Royal Bank of Scotland�s hopes of securing a bumper price for the insurance operations it put up for sale last month, and which employ 1800 people in Scotland, dimmed when Italy�s Generali withdrew from the bidding.

Royal Bank of Scotland's hopes of securing a bumper price for the insurance operations it put up for sale last month, and which employ 1800 people in Scotland, dimmed when Italy's Generali withdrew from the bidding.

Days after confirming that it was studying documentation concerning the sale of operations like Direct Line and Churchill, the Italian life and pensions giant revealed it had decided not to proceed.

Speaking ahead of yesterday's informal deadline for initial bids a spokeswoman for the company confirmed Allianz had withdrawn, without giving reasons.

However, sources said Generali had baulked at Royal Bank's price expectations and its apparent determination to sell the unit in one go.

"The price was full and there wasn't much flexibility in terms of being able to cherry-pick the assets," one source close to the situation told Reuters Thomson news agency.

Generali was thought to be more interested in acquiring parts of Royal's sprawling insurance empire, such as the Linea Directa venture in Spain, than others.

Yesterday's decision by Generali comes a week after Berkshire Hathaway, the conglomerate controlled by the fabled sage of Omaha, Warren Buffett, also decided not to bid for the insurance business after studying documentation provided by Royal Bank's advisers.

Six trade bidders were still thought to be considering making bids yesterday with Zurich of Germany reckoned to be in pole position. The others are Allstate, Travellers and AIG of the US, Allianz of Germany and Ping An of China.

However, Generalis' move could cause unease among directors at the Edinburgh-based bank which in April announced plans to raise around £4bn from disposals, to help fill a hole left by debt writedowns. The bank also wants to raise £12bn to boost its balance sheet from shareholders through a discounted rights issue.

The withdrawals by Allianz and Berkshire Hathaway could raise doubts about Royal's ability to raise as much as it hoped for by selling the insurance business.

While market watchers originally said this might be worth £10bn, estimates of £5bn to £7bn have been bandied around the market recently. Analysts reckon Royal could net around £4bn from a sale in this price range.

Potential bidders might struggle to fund a deal that required them to raise substantial amounts from shareholders or banks amid continuing market volatility.

Employees of the insurance business, which has substantial operations in Glasgow, may regard the possibility of a sale to Zurich with concern. Led by Annette Court, a former head of Royal's insurance business, Zurich already has a significant presence in the UK and might look to boost returns from an enlarged operation by cutting jobs.

Royal Bank declined to make any comment on the sale of the insurance operation.

An analyst noted that it would be unsual for all parties that were invited to participate in an auction to do so. Completing the sale of a complex collection of assets like the Royal insurance arm could take months.