RBS considers selling insurance arm

Last week, Royal Bank of Scotland (RBS), Britain’s second largest bank, confirmed it was preparing to raise £10-£15 billion through a rights issue to improve its financial position.

The rights issue was announced as part of a trading update and is one of the largest seen in UK corporate history.

RBS said it needed to shore up its balance sheet and a rights issue was the best action to take.

The bank has confirmed today that it is considering selling assets to raise £4 billion which includes the possible sales of its insurance arm which owns Churchill and Direct Line.

Under the terms of the rights issue, 11 new shares will be issued for every existing 18 shares at 200 pence each.

Mark Sartori, head of European trading at Fox-Pitt Kelton, commented on the rights issue and said the value is 46% below yesterday’s closing share price of 372.5p.

It’s a reassuring discount and investors will be pleased that it’s such a large amount and not £5 billion or £6 billion, they want RBS to raise some money so that the company can move forward, added Mr Sartori.

According to analysts, the future of Sir Fred Goodwin, chief executive of RBS, has been in jeopardy since the announcement of the rights issue last week.

Sir Fred, who has been with RBS for 8 years, admitted today that he, like many colleagues at other financial institutions, had been under pressure for quite some time given the turmoil in financial markets.

Last year, RBS was successful in leading a consortium to buy and break-up Dutch bank ABN Amro for £56 billion.

The bank’s AGM takes place tomorrow.

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