On Monday, shares of The Royal Bank of Scotland Group plc (RBS) dipped 2.32% to close at $11.38, following rumors of sale of the bank’s international arm of Coutts wealth management unit. The news was first reported by Financial Times.
The Royal Bank of Scotland is expected to vend the international operations of Coutts, though it would hold back the UK part of Coutts. The latest move of the state-controlled bank comes on the heels of its plan to refocus on its domestic operations by reducing global and investment banking activities. Notably, it has been rumored that RBS plans to offload Citizens Bank in the US later this year and might vend Ulster Bank in Ireland.
Royal Bank of Scotland is anticipated to vend, merge or enter into a joint venture for Coutts International for about £500 million. The bank is skeptical about its strategic plan of achieving more than 15% return on equity as profit margins are reducing and the international business is gradually becoming costly.
More than 100 Swiss private banks are under probe by the regulators over doubt surrounding illegal activities related to tax evasion. Zurich-based Coutts is also under the same purview and is expected to reach a settlement in the next few months. However, the Royal Bank of Scotland might enter into a deal to sell Coutts but will be liable to pay penalty. Notably, around two years ago, Coutts paid £8.75 million as fine for money-laundering offences.
Coutts International with 1,200 employees posted £67 million of operating profit in 2013. The unit comprises about 41% of customer assets and liabilities and 35% of RBS' wealth unit revenues.
The latest move is in compliance with the regulatory demands that require this 81% government owned bank to focus more on core domestic retail and commercial banking business and trim down its investment banking business that has high risk exposures. Royal Bank of Scotland is now expected to put emphasis on three major groups that comprise – retail customers, small enterprises and large business houses in the UK.
The bank, which was bailed out with £45 billion by the government during the financial crisis, is striving for growth with cost reduction initiatives, increased focus on markets where it has a strong presence and long-term growth prospects and improving its capital ratios.
Notably, as part of its restructuring activities, Royal Bank of Scotland is set to eliminate a minimum of 30,000 employees in its investment banking division and international operations in the coming three to five years. The figure represents 1/4th of its existing staff.
At a time when the Royal Bank of Scotland is burdened with numerous litigations, we remain encouraged by its restructuring initiatives as these will pave the way for sustainability and growth in the long run. Currently, Royal Bank of Scotland carries a Zacks Rank #3 (Hold). Some better-ranked foreign banks include BBVA Banco Franc (BFR), Banco Macro S.A. (BMA) and Shinhan Financial Group Company Limited (SHG). All three carry a Zacks Rank #1 (Strong Buy).