Bank stake sales will take years

By Myles Neligan and Douwe Miedema

LONDON (Reuters) - Britain will need several years to sell stakes in two of its biggest banks, the body managing the holdings said, refusing to set a precise timescale on an exit that could cost taxpayers billions of pounds.

The government will offload the shares in Royal Bank of Scotland and Lloyds Banking Group through a protracted series of sales into markets, UK Financial Investments (UKFI) said in its first annual report.

"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," the body said in an accompanying statement on Monday.

The British government set up UKFI, which employs just 11 people and is run from the Treasury, in December to manage the stakes the state picked up after a 37 billion pound bank bailout.

The unrealised loss on the stakes now stands at 10.9 billion pounds, UKFI said, signalling the bail-out to save Britain's financial sector from collapse could become a costly legacy passed on to future political rulers.

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 percent of gross domestic product this year.

The UKFI got off to a rocky start with politicians in March, when lawmakers said it was "scandalous" that its Chief Executive John Kingman had failed to provide details of executive pay at the two banks.

ROCKY START

At a crowded news conference in the shadows of London's Houses of Parliament, Kingman -- a former Treasury official who now works with a handful of former investment bankers -- said the disposals "would inevitably take several years."

They could take the form of placement with institutional investors, offerings to retail investors, or structured transactions including exchangeable debt issues, or repurchases by the banks themselves, UKFI said.

"I would not be at all surprised to see some transactions occurring within a year or so... and continuing over the next several years," Glen Moreno, UKFI's acting chairman and a former Citigroup banker, later told BBC radio.

"It won't happen quickly but it might happen steadily and our interest will gradually decline," he said.

John Crompton, UKFI's head of market investments, said the agency was not currently working on any transactions to wind down the government's stakes.

UKFI, which has kept a low media profile since its inception, has said it would need to sell its Lloyd's and RBS shares above their average purchase price of 122.6 pence and 50.5 pence respectively to make a profit.

By 3:31 p.m., the two stocks were well below those levels, with RBS shares up 2.8 percent at 36.6 pence and Lloyds shares at 64.25 pence for a 1.50 percent gain.