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RBS could shelve sale of insurance arma, er selling pounds 6bn in loans; BANKING.

Byline: By Matt Dickinson Special Correspondent

The Royal Bank of Scotland could abandon the sale of its insurance arm after raising close to pounds 6 billion through the sale of risky loans, reports have said.

The group has been pursuing the sale of the division - which includes Direct Line and Churchill - for an estimated pounds 7 billion.

But RBS has slashed its exposure to billions of pounds worth of loans used to back private-equity deals and is in talks to sell more risky assets to the investment firms Apollo and Blackstone, the reports have claimed.

Together with the recent pounds 950 million sale of its half share in Tesco Personal Finance and the disposal of Angel Trains, the moves have strengthened RBS's finances.

Reports said although no final decision has yet been taken, it was increasingly likely that the insurance auction would be delayed or abandoned.

American insurer Allstate is thought to have tabled a bid two weeks ago, which failed because it fell short by at least pounds 1 billion of the original asking price.

After unveiling a pounds 691 million first half loss earlier this month, RBS chief executive Sir Fred Goodwin said the group was still in talks over the sale of its profitable insurance arm.

"I think it's in everybody's interest that we pursue that deal," he said. "It is a very good business.

But we are not going to sell it for anything other than the right price."

RBS Insurance, which boasts more than 21 million policies, made an operating profit of pounds 403 million during the first half of this year, up from pounds 258 million in the previous year.

The business was up for sale in April when RBS announced a pounds 12 billion rights issue to help shore up its balance sheet.

RBS said earlier this month that a pounds 5.9 billion writedown on risky assets, which contributed to the first-half loss, had been a chastening experience.

Despite the massive writedowns, it said was building a comfortable capital cushion and sales of assets were going as planned, although tough financial and economic conditions would continue.

Sir Fred spoke at the time that the bank was talking to a number of potential buyers for its insurance arm, which is valued at pounds 5 billion to pounds 6 billion.

"Insurance is for sale, we would like to conclude a sale and we believe our disposal process is on track," Sir Fred said.

"But if we don't get the value we are looking for we are not going to sell and we are fairly confident of meeting our capital targets."

RBS swung to its first-ever reported loss from a pounds 5.1 billion profit a year ago after being hit by the writedowns on credit products. This was in line with previous guidance but partially offset by a pounds 812 million reduction in the value of debt it carries.

The bank said difficult conditions in financial markets were likely to be compounded by a deteriorating economic outlook.

RBS has had a troubled year and in June it was forced to raise pounds 12 billion in the biggest-ever rights issue, to repair a balance sheet stretched by last year's purchase of parts of ABN AMRO and the writedowns.

RBS, which has written down more than pounds 8 billion, has been one of the banks hardest hit by the credit crunch.

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Sir Fred Goodwin
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Aug 19, 2008
Words:570
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