RBS chiefs struggle to sell strategy

RBS chiefs struggle to sell strategy

Royal Bank of Scotland is fighting to convince investors to support the sale of its Churchill and Direct Line insurance operations as part of its record-breaking fundraising exercise.

The sale of the insurance operations is intended to add £4bn to RBS's capital base, on top of a £12bn cash call designed to bolster the Edinburgh-based bank's finances weakened by £5.9bn of fresh write-downs.

"There is discontent about the strategy the group has come up with to sell the family silver [the insurance business]," one investor said.

Leading investors are making their disquiet known at difficult meetings with Sir Tom McKillop, the chairman, and Sir Fred Goodwin, chief executive. Investors say that a month or so ago, if RBS had suggested selling the insurance arm, they would have urged the bank to pursue a rights issue instead. However, the scale of the bank's need for capital means that both strategies are now being pursued, much to the surprise of shareholders.

"Without the sale, there would have to be a £16bn rights issue. But, we are being told it is increasingly non-core," another investor said.

Even without the sale of the insurance arm, investors in RBS are furious at the cash call which they regard as a dramatic change in strategy by the bank which less than two months ago was insisting it did not need to raise cash. McKillop and Goodwin are fighting for their long-term future at the bank.

The insurance business,.....continued below

Advertisement starts

---

---

Advertisement ends

which Goodwin has described "as part of the family", was started in 1985 when insurance expert Peter Wood dreamt up the idea of selling car insurance over the phone and created Direct Line. RBS bought Churchill six years ago for £1.1bn.

Shareholders are concerned that after supporting the rights issue, they would be left holding shares in a smaller group without the profitable insurance arm. It is thought there are mixed feelings within RBS about the sale, which is why Goodwin has made it clear that a partial stake in the business may be sold, rather than the entire business, and that it may not be sold at all if the price is not high enough.

RBS is also under pressure to accelerate its job-cutting programme after the merger with ABN Amro. It is understood the Edinburgh-based bank will start the integration of ABN's investment bank with the loss of 7,000 jobs.

Analysts said they expected RBS management to wield the axe more quickly than originally envisaged to repair its damaged reputation with the City. A plan that was scheduled to take at least two years may only take months under a revised scheme. The loss of 7,000 jobs would equate to a quarter of the 28,000 combined workforce in the wholesale divisions of each bank.

A spokeswoman for the bank said: "Since the acquisition of ABN Amro we have consistently said that as we brought our two wholesale banking businesses together there would be job losses. This is unfortunate, but inevitable.

"In light of current conditions in some parts of the global credit markets we are also looking at the appropriate size for our businesses affected by this downturn."

Alex Potter, banking analyst at broker Collins Stewart said RBS may receive significant benefits from the merger, but it remained saddled with a huge debt after "massively overpaying" for ABN.