Adviser to RSA warns of growing asbestos claims

Goldman Sachs, one of the banks working for Royal & SunAlliance (RSA) on the float of its Australian business, has issued a research note on the company warning investors about its asbestos liabilities.

The bank has expressed concern to institutional clients that might be interested in investing in Promina, the new name for the business, that RSA is facing a growing number of asbestosis claims and the situation warranted "close monitoring".

The move marks the newly found independence by investment banks to criticise their clients in their research. Institutions have come under fire, particularly in the US in the wake of high-profile corporate failures, for allowing their research to become biased towards companies they act as financial advisers for. Regulators in the US have moved to strengthen the division between research and banking teams.

Malcolm Gilbert, the director of communications at RSA, yesterday said Goldman had been an adviser to the company for the past two years and had not always produced flattering research on the company.

"Analysts have to have some level of independence," Mr Gilbert said. "We haven't always had it easy from Goldmans or from Cazenove, who also advise us, and we don't expect to. This is something that has been abused in the past, which scandals in the US have shown, but it is now more of an issue."

RSA is floating its Australian and New Zealand insurance businesses to help plug a £700m capital shortfall at the group. It is expected to raise about £800m from the listing. Potential investors have until 28 March to pre-register for Promina shares. Goldman, alongside a number of other Australian banks acting on the float, is currently distributing research on the company to drum up support for the listing ahead of the deadline.

Mr Gilbert said Promina's full financial details would not be released until the prospectus is issued, expected by the end of the month. He said: "We increased asbestos reserves in 2002 by £20m, and have £800m of provisions in the group. In the context of our asbestos numbers across the group, Australia accounts for a very small amount." The Goldman note does say that RSA has very high levels of asbestos reserves and that its management had been very conservative in its approach to provisions. Goldman believes RSA has "cleared the decks" with last year's hikes.

The money raised from floating Promina is crucial to RSA's survival plans. The businesses in Australia, however, are some of the best-performing divisions in the RSA group and some analysts are concerned that the company will continue to founder without them. Yesterday one described the Australian float as equivalent to a "starving man eating his own limbs to stay alive".