Bank says review of RBSI is underway

See also: The end of the line?

The Royal Bank of Scotland (RBS) has confirmed that it is reviewing its insurance division in a move that could see the disposal of its Churchill and Direct Line businesses.

The move came as the group asked shareholders for an extra £12bn as it seeks to shore up its finances in the midst of the credit crunch.

The rights issue was announced as part of a trading update and is one of the largest seen in UK corporate history. It comes as the group announced post-tax sub-prime write-downs of £4.3bn.

In its statement to the stock exchange the group said that RBSI had achieved strong new business volumes and good renewal rates in its own motor and home brands.

But the statement added: “As part of an ongoing exercise, recalibrated in the context of its decision to increase capital levels, the Board has identified for possible whole or partial disposal RBS Insurance and other smaller assets which are not central to the powerful UK and international banking franchises that RBS has built.”

“The Board has identified for possible whole or partial disposal RBS Insurance and other smaller assets

RBS' statement to the stock exchange

RBS has laid out plans to increase its Tier 1 capital by £4bn by the end of this year - the majority of which will be derived from a sale of assets.

Chairman Sir Tom McKillop said: “It is a difficult time for the financial services industry, and it has presented us with specific challenges. Central to these has been the question of our capital ratios, which have been the focus of much attention, both internal and external, over recent months.

“It was the board's declared intention to rebuild our tier 1 capital to the middle to upper end of our historic range of 7% to 8% over a three year period, but in light of the current market environment, this level and timing are considered no longer appropriate.

“In discussions with shareholders it was clear that many of them had reached a similar conclusion, hence today's announcement that we are launching a rights issue to re-position our capital ratios and strengthen our capital base.

"Naturally, shareholders wish to understand what we have assumed in relation to the prospects for further write-downs and disposals of non-core assets, and today's announcement seeks to clarify the basis of our capital planning.”

Last year, RBSI posted operating profits of £683m. It controls premiums of over £5bn.