Operating Profits Dip At Wealth Arm Of Royal Bank Of Scotland

Tom Burroughes

27 February 2014

, the bank that is majority-owned by the UK taxpayer, announced its wealth arm – including the Coutts private bank – logged operating profit before impairments of £250 million ($416.5 million) in 2013, down from £289 million a year before.

In the fourth quarter of last year, the profit was £61 million, down from £92 million from a year earlier, the bank said in a statement today.

The wealth arm reported an operating profit of £221 million, down from £243 million; its interest margin narrowed to 3.56 per cent at the end of last year, down from 3.73 per cent at end-2012. The wealth business employed 4,800 people at the end of 2013, down from 5,000 at the end of September.

The cost/income ratio of the wealth business was 75 per cent at the end of last year, up from 68 per cent a year before. Return on equity was 10.9 per cent, down from 16.7 per cent. Total assets under management – excluding deposits – were £29.7 billion, down from £30.5 billion at the end of September 2013, but up 3 per cent from a year earlier.

“Client assets and liabilities managed by the division declined by 2 per cent, with a £1.7 billion reduction in deposits following re-pricing initiatives in the UK in line with the wider group funding strategy,” the bank said.

“Following the deposit re-pricing strategy implemented in the second half of 2013 deposit margins have significantly improved. Lending volumes have remained resilient despite pay-downs in line with best-advice policy under RDR. In addition, a new international trust strategy was announced, strengthening the client offering by positioning it as a market-leading, client-centric trust business.
This was achieved by the creation of a centre of excellence in Jersey, accompanied by withdrawal from the Cayman Islands and restructuring of the Geneva trust business,” the statement said.

Strategy
As part of a move to overhaul the banking group as a whole, RBS said it is shrinking its current seven segments into three: Personal & Business Banking, Commercial & Private Banking, and Corporate & Institutional Banking. In the Commercial & Private Banking segment, the firm is targeting a return on equity of 15 per cent or more.

At the overall group level, RBS reported a pre-tax loss of £8.243 billion, including regulatory and redress provisions of £3.844 billion, and impairments and other losses of £4.823 billion related to the creation of RBS Capital Resolution.

Loss attributable to shareholders was £8.995 billion.

Excluding the impact of the creation of RCR, the operating profit was £2.520 billion, a fall of 12 per cent from 2012, it said.

RCR was set up from 1 January this year to manage a pool of £29 billion of assets with “particularly high capital intensity or potentially volatile outcomes in stressed environments" – in other words, assets likely to be hit in tough times such as a recession or slide in the markets.

RBS said its Core Tier 1 ratio was 10.9 per cent at 31 December 2013. On a fully loaded Basel III basis, the Common Equity Tier 1 ratio was 8.6 per cent.

As previously announced, RBS provided £1.91 billion in the final three months of last year to cover claims and conduct-related matters related to issues such as mortgage-backed securities; regulatory and litigation provisions for all of 2013 amounted to £2.394 billion, it said. Another £465 million for payment protection insurance redress and related costs was booked in Q4 2013.