RBS, 83 per cent backed by the taxpayer, has until the end of 2012 to offload the car and home insurance operation under European Union rules on accepting government aid. Sources said the Scottish lender held a first-round “beauty parade” of investment banks last week as floating or selling a company of Direct Line’s size will require around 18 months’ groundwork.
RBS would prefer to hold an initial public offering (IPO) of the unit but will consider a trade deal at the right price. US investment sage Warren Buffett is thought to have flagged an interest in bidding for Direct Line through his Berkshire Hathaway vehicle, as is American insurer Allstate.
The process is complicated by the fact Direct Line plunged from a first-half profit of £217m to a loss of £231m, as the rise of no-win, no-fee law firms prompted a surge in road traffic accident claims. The deficit will make an IPO less attractive.
Industry insiders said RBS was likely to get a price tag well below the £6bn valuation put on the business by former boss Sir Fred Goodwin. The final price is also likely to be below the £4.5bn offered by CVC in 2008.