Talks on Northern Rock's future

Troubled British mortgage lender Northern Rock is today in talks over its future, including the possibility of a buyout.

Troubled British mortgage lender Northern Rock is today in talks over its future, including the possibility of a buyout.

The bank said it is in discussion with a number of parties after it received approaches regarding a “variety of transactions”, including the possibility of an offer being made for the company.

The bank added that no price had, as yet, been indicated and emphasised that there could be no certainty regarding the outcome of these discussions.

Jose Maria Ruiz-Mateos, a Spanish entrepreneur who made his fortune marketing the sherry Harveys of Bristol, is among those interested, according to the Daily Mail.

The newspaper says today that talks began after Mr Ruiz-Mateos wrote to Northern Rock at the end of last week to request a meeting to discuss the “possibilities of an acquisition”.

Northern Rock’s latest update followed its announcement that it will not pay shareholders an interim dividend payment it promised in July.

The bank had come under increasing criticism over the payment, worth an estimated £59m (€84m), after the Bank of England stepped in as a lender of last resort less than two weeks ago.

The Newcastle-based group said it felt it would not be appropriate to make any dividend payment until it could make a full announcement “regarding the outcome of discussions with other parties and the development of the business model”.

British Conservative MP Michael Fallon, a member of the Treasury Select Committee, has also confirmed that Northern Rock will face the Committee next month.

“The chairman and the chief executive of Northern Rock have been called to appear before the Treasury Select Committee next month,” he said.

“They will have to explain themselves in public and account for their actions.”

He also confirmed that a letter from Northern Rock had been sent to MPs.

The letter from the bank’s chairman Matt Ridley moved to assure MPs that Northern Rock’s overall business “remains profitable and sound, with assets well in excess of liabilities”, according to a copy posted on the Daily Telegraph website.

It said: “The board is well aware of its responsibility to its many shareholders, including tens of thousands of small shareholders, as well as to our largest shareholder, the charitable Northern Rock Foundation.”

The comments had been taken as a sign that the company was defending the proposed dividend payment.

Dividend payments are – in theory – usually seen as a sign of a firm’s confidence in its business.

The cancellation of the payment will be seen as a further blow to shareholders, who have set up an action group to promote their interests.

Roger Lawson of the UK Shareholders Association, which formed the action group, said shareholders are concerned the company is likely to be sold at a very cheap price and also had a lot of questions about what had actually happened.

“There were no actual announcements by the company before September 14 and the company has an obligation to announce price sensitive information, which they did not do.”

Shares in Northern Rock fell a further 5% yesterday amid uncertainty over the future of the company after reports that the Government had appointed Goldman Sachs to advise it on financial matters relating to Northern Rock.

Fading hopes that the bank would also succeed in securing an attractive potential bid price have also impacted on the stock, with speculation mounting that private equity firms would step in to pick up the firm’s assets at bargain prices.

Shares have shed almost 75% of their value since the day before it issued a profits warning on September 14 and was forced to turn to the Bank of England.

The news resulted in a run on the bank as customers queued for hours to withdraw their savings on the back of fears that the bank would collapse.

In a move to stem the panic, the British government stepped in with a pledge to guarantee funds held in accounts from midnight on September 19.

Northern Rock’s shares were 11% higher today on revived hopes of a rescue for the bank, despite the cancelling of the interim dividend.

But Collins Stewart analyst Alex Potter said a move by a rival bank for Northern Rock seemed unlikely after the mortgage lender said yesterday that no price had been referred to any discussions with potential suitors.

Mr Potter said the sale of all or parts of the lender’s £100 billion mortgage book would be unlikely to fetch a good price following the recent credit crunch, and added that a private equity takeover of Northern Rock “seems the more likely option today”.

He said: “The key would clearly be the difficulty structuring the deal – which would tally with the lack of pricing talks ongoing.

“Today this appears the most likely option but it could come below market prices.”

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