Bank will not sell insurer for a long time, he predicts

Patrick Snowball has revealed for the first time how the government scuppered his bid for Royal Bank of Scotland Insurance (RBSI).

Snowball, former chief executive of Norwich Union, now Aviva, had put together a private-equity-backed bid in January for the bank’s insurance business, which includes Direct Line, Churchill, Privilege and NIG. About the same time, RBS received a fresh wave of help from the government to ease its financial difficulties.

A few weeks later chief executive Stephen Hester said selling RBSI would “destroy shareholder value” in the group.

Snowball said: “The Royal Bank of Scotland’s priorities changed during the process and once the government injected capital in the business it no longer needed to raise capital.”

He believed that RBSI would not come up for sale again “for a long time”. He added: “I think what the government money has allowed them to do is to take a much more measured strategy to the group and avoid fire-selling.”

Snowball said RBSI, which announced a £780m pre-tax profit in February, was a “great business”, but had more potential outside a banking influence.

“I have always believed it would be a great business as a standalone, but I respect the fact they decided to retain it within the group.”

The government originally took a 58% stake in RBS in October last year in return for £20bn. That increased to 70% in January when the state eased the bank’s terms of repayment by converting its preference shares into ordinary shares. RBS has also agreed to take part in a state guarantee scheme, in which the bank pays a premium for loans that could go into default.

Since the government intervention, RBSI has undergone a management shake-up. Paul Geddes will replace chief executive Chris Sullivan in late July. Jon Greenwood has replaced interim managing director Nigel Pearce at NIG.