RBS raises £787m through Direct Line share float

Strong demand from the general public helped RBS raise £787m through the sale of almost one third of Direct Line’s shares, which were trading above the offer price by early afternoon.

RBS has to sell all of Direct Line – whose TV adverts have made its four-wheeled red phone motif a well-known corporate symbol – as a condition of a government bailout during the 2008 financial crisis that left it 82 per cent state-owned. It will sell more shares next year and in 2014.

The bank said the sale was the next important step in its recovery plan, having earlier this year finished paying back emergency loans to Britain and the United States. It is also poised to exit a government insurance scheme later this year.

Priced at 175p per share, near the middle of the range RBS set in September, the listing values the business at £2.6bn.

Its shares were trading six per cent higher by midday yesterday, a firm performance which also marked a recovery for initial public offerings in Europe after a dearth of new listings.

RBS had been under pressure to secure a good price for Direct Line, with taxpayers sitting on a loss of £21bn after Britain pumped in £45bn to rescue the bank.

Analyst Eamonn Flanagan, at brokerage Shore Capital, said the offer price was a “reasonable outcome”, although the company’s value is below the cut-off point of about £3bn for inclusion in Britain’s elite FTSE 100 share index.

The IPO was the biggest share offering to the general public in Britain since money manager Hargreaves Lansdown five years ago.

Direct Line chief executive Paul Geddes said individuals had bought between £5,000 and £6,000 worth of shares on average, and had taken up 15 per cent of the shares sold.

Demand was helped by the strength of Direct Line’s brands, which also include Churchill, Privilege and the Green Flag roadside recovery service.

The group employs about 15,100 staff, with about a quarter of its workforce, around 3,750 staff, based in Yorkshire at sites in Leeds and Doncaster.

The insurer has also pledged to pay up to 60 per cent of its profit in dividends to shareholders, giving its shares an estimated yield of about seven per cent.