Is the UK government in danger of undervaluing UK banks?
While the authorities seem to have finally admitted defeat in their quest to sell off the vast majority of taxpayer held banking share stakes in the short term, there is a danger that the rush to sell off these significant holdings could undervalue the sector as a whole. At a time when UK banks are still trying to work out bad debts from recoverable debts there will come a situation in the medium to longer term when additional capital will be required.
If the UK government still has the potential sale of up to £70 billion worth of banking shares hanging over the market there is no doubt that this will to some extent subdue the value of UK banks. Why would investors push share prices higher and higher in the banking sector in the knowledge that the government could flood the market at any time?
The demise of UK banking sector has been well documented and while many people are under the impression the sector has turned, it will take many years for the sector to work through the many problems which appeared during the recession. There is no short-term quick fix for UK banking sector!
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