UK Financial Investments Limited (UKFI) said the government's stakes in Royal Bank of Scotland PLC and Lloyds Banking Group PLC, which currently represent paper losses of £10.9 billion (US$17.5 billion), could be disposed of in several transactions "over a period of years."

UKFI declined to give more details on a potential exit from the stakes in its annual report, saying it was not "possible or desirable" to say what price or time would trigger a sale.

"Our own task of returning these investments to the private sector is challenging," UKFI said. "The amounts involved are very large, and a successful disposal of our holdings will require professionalism and patience."

UKFI manages the 70 per cent stake in RBS and the 43 per cent holding in Lloyds that were picked up by the taxpayer after the government bailed out the banks with a £37-billion (US$60 billion) capital injection last year.

Risky securities

The government also agreed to insure £585 billion of toxic assets - risky securities for which there is no longer a market - held by the two banks.

UKFI Chief Executive John Kingman said that while the public "rightly expected" to get their money back, selling too early would mean a poorer deal for taxpayers.

"This will not and cannot be a short-term game," Kingman said.

UKFI said it will consider sales to major institutional investors, which can be organised relatively quickly, and sales to private shareholders, as well as selling bonds which can be transferred into shares in the two banks at a later date.

Annual report estimates

The annual report estimates that when including additional shares relating to the asset protection scheme - the taxpayer-backed insurance scheme for the banks' toxic debts - the value of the investments UKFI manages will rise to £60 billion at current prices.

It warned "we may need to undertake several transactions in each bank's shares over a period of years to complete our exit."

On a more positive note, it added that an upturn in investor demand and a return to health for the banking sector and economy as a whole "could create selling opportunities."

UKFI, which came under fire for approving new RBS CEO Stephen Hester's potential £9.6-million pay deal, said it had implemented "perhaps the most far-reaching reforms to remuneration structures of any large banks in the world."

Hester, whose package included a £1.2-million basic salary, has said he will defer part of his payment for a further two years after concerns were raised by investors.

- AP

"Our own task of returning these investments to the private sector is challenging," UKFI said.