Northern Rock takeover bid 'likely'

The name Northern Rock could disappear from the High Street within a year as a result of the current woes facing the bank, experts said today.

Brand damage and a slump in share price could combine to heighten prospects of a takeover in the coming months.

If such a buy-out occurs it could mean an end to Northern Rock, with new owners likely to ditch the now-tainted name and rebrand.

Northern Rock had been feted as an innovative lender that shook up the mortgage market.

But a heavy reliance on the money market to fund its mortgage business has seen it suffer more than most as a result of the US sub-prime market crisis.

The resulting drying up of credit has made it increasingly difficult for the bank to secure funding, leading to the request for emergency funding from the Bank of England.

It has also resulted in its share price going into freefall.

Yesterday it shrunk by more than 31%, as the shockwaves rippled through the rest of the financial sector.

And that was on the back of a steady decline seen since the beginning of the year.

Rumours of a possible buy-out of the bank have been around for months, but no-one has made an interest overtly known.

David Hollingworth, head of communications at mortgage broker London & Country, said: “It had been suggested that they are likely for takeover even before this started.

“It is all a question of how much this rocks the brand. If this goes on and on it could prove fatal for the brand, but it is early days.”

Ray Boulger, senior technical manager at John Charcol, said: “A takeover is a real possibility. Clearly Northern Rock’s name has been badly damaged. Its shares are a third of the price they were earlier this year. If there are any predators looking at Northern Rock, now is the opportunity.”

“Northern Rock is a sitting duck,” he added.

Justin Urquhart Stewart, of Seven Investment Management, said: “I expect that in a year’s time Northern Rock will not exist. As a brand it is shot.

“The question will be who will own it.”

“It is a great shame. A perfectly good business will be strangled by circumstances.

HSBC and Lloyds TSB are seen as potential suitors. Both are rumoured to have shown interest in Northern Rock in recent months.

Of the two, HSBC is believed to be the more likely candidate. At present it only has a small presence in the UK mortgage market. Lloyds TSB, on the other hand, has a stronger market share through its mortgage arm, Cheltenham & Gloucester.

HBOS’s name has also been mentioned. But it is thought unlikely as it could be problematic due to competition rules.