Warren Buffet considering purchase of Direct Line from RBS, experts speculate

While RBS has begun the vetting process in regards to selecting personal and business insurance experts in an advisory role for the sale of its Direct Line insurance arm, speculation that Warren Buffet is considering snapping it up to add to his already significant portfolio.

Mr Buffet’s investment group, Berkshire Hathaway, has expressed an interest in purchasing Direct Line, commercial insurance insiders say.  RBS is said to favour a business flotation, but current analysis indicates that due to heavy losses incurred by an increase of auto accident claims will make the probability of a sale that much higher.

RBS, which is 83 per cent owned by the British government, has been ordered by the EU to sell its insurance divisions as a punishment for accepting taxpayer bailout funds in excess of £54 billion during the banking crisis.

In a recent statement released by the bank, a spokesman commented that the December 2013 deadline handed down by the EU gave RBS some breathing room in regards to putting together either a sale or an IPO, saying that since the deadline is so far off, speculation at this early point in time is counter-productive at best.

Chief executive for RBS, Stephen Hester, has stressed the idea of a listing would be an option that is preferable to a sell-off.  There have been no comments from Berkshire Hathaway either to confirm or deny the rumours of a possible buy-out of Direct Line or any other RBS-owned insurance arms.

Following the EU ruling, RBS has cautioned that approximately 2,600 staff will be made redundant in both its retail and insurance businesses; the recent sale of 318 branches of RBS to Santander earlier in August was part of that ruling.  Mr Hester had made the insurance division of RBS an integral part of the financial institution’s plans for recovery and restructuring, but has had to institute a workforce reduction to the tune of 2,000 positions in order to make it ready for either a disposal or an IPO; subject to a bid of £4.5 billion in 2008 from private equity firm CVC, the insurance arm for RBS has in the past been estimated to be worth as much as £6 billion.

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