RBS 'plans to sell insurance arm'

Other banks are expected to follow RBS in launching a rights issue

Britain's second largest bank, Royal Bank of Scotland, is considering selling its insurance firms Direct Line and Churchill, a report suggests.

The businesses could raise up to £5bn for RBS, the Sunday Telegraph said.

The report comes as RBS executives meet to discuss plans to ask shareholders for up to £12bn of extra cash.

The board is set to unveil the plan to raise money from existing investors on Tuesday. It will be the biggest rights issue in UK corporate history.

RBS, wants to shore up its financial position amid the global credit crunch, declined to comment on the report that it was to sell its insurance arm.

However chief executive Sir Fred Goodwin is understood to be keen to keep the businesses.

'Prudent measure'

Insurance giants AIG, Allianz, Axa and Generali have made "preliminary enquiries" about snapping up RBS's insurance business, the Sunday Telegraph said.

WHAT IS A RIGHTS ISSUE? Companies issue extra shares to raise money They are offered to existing shareholders, usually at a discount to the current share price Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones RBS to ask shareholders for cash Are RBS customers affected? Should RBS ask for more cash?

The rights issue is thought to be a prudent measure to provide a capital cushion for the amount of risk on its balance sheet after RBS played a leading role in last year's takeover of the Dutch bank ABN Amro.

The Sunday Telegraph said that Sir Fred held secret talks with the Financial Services Authority about the prospect of a rights issue.

Reports suggest other banks - including Barclays and HBOS - have talked with the City watchdog about similar plans.

The paper added that the chiefs of other banks had also met with the head of the FSA, Hector Sants, over the possibility of going to their shareholders for cash.

Both Barclays and HBOS declined to comment on the report.

However there has been no suggestion that the FSA has tried to force any bank into going to its shareholders to raise cash.

Chancellor Alistair Darling has also said that more banks are likely to unveil plans to boost their capitalisation.

RBS, owner of NatWest, Ulster Bank and insurer Direct Line, has not yet commented on its plans to begin a rights issue.

It will issue a trading update on Tuesday, ahead of its annual meeting on Wednesday.

The statement is expected to reveal write-downs of about £5bn as a result of the bank's exposure to the credit markets.