Britain will need several years to sell its stakes in its two biggest banks, the body managing the holdings said yesterday, refusing to give much detail of an exit that could cost taxpayers billions of pounds.
Selling the stakes in Royal Bank of Scotland and Lloyds Banking Group in markets will take time and the two lenders still face significant legacy losses, UK Financial Investments said.
"UKFI does not set any fixed timetable for disposing of the shares, but says it expects to undertake a number of capital markets transactions over a sustained period," UKFI said in a press release with its first annual report.
The government set up UKFI in December to manage the stakes Westminster picked up after a £37 billion bank bailout. It employs just 11 people and is run from a small set of offices in the Treasury.
The unrealised loss for taxpayers now stands at £10.9 billion, the UKFI said, adding that it would need to sell its Lloyd's shares at 122.6 pence and its RBS shares at 50.5 pence to book gains on its holdings.
In mid-session trade, RBS shares were 36.13 pence, up 1.32 per cent, while Lloyds shares were at 63.4 pence, 0.16 per cent higher, with traders quoting a Sunday Times report that Lloyds was poised for further write-downs.
If the loss on the stakes is realised, it could become a legacy passed on to future governments.
The country's unpopular Labour government faces a general election within a year and one of the central issues will be how to lower a budget deficit that will exceed 12 per cent of the gross domestic product this year.
At a crowded news conference in the shadows of Parliament, UKFI chief executive officer John Kingman laid out the options to dispose of the 70 per cent stake in RBS and 43.3 per cent in Lloyds that the group holds.
The agency is considering institutional placements, offerings to retail investors, and structured transactions including exchangeable debt issues, but is not actively working on any sale plan now, it said.
"We are not currently working on any transactions," said John Crompton, UKFI's head of market investments.
UKFI said in its report that it could take several transactions to sell the stakes, due to the large size of the holdings and as there might not be a single strategic buyer interested.
Mr Kingman told reporters this approach "would inevitably take several years."
A former Treasury official, Mr Kingman got off to a rocky start with politicians when a parliamentary hearing in March said it was "scandalous" that he had failed to provide details of executive pay at the banks in which the UKFI holds stakes.
Mr Kingman, who is now working with a handful of former investment bankers, has stressed the body's independence from the government and has kept a low profile in the media.
When he was at the Treasury, Mr Kingman had been in control of £600 billion of public spending annually and had led talks with RBS, Lloyds TSB and HBOS on their recapitalisation as well as discussions on the nationalisation of Northern Rock.
UKFI has said it operates like any other shareholder to maximise the value of its holdings and that it planned to sell down its holdings over time in an orderly way.
The two banks had large exposure to the UK's plummeting real estate market, while RBS also landed in trouble through its costly acquisition of parts of Dutch bank ABN Amro just before the credit crisis knocked banking shares.
UKFI - described by its chairman, Glen Moreno, as a "Fidelity with nuclear weapons" in a reference to the large US fund manager - will also manage fully nationalised lender Northern Rock and Bradford & Bingley's loan book, pending European approval.