Queen's Banker Casts Wide Net for Clients as Brexit Takes Toll

(Bloomberg) -- 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 Group Plc, is wooing business owners that bank with NatWest, the commercial banking 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. And Coutts, a 327-year-old firm that still employs butlers to serve tea to clients in its London offices, has even started hosting receptions where its bankers can schmooze with 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 officer, 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 just 0.5% to 384 million pounds ($466 million), compared to the same period in 2018. Operating income was essentially flat at 155 million pounds.

Coutts had been on a roll the last three years as Flavel executed a turnaround plan after the divestment of the international unit. In 2018, the private bank division doubled its operating profit, and its return on equity has increased to 16.6% from 7.8% in 2016, a sign it's doing a better job of managing its capital.

But the uncertainty around Brexit and the possibility that leftist firebrand Jeremy Corbyn could unseat the Conservatives in a general election has rattled many affluent investors and led to a decline in new business ventures, real estate projects, and other financial activity. Yesterday, the Bank of England cut its growth outlook for the U.K. economy this year to 1.3% from 1.5%.

Despite the slowdown this year, Flavel said Coutts is making progress on converting commercial banking customers into private banking clients. For the last 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 13%, and a fifth of them were NatWest commercial customers. New Coutts clients must still have at least 1 million pounds to invest.

"There are more potential Coutts clients in the commercial bank than we have as a whole at private bank right now," said Flavel, who developed the strategy with Alison Rose, the head of RBS's commercial and private banking division and 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 Plc, to lead Coutts' international arm. Flavel said wealthy investors in the U.S. 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 6.5%, to 14.7 billion pounds in the first half of the year, and that was primarily driven by mortgages.

As for 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 U.S. and China."

To contact the reporter on this story: Edward Robinson in London at edrobinson@bloomberg.net

To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Keith Campbell, Marion Dakers

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