The part-sale of Royal Bank of Scotland’s private bank and wealth management business Coutts could be eased by its transition onto Avaloq’s banking software platform, according to an expert.
RBS is reportedly splitting Coutts’ UK-based domestic division from its international arm in Zurich, which will be sold at a valuation of around $1 billion (£590 million). Unnamed Asian and North American parties are said to have already bid for the business.
RBS has experienced difficulties in divesting parts of its business in the past due to its complex IT legacy estate. However, the sale of Coutts International, which also operates in Hong Kong, Singapore, Abu Dhabi and Dubai, could be smoothed by the completion of Coutts’ move onto Avaloq Banking Suite in 2012.
“It should certainly make it easier to split them out from RBS, as Coutts is on a self-contained platform distinct from everyone else within the bank,” said Ovum financial services technology analyst Rik Turner.
Coutts began the replacement of seven core systems in 2009, following a decade of underinvestment in its technology. The Avaloq software had been in use at its Zurich offices since 2008, having been deployed separately from the RBS Group IT platform. The Avaloq software was subsequently trialled at smaller private bank Adam & Co in 2011, replacing legacy applications ahead of a full role at Coutts & Co’s UK headquarters.
Avaloq has since been rolled out at the entire RBS Wealth division as its uniform core banking system.
As well as standardisation of legacy systems, the implementation allowed for much of the Coutts’ “heavy lifting” processes to be completed at its Zurich office, and meant that RBS could cut 500 operations and IT staff jobs across its Wealth division.
The implementation, which led to some customer complaints after an IT ‘glitch’ affected account processing as it went live, is believed to have cost in the region of £100 million.
The Avaloq implementation could mean that the bank - and any buyer - can avoid some of the challenges faced in previous IT separation, and could also make it attractive to a business which is already running on Avaloq Banking Suite.
The Swiss firm has a number of private banking clients, including HSBC Private Bank, Barclays Wealth, Banque Privee Espirito Santoand Japanese investment bank and brokerage Nomura, among others.
Ovum’s Turner said: “As for whether it would make them more attractive to other firms that are Avaloq customers, it would certainly make it an easier acquisition, in that the firms buying them would also have Avaloq skills and familiarity, even if the actual implementations in acquirer and acquired are pretty custom.
“An acquirer should also be able to call on Avaloq itself to help with the integration, though it would clearly need to pay some professional services fees for the work. Still, that could be factored into the overall cost.”
The proposed sale of Coutts is one of a number of divestments currently in process at RBS. It is continuing to split systems shared with insurance provider Direct Line, which has warned over the difficulties of transitioning from RBS' IT, and is reported to be spending £300 million on new infrastructure to support the sale of 314 branches to Williams & Glyn’s. Plans are also underway to segment part of its operations into a ‘bad bank’, which business secretary Vince Cable has warned could lead to extensive IT costs.
RBS has now completed the separation of Tesco Bank, but customers experienced problems accessing accounts as the bank switched from RBS systems onto a Fiserv core banking platform.
In order to reduce complexity, the bank is currently undergoing a wide-ranging project to overhaul and simplify its IT estate, including plans to reduce its core banking application estate from 50 down to 10 in the coming years, with the decommissioning of legacy software expected to continue until 2018.