The government kicked off its disposal of a majority stake in Royal Mail on Friday, seeking to value the company at as much as 3.3 billion pounds in one of Britain's most significant selloffs since the 1990s.

It will pay the banks a maximum possible overall fee of 1.2 percent of the amount raised by the sale.

That is below the average of 1.6 to 2 percent paid for initial public offerings over $1 billion in Europe, Middle East and Africa between 2010 and 2013, according to data from Thomson Reuters/Freeman Consulting.

Companies bringing large deals to market have greater power to squeeze fee percentages, as the absolute sum is higher and banks are keen to gain credit on league tables which rank the performance of firms and are fiercely competitive.

Banks also see it as prestigious to work on such high profile deals and are keen to form good relations with governments in the hope of future work.

Earlier this month the British government did not pay any fees to the banks that handled its sale of a 6 percent stake in bailed-out lender Lloyds Banking Group.

The government plans to sell as much as 52.2 percent of Royal Mail in the London stock market offering, banking up to 1.7 billion pounds if the sale prices at the top of its 260 pence to 330 pence per share range.

If an "over-allotment option", whereby extra stock can be sold if there is strong demand, is exercised both the offer size and amount raised could increase by 15 percent.

Goldman Sachs and UBS are running the sale and acting as joint-bookrunners along with Barclays and Bank of America Merrill Lynch. Investec, Nomura and RBC Capital Markets are co-lead managers.

The seven banks will share a fee of 0.8 percent of the final offer size, and could also receive a discretionary fee of 0.3 percent on top of this.

As joint-global coordinators, the top role in an initial public offering banking syndicate, Goldman Sachs and UBS will share an extra fee of 0.1 percent.

(Editing by Mark Potter)

By Kylie MacLellan