RBS 2012 Annual Report Download - page 76

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Business review continued
Wealth continued
2012 saw improved performance overall, with higher lending and deposit
margins and volumes driving higher income.
In 2012 the Coutts businesses continued to focus on implementing and
delivering the new divisional strategy outlined in 2011. The sale of Coutts’
Latin American businesses and the completion of the rollout of Coutts
global technology platform in the UK were tangible examples of this. By
the end of the year the division had exited over 100 countries since the
strategy was introduced and was serving clients in the remaining
countries through one central operating platform, a clear demonstration of
the division’s commitment to its strategy.
In the UK, Q4 2012 saw the launch of Coutts’ new Retail Distribution
Review (RDR)-compliant advice proposition and products. Significant
investment was made during 2012 to ensure clients would continue to
receive the best service, advice and products based on their specific
needs. One example of this was the introduction of seven new UK and
global RDR-compliant multi-asset funds, allowing clients to continue to
invest in a broad range of asset classes matched to their needs and risk
appetites.
Clients in the UK also benefited from the launch of the Coutts Mobile
service in October, offering clients greater choice and flexibility in the way
they manage their banking needs electronically.
In the International business, the division further invested in Dubai,
Singapore and Mumbai as it continued to embed its targeted growth
strategy. Clients also benefited from enhancements to the collateralised
lending programme, where higher lending limits and a greater number of
currencies available has increased its relevance to clients.
2012 compared with 2011
Operating profit increased by £5 million, or 2% to £253 million driven by
higher income partially offset by increased expenses and impairment
losses.
Total income increased by £66 million, with net interest income up £75
million, largely driven by improvements in margins and strong divisional
treasury income, particularly during H1 2012.
Non-interest income fell by 2% as the gain from the disposal of the Latin
American, Caribbean and African businesses was more than offset by a
decline in fee income in the UK and lower investment volumes, driven by
continued economic uncertainty.
Expenses were £40 million or 5% higher at £871 million, with significant
investment in change programmes, including the development of new
products and services capability and the implementation of RDR in the
UK.
Expenses also increased as a result of client redress following a past
business review into the sale of the ALICO Enhanced Variable Rate Fund
announced in November 2011 and a Financial Services Authority fine of
£8.75 million relating to Anti Money Laundering control processes.
Client assets and liabilities fell by 1% with a £2 billion decrease in assets
under management, primarily reflecting low margin client outflows of £1.4
billion and the impact of client transfers following the disposal of the Latin
American, Caribbean and African businesses. This fall was partially offset
by increases in lending and deposit volumes.
Impairment losses were £46 million, up £21 million, largely reflecting a
small number of large specific impairments.
2011 compared with 2010
Operating profit decreased by 12% on 2010 to £248 million, driven by
increases in expenses (13%) and impairments (39%) partially offset by a
7% growth in income.
Income increased by £69 million with a strong treasury income and
increases in lending and deposit volumes. Non-interest income rose 3%,
with investment income growing 2% despite turbulent market conditions.
Expenses increased by £97 million, largely driven by adverse foreign
exchange movements and headcount growth to service the increased
revenue base. Additional strategic investment in technology
enhancement, rebranding and programmes to support regulatory change
also contributed to the increase.
Client assets and liabilities managed by the division decreased by 1%.
Customer deposits grew 3% in a competitive environment and lending
volumes grew 5%. Assets under management declined 9%, with fund
outflows contributing 3% of the decrease and market conditions making
up the balance.