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Deadline for Northern Rock bids Deadline for Northern Rock bids
(about 2 hours later)
Up to three potential rescuers of Northern Rock are expected to submit formal bids for the bank ahead of the government's Monday deadline.Up to three potential rescuers of Northern Rock are expected to submit formal bids for the bank ahead of the government's Monday deadline.
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.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.
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 rescue for the troubled bank, which has needed £25bn of Bank of England loans.
However, it has not said when it will announce which option it has chosen. Negotiations are expected to last a couple of weeks, say officials.
'Strong bank''Strong bank'
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 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 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. Virgin is offering to put more equity into Northern Rock than the others. It would inject around £1bn in cash of new equity compared with about £800m from investment group Olivant.
Northern Rock got itself into financial difficulties because its business model left it ill-prepared for the global credit crunch. The third likely bid, on behalf of a Northern Rock management team, would inject between £500m and £750m.
'Certainty for taxpayers'
Alistair Darling will determine which offers the greatest certainty that taxpayers can be repaid in full Robert Peston, BBC Business Editor Read Robert Peston's blog
The bids will be scrutinised by the Treasury, the Financial Services Authority, the Bank of England and Northern Rock's non-executive directors.
The final decision will be made by the Chancellor Alistair Darling.
BBC's business editor Robert Peston believes it is uncertain which if any of the prospective bids will succeed. "Alistair Darling will ... determine which offers the greatest certainty that taxpayers can be repaid in full and without excessive delay," he said.
Shareholders support
Although Virgin is offering most to shareholders in cash terms, some believe Olivant is leading in popularity amongst investors.
Newspaper reports say Virgin has failed to persuade shareholders to back its bid in the run-up to Monday's deadline and is losing ground to the two other prospective rescuers.
Former Abbey boss Luqman Arnold, who is heading the Olivant bid, is believed to have strong support amongst shareholders.
The management team led by former Merrill Lynch managing director Paul Thompson is also reported to have gained a boost after canvassing shareholder opinion last week.
Cheap fundsCheap funds
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 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. 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.
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 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.