Coutts Settlement to Cost RBS $10 Million
The Royal Bank of Scotland (RBS) Group (NYSE:RBS) will end up shelling out £6.3 million ($10 million) as a fine for the improper sale of bonds by its private banking and wealth management business, Coutts. [1] Over the period from 2003 to 2008, Coutts had advised a number of its high-profile clients to invest in one of AIG’s (NYSE:AIG) bond funds without detailing the risk involved in the overseas investment. When the U.S. government bailed out AIG at the peak of the financial crisis in 2008, the insurance giant’s assets were frozen – making it impossible for Coutts’ clients to withdraw their funds. The Financial Services Authority (FSA), U.K.’s financial regulatory body, started investigating the selling last year after several lawsuits were filed by Coutts clients.
See our full analysis for RBS’s stock
RBS Has Been Focusing on Growing Coutts
The 82%-state-owned RBS Group has been revamping Coutts in the recent past to set itself apart from its numerous competitors. Starting with a global rebranding which entailed dropping the “RBS” from the name of its international operations of “RBS Coutts”, the private bank also doubled the minimum investable assets required from a client to £1 million ($1.6 million). [2]
The settlement with the FSA will put this issue behind Coutts, which has been a reputed private banking and wealth management business in the U.K. for decades. The bond mis-selling incident was highly publicized last year.
The one-time settlement should raise direct expenses for RBS’s wealth management division by $10 million for the year – which has a negligible impact on our price estimate for the bank’s stock.
We have an $11 price estimate for RBS’s stock, a premium of about 50% to the current market price.
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Notes:- RBS faces £6m fine over alleged Coutts bond mis-selling, The Telegraph, Nov 7 2011 [↩]
- Coutts to drop RBS Brand, Financial Times, Oct 30 2011 [↩]