Northern Rock shares have climbed almost 10% ahead of a deadline for bidders to put forward rescue plans for the troubled lender.
Olivant, one of the firms expected to table a rescue plan for troubled lender Northern Rock, has pulled out.
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.
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".
The government favours a private sector rescue for the troubled bank, which has received £55bn of financial assistance.
Monday was the deadline for companies to put forward rescue plans for the mortgage lender.
It wants to ensure taxpayers are repaid as fully and quickly as possible.
That leaves Sir Richard Branson's Virgin Group and the bank's management as the two remaining possible buyers.
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.
'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'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.
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 proposal, on behalf of a Northern Rock management team, would inject between £500m and £750m.
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 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".
Negotiations are expected to last a couple of weeks, according to officials.
Shareholders support
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 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 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.
Cheap 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 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.
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.
