After an intensive programme of upgrading, Coutts has seen a satisfying payback for its makeover- it ranks as the largest private bank in the UK, overhauling long-time rival Barclays Wealth. So, how did the fusty old biddy Coutts transform herself into a svelte supermodel? John Evans sits down with Coutts CEO, Rory Tapner, to find out more.

Just over three years ago, RBS bravely swept aside the old leadership at Coutts in an initiative fundamentally to shake up the London private bank. That decision, taken when the tailwinds of the global financial crisis was still stressing balance-sheets, has more than fulfilled the vision of its architects to take Coutts firmly into the 21st century.

Coutts has just outstripped Barclays to become the largest of the British private banks, measured by assets under management. Independent data compiled by PAM Insight shows that, at end-2012, Coutts had £51.7 billion versus £50.2 billion for Barclays Wealth, traditionally the leading advisory firm in the UK.

It’s clear the bank has become a very sale-able asset, judged by the feelers put out by those who would love to buy Coutts and make it the centre-piece of their own wealth management ambitions.

Still, Rory Tapner, the Coutts CEO hired three years ago for the makeover task, tends to downplay that switch at the top of the league tables.

"I think it is more important to look at the quality, rather than sheer quantity of the business," he told Private Banker International. Barclays has some 800,000 customers compared with our 70,000 in the UK – "So it’s obvious our clients are significantly more wealthy."

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In fact, Coutts may redouble efforts to attract clients with higher investible assets. Last year it raised its assets threshold to £1 million from around £500,000 in order to make more money from advisory.

Now, says Tapner, the bank may look at raising that figure again.

Would he move to a £2 million or even a £5 million client assets test? "I’m not going there," the Coutts head says carefully. "But the whole (wealth) industry is under pressure to cut costs and drive revenues, and share-of-wallet, however it can."

Rory Tapner himself was recruited from a senior role with UBS in Asia to take on the Coutts top job, joining in August 2010.

He speedily recruited a cadre of top performers, including putting veteran banker Michael Morley in charge of Coutts UK and bringing in marketing boss Ian Ewart, formerly of Barclays, to help set in motion a thorough-going overhaul of Coutts.

Tapner says there was "more to fix than I had imagined," not only at Coutts itself but because the whole advisory industry was in a state of flux as new regulations came into force. That included rules like conduct risk and, in particular, the Retail Distribution Review.

"All this took an enormous amount of time," he recalls. Coutts can now boast of some £2.7 billion under advisement in RDR-compliant advisory, understood to be one of the largest figures in the industry.

One of the first decisions taken by the new executive team was to simplify the geography of the business, reducing the spread of coverage internationally, partly as cross-border regulation became more onerous. The Latin American business was sold and Coutts largely exited from Africa.

(Coutts takes quiet satisfaction in noting that rivals like HSBC, Barclays and Credit Suisse have been similarly contracting their geographic coverage of late, cutting out countries where it’s not economic or prudent to do business).

Overall, Coutts has cut client coverage in 100 countries. Tapner says he is looking to extend this to about another 20 territories.

That compares with the 180 countries which the bank had originally been servicing. At the same time, Coutts has been investing significantly in markets with much greater potential, such as parts of Asia and the Middle East.

Next, Coutts decided it was offering too many products and services, often with no real return on these operations. It honed down the total offering and put its investment management and asset allocation business "more at the centre of the advisory business," building on its traditional strong banking operations.

Coutts insiders say that meant pretty aggressive sorting out of advisers and bankers to hit the new requirements on performance. Tapner himself is on record as saying he wanted to "put pressure" on staff to meet Coutts’ new ambitions.

"We’ve been identifying our best leaders and upskilling existing talent by introducing targeted succession and development programmes. While we have hired over 2,000 new employees during the last three years, we have also lost a similar number through a combination of retirements, resignations and redundancies," says Tapner.

He emphasises: "Our organisation is more strategically aligned to our business plan and a lot stronger, today."

In fact, total staff levels are now slightly higher – up around 3.5%- since Tapner took the helm.

A centrepiece of the Coutts transformation has been the fundamental upgrade of technology and rationalising 27 operating systems down to one core system, so wiring up the whole bank coherently and enabling increasing digital contact with clients.

The platform chosen was Avaloq – a system, which Tapner asserts, makes Coutts rugged from an IT standpoint even though the bank is only at 50% optimisation with "still some way to go."

