By Shane McGinley
British private bank Coutts built its iconic reputation as the bankers to the British royal family. Just as its global CEO, Rory Tapner, took command earlier this year, it was slapped with a $14m fine for money laundering malpractices. As the bank expands its Middle East operations, he outlines why wealthy Arab individuals are not letting this tarnish its 300 year-old legacy
Last year was tough year to be rich. Europe’s community of ultra high net worth individuals (UHNWs) shrunk by 1.9 percent to 53,440, while their total wealth dropped 2.7 percent to $6,950bn.
You don’t need too many guesses to understand why Europe’s richest are suffering as the words eurozone and crisis have become ever present on TV stations and newspaper covers across the world.
Those in the Middle East fared a little better and the 4,595 UHNW individuals with riches of over $30m saw their pool of wealth only drop by 1.3 percent to $710bn.
As a result, wealth management firms are clamouring to get access to the cash-rich Arabs and expatriates living tax-free in the region. However, at a time when the wealthy may have turned to the banks to help stem the losses, it was also proving to be a bad time to be a bank, with scandals hitting some of the biggest names in the business.
Barclay’s found to be manipulating interest rates, the US Senate committee accused HSBC of operating a money-laundering conduit for “drug kingpins and rogue nations” and Standard Chartered was singled out by American financial investigators for making billions of pounds worth of transactions for the Iranian regime.
One of the lenders looking to persuade Arab clients to turn to them is Coutts, the 300 year-old British bank which counts Queen Elizabeth II among its clientele. Its executives believe the Coutts brand is one which has stood the test of time.
“It is an iconic, instantly recognisable brand and anyone who sees it will know it, they might not know exactly what we do but they will immediately say ‘banker to the Queen’, so there is an instant recognition,” Rory Tapner, the bank’s global CEO says in an interview while on a visit to Dubai.
“This is a bank that looks after the wealthy… We didn’t lose people in the crisis as we are very conservative… It is our job to find the clients but in our case it is 50:50: 50 percent find us,” says Tapner.
He goes on to state that, unlike his peers, “post-2008 crisis, the Coutts brand came out untarnished.” Unfortunately, while Coutts may not have lost its clients any money, its brand has indeed been tarnished by a scandal earlier this year which was a shock to the industry, and probably a lot of its clients.
The bank was fined £8.75m ($14m) in March by the UK’s Financial Services Authority (FSA) for “significant and widespread” failings in its money laundering controls, its second fine for financial malpractices in a matter of four months.
According to the FSA, Coutts had dealt inadequately with a type of clientele known as “politically exposed persons” — people whose prominent position in public life might have made them vulnerable to corruption.
“Coutts’ failings were significant, widespread and unacceptable,” Tracey McDermott, acting director of enforcement and financial crime at the Financial Services Authority (FSA), said in a statement on March.
“Its conduct fell well below the standards we expect and the size of the financial penalty demonstrates how seriously we view its failures.”
The FSA found Coutts did not apply robust controls when starting relationships with high-risk customers and did not consistently apply an appropriate level of monitoring.
Tapner was appointed to his position just as the scandal was unravelling, but he is adamant it will not have any long-term consequences.
“It is not going to affect our business at all because the fine we had was about the processes we use, not the people we dealt with. It is very important,” he says.
“The fine was because we weren’t recording properly the details around the people we were dealing with… [but] twelve months of investigation by the regulators, throw up not one name did they say you shouldn’t have been dealing with that.
“I arrived when this blew up. I misinterpreted it… I thought it was because we were dealing with bad people. This is not the Coutts culture… But as we started to look at this with the FSA we challenged them when they were talking about a big fine.
“At that scale of fine you are going to have to point at a bad name of someone. They said ‘No, we are getting tougher on banks who don’t have the processes we expect them to have as they put themselves at risk of getting caught out’. That is what went wrong,” he says.
With a clampdown on their secretive list of clients, Tapner admits when it came to trimming the database in the wake of the fine, some names in the Middle East were dropped when it couldn’t be 100-percent determined where their source of wealth originated from.
“I’m afraid we did pick a few in this region, a couple in Russia, we picked two or three in London. We used the same process all around the world,” he says.
