Direct Line sale fees cut

Investment banks working on Direct Line’s share listing have agreed to lower than usual fees, and retail brokers are offering iPads to lure buyers, as the industry scraps over a rare deal in a slow market.

Royal Bank of Scotland, which is selling the insurer, will probably pay about 2.5 per cent of sale proceeds to banks handling the deal, including extra if the deal goes well, below the average 3 per cent for European initial public offerings since 2000. It reflects investment banks’ eagerness to take the business amid a lengthy drought of major flotations blamed on volatile financial markets.

Britain’s biggest motor insurer is expected to be valued at the lower end of a £2.5 billion to £3.5bn range. The business has a tangible net asset value of £2.3bn, and a top ten investor in RBS said while it should trade at a premium to that, RBS would not be too aggressive.

If RBS sells 25 per cent of the business, and investors value it at the bottom of the range, the 12 banks advising on the sale would collect £16m.