Richard Branson’s Virgin is the clear favourite to win crisis-hit British bank Northern Rock but must offer better terms to seal the deal, it was reported today.
Virgin’s consortium is said to be well ahead of a management-led bid to salvage the firm but the government could yet nationalise the business without a better deal for taxpayers.
Shares in the stricken bank fell as much as 8% as both rescue proposals on the table were said to fall below government expectations. Investors are likely to get nothing if the bank is taken into public ownership.
The Treasury declined to comment although Chancellor Alistair Darling said today that nationalisation was “still an option” for the lender, which owes an estimated £24bn (€32.4bn) to the Bank of England.
It also emerged today that Northern Rock’s biggest shareholder, Monaco-based hedge fund SRM Global has upped its stake in Northern Rock to 11.5%. SRM is an opponent of the Virgin plans, which will see its consortium take a majority stake in the business.
The British treasury is backing proposals to split Northern Rock’s huge debt into government-guaranteed bonds and sell it off to investors.
However, it is said to want a bigger share in any recovery of the business in return for the funding guarantees, with British prime minister Gordon Brown reportedly prepared to go ahead with nationalisation if a deal cannot be agreed.
Despite shareholder concerns over Virgin’s bid, last month the treasury signalled that investors may get no compensation at all if it is eventually forced to nationalise the firm.
Virgin declined to comment on the reports, but a Conservative spokesman claimed Mr Brown was being “buffeted by events”. He said: “It is clear that even after many months the government still doesn’t have a way out of this mess.”
Liberal Democrat Treasury spokesman Vince Cable said: “I fear, however, the government is determined to make a private sale to Richard Branson’s consortium and may just be talking tough in order to extract some last-minute concessions.
“These will then be used to camouflage a bad deal in which the Virgin consortium takes the profits and the taxpayer is left with most of the risks.”
Northern Rock has been in crisis since September last year, when soaring borrowing costs forced it to seek emergency funding from the Bank of England. The revelation put the lender at the centre of the UK’s first bank run for more than 140 years.