The private banking and wealth arm of NatWest is battling to recover its fortunes after the impact of the "de-banking" saga that erupted in the summer. The UK's FCA has also issued a report talking about potential "regulatory breaches."

The profit of NatWest Group’s private banking business – Coutts – slid by almost half in the third quarter of 2023 to £59 million ($71.5 million) from £101 million at the end of June, and down from £139 million a year earlier. 

There were no net asset under management inflows in the latest quarter – a period coinciding with the “de-banking” affair in which Coutts and its parent group were accused of closing an account of former UKIP leader Nigel Farage for reasons of political bias. NatWest’s CEO Alison Rose and Coutts’ chief executive Peter Flavel both resigned.

The “de-banking” case, which also raises issues around the treatment of politically exposed persons, and the correct way for banks to close a client’s account, have caused political shock waves and prompted calls for changes to how lenders operate. Today, the UK's Financial Conduct Authority, which has reviewed these matters, said the case had “highlighted potential regulatory breaches.”

In other detail, UK-listed NatWest Group, which is 40 per cent owned by the UK taxpayer, said total income at its wealth arm in Q3 fell to £214 million from £285 million a year earlier. Operating costs rose to £157 million from £138 million. Its cost/income ratio rose sharply to 73.4 per cent from 48.4 per cent. Return on equity has slumped to 11.7 per cent from 31.8 per cent.

Total assets under management and administration rose to £38.2 billion at the end of September from £33.34 billion at the end of December 2022.

At group level, NatWest said it logged a pre-tax profit of £1.332 billion in Q3, up from £1.086 billion a year before. Total income rose to £3.488 billion from £3.229 billion.

Paul Thwaite, the new NatWest CEO, issued an upbeat statement that did not refer to the de-banking saga directly: “Today's Q3 2023 results show that NatWest is a strong bank which is performing well, generating sustainable profits and returns. This performance is built on the foundations of strong customer franchises and a robust balance sheet with high levels of liquidity and a well-diversified loan book. As a result, credit losses and impairments remain low and we are ready and able to stand by our customers and businesses through the current economic uncertainty.”

The lender said its Common Equity Tier 1 ratio of 13.5 per cent was in line with the position at 30 June 2023. 

NatWest said it is expecting to achieve a return on tangible equity for the Group of 14 to 16 per cent.

FCA statement
The regulator said that, as stated before, “we have been intensifying supervisory work in relation to NatWest Group and Coutts since the widely reported events earlier this year.”

“We have reviewed the findings of the initial independent report, commissioned by NatWest, into decisions on potential account closures and data protection breaches. This report, and additional information we have considered, has highlighted potential regulatory breaches and a number of areas for improvement,” it continued. 

These areas of “improvement” include: 

-- The firms’ processes, systems and controls for how they consider potential closure of accounts and handle complaints from their customers; 

-- The allocation of responsibilities and effectiveness of the firms' governance mechanisms; and 

-- In recent weeks, we have confirmed to both firms that we are now reviewing how the firms’ governance, systems and controls are working to identify and address any significant shortcomings.

This supervisory work will include using the FCA's statutory information gathering powers, interviews with relevant bank staff and reviews of appropriate policies or procedures.

The FCA said its review “will also include how these issues may impact on the wider fair treatment of customers.”