Virgin instructed to improve their bid for Northern Rock

by Richard Kilner

Story link: Virgin instructed to improve their bid for Northern Rock

Nationalisation has yet to be ruled out for Northern Rock.

At the eleventh hour Olivant left the bidding, leaving only Richard Branson’s Virgin and an internal management bid in the running.

Of the two, Virgin has been named as the government’s favoured option.

However, the Treasury has not ruled out nationalising the bank, and has instructed Virgin to improve its bid.

Northern Rock hit the rails in the latter half of 2007, and is now propped up by a huge Bank of England loan, estimated to be worth around £25bn.

Throughout the crisis the government has consistently supported a private sector solution, but retain the option of nationalising the bank if necessary.

Virgin is not a universally popular choice, particularly amongst the bank’s major sharehodlers, hedge funds SRM Global and RAB Capital, who have vocally opposed the consortium.

The government’s latest effort to offload the stricken bank onto a private sector buyer involves transforming the enormous loan into bonds, guaranteed by the government.

Should a deal prove impossible, shareholders could be left with nothing if the bank is nationalised.