Bids to rescue Northern Rock have new difficulties

by Richard Kilner

Story link: Bids to rescue Northern Rock have new difficulties

Yesterday the bleak prospects of struggling bank Northern Rock suffered another setback as new obstacles arose for those bidding for the bank.

Should neither of the two bidders (Virgin and Olivant) be acceptable to the bank’s board, the Treasury and the Bank of England then Northern Rock could become nationalised, after suffering the ignominy of being the first British bank to suffer a run in over a century.

Olivant, led by Luqman Arnold who formerly led Abbey, has been told that its bid is £300m below what is required. Unlike Virgin’s bid, Olivant seek only a minority stake in the bank.

Last week Olivant had contemplated abandoning its bid, claiming that it had not been given as much information as rival Virgin.

The consortium has not publicly responded, but it is believed to need to increase its bid by around £300m.

However, Virgin is not the only bidder facing difficulties. Virgin has been fighting against reports that its lack of a banking licence is a serious weakness in its proposal. Such a licence can take three months to acquire, and is essential to take depositor cash.

The Virgin bid involves a cash injection of £1.3bn, in return for a 55% stake in the firm.

Virgin’s response to the banking licence reports has been to state that it could simply ask the FSA to authorise a change of control, a course of action that would be far quicker than acquiring a banker’s licence.

The FSA has said that changing control of a bank could take three months, but added that it could be speeded up.

A spokesman for Virgin has stated that the consortium would be able to take over the Rock’s banking licence, and that gaining a separate licence for Virgin money was not required.

The banking licence is not an issue for Olivant, who do not want to take over the bank but instead aim for a 15% stake. It is backed by the bank’s two largest shareholders, private equity firms SRM Global and RAB Capital.

It is doubtful that the situation can be resolved in what remains of 2007, and some are calling for the bank to be nationalised. At the present time, a private solution is preferred by those who make the decisions.