City Wire By Dylan Lobo
RBS’s private banking business has swung deeply into the red as litigation and conducts costs relating to Coutts mount.
According to an interim update from the bank, the private banking business registered a loss of £50 million in the second quarter versus a £145 million profit in the corresponding period of 2014.
Private bank assets under management were £1.6 billion lighter on the previous year at £27.1 billion, which the group attributed to the ‘Greek financial crisis adversely impacting European stock market indices and reducing portfolio values’.
The bank put the profit reversal down to ‘higher restructuring, litigation and conduct costs’, along with the transfer of its Private Banking RBSI business to commercial banking on 1 January. The business accounted for £31 million of profit in the first half.
The transfer of the business, which will also impact income in the second half, fell from £545 million to £421 million. Revenue was also negatively impacted by lower income from hedging activities and a fall in transactional income.
Operating expense increased £74 million to £474 million, reflecting an £80 million increase restructuring costs arising from the writedown of intangible asset worth £82 million,
It was also forced to fork out £28 million to cover litigation and conduct costs rising, the bulk of which were incurred in the second quarter.
These cost include the Department of Justice’s (DOJ) investigation into the role of Swiss banks in concealing the assets of US taxpayers in offshore accounts.
The DOJ launched a programme in August 2013 offering private banks with Swiss operations to obtain a resolution, which Coutts participated in.
‘Coutts continues to co-operate with the DOJ pursuant to the terms of the programme. Coutts expects to reach resolution with the DOJ in 2015 under the terms of the programme,’ the bank said, adding: ‘RBS has made appropriate provision based on its estimate of exposure arising from this programme/review’.
RBS has also set aside a provision to cover a separate German investigation into Coutts’ Swiss arm to determine whether its current and former employers had aided and abetted the tax evasion by certain clients.
RBS struck a deal to sell Coutts’ international business to Union Bancaire Privée in March.
Meanwhile RBS has also had to store cash to compensate clients after an extensive review into the suitability of advice provide by Coutts.
‘This review is ongoing. Coutts & Co is in the process of contacting clients and redress is being offered in appropriate cases.’
Recent reports have also suggested that investors, including former Lazard chairman Ken Costa, have kickstarted a legal battle against Coutts and a number of other banks for the role they played in encouraging them to invest in film investment schemes.
Coutts has also recently restructured its management team, creating a new executive committee reporting into chief executive Michael Morley.