US firm bids for Northern Rock

Private equity firm JC Flowers has made an offer for crisis-hit mortgage lender Northern Rock, it emerged today.

The New York firm, which submitted its bid to the Newcastle-based group’s board this morning, plans to run the business as a going concern.

Northern Rock has borrowed £24bn (€33.5bn) in emergency funding from the Bank of England. But Flowers plans to pump in £15bn (€20bn) from a consortium of banks and repay the remaining taxpayers’ cash by the end of 2010, sources close to the company said.

JC Flowers wants to keep the Northern Rock brand name for its mortgage business although sources said it was “too early to comment” on potential job losses among the group’s 6,000 staff.

JC Flowers is the first would-be suitor to bid for the whole company after approaches so far only expressed interest in parts of the business or investing cash into the firm.

Its offer to run the group as a going concern is likely to please Chancellor Alistair Darling, who was seeking a sale of the whole business.

But as the approach is reliant on taxpayers’ cash until 2010, it could fall foul of European state aid rules.

Other parties interested in the group include a Virgin-led consortium, which is looking to rebrand Northern Rock as part of the Virgin Money business.

Virgin chief Richard Branson said today: “We’re waiting for the Government and shareholders to make up their minds.

“With all the uncertainty around, we’d like a quick decision. If Northern Rock’s going to be rescued, it needs to be rescued quickly.”

Olivant, an investment group headed by former Abbey chief executive Luqman Arnold, is also proposing a swift solution for the beleaguered lender.

Mr Arnold wants to take a minority stake in the company and parachute in a heavyweight management team to turn around the company.

Northern Rock’s shares tumbled as much as 40% today to just 60p but recovered later as news of JC Flowers’ offer emerged.

But the company’s shares are still worth less than £1 after reaching a high of more than £12 in February.

The group admitted yesterday that the offers received so far were “materially below” the firm’s market value on Friday.