Bailed-out RBS forced to sell off insurance arm

The Royal Bank of Scotland has been ordered to sell its insurance division as part of a major shake-up of the UK banking sector.

RBS has reached an agreement with the UK government over its participation in the Asset Protection Scheme (APS) – which insures toxic debts – that will force it to dispose a number of assets over the next four years. This week, the government agreed to inject a further £25.5bn into the bank, increasing the taxpayer’s stake to 84.4%.

Lloyds Banking Group is not participating in the APS and will instead raise £21bn through a £13.5bn rights issue, as well as disposing 600 branches and other assets. Its 70% stake in the Esure and Sheilas’ Wheels insurance brands are not thought to be included, however.

The moves have been forced through to satisfy the European Commission (EC), which demanded the sales following competition concerns.

In a statement, RBS said: “To comply with EC state aid requirements, RBS has agreed, in principle to a series of restructuring measures to be implemented over a four-year period. These will supplement the measures in the strategic plan already announced.”

The full extent of RBS’s disposal will see it sell RBS Insurance, which includes Churchill, Direct Line, Green Flag and NIG, Global Merchant Services and RBS’s interest in RBS Sempra Commodities.

The bank said the disposals will be timed to “maximise value and may be effected through initial public offerings, agreed sales or a combination of these”. It highlighted RBS Insurance as a potential IPO in the later years of its strategic plan.

RBS group chief executive Stephen Hester, added: “The agreement in principle reached with the EC is clearly more material for the structure of our group than we had hoped, increasing risk to both execution of the plan and earnings dilution. But this is still an acceptable result for RBS.

“While the required divestitures include businesses which were part of our plans going forward, the group’s essential strengths remain intact and the divestiture proceeds will help our future capital position, bringing forward the prospect of exit from the APS altogether.”

Market view: the RBSI disposal

‘There is no Fred Goodwin this time around. He was able to say that if [bidders] did not reach a certain price then they were not going to sell it’

‘If you’ve gone that far down the wire once and withdrawn it, then you are ready to move that asset, because you’ve been through all the due diligence. It’s slightly easier to dispose of that one’

‘You never get a good price on a forced sale. But who knows who is going to buy it. It won’t be cheap and motor insurance is pretty competitive’