Royal Bank Of Scotland Eases The Pressure For Insurance Division Sale
News that the Royal bank of Scotland (RBS) has sold off a highly controversial basket of leveraged debt arrangements valued on the books at £4 billion has eased the short term need to offload the insurance division at a below market value price. The division had been expected to bring in at least £7 billion but recently this figure was downgraded to between £5 billion and £7 billion.
While the basket of leveraged debt was actually sold at a deep discount to the £4 billion headline figure (although there is no confirmation of the exact figure as yet) it is a highly controversial move in the long term. The funds were lent to a number of groups who used them as part of highly leveraged takeovers which seem sure to struggle in the current economic environment. There is a little confusion over who would actually be liable to the debt if the underlying groups were to default - with some suggesting the route may go back all the way to RBS.
Short term this is a great move for the balance sheet - it brings in money and reduces the group's exposure - but longer term there may be complications with the sale, but by then hopefully the economy will have picked up.
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