, that they were suspending buybacks to buy the remaining stake in Hang Seng.
We saw an initial sharp sell off but now the shares are significantly higher, which suggests that in the long term shareholders saw value in the move.
In buying Evelyn Partners, NatWest appears to be going down the same route as Lloyds Banking Group with their acquisition of Schroders, and investing in wealth management and diversifying their business model.
They are also more than doubling their assets under management (AUM) which should add significant profitability gains if managed correctly, along with any synergies the bank chooses to make once the deal has completed.
Source: https://www.fxstreet.com/news/natwest-share-price-slides-in-wake-of-evelyn-deal-202602091437
