RBS considers sale of Direct Line and Churchill

by Gill Montia

Story link: RBS considers sale of Direct Line and Churchill

Royal Bank of Scotland (RBS) is rumoured to be considering the sale of its Direct Line and Churchill insurance businesses.

The bank, which is the second largest in the UK, is also reported to be planning a rights issue of up to £13 billion and the disposals, which could raise £5 billion, might provide a means of easing tensions with shareholders.

Such a sale would also be in line with RBS’s strategy of focusing on its core banking business, following the acquisition of Dutch bank, ABN Amro, last year.

The ABN acquisition and losses related to mortgage-backed securities and the credit crisis have left the bank in need of new capital that can balance the amount of risk it holds.

First-quarter write downs are estimated in at between £4.5 billion and £5 billion.

However, news of the proposed rights issues, which could be the biggest in UK corporate history, has shocked and angered some shareholders, given that RBS’s chief executive, Sir Fred Goodwin, denied the need for such a move last month. Some now see his position as in jeopardy.

Analysts are speculating that RBS could be the first in a line of banks to raise capital in this way; Barclays and HBOS are tipped to follow its lead.

Should Direct Line and Churchill be offered for sale, Aviva, Zurich Financial Services, and AIG are likely to show an interest.