* IPO could value business at over 3 bln pounds
* Shares set to be sold in three tranches
By Matt Scuffham and Kylie MacLellan
LONDON, Sept 11 Royal Bank of Scotland will announce as early as Thursday its formal intention to float its Direct Line insurance unit on the London Stock Exchange, sources familiar with the matter told Reuters on Tuesday.
British lender RBS, 82 percent owned by the government, was told by European Union regulators to sell Direct Line, Britain's biggest motor insurer, as a condition for taking state aid in 2008.
Analysts say the initial public offering could value Direct Line at over 3 billion pounds ($4.8 billion).
RBS declined to comment on the timing of the announcement.
Chief executive Bruce Van Saun said last month RBS was planning a three-tranche sale - one this year, one next year and a final sale in 2014. Under the EU directive it must have sold over 50 percent of its shares by end-2013 and have sold its entire holding a year later.
Direct Line, whose brands also include Churchill and Green Flag, said last week it expected to be more profitable after the flotation. It also announced plans to cut almost 900 jobs to save 100 million pounds annual costs by 2014.
With investors wary of unpredictable markets and firms reluctant to sell large chunks of their stock cheaply, Europe has seen little in the way of IPO activity over the past year.
German insurer Talanx, which hopes to complete a Frankfurt listing by the end of the month, began marketing its offering last week and plans to raise up to 700 million euros ($899 million). [ID: nL6E8K44KL]