November 12, 2009 / 12:04 AM / 9 years ago

Governments could take 7 years to exit bank stakes

LONDON (Reuters) - Governments may take up to seven years to sell stakes in banks bailed out during the financial crisis, due to complexity of rescue deals and an unattractive disposal environment, PricewaterhouseCoopers said on Thursday.

Shoppers are reflected in the windows of Northern Rock's Leicester branch, February 4, 2008. REUTERS/Darren Staples

Any hopes of a swift government exit are misplaced, accountant PwC said, citing the experience of bailing out banks in countries such as Japan, Norway and Sweden and recent bank privatisations in eastern and central Europe.

“It could easily take two to three years to sell major stakes, but up to five to seven years before governments are able to fully divest of their stakes and related guarantees,” said Jon Sibson, a partner and UK government and public sector leader at PwC.

Given the limited chance of a quick exit, the main focus of governments should be on influencing issues from “inside the tent,” PwC said. That includes focussing on wider economic and social objectives, rebuilding confidence and trust in the financial system, and credible plans to address fiscal deficits.

“The key lesson from past privatisations is that the financial institutions or non-bank firm needs to be cleaned up prior to sale,” PwC said.

Exit routes will necessarily differ as governments have adopted different bailout policies, ranging from providing credit to purchasing toxic assets to nationalisation.

Britain has nationalised Northern Rock and taken major stakes in Lloyds Banking Group and Royal Bank of Scotland, while Germany has nationalised Hypo Real Estate and taken a stake in Commerzbank.

The Dutch government has nationalised ABN AMRO and Fortis Bank Nederland, Ireland has nationalised Anglo Irish Bank and taken indirect stakes in its top two lenders, and other European governments have provided support to banks.

The United States has provided billions of dollars to recapitalise some of its largest banks, which included injecting $45 billion (27 billion pounds) into Citigroup.

Reporting by Steve Slater; Editing by Dan Lalor

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