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IMF urges Britain to privatise state-rescued banks

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(Globalpost/GlobalPost)

The International Monetary Fund on Wednesday urged Britain's government to adopt a "clear" plan to sell its stakes in state-rescued lenders Royal Bank of Scotland and Lloyds Banking Group, but warned it may first need to inject more capital.

"A clear strategy is needed for the two government-intervened banks, with a view to returning them to private ownership," the IMF said in a statement published at the conclusion of its latest mission to London.

Both RBS and LBG were bailed out by Britain at the height of the 2008 global financial crisis, when the US subprime housing crisis sparked an international credit crunch that ravaged the world's banking sector.

The IMF now wants British finance minister George Osborne to dispose of his government's 81-percent stake in RBS and 39-percent stake in Lloyds.

It praised both lenders for their ongoing restructuring programmes, under which they have both shed tens of thousands of jobs and sold off swathes of their businesses.

However, the IMF on Wednesday also noted that challenges remained, particularly after Lloyds' deal to sell 632 branches to rival The Co-operative Group collapsed last month as a result of the poor economic climate. The EU had ordered the divestment in exchange for its vast state bailout.

"Together, RBS and LBG account for two-fifths of the stock of UK net private sector lending," the IMF said on Wednesday.

"The banks have made progress in repairing their balance sheets and improving profitability. But challenges remain, as evident by the recent failure to divest surplus business lines, and the still-low market-to-book value for RBS.

"The approaching completion of the banks' original EC-approved restructuring plans provides an opportunity to elaborate a clear way forward."

The Fund added that the government may still be needed to help meet any capital shortfall to help privatise both banks.

"Any strategy should seek to return the banks to private hands in a way that maximises the value for taxpayers, strengthens confidence and competition in the sector, and minimises outward spillovers," it said.

"In this context, if a sovereign backstop is required to meet a capital shortfall, it should be provided."

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http://www.globalpost.com/dispatch/news/afp/130522/imf-urges-britain-privatise-state-rescued-banks