Concern over RBS insurance sale as Italian giant pulls out

Published on Wednesday 28 May 2008 21:27

ITALIAN insurer Generali yesterday became the second big-name player to drop out of the £7 billion auction for Royal Bank of Scotland's insurance arm – prompting analysts to question the timing of the sale.

Generali dropped out of the running just hours ahead of what is believed to have been the first unofficial bid deadline set by RBS, following on from the recent withdrawal of Warren Buffett's Berkshire Hathaway.

It triggered speculation among City analysts that interest in the division, whose best-known brands are Direct Line and Churchill, is fading as RBS tries to bolster its financial base.

The Scottish bank has also launched a 12bn rights issue. One analyst, who preferred not to be named, commented: "Many people have said you don't sell a business to deal with a capital situation.

"You sell if you can get more selling it than it is worth keeping it. RBS's problem is that people know that it put the business on the market unsolicited, and so some might see it as a forced seller and be trying to knock down the price.

"If RBS dig their heels in, that could be the reason we are seeing the likes of Generali and Buffett walk away."

Another analyst said: "The timing of the insurance division sale is odd. It made 900 million in 2007. It is not an insignificant piece of RBS. Whatever the merits, or otherwise, of the sale, these withdrawals show it is not all going smoothly."

Analysts said Zurich Financial Services remains the front- runner – although Generali, with its deep pockets, was also seen as a strong candidate.

Zurich already has a growing UK presence and hired RBS Insurance's former head, Annette Court, two years ago. Buying RBS Insurance would propel it to the top of the pile in Europe's most competitive motor market.

Generali gave no reason for its decision to pull out. But sources close to the situation blamed high price expectations and RBS's unwillingness to consider breaking off even some of the parts that make up the unit, Britain's largest motor insurer.

One source said: "The price was full and there wasn't much flexibility in terms of being able to cherry-pick the assets." The source said the Italians had been more interested in some of the RBS Insurance assets – its Spanish operation Linea Directa, for example – than in others.

The withdrawal of Generali and Buffett is likely to trigger fresh debate over the price and conditions of the sale.

RBS put the unit on the block last month to rebuild a balance sheet that had been stretched to near minimum levels after its part in the acquisition of ABN Amro and writedowns.

Other possible bidders are Allianz from Europe; Allstate, Travelers and AIG from the United States; and China's Ping An, according to people familiar with the situation.