Financial Results

RBS Continues To Review Private Banking Business Strategy; Confirms H1 Profits Rose Sharply

Tom Burroughes Group Editor London 1 August 2014

RBS Continues To Review Private Banking Business Strategy; Confirms H1 Profits Rose Sharply

Royal Bank of Scotland said today it was continuing to review the shape of its private banking business that includes Coutts, and that this process is due to end later in 2014.

Royal Bank of Scotland, still majority-owned by the UK government, said today it was continuing to review the shape of its private banking business that includes Coutts, and that this process is due to end later in 2014.

Meanwhile, it said private banking operating profit was £145 million ($244.6 million) in the first six months of this year, up sharply from £88 million a year earlier. Such figures had been announced in late July; today's figures added more detail.

Operating profit delivered a return on equity of 15.0 per cent. Excluding restructuring costs, adjusted operating profit increased by £55 million and the adjusted return on equity was 15.3 per cent, driven by improved income, lower expenses and lower impairments.

Total income was £14 million (3 per cent) higher, RBS said in a statement today. Net interest income increased by £27 million due to a combination of improved deposit margins following a re-pricing exercise in the UK and lower treasury charges. Non-interest income declined by £13 million, reflecting the impact of adverse foreign exchange movements and lower transactional activity in the international business.

Total expenses fell by 8 per cent to £400 million. Adjusted expenses were down £34 million (8 per cent) at £397, million reflecting savings from the streamlining of the property footprint, favourable foreign exchange movements, reduced headcount and the continued management of discretionary costs.

The number of private banking employees held unchanged at 3,500 at the end of June. Assets under management were £28.7 billion at end-June, up from £28.5 billion at end-March. The cost/income ratio was 73 per cent, down from 81 per cent a year earlier. Client assets and liabilities, RBS said, fell 1 per cent from the prior quarter, entirely caused by a £700 million cut in deposits following the UK re-pricing and outflows in the international business. Assets under management rose due to positive market movements; lending was largely flat.

As announced on 27 February, RBS reorganised its structure into three divisions. Coutts and its sister private banking operations sit within the Commercial & Private Banking division; the other two new divisions are Personal & Business Banking and Corporate and Institutional Banking.

The review of the private banking operation – as Coutts has businesses in a number of countries, including Switzerland and the Asia region – has prompted rumours that the bank might spin off some of these concerns. When asked about the matter a few weeks ago, the bank told this publication that this was pure speculation.

In its results statement today, Coutts said: "The private banking business continues to invest in expanding its product offering in response to client demand for global, integrated solutions. Enhancements in the first half of 2014 included the introduction of an around-the-clock weekday dealing capability for foreign exchange products, serving Coutts’s UK and international client-base. We are currently reviewing our strategy, focusing on options for our non-UK related activities. The review is expected to complete later in the year."

Ever since RBS was bailed out by the then-Labour UK government amid the financial crisis over five years ago, there has been speculation over the future of Coutts as part of the RBS stable.

The international arm has clients in Asia, the Middle East and Europe, with offices in Hong Kong, Singapore, Abu Dhabi, Qatar, Dubai, Geneva, Zurich and Monaco.

Last year, this publication worked with Coutts on a major report exploring how private banks can better serve the large independent wealth management market in Switzerland.

Across all the RBS divisions, the bank reported a profit before tax of £2.652 billion for H1 2014, up from £1.374 billion in H1 2013, driven by more favourable credit conditions and good results from RBS Capital Resolution, with a consequential beneficial impact on capital ratios. Operating profit for the period was £2.601 billion, up from £708 million in H1 2013.


In June this year, it was reported that German customs authorities had seized two containers containing more than 14,000 files on account holders from the Cayman Islands arm of Coutts’s Swiss operation as part of a wider investigation into the financial affairs of German nationals.

The bank had confirmed to this publication that the containers had been seized as they were en route to a secure storage facility in Switzerland from the Cayman Islands, where the bank recently closed its offices. More than 1,000 cartons, containing 14,000 files, were seized from a ship in Hamburg harbour that was on its way to the company’s data centre in Geneva. Coutts said the shipment of the papers was in line with its document retention policies and that there was no reason to believe that the contents of the container had been interfered with.

Last year, Coutts took the decision to sell its Cayman trust book of business as part of a strategic review by the private bank to dispose of certain non-core trust businesses and focus on its international trust business in Jersey.

In a further statement to this publication, Coutts said: "Coutts Cayman has recently wound down its office in Grand Cayman and papers from the office are being shipped to our other European offices for safe storage. We have been informed that some of these papers have been seized by customs officials in Germany, but we are not aware of any investigation into our trust company or the papers themselves. We are taking legal advice on how to protect the interests of our clients and are working with the authorities to allow the papers to continue to their final destination."

DOJ Programme

In August 2013, the Department of Justice announced a programme for Swiss banks to settle the long-running dispute between the US tax authorities and Switzerland regarding the role of Swiss banks in concealing the assets of US tax payers in offshore accounts. The programme provides Swiss banks with an opportunity to obtain resolution, through non-prosecution agreements or non-target letters, concerning their status in connection with the DOJ's investigations. Coutts told the DOJ that it intended to take part on the possibility that “some of its clients may not have declared their assets in compliance with US tax laws”.

“The programme required a detailed review of all US-related accounts. The results of Coutts & Co Ltd's review were presented to the DOJ in June 2014. The DOJ has extended, until 31 July 2014, the deadline for programme participants to complete the collection of evidence of the tax status of their US related account holders. The DOJ has also extended, until 15 September 2014, the deadline to collect evidence of those US related account holders also participating in an offshore voluntary disclosure programme.”

Coutts said it is also in the process of contacting clients about the results of the review of its past business practices over whether clients were sold unsuitable products, following a move by the Financial Conduct Authority, the UK regulator, to carry out a thematic review of advice in UK wealth management.

Coutts said its own review continues and where needed, it will offer redress to clients in the appropriate cases.

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