He explains: "I am now future-proof on technology, and the quality and resilience of our risk systems, asset allocation model and the like. There is a whole raft of things we can now do."

That includes reaching out to clients via their mobile devices and related touch points.

Coutts has just launched enhancements to its mobile service, which now provides clients with access to their investment portfolios, in addition to banking services. The investment capability will be available to clients using the Coutts app – which was launched last year – and via tablet and desktop.

Clients will see their investment overview updated on a daily basis, allowing them to contact Coutts to undertake a trade or change their investments mix.

For Tapner, digital channels will be a key to the future of private banking, as it encounters increasing amounts of regulation and measures to protect investors as well as meeting the demands of clients for ‘private banking in their pocket’ mobile services.

"All this regulation means that we, as advisory companies, will all tend to have similar advice models and similar products. Therefore, the industry will be differentiated more by levels of service and by the channels employed to get to our clients.

"And that means you will see more digital channels, built around skilled human advisory services," Tapner says. He would not be surprised to see as much as 30% of the client-adviser interface will be "digitalised" within five to 10 years.

This implies, the Coutts chief says, "that private banking services will be better managed in the future by smaller, more responsive and proactive smaller firms, employing all the current and future digital touch points, rather than by the big, bureaucratic industry giants."

Finally, Tapner takes pride in putting lustre on the Coutts brand, one of the most visible in the global wealth business.

"Frankly, the brand had become tired and too traditional, in the sense of not changing. What we’ve done represents a refreshing of what the Coutts brand stands for, not only as an historic business, but one that also encompasses a really modern responsive private bank."

(Within Coutts, it’s felt that two potential blows to the brand – settling a controversial case with high-profile clients like Sir Keith Mills, the airlines investor, over their AIG premier bonds investments, and the UK regulatory fine of £8.7 million relating to flawed money laundering controls – were largely legacy issues from the past, rather than causing brand damage).

Despite the cost of investment in its upgrades, Coutts continues to generate healthy profits for its parent. The RBS wealth division, of which Coutts is the chief component, posted an operating profit of £172 million for the first nine months of 2013 compared with £167 million for the year-ago period.
Total net interest income for the division, generated primarily from the banking side, reached £816 million for the first nine months of the year, down 9% year on year, reflecting lower spreads on a number of deposit products. Non-interest income, from the investments side, was 5% lower as market volatility led to a decrease in investment income.
Over the past three years, all this high pressure change, Tapner confesses, has "rather exhausted the organisation…."

He concludes, "We’ve not only had to change Coutts but do a mountain of preparation and training for incoming regulation at the same time. Everyone at Coutts has a lot to be proud of. Perhaps it’s time for the management of the organisation to do a little less, now we have equipped all our staff to take us forward…

"For (Coutts) is in much better shape than two or three years ago."


So, is Coutts really for sale?

Recurrent speculation has it that Coutts could be sold off as parent RBS seeks a range of assets to divest and strengthen its capital position.

Based on its current £513 billon of client assets under management, the private bank could be worth as much as a very useful £2.5 billion-£3.0 billion to RBS.

And it’s no secret that Coutts has had a number of quiet approaches to see if it were available to a suitable purchaser at the right price.

"Coutts is not for sale," says Rory Tapner bluntly, noting that this stance that has been taken publicly by RBS CEO Ross McEwan.

He adds, "If you ask me whether Coutts is a much more valuable asset nowadays to RBS, I would say yes. Is it a company today now regarded as a business in its own right, yes. Does that mean a sale, no, certainly not in the foreseeable future."

In fact, Coutts was a vastly valuable funding channel for RBS at the height of the financial crisis when analysts suggest that the bank was daily shipping up to a net £20 billion to Edinburgh from its deposit-gathering base. That figure has now shrunk back to more normal levels.

None the less, it underlines the Coutts value to RBS should the financial crisis again break out as a result of factors like chronically weak banks in the Eurozone.

What is clear is that RBS plans an accelerated divestment of its US banking arm, Citizens Financial Group. An initial stake in Citizens will be sold in the second half of 2014 and the rest by the end of 2016. RBS’s original plan had been to launch an initial public offering in 2015.

But if a Citizens’ IPO is not possible to get away or investors turn bearish on US regional banking assets, then Coutts is an obvious candidate to be put forward as a jewel of an asset sale.

Chancellor George Osborne, it is understood, would be supportive of such an initiative.