Flotation of Direct Line a big chance for region

Tom Riordan, chief executive of Leeds City Council, said the initial public offering (IPO) of the insurance giant is an opportunity to attract more financial services work to Leeds.

The flotation was forced upon Direct Line’s parent Royal Bank of Scotland as a condition of taking state aid, and is a rare flurry of activity amid a largely dormant IPO market.

The insurer has about a quarter of its workforce in Yorkshire, around 3,750 staff.

“We are ready to work closely with the group to make sure they have the talent pool that they need in the city, as we are with all financial and professional services companies,” said Mr Riordan.

“If they were to decide that they want to move their head office then there would be no better place to do it than Leeds.

“We are delighted to have Direct Line jobs in the city. Although there’s been a rationalisation we are pleased that Leeds remains one of the most significant economic footprints Direct Line has as a group.

“Leeds has a very strong labour market, very good suppliers and talented and flexible people in that sector. We have a history of financial and professional services firms thriving here.”

Direct Line, which insures about one in five cars in the UK, also owns the Churchill, Green Flag, Privilege and NIG brands. The group, headed by chief executive Paul Geddes, employs about 15,100 staff and has operations in Germany and Italy.

Its Leeds Headrow site covers sales, customer service, claims, underwriting, and human resources while its Leeds Wharf office spans risk, underwriting and sales.

The Green Flag brand is headquartered in Pudsey with 515 employees and Doncaster is home to about 720 sales and customer service staff.

The group recently announced plans to axe about 900 jobs as part of a £100m cost-cutting exercise. A call centre in Teesside will bear the brunt of this when it closes with about 500 job losses, and the rest are split across the UK.

RBS is selling Direct Line in three tranches of shares, with 25 to 33 per cent sold in the initial IPO. RBS must offload at least 50 per cent by the end of 2013 and has until the end of 2014 to sell the insurer completely.

The price of Direct Line shares will be confirmed today, expected to be between 170p and 177.5p, giving the group a mid-range value of about £2.66bn.

Conditional dealing in its shares begins today, with the official listing and full trading taking place on Tuesday.

The float was dealt a blow by the Office of Fair Trading’s decision to refer the motor insurance industry to the Competition Commission for full investigation, a process which could drag on for around two years.

Carolyn Black, investment manager at Redmayne-Bentley stockbrokers, said the IPO has created a buzz in the market – despite RBS being a forced seller and the Competition Commission’s probe.

“It’s exciting because there has not been an IPO like this for a long time,” she said. “It might not be one that everyone is going for, but people are generally quite interested and it’s proof that there’s a bit of activity.”

Leeds-based Redmayne-Bentley, one of the intermediaries selected to offer shares to investors, said it saw strong demand, including a flurry of interest before the deadline for retail investors on Tuesday. However, Ms Black said investors have “not got enough information about it”. “There’s the Competition Commission hanging over it. Fundamentally, we were a little bit cautious because we know that RBS have to get rid of it and have tried various options.”

Analysts at Panmure Gordon believe the IPO will get away, but warned “when all the hype is over, we think investors will be left with a company facing an increasingly difficult regulatory outlook, huge pricing pressure and low investment returns for the foreseeable future”.

A major player in sector

The Leeds city region employs about 40,500 in financial and professional services (F&PS), comprising almost one in 10 jobs in the area.

Financial services’ promotion body TheCityUK estimates the Leeds city region’s F&PS sector contributes £7.3bn of gross value added (GVA) to the UK economy.

Outside London, that is the greatest economic contribution from F&PS in a region, beating Greater Manchester’s £6.4bn, Greater Birmingham’s £4.5bn and Sheffield’s £2.4bn.

Financial and professional services make up about 20 per cent of Leeds’ GVA – a measure of the value of goods and services in an area.