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Rock shares up as deadline looms Rock shares up as deadline looms
(about 2 hours later)
Northern Rock shares have climbed almost 10% ahead of a deadline for bidders to put forward rescue plans for the troubled lender.Northern Rock shares have climbed almost 10% ahead of a deadline for bidders to put forward rescue plans for the troubled lender.
Bids are expected from Sir Richard Branson's Virgin Group, investment fund Olivant and the bank's management. Details are due later or on Tuesday. Proposals are expected from Sir Richard Branson's Virgin Group, investment fund Olivant and the bank's management. Details are due later or on Tuesday.
The government favours a private sector rescue for the troubled bank, which has received £55bn of financial assistance.The government favours a private sector rescue for the troubled bank, which has received £55bn of financial assistance.
It wants to ensure taxpayers are repaid as fully and quickly as possible.It wants to ensure taxpayers are repaid as fully and quickly as possible.
Northern Rock shares were up 9.25 pence, or 9.6%, at 105.25 pence in afternoon trade in London.Northern Rock shares were up 9.25 pence, or 9.6%, at 105.25 pence in afternoon trade in London.
However, despite Monday's climb, the share price is still markedly lower than the £12 they were trading at in February last year before funding problems prompted the first run on a British bank in more than 100 years.However, despite Monday's climb, the share price is still markedly lower than the £12 they were trading at in February last year before funding problems prompted the first run on a British bank in more than 100 years.
'Strong bank''Strong bank'
Sir Richard has confirmed that Virgin aims to meet the deadline, and is said to be the frontrunner to take on the bank.Sir Richard has 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.
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.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.
The third likely bid, on behalf of a Northern Rock management team, would inject between £500m and £750m. The third likely proposal, on behalf of a Northern Rock management team, would inject between £500m and £750m.
Taxpayer certaintyTaxpayer certainty
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 blogSee Northern Rock's sharesAlistair Darling will determine which offers the greatest certainty that taxpayers can be repaid in full Robert Peston, BBC Business Editor Read Robert Peston's blogSee Northern Rock's shares
The bids will be scrutinised by the Treasury, the Financial Services Authority (FSA), the Bank of England and Northern Rock's non-executive directors. The final decision will be made by the Chancellor Alistair Darling. The proposals will be scrutinised by the Treasury, the Financial Services Authority (FSA), 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. BBC's business editor Robert Peston believes it is uncertain which if any of the prospective plans will succeed.
He said that Alistair Darling will determine which bid "offers the greatest certainty that taxpayers can be repaid in full and without excessive delay".He said that Alistair Darling will determine which bid "offers the greatest certainty that taxpayers can be repaid in full and without excessive delay".
Negotiations are expected to last a couple of weeks, according to officials.Negotiations are expected to last a couple of weeks, according to officials.
Shareholders supportShareholders support
Although Virgin is offering most to shareholders in cash terms, some believe Olivant is more popular amongst investors.Although Virgin is offering most to shareholders in cash terms, some believe Olivant is more popular 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. Newspaper reports say Virgin has failed to persuade shareholders to back its proposal 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. Former Abbey boss Luqman Arnold, who is heading the Olivant team, 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 shareholders last week.The management team led by former Merrill Lynch managing director Paul Thompson is also reported to have gained a boost after canvassing shareholders 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.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.