Wednesday 18 September 2019

Queen's banker Coutts forced to cast client net wider as political volatility increases

The private banking arm of Royal Bank of Scotland is Queen Elizabeth’s banker
The private banking arm of Royal Bank of Scotland is Queen Elizabeth’s banker

Edward Robinson

Coutts & Co, the Queen's banker, is getting less genteel about chasing new clients in Brexit Britain. As the pound falls and political volatility rises, Coutts, the private banking arm of Royal Bank of Scotland, is wooing business owners that bank with NatWest, the commercial division of RBS.

The institution is also pursuing more overseas customers, four years after it sold its international business to the Swiss firm Union Bancaire Privee.

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The private banking arm of Royal Bank of Scotland is Queen Elizabeth’s banker
The private banking arm of Royal Bank of Scotland is Queen Elizabeth’s banker

And Coutts, a 327-year-old firm that still employs butlers to serve tea to clients in its London offices, has started hosting receptions where its bankers can meet electronic gamers, YouTube stars and other online phenoms who are now making millions.

"There's been a significant change in our mindset and culture," said Peter Flavel, Coutts' chief executive, in an interview.

This new push is intensifying as growth slows down at RBS's private banking arm, which includes the smaller franchise Adam & Co.

In the first half of the year, the division's revenue inched up by just 0.5pc to £384m (€420m), compared with the same period in 2018. Operating income was essentially flat, at £155m.

Coutts had been on a roll in the previous three years, as Flavel executed a turnaround plan following the divestment of the international unit.

In 2018, the private bank division doubled its operating profit, and its return on equity has increased to 16.6pc from 7.8pc in 2016, a sign that it is doing a better job of managing its capital. But the uncertainty around Brexit and the possibility that British Labour leader Jeremy Corbyn could unseat the Conservatives in a general election have rattled many affluent investors, and led to a decline in new business ventures, real estate projects, and other financial activity.

Earlier this month, the Bank of England cut its growth outlook for the UK economy this year to 1.3pc from 1.5pc.

Despite the slowdown this year, Flavel said Coutts is making progress on converting commercial banking customers into private banking clients.

For the past three years, Coutts bankers have been working closely with their counterparts at NatWest to sign up clients who may need wealth management services as they prepare to sell their businesses, retire, or make other life-changing financial decisions.

In the first half of the year, Coutts and Adam & Co increased their roster of new clients by 13pc, and a fifth of them were NatWest commercial customers. New Coutts clients must still have at least £1m to invest.

"There are more potential Coutts clients in the commercial bank than we have as a whole at the private bank right now," said Flavel, who developed the strategy along with Alison Rose, the head of RBS's commercial and private banking division and the deputy CEO of NatWest Holdings.

To win more foreign clients, Flavel recently hired Stephen Richards Evans, the former head of ultra-high-net-worth and private banking at Standard Chartered, to lead Coutts' international arm.

Flavel said wealthy investors in the US and Asia are increasingly eyeing bargains in the British property market as sterling has plunged to its lowest level against the greenback since January 2017.

Coutts' net loans to customers increased by 6.5pc, to £14.7bn, in the first half of the year, and that was primarily driven by mortgages.

As for new prime minister Boris Johnson's commitment to take Britain out of the European Union in October with or without a transition deal, Flavel said Coutts is advising anxious clients to keep their eye on economic indicators, not political ones.

"Those come and go," Flavel said. "We're telling our customers to focus on economic growth, especially in the US and China."

Bloomberg

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