Northern Rock bidders submit new proposals as Treasury leans towards nationalisation

by Gill Montia

Story link: Northern Rock bidders submit new proposals as Treasury leans towards nationalisation

Northern Rock’s management has released details of its final bid for the mortgage bank.

The in-house team is proposing to inject more cash into the business to lessen concerns over the timescale of the repayment of the £23 billion borrowed by Northern Rock from the Bank of England.

The bank’s management has also increased the ratio of future profits that will benefit the Government, stating that the board “believes that the proposal is capable of meeting all the objectives publicly announced by the tripartite authorities.”

The Treasury, Financial Services Authority and Bank of England will be considering bids by both Virgin and Northern Rock management today, in consultation with its advisor, investment bank Goldman Sachs.

It is rumoured that the Treasury believes that neither bidder can safeguard taxpayer funds, and is therefore in favour of a short period of nationalisation.

However, Prime Minister Gordon Brown has to balance this view with the political consequences of such a move.

The Virgin consortium is expected to match the proposal by the in-house team although it still plans to merge the bank with Virgin Money because it believes the Northern Rock brand is too damaged to be rescued.

Northern Rock shareholders, RAB Capital and SRM Global, have made it clear they will only vote for the in-house bid.

Throughout the Northern Rock crisis the bank’s £110 billion mortgage book has been described as high quality. It now appears that a significant proportion of borrowers are in arrears.

According to credit ratings agency, Standard & Poor’s, the mortgage book is less creditworthy than had been thought.