Direct Line could begin flotation process this week

By GARETH MACKIE
Published on 11/09/2012 00:00

ROYAL Bank of Scotland is believed to be preparing to kick off the flotation of its Direct Line insurance arm within the next few days.

The bank, which is 82 per cent owned by the taxpayer, has been eyeing an initial public offering of the business next month, subject to market conditions, and sources said the process could begin as early as this week.

Direct Line said last week that it expects to become more profitable once it breaks its ties with RBS and it had essentially completed its goal of operating as a standalone company.

The UK’s largest car insurer – which also owns the Churchill and Privilege brands, along with the Green Flag breakdown service – 
has set itself a target of delivering a 15 per cent return on tangible equity, up from 10.2 per cent reported for the first half of this year.

RBS is required to sell the group by the end of 2014 in return for its government bailout. The process is expected to happen in three tranches, as European regulators have told the bank that it must cede control of Direct Line by the end of 2013 and sell its entire shareholding by the end of the following year.

RBS chief executive Stephen Hester’s hopes for the flotation of a first tranche of the shares are believed to have been fuelled by a rebound in trading at Direct Line, which reporting a 7 per cent rise in operating profits from ongoing operations to £224.2 million for the six months to 30 June.

Analysts believe the insurer could be worth around £3 billion. RBS declined to comment yesterday.