Back in August, NatWest (LSE:NWG) shares hit multi-year highs. Yet since then, the stock has trended lower, and fell 8.14% last week alone. The sentiment shift has been noticeable, with the share price now flat over the past year. But the immediate question to answer is why is everyone suddenly selling the stock?
Underwhelming results
In the short term, a lot of the selling pressure came from the latest quarterly results that came out last week. It reported operating pre-tax profits of £2.23bn, up just 1.9% from the same period last year. This was broadly in line with expectations, but represented weaker profit growth than that delivered by several major UK banking rivals.
However, the biggest concern was the outlook for net interest income. Management expects its net interest margin to remain broadly stable at 2.5% into 2027, whereas analysts had anticipated further improvement.
This suggests competition for mortgages and deposits is putting pressure on profitability. With investors expecting earnings upgrades, management’s decision to simply reaffirm existing guidance triggered a sharp move lower.
A tough outlook
Another factor why I think people are selling NatWest shares is the uncertain outlook. The UK Budget last week introduced an increase in the banking surcharge from 3% to 6% for 15 months, starting in January 2027. Given NatWest’s heavy exposure to the domestic market, this represents an additional burden on future profits.
Further, credit quality is worth monitoring. Impairment charges increased to £277m in the third quarter, almost double the previous quarter’s figure. Although the loan book remains relatively resilient, weaker economic growth and rising unemployment could lead to further losses.
There’s also uncertainty surrounding interest rates. The Bank of England committee is likely to raise interest rates before the end of the year. The elevated borrowing costs from this action could put pressure on households and businesses.
Not all doom and gloom
Despite these concerns, I wouldn’t write off NatWest. For a start, some value buyers could see this move lower as a dip worth buying. The drop in the stock has caused the valuation to be much more attractive. For example, the price-to-earnings ratio is now 9.34. In my book, anything below 10 is considered good value.
There was also good news to be taken from the recent results. For example, total income increased 7% year on year to approximately £4.6bn in the third quarter. Meanwhile, the bank continues to improve efficiency, generating around £420m in gross cost savings during the first nine months of 2026.
Its acquisition of Evelyn Partners also provides an opportunity to expand wealth management operations, potentially reducing reliance on traditional lending income.
Overall, I think NatWest remains a fundamentally profitable business, but it’s clear that the investment outlook has become less compelling. Therefore, I’d rather allocate my money elsewhere.
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Jon Smith has no positions in the shares mentioned.
This story originally appeared on Motley Fool
