RBS set for windfall as it moves to sell off slice of Direct Line insurer

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Royal Bank of Scotland is expected to make more than £630m by selling a fifth of insurance giant Direct Line.

The part-nationalised lender said last night it is selling up to another 20 per cent of the car and home insurer through a placing of shares with big institutions, as it takes advantage of buoyant stock market conditions.

Direct Line employs around 3,000 staff at three offices in Leeds and a further office in Doncaster
although earlier this year it announced plans to cut that number by around 500 posts.

RBS floated its insurance arm on the stock market as Direct Line Insurance Group last October, and its third deal to offload the insurer’s shares could reduce its stake from 48.5 per cent to 28.5 per cent if all the shares are taken up.

Its announcement comes days after Chancellor George Osborne pulled the trigger on another major share sale, offloading six per cent of Lloyds Banking Group for about £3.2bn. Investors are also digesting Barclays’ £5.8bn rights issue.

RBS was forced to sell its insurance business as a condition of its £45bn government bailout at the height of the financial crisis in 2008.

Under European Union rules, it must sell the entire business by the end of next year.

Direct Line is the company behind brands including Green Flag and Privilege and insures almost one in five UK cars.

Despite suffering in the first six months of the year from a near-10 per cent annual fall in premium rates, it saw pre-tax profits soar by 96 per cent to £208.8m, after a flood and storm-hit 2012.

It recently emerged that around 2,000 jobs are under threat at the insurer, which is based in Bromley and employs 14,400 staff.

Shares in Direct Line closed at 218p, valuing the business at around £3.3bn.

The 81 per cent taxpayer-owned bank announced the sale after the market had closed and said it will not sell any more shares in the insurer for another 90 days after the placing completes.

RBS sold over a third of the insurer at the time of its flotation, with shares initially valued at 175p, and offloaded another 17 per cent in March.