Outlook: Long wait worth it for Wanless

IT SEEMS like an awfully long time since Derek Wanless was able to stand up and deliver a set of NatWest results without simultaneously having to dodge the brickbats. Yesterday, there was barely a projectile in sight for the chief executive to negotiate.

First-half profits nudged past the pounds 1bn mark, the shares put on 10 per cent and, while NatWest's return on equity is still not in the Lloyds TSB class, nor does it any longer resemble a rude noise in polite company.

It is still too early to declare NatWest back to full health after last year's annus horribilis, when the exit from investment banking left behind a pounds 700m hole in the profit and loss account. But the business is clearly at a turning point.

Not surprisingly, Mr Wanless and his chairman Lord Alexander were in chipper mood. The only thing that tended to wipe the smile off the latter's face was harmless questioning about the succession. Since everyone has known for ages that Lord A is being succeeded by Lord B it remains a minor mystery why NatWest insists on waiting until next April's agm to annoint James Blyth formally as its new chairman.

Shorn of the distractions of all those highly paid investment bankers, NatWest has rediscovered that its core UK retail banking business contains a powerful franchise. It has the biggest share of the small and medium- sized business market, 6.5 million personal account holders, a third of the credit card market and a mortgage book which grew faster in the first half than either Abbey National's or Halifax's.

Once Mr Wanless has finished building his new retail bank, it will have 200 fewer branches, 10,000 less staff and 55 brand spanking new operating centres. Provided he can re-educate customers to use these remote locations for their run-of-the-mill transactions he will have the best of both worlds: the the presence of a high street bank and the economies of a telephone bank.

There may even be opportunities to leverage more business out of its business customer base for Greenwich NatWest, the renamed rump of its investment banking arm, and NatWest Wealth Management, perhaps better known as Coutts, and the fund management business Gartmore.

It still looks a tall order to achieve a return on equity of 20 per cent from the Greenwich Natwest, given that it is only achieving 7 per cent now and will never have the fire-power of its bigger rivals.

But size is not everything. NatWest's comparative lack of exposure to Asia and the pensions mis-selling scandal mean that it has been able to escape big provisions this time around. In fact the balance sheet could comfortably accommodate a pounds 700m return of capital to shareholders.

Lord Alexander has had plenty of time to plan for his departure since he said right from the start that he would do 10 years in the job. Just imagine what a swansong it could have been had NatWest realised sooner where its strengths lay.