Coutts, the main private banking brand and business of the UK banking group, sustained a sharp fall in deposit volume as clients sought savings products that offered higher returns. The bank is continuing to adjust following the high-profile "de-banking" saga of last summer.

The private banking division of NatWest Group, principally comprising Coutts, today reported a slide in operating profit to £33 million ($41.3 million) in the first three months of the year from £133 million in the same quarter in 2023. Weaker deposit balances and clients shifting to higher-return products, along with weaker lending, took a toll on the bottom line.

The UK-listed lender, which last year saw the resignations of Coutts CEO Peter Flavel, and NatWest chief executive Alison Rose amid the “de-banking” saga around broadcaster and former political leader Nigel Farage, said profits were hit by “the impact of 2023 sharp changes in deposit volume and mix adversely affecting hedge returns.”

The bank said first-quarter results showed a “strong performance in deposits given seasonal tax outflow impact and good AuMA [assets under management/administration] growth setting a strong foundation for improved profitability.” Lower deposit balances, and a change in product mix was caused by clients moving to savings products that offered higher returns, combined by a fall in lending volumes and dilution to mortgage margins.

Operating expenses rose to £180 million from £152 million. Total income fell to £208 million from £296 million. The division logged an impairment of £6 million, against a release of £8 million in Q1 2023. 

The sharp fall in profit resulted in return on equity slumping to 6.7 per cent from 28.5 per cent; the net interest margin declined to 2.06 per cent from 3.31 per cent. 

Net inflows in assets under management were £400 million in the quarter, down from £600 million. Total assets under management rose to £33.6 billion from £29.6 billion.