European taxpayers face a decade of bank exposure

By Nadine Jakobs - Analysis

LONDON (Reuters) - European governments should brace themselves for being involved in large parts of their national banking industries for up to a decade to come, exposing billions in taxpayer funds to huge commercial risks.

Crumbling financial markets will make it hard to offload newly acquired stakes, while the sluggish economy means banks are unlikely to recover quickly, frustrating government plans to pull out of the financial sector quickly.

"It could take them up to 10 years to sell their shares," said Tom Kirchmaier of the Financial Markets Group at the London School of Economics & Manchester Business School.

"In the worst case, the recession will last as long as four years. Then it would take the markets and the real economy a while to fully recover," he said.

After decades of selling down ownership of utilities, rail and real estate companies after political thinking turned friendlier towards business in the early 1980s, governments are now suddenly major bank shareholders.

If all goes well, taxpayers should gain from the deals. Governments scooped up banking shares that have sagged 60 percent so far this year and prices compared to book values are at multi-year lows.

But the amounts of money that were spent -- and thus the risks involved -- are huge.

The United Kingdom and Germany are among the countries with the biggest rescue packages on offer. Under the UK scheme, the government will own or part-own lenders controlling nearly 3 trillion pounds in assets.