Coutts gets serious about strategy
RBS has called in lawyer Denise Kingsmill to conduct a review
Royal Bank of Scotland has asked its adviser Baroness Denise Kingsmill to review strategy at Coutts, one of Britain’s best-known private banks, to help it compete in a challenging environment.
Kingsmill, a lawyer, is a former deputy chairman of the Competition Commission. She has conducted reviews of business for the UK Government, is a director of British Airways and chairman of construction firm Laing O’Rourke.
A Coutts spokeswoman said Kingsmill will work with Andrew Haigh, who is tasked with attracting first-generation wealthy individuals. These comprise a third of the bank’s 60,000 high net worth UK clients. To brush up on their skills, Coutts’ entrepreneur team last week attended a training course at Cranfield Business School.
The capture of first-generation business helps explain a 16% rise in net income at Coutts in the year to last December, when operating profits rose 30% to £413m (€518m).
But one analyst said: “A brand like Coutts should be producing much more. RBS should invest more in the business or sell it.”
According to some of Coutts’ clients, a strategy review is overdue. One said: “They are good on administration, but they never try to sell me anything which is, perhaps, a little surprising.”
On a minor, but telling note, he, along with other clients, was irked by Coutts’ decision to send its clients account cards produced by fashion designer Stella McCartney.
The bank’s chief executive Sarah Deaves wanted to court a nascent group of 25 to 45-year-old wealthy women who might find McCartney’s pink, blue and floral design appealing.
Understandably so – a study by the Centre for Economic Business Research estimated that 53% of millionaires are likely to be female by 2020.
But its floral design was not universally popular. One Coutts’ client – a male, Norfolk landowner – received the account card and was appalled at the design.
He sent it back and asked for a more conservative version, but was refused.
A Coutts spokeswoman said: “Coutts is very proud that one of the best of British designers, Stella McCartney, designed the account card. The contemporary card takes on many of the intricacies of bank notes, the Coutts cheque book and aspects of the British countryside into its contemporary design.
“At the launch of the card, a survey among Coutts’ clients showed that response to the unique design was very positive.”
Another client said Coutts was becoming increasingly commoditised. He said: “Coutts is rapidly becoming like a high street bank. The personal service is disappearing.”
He said that when he went overdrawn by a small amount, the bank sent him a letter saying it would charge 25% interest a month until the outstanding sum was cleared.
When he spoke to a senior private banker at Coutts, he was told that a computer system automatically sends out a letter when clients become overdrawn. The bank has been losing relationship managers to rivals, although analysts said that staff turnover has been high across the industry.
Individuals who have closed accounts this year have gone to Dresdner Kleinwort, Goldman Sachs, Investec and Credit Suisse.
Last week, Credit Suisse hired Jeremy Hippolite, who had been a senior specialist in private banking at Coutts. He joins his former Coutts colleagues Nick Keenan and Mark Lucas.
Coutts strategy involves expansion in Asia, where it doubled its client growth last year. It has sent banker Paul Davies to India to head its newly acquired ABN Amro private-client business and oversee its integration with the rest of the group.
Coutts has confirmed that it plans to cut entertainment costs and develop client education workshops which it says has seen increased demand from clients desperate to navigate the difficult markets.
In deciding the extent to which it can invest in Coutts, Royal Bank of Scotland will be held back by its own financial condition. Last month it was forced to raise £12.3bn from a rights issue to patch up a balance sheet damaged by exposure to bad credit.
Chief executive Sir Fred Goodwin warned that RBS faces a period of “almost exclusively bad news” as a result of sector problems. He is trying to sell RBS’s insurance businesses for £7bn to raise finance and analysts say a sale of Coutts would not be out of the question, even though RBS has always said the two should stay together.
Goodwin said second-quarter trends are in line with the bank’s expectations set out in April, although he said: “While we remain very much open for business, our risk appetite is tempered by a cautious stance in relation to short-term economic factors and market conditions.”
The growth of Coutts’ UK client base fell from 9% in 2006 to 7% last year. However, its Asia-Pacific business has seen exponential growth with 13% customer acquisition in 2006 and 27% last year.
Stella McCartney
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