Yesterday, John Waples and Iain Dey wrote in The Sunday Times (UK) that legendary investor Warren Buffet may be acquiring a stake in two insurance businesses that belong to the Royal Bank of Scotland (RBS). According to Waples and Dey:

[RBS CEO Sir Fred] Goodwin will confirm this week that the bank will raise as much as £12 billion - equivalent to a third of its current market value - to repair its capital base.

He will also announce write-offs from the exposure to American sub-prime mortgages of between £5 billion and £7 billion.

In addition, the bank intends to raise between £4 billion and £5 billion by the end of this financial year from asset sales, the biggest of which could be the sale of a 20% stake in its insurance businesses, Direct Line and Churchill. These operations, while generating a lot of cash, are no longer seen as core. If a high enough offer came in for the entire business, it is possible it would be sold.

AIG, the American insurance giant, is expected to be interested in a possible deal, along with Warren Buffett’s Berkshire Hathaway and possibly Aviva, sources said.

Source:

“Royal Bank of Scotland board to decide Sir Fred Goodwin fate”
Iain Dey, John Waples
The Sunday Times (UK), April 20, 2008

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