The complexity of individual financial institutions’ situations, difficult market conditions and an unattractive disposal environment combine to make the possibility of governments’ exiting their stakes in the private sector in the short term highly unlikely. “Realistically, for many governments it will take years to dispose of their stakes in financial institutions. It is not unreasonable to expect that it will 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 Jan Sturesson, global government leader at PwC LLP.
Based on the experience of bailing out banks in countries such as Sweden, Norway and Japan and recent bank privatizations in Central and Eastern Europe, current expectations for early sales of large government stakes are misplaced. The key lesson from past privatizations is for the FIs or non-banking firms’ needs to be cleaned up prior to sale, how governments deal with toxic or troubled assets and where governments have not already nationalized troubled banks, the need to create mechanisms for dealing with non-performing assets, which might include “bad banks” or other asset securitization vehicles so that when a bank is returned to the private sector it is in sound financial health.