RBS Considers Sale Of International Wealth Arm

Tom Burroughes

12 August 2014

, which operates under that brand in jurisdictions in Asia and Switzerland, among others. Other wealth management brands of RBS include Adam & Co, a Scottish-based bank that also has offices in London. Coutts is one of the most renowned banking names in the UK, dating back to late 17th century and famed as the bank used by the UK monarch.

Profits in the first six months of 2014, as reported here, have risen sharply at the wealth arm of RBS, with assets under management broadly steady and the cost/income ratio below wealth management industry averages, at 73 per cent. (The global average is around 83 per cent, according to Scorpio Partnership, the consultancy.)

A possible sale comes as some banks, which expanded into foreign fields in the years before the financial crisis, have found the business of managing overseas operations more burdensome recently as compliance and related costs have mounted. In other cases, banks haven’t felt they reached the critical mass of business to justify outlays, which is why, for example, Morgan Stanley has sold parts of its non-US wealth arm. Societe Generale sold its Asia private banking arm to Singapore-headquartered DBS earlier this year. Bank of America has spun off its international wealth business outside the US to Julius Baer. A broader issue is that RBS, which was bailed out by the-then Labour-led government in the depths of the financial crisis, is under pressure to return to full financial health as soon as possible, enabling the government to sell its majority stake. A similar process is under way at Lloyds Banking Group, in which the government holds a large minority stake.

The move will inevitably fuel speculation about whether private banking operations are best handled under the umbrella of a larger organisation, or as pure, standalone vehicles. At rival UK bank Barclays, that firm has recently folded its wealth management arm into a broader segment of the bank, and it no longer reports discrete results on the wealth business. By contrast, HSBC has reportedly stated it intends to keep its private banking arm as a separate unit.

International targets
RBS feels it will be tough a return on equity of more than 15 per cent on its international wealth management business; that operation accounts for around 41 per cent of client assets and liabilities and 35 per cent of revenues. At the UK arm, meanwhile, RBS said in its memo that it is confident of further strong growth and potential to boost return on equity. At present, the UK represents 59 per cent of customer assets and liabilities and 65 per cent of revenues in the banking group’s business.

RBS has been reviewing its wealth management units since February this year, stirring inevitable industry speculation. RBS wants a more strategic focus on the UK and will continue to serve UK resident non-domiciled clients. Options might include merging the rest of the current Coutts International business, joint ventures or a sale, “thereby reducing RBS’s footprint internationally”, the RBS memo said.

As far as the management structure is concerned, the wealth executive committee will operate as before; Rory Tapner, CEO of the wealth business, will continue to chair that committee and report to Alison Rose, who is CEO, Commercial and Private Banking at RBS.

“There are no immediate changes for individuals in these businesses and it is important that we continue to work together to deliver for our customers, and to focus on making RBS the most trusted bank," the memo, signed by Rose, and Les Matheson, CEO, personal and business banking, said.

(Editor’s comment: This announcement comes at what is already an unsettling time in wealth management, given a flurry of M&A transactions worldwide. This publication has questions on how any sale/joint venture/other options will proceed, and when. The Coutts brand is a powerful one in some jurisdictions – any sale, for example, would presumably involve an attempt to keep that brand. We’ll be working hard to keep readers informed about developments in coming weeks. It is essential that the firm conveys a clear message on what it wants to do so as to reassure existing clients and attract new ones.)