Potential new EU rules could result in another bail-out for RBS, putting its carefully laid plans for an RBSI float under major pressure
The talk today is that The Royal Bank of Scotland could need more UK taxpayers’ money if the European authorities push ahead with a continent-wide recapitalisation of its banks.
If it had to pump in more capital, the government would probably take full ownership of RBS, from its current 83% stake.
Although RBS bank insists it is well-capitalised, nothing can be discounted for certain if the situation in the eurozone deteriorates.
RBSI is planning for divestment, probably through flotation, in 2012. Under European Commission orders, it must divest a majority stake by 2013 and complete a 100% transfer by 2014.
Payback time
If the government bails out RBS yet again, politicians could come under pressure to show taxpayers that they are getting a return on their investment, and in turn pressure the bank to expedite the divestment process.
That would be unwise, as RBSI is clearly working towards its own agenda in tricky market conditions.
Another effect of a full nationalisation of RBS would be to whip up even greater public scrutiny over the insurer’s sale process.
It’s an opportunity for the general public to see whether they’re getting anything back at all for the floods of taxpayer money that were used to keep the banking industry afloat.
Right moves, wrong time?
Whatever happens, there is tremendous pressure on RBSI chief executive Paul Geddes and his team to achieve a high valuation upon divestment.
On a positive note, they have done a good job of getting the insurance business back on track, as testified by the £206m half-year profit.
Geddes is under the watchful eye of his under-pressure banking bosses and will be anxious to leave a successful legacy
But the headwinds in terms of divestment are that the motor insurance industry is undergoing a tough time, with a miserable set of underwriting results being marked down in 2009 and 2010.
There’s also the ever-creeping role of the government into motor insurance, as seen by the Office of Fair Trading investigation into competition. This is hardly the stuff to whet the appetite of investors.
Moreover, RBSI’s eventual valuation will be reliant on the appetite of the capital markets at the time and, quite frankly, that is down to luck.
Geddes, who is under the watchful eye of his under-pressure banking bosses and will be anxious to leave a successful legacy, is surely aware of the famous quote from Napoleon: “I do not want a good general, I want a lucky one.”
Everything to play for
The Darren Bent credit hire case rumbles on and on, as evidenced by this latest appeal. Bent is an England football star, so it’s easy to take your eye off the ball (excuse the pun) and forget how important this case is.
If Allianz wins, it will greatly strengthen insurers’ case that credit hire companies can only bill for what is reasonable in terms of car hire rates and the number of days it takes to repair a vehicle. In effect, a win for Allianz will lower credit hire costs for insurers.
I’m sure many insurance claims managers will be cheering for Bent if he plays for England tomorrow, but, off field, they’ll want to see an own goal in this legal dispute.
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