Richard Yoxon, managing director at Brand Finance — a consultancy which assesses the value of various corporate brands — told Reuters that Coutts’ clientele would likely be disappointed by the latest fine.
“No doubt the bank’s high profile, wealthy patrons will be concerned and disappointed by news of today’s FSA fine for failure to implement adequate money laundering controls,” he said.
“Certainly this news will prompt current and potential customers to reassess their relationship with the bank, but only time will tell if the Coutts brand will suffer any lasting damage. Coutts’ response to the fine will determine the longer term impact on brand,” he added.
The news came at the time when RBS’s private wealth division, which includes Coutts and Adam & Company, saw its half-year profit for the six months to the end of June fall to £109m ($173m), compared to £130m ($207m) earned in the same period a year earlier. RBS blamed the dip in profits on higher expenses and increased impairments, despite a seven percent income rise, Reuters reported.
Despite these setbacks, the Middle East operation doesn’t seem to have suffered and, in fact, has been expanding its operations at its offices in the UAE and Qatar. In February, the bank said it planned to hire 20 people this year and Amir Sadr, Coutts’ co-head Middle East, says their hiring policy is “bang on target.”
“The brand is so strong… We energise the brand in the Middle East… We have hired 21 people into our Middle East operation,” says Sadr. “We are moving into new premises at the end of October and that will enable us to grow a stronger franchise in the Middle East.”
Tapner says its Doha office is “a market we really like” and “Saudi is an important market.” Coutts divides up its Middle East operations into Saudis who live abroad, the GCC and the Levant, primarily Lebanon, Jordan and Egypt.
In terms of acquisitions, Israel is his main target. “Israel is an interesting market. We have just decided we are going to invest in a few more banks in Israel. It is one of the markets we still want to cover.”
While the bank is bulking up its staff count and operations in the Middle East, earlier this year it decided to sell its Latin American, Caribbean and African private banking arms to Royal Bank of Canada as part of its strategy to focus more on its key markets such as the UK, Switzerland, Russia, the Middle East and Asia.
“Fifteen months ago we started a new strategy in Coutts, which was to get out of some of the places we operate,” explains Tapner. “Coutts had expanded into 177 different countries around the world, not because Coutts had chosen to go there, but because clients found us, which was part of the power of the brand and power of the longevity and sustainability,” he adds.
“We have shut down over 100 countries already and those resources we have freed up. A lot of these were small countries where we were either losing money or not making enough money. That resource has been preserved in the company and has been reinvested in the Middle East, in Russia and in Asia.”
While he does not give exact figures yet for the size of the business in the Middle East, he says: “It is an important part of the world”.
“Today, about 55 percent of what we do is UK business and 45 percent is international but, over the course of the next two and half years, I would expect that to swing the other way. That is not the UK getting smaller; it is the international piece getting bigger.
“They damn well better as that is where all the investment is going,” he says with a smile. While he is looking around the globe, when it comes to Europe he believes European leaders need to do more to end the ongoing eurozone crisis.
“The only way Europe is going to be fixed is with confidence returning. Whatever structural things they do will help, but if confidence doesn’t return then it won’t make much difference,” he believes.
“There is nothing that can be fixed overnight. We are seeing stable confidence levels but, as this has been happening, government debt has been growing, so their ability to stimulate this growth is close to zero.
“This is too deep and that debt is too serious… The only way it can be stimulated is by private sector getting more confident,” he says.
“There is no doubt that in tough times governments who are able to move fast and make unpopular decisions, as long as they are benign in terms of the population in general, they seem to do well,” he advices.
Tapner himself came into his current position as Coutts itself faced its own crisis, but through his own management he has able to overcome this, implement a global restructuring and still keep the brand intact.
Maybe Angela Merkel and the rest of Europe’s leaders should ask him for advice. After all, Tapner does boast a royal seal of approval.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Coutts has always played off being a banker to the Royals...it is a seconda rate bank always was and always will be. Royal Bank of Scotland is a defunct entity and pretty much all of it's subsidiaries could not and would not exist without government bail out.
what an arrogant, arrogant man.
I was with Coutts for many years and was told that they were not interested in my business as I was not investing any money with them.
They may claim to be the Queens bank but the service is poor and the people are callous and insensitive.
This is a brand that I would never recommend.