Northern Rock auction may take months

by Gill Montia

Story link: Northern Rock auction may take months

Observers of the Northern Rock auction process are predicting that it could be months before the future of the bank is settled.

Proposals ranging from new management to a buyout are being lodged with the Treasury today but analysts are not convinced that any of the proposals will prove successful in today’s market.

Luqman Arnold, the former head of Abbey bank, is interested in taking a minority stake in Northern Rock (through his investment company, Olivant) and installing new management.

The US private equity firm, JC Flowers, and a consortium led by Richard Branson’s Virgin Group have been preparing bids.

Cerberus, the largest private equity investment house in the US, is heading another consortium and is reported to be planning a break-up of the bank.

Since turning to the Bank of England for emergency funding in September, Northern Rock is estimated to have borrowed up to £25 billion.

Briefing documents sent to potential purchasers have recently been leaked and have revealed that the Bank of England could still be funding Northern Rock in three years’ time.

If so, Northern Rock’s debt to the Bank could amount to £5.9 billion in 2010.

The leaked memorandum also outlines options for Northern Rock, including a “preferred option” of selling the entire company; the sale of assets and the banking infrastructure.

None of this bodes well for shareholders who are increasingly concerned that they could be left with large losses.