RBS launches forced stock market sale of Direct Line

Fri Sep 14, 2012 5:55am EDT
 
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By Matt Scuffham and Myles Neligan

LONDON (Reuters) - State-backed Royal Bank of Scotland (RBS) (RBS.L: Quote) is to press ahead with the forced sale of its Direct Line insurance division in what could be the biggest listing on the London Stock Exchange (LSE.L: Quote) for more than a year.

RBS, which is majority-owned by the government after a bailout during the 2008 financial crisis, was told to sell Britain's biggest motor insurer by European Union regulators as a condition for taking state aid.

Analysts say that the initial public offering (IPO), announced by RBS on Friday, could value Direct Line at between 2.5 billion pounds ($4 billion) and 3.5 billion pounds, but achieving that could prove difficult in tough market conditions that have already scuppered a stock market flotation by Talanx HDIVGT.UL, Germany's third-biggest insurer.

"The recent pulling of the Talanx IPO in Germany does not read across positively for RBS, suggesting it remains a buyer's market, which may frustrate RBS's valuation expectations," Oriel Securities analyst Vivek Raja said.

Talanx abandoned its Frankfurt IPO on Wednesday, saying that investors were demanding too big a discount on the company's valuation relative to what its investment banking advisers had foreseen.

On a conference call with reporters, Direct Line Chief Executive Paul Geddes said that Talanx's abandoned IPO would have little effect on his company's prospects. "Eighty percent of that business is reinsurance and life (insurance), so it's a very different market," he said.

If RBS were to encounter a similar experience to Talanx, it would have the option of re-examining a straight sale or asking Brussels for an extension to its deadline. Under the EU directive, RBS must sell more than 50 percent of Direct Line by the end of 2013 and the rest of its holding a year later.

POLITICAL PRESSURE   Continued...

 
A logo of an Royal Bank of Scotland (RBS) is seen at a branch in London February 23, 2012. REUTERS/Stefan Wermuth