Deadline for Northern Rock deal

Source: Exec Digital UK

Date :04/02/2008 09:24:19

Potential suitors for the embattled UK bank are set to submit their plans by the close of play today.

An in-house rescue plan, led by Paul Thompson, a non-executive director at Northern Rock, is claimed to have won pledges of at least £400 million.

Also submitting their business plans for the stricken bank is the consortium led by Sir Richard Branson’s Virgin Group and private-equity group Olivant, run by Luqman Arnold, the former head of Abbey National.

Shareholders

Virgin’s bid has struggled to win support from Northern Rock’s shareholders, chiefly because the bid proposes taking a much larger stake in the mortgage bank, leaving less for investors.

RAB capital and SRM, Rock’s two biggest shareholders, have both made it clear that they will vote against Virgin’s bid if it does not propose a better deal for the bank’s investors. They are not in favour of Mr. Thompson’s bid either, backing rival suitor Olivant.

Financing package

Before deciding which proposals are eligible to use the financing package, the authorities are likely to examine the strength of each business plan. Northern Rock’s board must then decide which proposal is the best for investors, staff and other stakeholders.

Under any of three restructuring proposals, shareholders would need to inject fresh equity of up to £750 million into Northern Rock through a rights issue.

Once the Treasury has made its decision, it will submit its recommendation to the Rock board for ratification.

Proposals

All three proposals are similar in that they have highly risk-averse business plans that propose reining back mortgage lending and shrinking Northern Rock back to the size it was a few years ago.

Both the Olivant proposal and the Paul Thompson-led plan are set to retain the Northern Rock brand, which they believe is not irrevocably tarnished.

The bank, one of the five largest mortgage lenders in the UK, ran into trouble last summer after the sub-prime lending crisis in the US made institutions nervous about providing money to banks exposed to the British housing market, and sparked the UK's first bank run in more than 140 years.

February 04, 2008