RBS lifts lid on £3bn move to sell off Direct Line arm

The 81 per cent government-owned bank has been forced by the European Union to sell the insurer as a condition of taking state aid in its 2008 bailout.

No price was put on the planned initial public offering (IPO), likely in the next few weeks, but analysts expect the insurance giant could fetch around £3bn.

Direct Line owns brands including Churchill, Privilege and Green Flag and claims a 19 per cent market share in motor insurance and 18 per cent in home insurance.

Chief executive Paul Geddes said: “Our people have worked hard in recent years to transform the business in order to take advantage of our distribution, scale and market-leading brands.”

Direct Line has 15,100 staff, including about 3,700 in Yorkshire, and also has operations in Germany and Italy.

It recently announced 900 job cuts, including closing a call centre in Teesside, under plans to save £100m a year and make it more attractive to investors.

RBS plans to sell Direct Line in three tranches of shares, with at least 25 per cent sold in the initial IPO.

RBS must offload at least 50 per cent by the end of 2013 and has until the end of 2014 to sell the insurer completely.

The bank’s finance director, Bruce Van Saun, said: “We believe it has a strong future as a standalone insurance group continuing to serve its customers well while delivering attractive returns to investors.”

The bank is under pressure to achieve a good price for taxpayers, who are sitting on a £20bn loss after its £45bn bailout, but analysts warned that will be a challenge.

“A key question, given that backdrop, is whether investors will need a substantial discount to book value to entice them into purchasing the shares,” said Nic Clarke, analyst at Charles Stanley stockbrokers.

If the flotation does not succeed RBS could be forced to ask the European Union for an extension.