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Deadline for Northern Rock bids Deadline for Northern Rock bids
(about 16 hours later)
Sir Richard Branson's Virgin Group and up to two other potential rescuers are expected to make their formal bids to buy Northern Rock on Monday. Up to three potential rescuers of Northern Rock are expected to submit formal bids for the bank ahead of the government's Monday deadline.
Meeting the government's 4 February deadline for firm offers for the struggling bank, Virgin is expected to be joined by investment fund Olivant. Sir Richard Branson's Virgin Group says it will bid, and investment fund Olivant and the bank's management are also expected to put forward proposals.
Northern Rock's existing management may also put forward their own proposal. The government wants a private sector rescue for the troubled bank, which has needed £25bn of Bank of England loans.
The government wants a private sector buyer for the bank, which has needed £25bn of Bank of England loans. However, it has not said when it will announce which option it has chosen.
'Strong bank''Strong bank'
Sir Richard has already confirmed that Virgin aims to meet the deadline, and is said to be the frontrunner. Sir Richard has already confirmed that Virgin aims to meet the deadline, and is said to be the frontrunner to take on the bank.
Sir Richard's Virgin Group remains the favourite to buy Northern RockSir Richard's Virgin Group remains the favourite to buy Northern Rock
"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."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.
Under the sale to a private buyer, the government intends to turn the £25bn of Bank of England loans - essentially taxpayers' money - into bonds, which will then be sold to investors. Under a sale to a private buyer, the government would turn the £25bn of Bank of England loans - essentially taxpayers' money - into bonds, which would then be sold to investors.
It is not yet known when the government will announce which bid for Northern Rock has been successful.
Credit crunch
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.
Cheap funds
Unlike the great majority of UK banks, Northern Rock relied upon borrowing funds from the wholesale money markets to fund its mortgage business, rather than the usual method of using savers' deposits.Unlike the great majority of UK banks, Northern Rock relied upon borrowing funds from the wholesale money markets to fund its mortgage business, rather than the usual method of using savers' deposits.
Yet 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.Yet 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.
As the first emergency loan from the Bank of England was announced, thousands of Northern Rock savers rushed to withdraw their funds, before the government's pledge to guarantee all savings.As the first emergency loan from the Bank of England was announced, thousands of Northern Rock savers rushed to withdraw their funds, before the government's pledge to guarantee all savings.
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 Financial Services Authority (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 Financial Services Authority (FSA).
While the report said Northern Rock's senior managers were most at fault, it said the FSA was 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.