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'Rescue bid' boosts Northern Rock 'Rescue bid' boosts Northern Rock
(about 10 hours later)
Northern Rock shares have risen 10% in early trading following reports that US private equity group JC Flowers has set aside £15bn ($30.6bn) to buy the bank. Northern Rock shares have risen 12% following reports that US private equity group JC Flowers has set aside £15bn ($30.6bn) to buy the bank.
Reports say Chris Flowers, who runs the fund, wants to keep the troubled bank whole rather than split it up.Reports say Chris Flowers, who runs the fund, wants to keep the troubled bank whole rather than split it up.
Northern Rock had to ask the Bank of England for emergency funding as a result of the global credit crunch. But Northern Rock's charitable arm, which controls 15% of its shares, said it was important that a deal protected the bank's role in the local community.
Since news of the liquidity crisis broke, Northern Rock shares have lost about 80% of their value. The Northern Rock Foundation said any deal had to be "fair and reasonable".
While Northern Rock's business itself was sound, the bank relied heavily on short-term credit to run its day-to-day operations. When the credit markets seized up during the summer, the company had to ask the Bank of England for help. 'Self-imposed timetable'
The Foundation, which has awarded more than £150m in charitable grants since 1997, said it would be speaking to other shareholders as well as ministers to ensure any deal took into account the role of Northern Rock in the local community.
We are concerned to see that a transaction is not concluded on unfavourable terms Alastair Balls, Northern Rock Foundation
Its comments come amid concerns that any takeover could lead to scores of job losses in the north-east of England, where 5,000 of the bank's staff work.
"Whilst we understand the need for an early resolution to the bank's operational difficulties, we are concerned to see that a transaction is not concluded on unfavourable terms," said Alastair Balls, chairman of the trustees of the Foundation.
He added that concluding a deal "simply to meet a self-imposed timetable" could be "to the detriment of the charity its work and jobs in the north".
Northern Rock had to ask the Bank of England for emergency funding last month as a result of the global credit crunch and its shares have lost about 80% of their value since news of the liquidity crisis broke.
While Northern Rock's business itself was sound, the bank relied heavily on short-term credit to run its day-to-day operations.
When the credit markets seized up during the summer, the company had to ask the Bank of England for help.
News of the exceptional capital injection triggered a rare run on a UK bank, with thousands of customers withdrawing billions of pounds of savings.News of the exceptional capital injection triggered a rare run on a UK bank, with thousands of customers withdrawing billions of pounds of savings.
The run ended only after the government promised to guarantee the deposits of all savers.The run ended only after the government promised to guarantee the deposits of all savers.
On Wednesday, both the Financial Times and the Daily Telegraph said JC Flowers had been given access to Northern Rock's books last week, to assess the bank's financial health in more detail. On Wednesday, both the Financial Times and the Daily Telegraph said JC Flowers had been given access to Northern Rock's books, to assess the bank's financial health in more detail.
Over the weekend, media reports had suggested that the group's home loan portfolio could be sold off.
The Sunday Times reported US investment funds Cerberus and JC Flowers had gained the green light to meet with Northern Rock's board.
Wider crisisWider crisis
Northern Rock was exceptional among UK banks as it raised much of its operating capital on global wholesale credit markets.Northern Rock was exceptional among UK banks as it raised much of its operating capital on global wholesale credit markets.
Global markets has been severely rocked by a weakening in the US housing sector, notably in the sub-prime mortgage market, which lends to risky borrowers.Global markets has been severely rocked by a weakening in the US housing sector, notably in the sub-prime mortgage market, which lends to risky borrowers.
With rising interest rates in the US, increasing numbers of people have defaulted on loans, failing to meet mortgage payments.With rising interest rates in the US, increasing numbers of people have defaulted on loans, failing to meet mortgage payments.
This hit all banks who needed credit to run their operations, including Northern Rock.This hit all banks who needed credit to run their operations, including Northern Rock.
The mortgage bank's shares closed up 12% at 151.8p.