IAG losses mount, NatWest beats expectations on lower impairments

“Amid some volatility the FTSE 100 is lower on Friday, down 0.4% to 5,559.59 in early trading following a mixed set of updates from the big technology companies in the US,” says AJ Bell Investment Director Russ Mould.

“US futures are already pointing to falls on Wall Street later and this is impacting on sentiment with global markets on course to chalk up their worst weekly showing since March.

“Weakness in sterling, with a continuing lack of visibility on the Brexit outcome, spared the FTSE from bigger falls with NatWest the top riser on better than expected third quarter numbers.

“Oil prices recovered some ground but still remain well below $40 per barrel as the market prices in another hit to demand from further national lockdowns. The stakes continue to rise ahead of the OPEC meeting in a month’s time.

IAG

“British Airways owner IAG is, like the rest of its industry, facing an existential crisis. If it was a jet plane IAG would effectively be spluttering away on a single engine and with a new pilot in the cockpit too in the form of incoming CEO Luis Gallego.

“Nobody could have imagined at the start of 2020 that aviation would effectively be grounded for months at a time, with demand outside of that at a fraction of previous levels, thanks to a global pandemic.

“However, that is where we are. All IAG can do is hunker down in survival mode and hope that improvements in testing, treatment and delivery of the long hoped for vaccine can chart its path out of this crisis.

“The problem for IAG and other airlines is that they incur huge costs even when planes are not in the air and stand to lose millions or even billions when passenger volumes are this depressed.

“On the flip-side if they take out too much capacity they could find their ability to recover materially compromised.

“The question in the short term is whether the money raised in September’s rights issue will be enough to see the company through the current turbulence.”

NatWest

“The rehabilitation of NatWest, formerly Royal Bank of Scotland, in the wake of the financial crisis has taken so long that the company has found itself still in the recovery room as the next big crisis hits.

“More than half of its shares remain in public hands and a return to full privatisation seems as far off as ever.

“In the immediate future, and like its peers, the outlook is somewhat better than had been feared with impairments coming in at the lower end of guidance and the company receiving a boost from a pick-up in lending.

“However, whether the situation can remain this way as UK joblessness grows is another question and, in fairness, it is one which the bank acknowledges.

“Profitability is already fairly weak thanks to ultra-low interest rates, it might not take much to tip the bank into a loss.

“The destiny of its dividend depends on a decision by the regulator – expected before the end of the year – at least here NatWest can point to probably the most generous capital buffer in the sector. Though, whether that will be enough to sway the decision in such an uncertain environment remains to be seen.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.