Royal Bank of Scotland caught between a rock and a hard place
The Royal Bank of Scotland is this evening looking at the possible sale of its prized insurance unit which has been one of the best performers over the last few years. While the timing of a possible sale could not be worse there are concerns that the group needs to increase its capital base for its traditional banking operations with 2009 expected to be as tough if not tougher than 2008.
While the multibillion pound potential sale will go a long way towards increasing the financial strength of the group it will also take away one of the more profitable and steady areas of the Royal Bank of Scotland portfolio. This is the quandary which the company's directors had been debating for some time and they now appear focused on a sale of the business.
As we saw earlier in the year, when companies such as AIG collapsed, there would appear to be a greatly reduced number of potential buyers with many other insurance groups having their own problems at the moment. Without a bidding war it would be difficult for the Royal Bank of Scotland to raise their initial forecasts of around £7 billion although quite what the insurance unit will go for remains to be seen.
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