Hester taps investors at insurer RSA for £775m
Friday 28 February 2014
Stephen Hester announced his arrival at the insurance giant RSA yesterday by axeing its dividend and launching a £775m rights issue.
In a wide-ranging overhaul of the group's strategy, the former head of Royal Bank of Scotland said he also planned to sell £300m worth of assets to plug a gaping capital shortfall he believes has been growing over the past four to five years.
RSA shares have fallen heavily since the discovery of a £200m hole in its Irish business last year, which led to the departure of its former boss Simon Lee in December.
The More Than brand owner will now focus on the UK and Ireland, Canada, Scandinavia and Latin America, suggesting disposals in other parts of Europe and Asian are on the cards.
"It's never fun delivering disappointing news but we want to make sure this business is cleaned up properly," Mr Hester said. "I have done this kind of thing a lot in my career."
As well as the planned fundraising, the company said it had also taken out a £550m reinsurance contract with Warren Buffett's Berkshire Hathaway to cover its liabilities. It also plans to sell property and parts of its investment portfolio to boost its regulatory capital buffer by over £1bn.
RSA posted a pre-tax loss of £244m in 2013, compared with a £448m profit last year and said it could not justify paying a dividend in light of the performance. It said its interim payout was likely to be "modest".
RSA shares fell 4.1p – or 4 per cent – to 98.1p .
Barrie Cornes, an analyst at Panmure Gordon, said: "We view the capital raise as an inevitable consequence of over-distributing its dividend for the past few years in addition to the problems in Ireland. We maintain our 'hold' recommendation pending further details of the capital raise."
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