Government in talks on selling shares in rescued banks

Published on Tuesday 19 May 2009 21:55

THE UK government has held talks with investors to gauge their interest in buying its stakes in part-nationalised banks, it was revealed yesterday.

Sources close to the discussions disclosed that the government could begin selling some of its holdings within a year.

Shares in Royal Bank of Scotland (RBS) and Lloyds Banking Group both rose in early trading yesterday as investors speculated on the state's holding in the banks could be reduced sooner than expected, although gains were later trimmed.

UK Financial Investments (UKFI), which manages Britain's stakes in RBS and Lloyds, has sounded out investors who may be interested in buying some of its holdings, according to one source.

Some sales could take place over the next year, but the disposal process is likely to take a number of years to complete given the size of the government's stakes.

A government source played down the prospect of a quick deal: "We won't be rushed into this, and UKFI will look seriously at this only when the conditions are right."

But there was no denial of reports yesterday that UKFI has had substantial contact with potential investors including UK institutions and foreign sovereign wealth funds.

An investor in both Lloyds and RBS said there should be an appetite for the shares, but maybe not for at least a year.

"These businesses will have to have shown very good signs of recovery before they can even contemplate selling these securities.

"I would say the time scale is more like 18 months to 2 years than 12 months," the investor said.

Britain, the United States and several other European governments have all stepped in to rebuild bank capital after a two-year crisis eroded balance sheets, leaving lenders vulnerable in the face of rising bad debts.

A recovery in stock markets in the past two months has lifted optimism that some of the taxpayer cash can be recouped earlier than expected.