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Olivant pulls out of Rock rescue Olivant pulls out of Rock rescue
(10 minutes later)
Olivant, one of the firms expected to table a rescue plan for troubled lender Northern Rock, has pulled out.Olivant, one of the firms expected to table a rescue plan for troubled lender Northern Rock, has pulled out.
Olivant says it will not submit a further proposal because it has not been able to come up with a plan that meets its "investment criteria".Olivant says it will not submit a further proposal because it has not been able to come up with a plan that meets its "investment criteria".
Monday was the deadline for companies to put forward rescue plans for the mortgage lender. Sir Richard Branson's Virgin Group has submitted its propsal to inject fresh funds into Northern Rock.
That leaves Sir Richard Branson's Virgin Group and the bank's management as the two remaining possible buyers. The other remaining potential buyer is a group led by the bank's management, who are yet to submit their plan.
This is very bad news for Northern Rock and very bad news for the Treasury Robert PestonBBC business editorThis is very bad news for Northern Rock and very bad news for the Treasury Robert PestonBBC business editor
The government has said it favours a private sector rescue for Northern Rock, which has received £55bn of financial assistance.The government has said it favours a private sector rescue for Northern Rock, which has received £55bn of financial assistance.
It has also underlined that it wants taxpayers repaid as fully and quickly as possible.It has also underlined that it wants taxpayers repaid as fully and quickly as possible.
The BBC understands that Olivant pulled out of a rescue because the government wanted its loans to Northern Rock repaid within three years.The BBC understands that Olivant pulled out of a rescue because the government wanted its loans to Northern Rock repaid within three years.
Olivant was planning on repaying those government-backed bonds over five years, and was only told about the three year time limit late on Friday.Olivant was planning on repaying those government-backed bonds over five years, and was only told about the three year time limit late on Friday.
"This is very bad news for Northern Rock and very bad news for the Treasury," said the BBC's business editor Robert Peston."This is very bad news for Northern Rock and very bad news for the Treasury," said the BBC's business editor Robert Peston.
"The prospects of getting an acceptable deal for taxpayers would have been much higher if they'd had something of a competition.""The prospects of getting an acceptable deal for taxpayers would have been much higher if they'd had something of a competition."
Branson frontrunner Credit crunch
Sir Richard has confirmed that Virgin aims to meet the Monday deadline, and is said to be the frontrunner to take on the bank.
"We believe we will create a very strong bank in the future and we hope to make sure the taxpayers will get all their money paid back," he said.
Northern Rock got itself into financial difficulties because its business model left it ill-prepared for the global credit crunch.Northern Rock got itself into financial difficulties because its business model left it ill-prepared for the global credit crunch.
Unlike the great majority of UK banks, Northern Rock relied heavily upon borrowing funds from the wholesale money markets to fund its mortgage business, rather than the usual method of mostly using savers' deposits.Unlike the great majority of UK banks, Northern Rock relied heavily upon borrowing funds from the wholesale money markets to fund its mortgage business, rather than the usual method of mostly using savers' deposits.
When the credit crunch hit, Northern Rock suddenly found it could not secure the cheap funds it needed, as credit was either unavailable or markedly more expensive.When the credit crunch hit, Northern Rock suddenly found it could not secure the cheap funds it needed, as credit was either unavailable or markedly more expensive.
A recent report into the collapse of Northern Rock by the House of Commons Treasury Committee was highly critical of the UK financial watchdog, the FSA.A recent report into the collapse of Northern Rock by the House of Commons Treasury Committee was highly critical of the UK financial watchdog, the FSA.
While the report said Northern Rock's senior managers had been most at fault, it said the FSA had been guilty of a "systematic failure of duty" in not preventing the bank's "reckless" business plan.While the report said Northern Rock's senior managers had been most at fault, it said the FSA had been guilty of a "systematic failure of duty" in not preventing the bank's "reckless" business plan.