By Ian Fraser

Published: Sunday Herald

Date: February 14th, 2010

The Royal Bank of Scotland has seized operational and boardroom control of subsidiary Adam & Company and purged the private bank’s board of all but one of its ten former directors.

Following the boardroom clearout, only two members of the bank’s eleven-strong board remain as directors. They are former non-executive director and RBS company secretary Miller McLean, who has taken over as Adam’s chairman, and chief executive David Cathie who arrived from National Australia Bank in 2005.

Three of Adam & Co’s directors are leaving or have left the bank altogether -– its long-serving chairman Ray Entwistle, non-executive director Simon Miller and chief risk officer John Hackett. Six of the remaining executive directors still have roles with the bank although they have been stripped of their board director status.

The move has surprised members of Edinburgh’s financial sector given the elite Edinburgh-based institution is one of RBS’s few profitable arms.

“This is bizarre,” said one financial services industry source. “Why is a loss-making and failed bank, the Royal Bank of Scotland, removing the very people who made Adam a successful and profitable institution and replacing them with people with a lesser knowledge of the Scottish market?”

The moves were carried out several weeks ago but only came to light this weekend. RBS company secretary Miller McLean replaced chairman Ray Entwistle, who was one of the first trained bankers to join the bank in 1984, on December 31.

In a letter to customers, McLean said Entwistle had made “an exceptional contribution” and that he was “delighted and honoured to pick up the reins from him.” McLean has been a non-executive director of the bank since 1998. Adam & Co, was acquired by RBS for £10.5m in 1993 but the larger bank allowed it to continue to function independently for most of the past 17 years.

Entwistle: “After ten years as managing director and five years as chairman, it had reached the stage where it was time for me to move on.”

The boardroom clear-out heralds a change in strategy at Adam & Co. The bank had been developing and using its own standalone IT system since the bank, named after the Scottish enlightenment philosopher Adam Smith (pictured above left), was founded by Sir Iain Noble and a group of Edinburgh businessmen in 1983.

But this is now to be scrapped. Instead, RBS is making a significant investment in developing a replacement system, a project that is being led by Adam’s deputy chief executive Donald Graham in tandem with his counterparts in other parts of RBS’s wealth management business which include the much larger Coutts, acquired by RBS with NatWest in 2000 and RBS Coutts (formerly Bank von Ernst) acquired in 2003.

It is expected that this development will be beneficial for customers since it will be more efficient than the existing system and lead to a better user interface, and improvements to online banking.

One senior insider suggested the changes were overdue and have been designed to ensure Adam & Co, which retains is separate banking license, is structured to meet new Basel II regulatory requirements. One retail banking expert said: “In some ways it’s almost a surprise it has taken RBS this long to do this kind of thing. A business needs to move on and their existing infrastructure is high cost, which leads to high charges. I suspect Ray going has opened the doors to this. It will give them a much better and more efficient platform.”

The six Adam directors who are staying with bank — albeit without their director status — are Donald Graham, Richard Donaldson, John O’Donnell, Kerry Falconer (a former executive assistant to the disgraced RBS chief executive Fred Goodwin), William Stanworth and Andrew Milligan. It is understood that although they are stepping down from the bank’s board, they will continue to perform similar functions to their roles before the restructuring.

The seven former directors are being replaced by three London-based executives from elsewhere in RBS’s wealth management division. These are Coutts chief executive Michael Morley, Coutts finance director James Rawlingson and Byron Coombs, a manager at RBS Asset Management.

RBS lost £24.1 billion in 2008 whereas Adam & Company made a pre-tax profit of £18.6m, up from £14.8m in 2007. Adam had total assets of £2.44bn at December 2008 of which customer deposits represented £1.7bn

Last year three senior managers quit Adam & Co’s investment division to establish a Scottish outpost for Mayfair headquartered wealth manager Brook Macdonald. These were Adam’s chief investment officer Gareth Howlett, Robin McAdam and Alastair Wilson. Another investment manager, former Standard Life executive Amanda Forsyth has left to join rival boutique Charlotte Square Investments.

RBS has generally been very supportive of Adam in the years it has owned it. It acquired private client asset managers Stewart Ivory in 2002 and bolted it onto Adam.

• To read this article (edited version) on the Herald Scotland website click here

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