Coutts chief quits and crisis wipes £1bn off
NatWest shares
Ousting of boss of private bank may not be last
departure as prime minister fails to back chairman Howard Davies
Kalyeena
Makortoff and Anna Isaac
Thu 27 Jul
2023 20.07 BST
The head of
private bank Coutts has been ousted over the closure of Nigel Farage’s bank
accounts in a desperate attempt by NatWest to contain a crisis that has wiped
£1bn off its share price.
Peter
Flavel’s resignation from Coutts was pushed through by the NatWest interim
chief executive, Paul Thwaite, but despite the move, the future of its
chairman, Sir Howard Davies, appeared far from secure.
The prime
minister pointedly failed to back Davies, despite concern over the government’s
role in the shock departure of the chief executive, Alison Rose, which was
announced in the middle of the night earlier this week. While the City
minister, Andrew Griffith, said in an interview with Sky News on Wednesday that
it was not necessary for Davies to quit earlier than planned, Rishi Sunak
refused on Thursday to give the chairman his backing.
Davies was
due to retire next summer and the hunt had already begun for a new chair before
NatWest was engulfed in a political storm. Asked whether he ought to remain in
place, as planned, Sunak said: “This isn’t about any one individual, it’s about
values – do you believe in free speech and not to be discriminated against
because of your legally held views?”
The
comments will cast a shadow as NatWest bosses attempt to restore a sense of
order when they update investors on the group’s half-year financial results on
Friday morning. Davies is expected to lead the call, alongside Thwaite and the
chief financial officer, Katie Murray, though NatWest would give no formal
confirmation of who was expected to attend.
The ongoing
turmoil has already weighed on NatWest’s shares, which fell another 0.8% on
Thursday, taking their total losses since Rose’s departure to about 4.5%,
knocking £1bn off the market value of the bank.
The losses
will be shared by the taxpayer, as the government holds 39% of the bank’s
shares, having bailed out the group during the 2008 financial crisis. The
intention is to continue reducing the government’s stake, which was originally
just over 50%. Concerns about the banking sector after the collapse of Credit
Suisse, and the current disruption, will have left investors shaken.
The row
escalated last week when Farage obtained documents detailing why his accounts
at Coutts had been shut. A report produced for the bank’s internal wealth and
reputational risk committee showed that while the former Ukip leader had for
some time been below its commercial criteria – requiring customers to have £3m
in savings or £1m in loans or investments – it was ultimately concerned that
his alleged “xenophobic, chauvinistic and racist views” posed a risk to the
bank’s reputation.
Despite
personal apologies over the wording of the document, and promises to launch an
independent investigation into the circumstances that led to his accounts being
closed, Rose failed to keep her job. Her resignation, which was confirmed in a
1:30am announcement on Wednesday, followed anger in Downing Street about her
admission that she had discussed Farage’s banking relationship with a BBC journalist,
in an apparent breach of client confidentiality.
Sunak’s
failure to back Davies, who originally gave full support to Rose, has left a
political vacuum. Officials at the Treasury and the Bank of England held talks
on Thursday as concerns mounted over the risk that the banking group could be
left rudderless, should Davies quit. Officials relayed these concerns to
ministers and Downing Street, sources said.
The
decision about whether to back Davies “seems to be on hold”, one Treasury
source said. “So they risk a back him or sack him situation while the
taxpayer’s stake loses value.” A source close to the chancellor rejected that
claim, saying the situation regarding Rose’s departure was different and based
on a breach of banking confidentiality.
A Treasury
spokesperson said it was incorrect that there was concern among officials that
the prime minister’s refusal to offer support for Davies risked further
instability. “As the economic secretary to the Treasury [Griffith] has said,
NatWest already has an orderly transition process in place to replace its
chairman,” the spokesperson said.
Flavel’s
immediate resignation on Thursday was “the right decision for Coutts and the
wider group”, according to a statement by Thwaite, who has been tasked with
getting a grip on the growing storm that risks leaving the bank’s boardroom and
executive team without permanent leadership.
“In the
handling of Mr Farage’s case we have fallen below the bank’s high standards of
personal service,” Flavel said. “As CEO of Coutts, it is right that I bear
ultimate responsibility for this, which is why I am stepping down.”
Farage, who
has continued to call for more heads to roll over the scandal, welcomed
Flavel’s departure. “It was only a matter of time before Peter Flavel, Coutts
CEO, stood down,” he tweeted on Thursday. “The ultimate responsibility for the
dossier de-banking me for my political views lies with him. I even wrote to Mr
Flavel twice before going public and didn’t receive an acknowledgment.”
Neville
Hall, a risk and compliance expert and partner at the law firm Punter Southall,
said Flavel’s position had become untenable. “Peter Flavel’s departure was
inevitable for three reasons: failure to put a customer’s interests first; poor
oversight within Coutts; and inaccurate communications with its parent.
“It
shouldn’t have been down to the government to initiate Alison Rose’s departure,
not least because they are conflicted as the largest shareholder. I’d expect
the Financial Conduct Authority to be actively engaged with the boards of
Coutts and NatWest to discuss how they can demonstrate adequate oversight,
judgment and above all customer protection.”
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