Royal Bank reviews brokers as sell-off rumours grow

THE Royal Bank of Scotland is considering a switch of brokers against a background of City speculation that it may float off a stake in its Direct Line insurance subsidiary to shore up its defences against a future bid.

The bank has held a beauty parade, with half a dozen brokers making presentations. Smith New Court and Warburg Securities are among top names thought to have seen Royal's finance director, Robert Speirs, who is reassessing all the bank's advisers.

The present brokers, Credit Lyonnais-Laing and the Edinburgh-based Bell Lawrie White, have not yet been told whether they will be dropped. Royal is thought likely to defer an announcement on whether it will change one or both until after its annual results next month.

Royal has consistently played down bid speculation, pointing out that its shares are on a high rating already and that Banco Santander of Spain has a 10 per cent stake.

Santander has signed an agreement not to vote its shares without the consent of Royal, which is generally regarded as a less likely bid target than TSB.

However, Royal has been bombarded with proposals from the City on floating a minority holding in Direct Line so that the company's value can be established for shareholders.

Profits at the insurance phone sales operation trebled to pounds 15m in the first half. There are also reports that Peter Wood, its founder, will receive up to pounds 18m this year as a result of his bonus arrangements. Last year, he earned pounds 6m. One City source said a float of 25 per cent would underline that the bank could only be bought at a premium price, and would deter any bidders. Many believe the float needs to be within the next two years, before the operation matures.

Royal has also been ringing the changes in the merchant banking world by using a variety of advisers for different jobs. These include Goldman Sachs, Warburgs, Barings, Lazards and Charterhouse - which Royal used to own.

But City sources say that despite presentations from Warburg and others, Royal is not yet prepared to settle on a single lead merchant bank.

Royal said: 'We constantly review our working arrangements with a range of outside advisers. We wouldn't want to comment on these arrangements, which are confidential.'

Smith New Court is likely to be on any shortlist as a big market maker in bank shares. But its case for taking over as broker may have been damaged by the defection of Michael Lever, its highly rated banking analyst, to Nomura for a three-year contract said to be worth pounds 1.3m.

The loss of Royal Bank would be a blow to Credit Lyonnais-Laing, which is attempting to build up its corporate finance department with the hiring of Graham Axford, the former managing director of James Capel's corporate finance side.

Credit Lyonnais-Laing has also been pressing Royal to sell off Direct Line, indicating it could be worth over pounds 1bn.