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RBS considers sale of Direct Line and Churchill

Royal Bank of Scotland

Troubled bank Royal Bank of Scotland (RBS) needs to raise a lot of money. It has two main options, a deeply discounted rights issue, or selling its insurance arm at a discount.


The jewel in the insurance arm is Direct Line and at least four major insurance groups have made enquiries.


Over a year ago the bank put Direct Line on the market but did not sell it, as it could not get the price it wanted. Since then there has been a wholesale clear out of insurance management. Direct Line used to be very innovative, profitable and sure-footed. The recent shambolic U-turn on Heathrow T5 travel insurance coupled with its aggressive and counter-productive war against price comparison sites shows that this is no longer the case, and the shining star is rather tarnished.


The insurance arm includes a lot more than Direct Line, and there is the possibility of selling different parts of the empire to a variety of bidders.


If they do sell, there is no way that RBS will get anything near the price insurers were offering last year, and it will be way below the price RBS wanted.


The reason that RBS needs money is that last year’s acquisition of Dutch bank, ABN Amro, on the eve of the credit crisis, appears to have left the bank exposed and needing more cash to shore up its balance sheet.


The bank denies it needs money, is raising credit or selling the insurance arm - but that is not what the city rumour mill says.


 Life insurance: News update: April 2008


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