JC Flowers and Virgin head Northern Rock takeover shortlist
Richard Branson's Virgin and private equity firm JC Flowers are heading a shortlist of buyers for crisis-hit British mortgage lender Northern Rock, reports said today.
Northern Rock's advisers have put the duo at the top of a list of preferred rescue candidates which could be announced as early as this week, the Observer newspaper said.
But the British Treasury is said to be growing impatient with the sales process and is looking for the issue to be resolved before Christmas.
It could yet decide to step in and nationalise the bank if the buyers do not agree to repay the Newcastle-based group's debt burdens of around £23bn (€31.89bn) under terms favourable to the taxpayer, the report adds.
Soaring borrowing costs in money markets forced the company to turn to the Bank of England for emergency funding in September, triggering the UK's first run on a UK bank in nearly 150 years.
Officials from the Bank, the Treasury and the Financial Services Authority were said to be putting proposals from Flowers and Virgin under the spotlight this weekend, the Sunday Telegraph said. Both groups were unavailable for comment.
Virgin is leading a consortium which plans to inject funding into the group in return for a controlling stake, rebranding Northern Rock as Virgin Money.
JC Flowers, which specialises in turning around struggling financial businesses, would clear around £15bn (€20.7bn) of the taxpayers' debt, and run the business as a going concern, chaired by former Marks & Spencer chairman Paul Myners.
Both options are understood to be reliant on continued support for the taxpayer for two to three years. Major shareholders are likely to be all but wiped out after the company said last week that the proposals received were "materially below" the market value of Northern Rock.
The biggest declared shareholder in Northern Rock, hedge fund RAB Capital, has threatened to block any deal to restore stability to the troubled bank that would not deliver value for money for shareholders.
Chief executive Philip Richards said this weekend: "It would be totally inexcusable for this Government to deliberately force this bank into administration."
Investors favour plans from former Abbey chief Luqman Arnold's Olivant group, which plans to buy a minority shareholding and turn the business around with a heavyweight management team.
The Government's continued support for Northern Rock drew fresh criticism from acting Liberal Democrat leader Vince Cable today.
Mr Cable wrote to Bank of England Governor Mervyn King to ask for assurances about the security attached to taxpayers' money loaned to Northern Rock and the interest rates being charged.
He said: "Taxpayers cannot be expected to continue to prop up this sinking ship, especially as much of our money is likely to get lost at sea."
Northern Rock's woes began in the summer's financial turmoil, which froze up the money markets where the bank borrows most of its cash for mortgage lending.
Banks fearful of exposure to losses on investments based on high-risk US mortgage debt became much more cautious about lending to each other.
The lender was worth more than £5.2bn (€7.2bn) in February this year but the beleaguered bank is now valued at just £360m (€499.2m).
