Probe casts cloud over Direct Line flotation

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The competition regulator’s probe into the car insurance market over fears consumers are being overcharged, cast a cloud over the planned flotation of industry leader Direct Line which was priced at the bottom end of expectations.

Shares will be offered at between 160p and 195p per share, giving the business a market value of £2.66bn at the mid-point of the range, Direct Line’s owner, Royal Bank of Scotland, said.

Analysts had expected Direct Line, which also trades under the Churchill and Privilege brands, to fetch between £2.5bn and £3.5bn.

RBS, 82 per cent government-owned after receiving a bailout during the 2008 financial crisis, was told to sell Direct Line by EU regulators as a condition for taking state aid.

The bank priced the offering, London’s biggest in over a year, hours after the government’s consumer watchdog ordered an anti-trust probe of the motor insurance market on the grounds that ineffective competition was forcing up costs for consumers.

The Office of Fair Trading (OFT) referred the industry to the Competition Commission for an inquiry that could take up to two years, saying the market may have features that “prevent, restrict or distort competition”.

The probe could “put a spanner in the works” of the IPO, Shore Capital analyst Eamonn Flanagan said.

Edinburgh-based RBS has been under political pressure to secure a good price for Direct Line as the UK taxpayer is currently sitting on a loss of £22bn after Britain pumped £45bn into the bank to secure its future.