Bank could look to offload profitable division ahead of £10bn rights issue
Speculation is mounting that RBS is gearing up for a sale of its insurance divsion, RBSI, ahead of its expected £10bn rights issue this week.
Reports over the weekend have linked the insurance division of the bank with a number of suitors including Axa, Allianz, AIG and Italian giant, Generali. Other reports have linked the group with Berkshire Hathaway, Aviva and Zurich.
The bank confirmed this morning that it was considering raising funds through an appeal to its shareholder base. Sources however said that in the wake of investor concerns a sale of the group's assets, including RBSI, would be preferable to a rights issue.
It is not clear how much a sale of the insurance division, which includes market-leading brands Direct Line and Churchill, would fetch. Reports suggest that it could be as much as £5bn, although the bank's present difficulties and the prolonged soft market could force it to sell the business at a significant discount.
RBSI transacts over £5bn in premium, and controls almost one third of the private motor market. Last year, it made operating profits of £683m. Aside from Direct Line and Churchill, it also includes Privilege, Devitts and NIG - that latter of which has been repeatedly linked with a sale in recent months.
Last year, in an attempt to boost efficiency and bring its brands into greater alignment, RBSI initiated a restruturing programme that saw a cull of 100 senior managers and the appointment of a number of its bankers into key roles at the company.
The speculation follow the news that RBS, the country's second largest bank, is set to tap its shareholders for as much as £13bn as it attempts to shore up its balance sheet, ravaged by the credit crunch and the purchase of ABN Amro in October. It would be the largest rights issue in UK banking history. The bank is also expected to announce sub-prime related write downs of between £5bn and £7bn.
The move also comes as Chancellor Alistair Darling prepares to unveil a rescue plan worth £50bn to the banks in an attempt to restore confidence in Britain's economy, and force them to reveal the full extent of their exposure to the sub-prime crisis.
