Potential bidders have until this evening to submit their rescue proposals for Northern Rock.
Names being bandied around include Virgin Group, which would subsume the Rock into its Virgin Money Group. New York-based hedge fund manager JC Flowers and US private equity group Cerberus have also emerged as potential bidders.
Luqman Arnold, former Abbey chief executive and now head of investment group Oliphant, has also come up with an ‘audacious’ proposal to parachute a new management team into Northern Rock in return for a stake in the business, according to Richard Fletcher in The Daily Telegraph.
The Financial Times reported today that as many as eight bidders may make themselves known today and over the weekend.
Darling remains silent on Government plans
However, a firm bid looks unlikely so long as the Chancellor Alistair Darling declines to comment on the government’s exact plans for the beleaguered mortgage bank. It is unclear whether the taxpayer will pick up the £2bn in interest already accumulated on a total of £22bn which the Northern Rock borrowed at the bank’s penal rate. It looks as though any potential bidder would have to pay back the Rock’s borrowings, so any bid would be fairly low.
A sale memorandum placed on the FT Alphaville website on Tuesday showed that Northern Rock expects to have borrowed as much as £24bn from the BoE as of January 2008. Although strangely enough, reports Robert Peston at bbc.co.uk, the BoE estimates the total lent at closer to £30bn.
The memo also outlined three possible rescue options for the Rock: an outright sale; selling of the basic infrastructure (including branches, call centres and also £13.5bn of retail deposits); or a sale of infrastructure plus securitised mortgages, leaving a rump of assets and liabilities for run-off. Retaining the Rock as a listed company, notes Peston, is simply not mentioned as an option, suggesting that Luqman Arnold’s bid has little chance of succeeding.
More articles on Northern Rock:
– How Gordon Brown failed the banking test
– What will happen to Northern Rock?
– How your money could bail out Northern Rock savers