ROYAL Bank of Scotland risks triggering fund-manager opposition if it goes ahead with a mooted idea of selling its insurance arm as well as an expected rights issue worth between £10 billion and £12bn, experts said yesterday.
The fear that asset sales at RBS might include the profitable insurance business in order to boost the balance sheet comes as some analysts believe that the cash call will come as early as today or tomorrow. Top RBS executives were closeted in meet
ings yesterday.
It comes ahead of what is expected to be a tricky AGM for RBS chief executive Sir Fred Goodwin and chairman Sir Tom McKillop on Wednesday following what is seen as a boardroom U-turn on the need for fresh stock market funding.
Some analysts and fund managers continued to say yesterday that Goodwin's job, in particular, is on the line until the details of the rights issue, asset sales and future strategy have been pored over by investors.
One banking industry executive said: "I think it is finely-poised. Goodwin's future is only likely to be decided once shareholders get a look at the detail of any rights issue and the detail of the new strategic plan going forward. I would not jump either way at this stage."
But a fund manager commented: "I think he (Goodwin] has got to go. The need for a rights issue is because of the capital-lite model they (RBS] have been running for years. And the shares have had a "Goodwin-discount" because he is seen as not being able to resist a (takeover] deal." RBS declined to comment.
It comes as speculation mounts that the bank is considering selling either a part-share in its insurance business or the whole division, with AIG, the American insurance major, and Warren Buffett's Berkshire Hathaway as two parties believed to be interested in a deal. Axa and Generali are also said to be monitoring events.
However, one banker said yesterday: "If RBS sell all or some of the insurance division, it tells you they are in a very difficult situation.
"General insurance is the best type of asset a bank could have right now. They are quite profitable and don't require a lot of capital. And having adequate capital is a prime concern for RBS, in particular.
"General insurance, households, motors etc, is not sexy like corporate banking, but RBS has built itself a good, solid position in the UK, with a 20 per cent market share. It will be strange if they give it up."
Alex Potter, a banking analyst with broker Collins Stewart, said: "I think it is a good insurance business and a great shame if RBS had to sell it. It would be a case of selling a good business at a weak point in the cycle for sellers."
In 2007 the division made a profit of £683 million, even after taking a £274m hit on household claims following the worst flooding in Britain in 250 years last summer.
Alongside its rights issue, RBS is also this week expected to announce write-offs related to the subprime toxic lending of between £5bn and 7bn – far higher than the £2.5bn already announced, including its share of ABN Amro, which RBS had already taken.
The rights issue, meanwhile, is expected by analysts to be at a one-third discount to the current RBS share price of 384p.
Company-followers said it was clear RBS wanted to "kitchen-sink" everything to do with provisions this time, so it does not have to return to the market again.
The full article contains 606 words and appears in The Scotsman newspaper.
