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D-day for Northern Rock bidders Virgin confirms Northern Rock bid
(about 7 hours later)
Potential suitors of Northern Rock have until Friday to submit their proposals to rescue the bank. A consortium led by Richard Branson's Virgin Group has confirmed their rescue bid for ailing bank Northern Rock.
Virgin Group and US private equity firms JC Flowers and Cerberus are among those expected to come forward with offers for the beleaguered lender. Potential suitors of Northern Rock have until the end of Friday to submit their proposals to rescue the bank.
But because any future owner will have to pay back about £24bn of Bank of England loans, bids are set to be low. US private equity firms JC Flowers and Cerberus were also expected to come forward with offers for the lender.
Options ranging from an outright buyout to a breaking up of the ailing bank's assets are expected to be proposed. However, analysts warned that bids probably will be low because any future owner would have to pay back about £24bn of Bank of England loans.
Newcastle-based Northern Rock and its advisers will then decide which offer to accept. Virgin said it would run Northern Rock as a going concern but rebranded as a Virgin business and the former boss of Lloyds TSB, Sir Brian Pitman would be the bank's chairman.
Former Treasury minister Geoffrey Robinson warned that bidders shouldn't be too "greedy" in their demands for government It said that a significant proportion of the Northern Rock's emergency borrowings from the Bank of England would be repaid immediately.
Press reports this week claimed that the British taxpayer could still be underwriting up to £6bn worth of loans to the bank until 2010.
Virgin gave no other details of the formal proposal.
Possible outcomesPossible outcomes
BBC business editor Robert Peston has previously said that there were three possible different destinations for Northern Rock:BBC business editor Robert Peston has previously said that there were three possible different destinations for Northern Rock:
  • the sale of the whole company
  • the sale of the basic physical infrastructure of the business i.e. the branches, information technology and call centre, which may also include Northern Rock's £13.5bn of retail deposits and matching assets
  • the sale of the infrastructure plus all those securitised mortgages
  • the sale of the whole company
  • the sale of the basic physical infrastructure of the business i.e. the branches, information technology and call centre, which may also include Northern Rock's £13.5bn of retail deposits and matching assets
  • the sale of the infrastructure plus all those securitised mortgages
Other reports have suggested that the Government could "nationalise" the lender, breaking up the business itself to recoup taxpayers' cash.Other reports have suggested that the Government could "nationalise" the lender, breaking up the business itself to recoup taxpayers' cash.
A consortium led by Richard Branson's Virgin Group has expressed interest in buying a majority stake in the Newcastle bank, which is responsible for about 1 in 5 mortgages in the UK, and rebranding it as Virgin Money.
JC Flowers, meanwhile, has put together a high-profile management team to make their case for taking over the bank stronger, while rival private equity firm Cerberus has also been rumoured to have been scouring Northern Rock's books.JC Flowers, meanwhile, has put together a high-profile management team to make their case for taking over the bank stronger, while rival private equity firm Cerberus has also been rumoured to have been scouring Northern Rock's books.
It has been reported that it has even gone to China to ignite interest in saving the struggling Newcastle-based bank.
Controversial
A private equity buyer would be a controversial choice given their reputation for buying firms on the cheap to turn a fast profit, particularly because any buyer is likely to demand that the Government continuing to guarantee savers' deposits in the bank.A private equity buyer would be a controversial choice given their reputation for buying firms on the cheap to turn a fast profit, particularly because any buyer is likely to demand that the Government continuing to guarantee savers' deposits in the bank.
There have been reports that buyers would call for interest payments on the Bank of England loans to be scrapped - arguing this would enable them to save jobs.There have been reports that buyers would call for interest payments on the Bank of England loans to be scrapped - arguing this would enable them to save jobs.
Other expressions of interest have become from the former boss of Abbey National, Luqman Arnold.Other expressions of interest have become from the former boss of Abbey National, Luqman Arnold.
He has said he would make a move through his investment group Olivant taking a minority stake in Northern Rock and turning around its fortunes in its current form with new leadership.He has said he would make a move through his investment group Olivant taking a minority stake in Northern Rock and turning around its fortunes in its current form with new leadership.
The bank has been in trouble since getting caught up in the financial storm over the summer, which left it unable to borrow money from other banks to fund its business model.The bank has been in trouble since getting caught up in the financial storm over the summer, which left it unable to borrow money from other banks to fund its business model.
A memo published on the Financial Times' Alphaville website this week showed that the British tax payer could still be underwriting up to £6bn worth of loans to the bank until 2010 through emergency funding provided by the Bank of England.