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RBS could split Coutts International to woo Asian buyers

08/22/2014 | 09:35am US/Eastern

Royal Bank of Scotland plc (>> Royal Bank of Scotland Group plc) might split its international private bank into separate European and Asian divisions to attract Asian buyers who have the financial muscle for a deal but are reluctant to take on European client risk.

Royal Bank of Scotland plc (>> Royal Bank of Scotland Group plc) might split its international private bank into separate European and Asian divisions to attract Asian buyers who have the financial muscle for a deal but are reluctant to take on European client risk.

RBS confirmed earlier this month that it was considering a sale of Coutts International, in a deal that could fetch as much as $1 billion and allow the British bank to focus on domestic lending. That news was greeted with enthusiasm by potential suitors, ranging from Singaporean and Japanese banks, to niche private players in Europe.

But to increase the competitive tension and secure a better price, RBS could break up the business, people familiar with the sale process said.

"RBS will start the process saying they are selling it as a whole. They will provide enough information about the constituent parts such that if someone is interested in parts they can bid," said a person briefed on the sale.

"If they find that there's going to be a whole bunch of people looking at Asia and a whole lot looking at Switzerland, they will consider splitting it."

RBS declined to comment on the sale process. The bank's global ambitions brought it to the brink of collapse in 2008 and it is under pressure from the government to focus on loans to UK households and businesses following a taxpayer bailout. It is majority owned by the state.

Of the $36 billion that RBS Coutts International manages, around third comes from Asia, according to the person briefed on the sale.

If sold separately, the Asian part could attract bids from DBS Group Holdings (>> DBS Group Holdings Ltd) and United Overseas Bank (>> United Overseas Bank Ltd), Singapore's no. 1 and no. 3 lenders as well as Chinese or Japanese players, sources said.

A sale for the entire overseas business would likely scare off Asian buyers because European clients are more likely to be targeted in tax evasion probes and are viewed as too risky to take on, they said. Asian banks have been the most aggressive purchasers of private banking assets since the financial crisis.

Other potential suitors include Credit Suisse (>> Credit Suisse Group AG), Standard Chartered (>> Standard Chartered PLC) and BNP Paribas (>> BNP PARIBAS). UBS (>> UBS AG) and HSBC (>> HSBC Holdings plc), which have participated in previous auctions, are less keen this time around, sources said.

The banks declined to comment.

Morgan Stanley (>> Morgan Stanley), which has advised RBS on past transactions, is the front runner to win the Coutts International sale mandate, the people added. Morgan Stanley declined to comment.

A source close to RBS said the seller would consider the bids for the whole before looking at offers for parts of it in a "potential second phase."


Switzerland's smaller private banks are also expected to be interested in Coutts International, which runs its operations from Zurich. Its British arm, based in London, includes the Queen among its customers.

Swiss private banks are on the hunt for acquisitions to shore up their profits after crackdowns on tax evasion by U.S. and European governments prompted clients from those regions to withdraw money from Switzerland.

Banks such as privately-held Syz & Co are among those to say they are on the lookout for potential purchases. Syz, which has up to 200 million Swiss francs (133 million pounds) for deals, told Reuters it would be interested in looking at Coutts International "depending on the design of the sale”.

Julius Baer has been an active acquirer, picking up Bank of America Corp's (>> Bank of America Corp) overseas wealth arm for 860 million francs two years ago and, last month, the private banking activities of Israel's Bank Leumi (>> Bank Leumi le-Israel Ltd.) in Luxembourg and Switzerland for up to 70 million francs.

A spokesman for Julius Baer declined to comment.

Julius Baer bought the entire international wealth arm of Bank of America and people said there would be an appetite among some buyers to acquire Coutts International as one business.

Canada's Royal Bank of Canada (>> Royal Bank of Canada), which bought Coutts Latin America and African businesses, is one such buyer, the people added. RBC declined to comment.

"Ultimately the question is -- who are the buyers, what are they interested in and how would they prefer the sale to be structured?," said Sam Kok Weng, financial services M&A Partner, PricewaterhouseCoopers (PwC) Singapore,"That will drive the transaction itself. It is very possible in the M&A world to fit the buyer's need."


Asia has seen an increase in major private banking M&A following the financial crisis and lenders from Singapore, the region's private banking hub, have been prominent buyers.

Oversea-Chinese Banking Corp (>> Oversea-Chinese Banking Corp. Limited) tripled its assets after buying ING's Asian private bank in 2009 for $1.5 billion. An OCBC spokeswoman said the bank was not going to bid for Coutts International.

Singapore's United Overseas Bank has so far avoided acquiring private banking businesses but a spokeswoman, while declining to comment on Coutts International, said the bank was open to possible deals.

This year, DBS bought the Asian private banking arm of France's no. 2 bank Societe General (>> SOCIETE GENERALE), which is expected to be integrated into its private bank by the fourth quarter.

"The ink is only just dried on the SocGen acquisition and it will be challenging for them to bid something this big. But they will have a look," a financial industry source said.

DBS declined to comment on the Coutts International sale but said the bank kept an eye out for opportunities.

"We are primarily focussed on organic growth. However, if there is an opportunity that meets our investment criteria ... and passes our financial criteria, we will consider it carefully," a spokeswoman said.

(Additional reporting by Matt Scuffham in London, Maya Nikolaeva in Paris and Anthony Deutsch in Amsterdam; editing by Denny Thomas and Carmel Crimmins)

By Saeed Azhar and Katharina Bart

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