Last updated: 15:28 / Wednesday, 13 August 2014
Focus On UK Market

RBS Considers Sale Of International Wealth Arm

RBS Considers Sale Of International Wealth Arm
  • A big issue is how to deal with the US cross-border tax issue, which proved a sticky problem in the recent sale of BSI, by Generali, to BTG Pactual
  • A possible sale comes as some banks have found the business of managing overseas operations more burdensome recently as compliance and related costs have mounted

Royal Bank of Scotland is considering selling its Coutts International business, among options that the UK-listed firm – mostly owned by the UK taxpayer – is considering as it intensifies its focus on the domestic market, according to an internal memo seen by Tom Burroughes, Group Editor in London, News Analysis.

A spokesperson for RBS, when asked about media speculation, said there is as yet no firm deadline on when any decision over the international business’s future will be made.

"It is no surprise that RBS is thinking of selling the international arm of Coutts. It does not fit with the new UK centric strategy and management realise, that if it does not invest in the business, then the value of the franchise will decline. While some kind of management buy-out/private equity transaction cannot be ruled out given the `capital lite' nature of wealth management, the branding issue may mean that the better option for all parties is for a trade sale," Christopher Wheeler, analyst at Mediobanca, told the publication.

"However, whichever route is followed, a big issue is how to deal with the US cross-border tax issue, which proved a sticky problem in  the recent sale of BSI, by Generali, to BTG Pactual," he added, referring to Coutts' Swiss business.

For weeks, there has been speculation that RBS might sell off the international arm of Coutts, which operates under that brand in jurisdictions in Asia and Switzerland, among others. Other wealth management brands of RBS include Adam & Co, a Scottish-based bank that also has offices in London. Coutts is one of the most renowned banking names in the UK, dating back to late 17th century and famed as the bank used by the UK monarch.

A possible sale comes as some banks, which expanded into foreign fields in the years before the financial crisis, have found the business of managing overseas operations more burdensome recently as compliance and related costs have mounted. In other cases, banks haven’t felt they reached the critical mass of business to justify outlays, which is why, for example, Morgan Stanley has sold parts of its non-US wealth arm. Societe Generale sold its Asia private banking arm to Singapore-headquartered DBS earlier this year. Bank of America has spun off its international wealth business outside the US to Julius Baer. A broader issue is that RBS, which was bailed out by the-then Labour-led government in the depths of the financial crisis, is under pressure to return to full financial health as soon as possible, enabling the government to sell its majority stake. A similar process is under way at Lloyds Banking Group, in which the government holds a large minority stake.

The move will inevitably fuel speculation about whether private banking operations are best handled under the umbrella of a larger organisation, or as pure, standalone vehicles. At rival UK bank Barclays, that firm has recently folded its wealth management arm into a broader segment of the bank, and it no longer reports discrete results on the wealth business. By contrast, HSBC has reportedly stated it intends to keep its private banking arm as a separate unit.

International targets

RBS feels it will be tough a return on equity of more than 15 per cent on its international wealth management business; that operation accounts for around 41 per cent of client assets and liabilities and 35 per cent of revenues. At the UK arm, meanwhile, RBS said in its memo that it is confident of further strong growth and potential to boost return on equity. At present, the UK represents 59 per cent of customer assets and liabilities and 65 per cent of revenues in the banking group’s business.

RBS has been reviewing its wealth management units since February this year, stirring inevitable industry speculation. RBS wants a more strategic focus on the UK and will continue to serve UK resident non-domiciled clients. Options might include merging the rest of the current Coutts International business, joint ventures or a sale, “thereby reducing RBS’s footprint internationally”, the RBS memo said.

As far as the management structure is concerned, the wealth executive committee will operate as before; Rory Tapner, CEO of the wealth business, will continue to chair that committee and report to Alison Rose, who is CEO, Commercial and Private Banking at RBS.

“There are no immediate changes for individuals in these businesses and it is important that we continue to work together to deliver for our customers, and to focus on making RBS the most trusted bank," the memo, signed by Rose, and Les Matheson, CEO, personal and business banking, said.