Banking sell-off to take up to seven years

Ministers should forget any hopes of a quick sale of the taxpayer's stake in the banking system, a report from the accountancy firm PricewaterhouseCoopers will warn today.

In the report, Back to the Future – Global Financial Institutions and the Global Financial Crisis, the firm will say that it could take two to three years for the first sell-offs to be achieved, with the final divestments not likely to be achieved for as many as seven years.

The report is being issued just a week after a second taxpayer bail out of Royal Bank of Scotland and Lloyds Banking Group, with the Government making £39.2bn available to prop them up, just 13 months after the Treasury injected £35bn into the ailing institutions to save them from collapse.

The report says that governments, including Britain's, face an unhelpful environment for a sell-off, and should instead concentrate on restoring confidence in a financial system that has been badly battered as a result of the credit crunch.

"The complexity of individual financial institutions' situations, difficult market conditions and an unattractive disposal environment combine to make the possibility of early government exit from their stakes in the private sector highly unlikely," the report says.

Jon Sibson, partner and UK government and public sector leader at PricewaterhouseCoopers, said: "Governments have a fiscal mountain to climb as they deal with the recession and the consequences of the financial crisis extending beyond banking and capital markets boundaries to the insurance, savings and automotive sectors.

"Against this backdrop, the PwC report suggests that the Government's role is not just about supporting financial institutions that are now reliant on state support. It also involves rebuilding public finances and, above all, restoring businesses' and consumers' trust and confidence in both government and financial services."

UK Financial Investments has been charged with stewarding the Government's stake in the banking sector, and has repeatedly said it is under no pressure to make a quick sale. However, Northern Rock, in the process of being split into a "good" and "bad" bank, might be able to be sold off more quickly, with several interested bidders watching the situation closely.

Unions have also become increasingly unhappy about the way that state-owned banks are behaving. The banking union Unite will today call for a change to the culture of the UK banking system, and warn that staff are being pressured into meeting unrealistic sales targets, which could lead to products being missold to vulnerable people.