THE Royal Bank of Scotland is on the cusp of abandoning the auction of its Direct Line and Churchill insurance empire after raising close to £6 billion through the sale of risky loans.

The bank has slashed its exposure to billions of pounds worth of loans used to back private-equity deals and is in talks to sell a further tranche of loans to the investment firms Apollo and Blackstone.

Coupled with the £1 billion sale of its 50% stake in Tesco Personal Finance and the disposal of Angel Trains, the private-equity sales have bolstered RBS’s finances.

RBS is now said to be clinging to the £7 billion price tag it placed on its insurance operations, even though there is thought to be only one serious bidder left in the auction.

American insurer Allstate tabled a bid two weeks ago, which is thought to have fallen at least £1 billion short of the original asking price.

Banking sources say RBS, headed by Sir Fred Goodwin, may attempt to bring the US investment billionaire Warren Buffett back into the process.

Buffett expressed an interest in the businesses when they first came up for sale but warned that he would not participate in an auction.

Although no final decision has yet been taken, it is understood to be increasingly likely that the auction will be delayed or abandoned.

The potential move comes amid growing evidence that the general insurance environment is improving, with annual premiums on key home and motor lines rising.

Goodwin is known to be personally attached to the insurance businesses, which have provided steady cash flows over the years and been a sizeable contributor to group profits.

The insurance businesses were put up for sale in April when RBS announced its £12 billion rights issue. It is understood Goodwin was warned by advisers at the time that it would be impossible to ask shareholders for such a large sum without offering to sell some of the group’s assets.

Goodwin has since earmarked a number of other assets for disposal, while also selling on large tranches of the leveraged loan portfolio. RBS still has close to £10 billion of leveraged loans on its balance sheet.

A number of the bidders for RBS Insurance who dropped out are rumoured to have been taking a close look at RSA Insurance Group, which recently posted forecast-beating first-half results.

European insurance giants Zurich and Allianz have both been linked to a possible deal, along with Australia’s QBE.

Zurich bowed out of the RBS auction after shareholders warned against it doing a deal. Allianz is at present attempting to dispose of its Dresdner Bank business. QBE unveiled a big deal in Australia last week.

A takeover of RSA would allow an exit for Andy Haste, the group’s chief executive, who has been linked with a possible move to a large bank.

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