NatWest Markets Plc (NWG) Q1 2026 earnings review
Profits Halve as Fixed Income Slumps and Tech Costs Bite
NatWest Markets (NWM) reported a severely deteriorating quarter, with profit plunging 53% YoY to a razor-thin £28 million. While the broader NatWest Group has celebrated simplification and growth, the Markets division is suffering from negative operating leverage. Total income fell 10% YoY to £356 million, dragged down by a collapse in Fixed Income. Concurrently, operating expenses surged 9% YoY due to heavy tech investments. To compound the earnings squeeze, the balance sheet bloated by £29 billion in a single quarter, pushing up Risk-Weighted Assets (RWAs) and suppressing the leverage ratio.
🐂 Bull Case
Despite global volatility, Capital Markets and Currencies showed stable, accelerating growth, bringing in £194m and £161m respectively. NWM successfully supported clients' risk management needs during USD strengthening.
Funding is not an issue. The Liquidity Coverage Ratio (LCR) expanded to a massive 204%, and the bank smoothly raised £2.6 billion via Euro and US Medium Term Notes.
🐻 Bear Case
Fixed income revenue reversed sharply, falling 69% YoY to £20 million. Geopolitical tensions paralyzed customer volumes rather than stimulating profitable trading.
As revenues fell by £38 million YoY, operating expenses (excluding litigation) rose by £43 million. This negative operating leverage destroyed bottom-line profitability.
⚖️ Verdict: 🔴
Bearish. The core business of market-making is currently trapped between falling top-line volatility (Fixed Income) and rising structural costs (Tech investments). The bloated balance sheet limits future return on equity.
Key Themes
Fixed Income Revenues Reversing
Fixed Income suffered a dramatic deceleration, dropping from £64 million in 25Q1 to just £20 million in 26Q1. Management cited geopolitical tensions and lower customer volumes. While Q1 is typically a seasonally strong quarter for trading desks, NWM missed the boat, highlighting vulnerability to macro shocks.
Balance Sheet Bloat Contradicts 'Discipline' Narrative
Management's opening remarks tout maintaining 'discipline on risk, costs and balance sheet deployment.' The data contradicts this: Total Assets spiked by £29 billion (+17%) in just three months to £197.4 billion. This inflation—driven by FX derivative volatility and trading assets—pushed RWAs up by £0.7 billion and dragged the Leverage Ratio down from 5.0% to 4.7%. The bank is deploying substantially more balance sheet for half the profit.
Tech Investments Squeeze Thin Margins
Other operating expenses jumped £43 million YoY (+15%) to £334 million, entirely offsetting the £13 million YoY reduction in legacy litigation costs. This structural cost inflation is driven by NatWest Group's broader push into 'Agentic AI' and technology infrastructure. In a quarter where revenues are shrinking, these fixed tech costs are crushing NWM's margins.
Capital Markets Growth
Capital Markets continues to be the reliable engine, accelerating steadily from £181 million in 25Q1 to £194 million in 26Q1. The division is successfully capturing primary issuance demand, offsetting the weakness in secondary trading.
Currencies Navigates Volatility Well
While Fixed Income struggled with macro tensions, the Currencies desk capitalized on it. Revenues are stable and slightly accelerating, printing £161 million (up from £147 million in 25Q4 and £158 million in 25Q1), driven by strong USD volatility and client risk management demand.
Flawless Execution of Funding Plan
Despite market turbulence, NWM accessed public markets flawlessly, issuing £2.6 billion in Q1 (including a $2.3B US MTN and a €1.0B Euro MTN). Average Liquidity Coverage Ratio (LCR) expanded to a fortress-level 204%, securing the base for future lending and trading operations.
Litigation Headwinds Receding
A silver lining in the expense line: Litigation and conduct costs dropped to £19 million (down from £32 million YoY). With the DOJ monitorship relating to historical US Treasuries spoofing previously paused, the legal overhang is becoming a smaller drag on the bottom line.
Other KPIs
Stable but slightly down from 18.4% in 25Q4. The minor deceleration was driven by an increase in Market and Counterparty Credit RWAs, somewhat offset by organic capital generation. Remains vastly above regulatory minimums.
Accelerating aggressively. Up £29 billion sequentially. Driven by a £10.5 billion jump in Trading Assets (securities and reverse repos) and elevated derivative fair values connected to the strengthening US Dollar.
Guidance
Stable. The company retained its capital guidance provided in the 2025 Annual Report. With CET1 at 18.3%, NWM remains extremely well-capitalized relative to the broader NatWest Group's target of 13-14%.
Key Questions
Fixed Income Strategy
Fixed income revenue collapsed 69% YoY. Is this purely a cyclical result of clients stepping back during geopolitical uncertainty, or is NWM losing market share to larger US peers?
Tech ROI Timeline
Operating expenses surged £43 million YoY due to technology investments. Given the broader group's push into AI, when will NWM see these investments translate into tangible cost reductions or revenue enhancements?
Balance Sheet Velocity
Total assets spiked £29 billion this quarter, dragging down the leverage ratio. How much of this is passive derivative mark-to-market versus active capital deployment, and what is the plan to optimize the balance sheet in Q2?