Company Profiles

INTERVIEW: Coutts' CEO Says Tradition, Cutting-Edge Tech Should Prove Winning Formula

Tom Burroughes Group Editor London 16 January 2017

INTERVIEW: Coutts' CEO Says Tradition, Cutting-Edge Tech Should Prove Winning Formula

A blend of tradition, modern technology and solid investment performance is a recipe for success at a bank that is emerging from a period of upheaval, its CEO tells this publication.

Almost a year ago, one of the most high-profile private banking executives in Asia swapped the balmy airs around the equator for the more bracing climate of northwest Europe and started as chief executive of Coutts.

Peter Flavel, a native Australian, took the helm at the UK lender almost a year ago, having been chief executive for Asia private banking at JP Morgan, and, before that, head of private banking at Standard Chartered. He joined the blue-blooded UK bank at a time when its parent, Royal Bank of Scotland, had spun off parts of the non-domestic business of Coutts to Geneva-headquartered Union Bancaire Privée. The changes have reinforced the image of Coutts as a distinctively “British” bank with an unashamed appeal as a traditional institution, albeit one also embracing new trends in financial technology.

Coutts is one of the best-known brands in private banking; even people unfamiliar with the sector have heard of it and know it as the bank used by the Queen. But Flavel said he has been surprised about some aspects of Coutts – in a positive way.

“There has been outstanding investment performance at Coutts,” Flavel told this publication in a recent interview at the bank’s offices in The Strand, in London’s West End. The main funds of the bank have chalked up first-quartile performance over one- and three-year periods, he continued. Meanwhile, deposit inflows have been strong, as is the case for investments generally, Flavel said. Coutts’ globally oriented Tailored Portfolio Service solutions are first quartile compared to peers over one and three years across all strategies, up to the end of December 2016.

Flavel spoke shortly after a new strategic plan for Coutts was agreed by its board. Asked about the recent structural changes - such as the sale of some non-UK private banking units by state-owned RBS to Geneva's Union Bancaire Privée in 2015 - Flavel said that “we are very much in charge of our own destiny here”.

As for many private banks, recent economic conditions have been tough on banks because of forces such as ultra-low interest rates, which hit margins. RBS is still majority-owned by the UK government, which bailed it out in 2008 amid massive losses. Such a saga clearly has raised questions about the future shape of the group, and about whether certain business areas will be hived off.

Even so, the wealth business of RBS in the UK has been broadly a positive story. According to its most recent results, for the third quarter of 2016, RBS said private banking assets under management increased by £3.1 billion to £16.6 billion, reflecting market and underlying growth. Investment cash balances were included in assets under management for the first time in Q3 2016. Excluding this, growth was £1.7 billion.

The bank has been able to thrive by not losing sight of the core, and crucial transactional side, of its operations, and through its lending, particularly in complex cases. “That part of the bank is able to deliver brilliant transactional banking, and a 24-hour service,” Flavel said.

Recent changes
Among recent changes, as exclusively revealed last November by this news service, Coutts invited staff to apply for voluntary redundancy as part of an efficiency drive that targeted a cut of around 5 per cent of a workforce of about 1,600 people. Coutts and Scotland’s Adam & Co make up the private banking operations of UK-listed RBS. Across all private banking, about 1,800 staff are employed; it is understood that Adam & Co is not part of the voluntary redundancy programme, so about 1,600 are affected.

Such changes, while not easy, are part of a trend of private banks and other lenders having to squeeze efficiency gains and focus on areas where they can achieve the most value. Other changes last year saw Coutts sell its Jersey-based trust and company administration services business in a management buyout deal. In May 2016, Coutts announced plans to close a third of its branches in England amid new delivery systems and changing client preferences about where the bank does business. The bank retains 14 regional offices across England and Wales.

Flavel wants to strike a balance between nourishing the heritage of Coutts and keeping the bank ruthlessly relevant in a digital age. That blend of a desire to stress quality, heritage and modern technology explains why, for example, the bank’s marketing campaign has seen it sponsor the BAR team in the America’s Cup yacht race series. The Cup is the world’s oldest, and arguably most famous, sailing competition, but it is also renowned for cutting-edge technology. Being associated with such a campaign is a smart fit for the bank. Another sign of how modern tech is very much part of the bank, Flavel said, was CouttsID, a UK banking first which draws on the latest technology to engage the user’s IOS or Android smartphone as an authentication device, providing prompt access to Coutts Online and allowing for the approval or rejection of online payments. In an age when cybercrime and security lapses are frequent front-page news, Coutts’ managers know they must have up-to-date systems that are also easy for clients to use.

Coutts will invest a “significant” sum in upgrading and developing new technologies for banking in coming years, Flavel said, although he declined to give a specific financial figure. With banks and other financial institutions creating “innovation labs” and pushing into areas such as artificial intelligence and blockchain technologies, Flavel knows his organisation needs to stay out in front.

Some years ago, Coutts was something of an innovator through its thematic approach to client segmentation, such as with its sports, media and entertainment client group, for example. How is the segmentation approach continuing to work, in Flavel’s eyes? “I think it allows real specialisation of client coverage. Groups have clear, mature experts and this is demonstrated by the number of people who have named us as their bank. We understand, for example, the value of intellectual property, the lumpy cashflows and others issues for people in sports, media and entertainment,” he said.

Coutts’ private office - its service for ultra-high net worth clients - remains an important offering; there is also the “Coutts Club” network of wealthy clients who use this network to explore investment and transaction opportunities.

As a new year gets under way, with the UK adjusting to the reality of eventual Brexit and the US presidency moving into the hands of Donald Trump, wealth managers will have to show their value in providing high-calibre service in sometimes testing periods. Flavel seems confident that a bank founded 325 years ago this year still has what it takes to do precisely that.

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