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Virgin confirms Northern Rock bid Two suitors confirm Rock offers
(about 7 hours later)
A consortium led by Richard Branson's Virgin Group has confirmed their rescue bid for ailing bank Northern Rock. Two suitors, Virgin Group and investment firm Olivant, have confirmed separate rescue bids for troubled bank Northern Rock.
Potential suitors of Northern Rock have until the end of Friday to submit their proposals to rescue the bank.
US private equity firms JC Flowers and Cerberus were also expected to come forward with offers for the lender.US private equity firms JC Flowers and Cerberus were also expected to come forward with offers for the lender.
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.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.
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. The consortium led by Virgin said it would run the bank as a going concern.
It said that a significant proportion of the Northern Rock's emergency borrowings from the Bank of England would be repaid immediately. It would be rebranded as a Virgin business and the former boss of Lloyds TSB, Sir Brian Pitman, would be the bank's chairman.
Virgin said that a significant proportion of Northern Rock's emergency borrowings from the Bank of England would be repaid immediately.
Olivant, a team led by veteran troubleshooter and former Abbey National boss Luqman Arnold, said it had made a detailed proposal to stabilise the bank as a viable business and restore its finances.
Press reports this week claimed that the British taxpayer could still be underwriting up to £6bn worth of loans to the bank until 2010.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. "The key to repayment of the Bank of England facility is to stabilise Northern Rock and restore confidence in the bank and its brand," Mr Arnold said.
Both Virgin and Olivant gave few details of the formal proposals, which were submitted for a Friday deadline.
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.
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.
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.
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.