City Watches As Coutts' Reign Over Banking For The Super Rich Hangs In The Balance

Amanda Banks, Tax-news.com, London

23 March 2001

Coutts has long reigned supreme throughout the world as the bank for the elite super-rich. But the Queen's bank is in danger of letting its crown slip as the competition hots up from imposters such as the US investment bank Goldman Sachs. According to an article featured in the Independent newpaper this week, Goldman Sachs and others have decided that it is time for Coutts to relinquish that which it has kept to itself for the last three centuries - wealth management.

Coutts' monopoly on managing the cash of the very rich, namely those who have a minimum of £500,000 to bank, has been assisted by Britain's antiquated financial regulations and the London Stock Exchange's paper-based system of share registration. However, the advent of internet share dealing and the creation of a single financial regulator in the shape of the Financial Services Authority, have paved the way for more investment banks to move in on the 'wealth management' market.

Dubious lending strategies pursued under its former owners, NatWest, led Coutts into loss, and the bank was forced to call in management consultants in 1997. The bank is now just starting to return to profitability thanks to new strategies they introduced. Chief Executive of the bank, Andrew Fisher, one of the original consultants brought in to breathe life back into the ailing bank, has launched an amazing 87 new initiatives, including providing each Coutts customer with a personal banker to advise on a full range of investment products. Mr Fisher told the Independent: 'We could double our customer base overnight, but we'd halve our service. This business is not all about winning new customers, it's about serving our core customers.' But he did not forget to add that customer numbers have risen by 12 per cent since the bank got back on track.

For Coutts, all competition will be viewed as unhealthy competition: the bank has experienced such poor performances in the last decade that it is still in a state of recovery and competition is the last thing it needs. Things are now looking better for Coutts with its new strategy on track, and a new owner - NatWest was bought out by the Royal Bank of Scotland last year - but analysts in the City aren't going to take bets on Coutts retaining its top 'wealth management' slot just yet. Goldman Sachs has joined forces with Lloyds TSB, Merrill Lynch has teamed up with HSBC, and they all want in on private banking for the affluent.

It is just bad timing for Coutts that last year's fashion for e-banking has given way to the fad for 'wealth management' just when it was recovering. Hew van Steenis, an analyst at JP Morgan, said: 'Private banking is a great business to be in. As small proportion of people can provide access to a huge amount of assets. And unlike the mortgage market, customers don't change their bank on a daily basis. Technology is allowing banks to provide premium services to the mass market. That's what the whole buzz is about.'

John-Paul Crutchley, an analyst at Merrill Lynch, summed it up for Coutts when he explained: 'It's an undefined market but a lot of resources are being thrown at it. Coutts has a head start, and a very strong customer base, but it's not really a scaleable business. It is hard for Coutts to attack the mass market without diluting a brand based on cachet and privacy.'

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