Deal unlikely to help bank's shareholders

SHAREHOLDERS at Northern Rock could be left with nothing – even if one of the three parties reported to be interested in the bank can secure a deal.

SHAREHOLDERS at Northern Rock could be left with nothing – even if one of the three parties reported to be interested in the bank can secure a deal.

Reports yesterday claimed all three expressions of interest received by Northern Rock on Friday contained bids offering “virtually nothing” for the business.

The interest from Sir Richard Branson’s Virgin-led consortium, private equity group JC Flowers and hedge fund Cerberus are currently being assessed by the bank.

While no price has yet been put on the table, it is understood the bidders have made it clear they will not be offering any substantial sums for shareholders’ interests.

Meanwhile, it is understood that Virgin has begun the hunt for a senior figure to takeover as chairman should it reach a deal with the Newcastle-based mortgage lender. Virgin has expressed an interest in the bank, along with partners insurer AIG, US restructuring specialist Wilbur Ross, international hedge fund Toscafund and Hong Kong-based investment group First Eastern Investment.

Those on the shortlist are reported to include former Lloyds TSB chairman Sir Brian Pitman, former chief executive of the same bank and outgoing chairman of ICI Peter Ellwood and former Bank of Scotland chief Sir Peter Burt.

Another candidate in the frame is James Crosby, former chief executive of HBOS.

The Virgin-led consortium would not offer shareholders cash but would inject “substantial new equity” into Northern Rock, in return for discounted shares. This would dilute the value of current shares.

It would keep the lender “in its entirety”, rename and rebrand the firm as Virgin Money, and grow the business rather than seeking a break-up of the group, which employs around 6,000 people.

Virgin plans to use its proposed bid for Northern Rock as a platform for expanding into new areas of financial services such as insurance, credit cards and mortgages if its consortium proposal for the stricken lender succeeds.

A spokesman for Virgin said: “We are well known for coming up with innovative products for customers.”

Virgin’s financial services business is small – funds under management are just £2.5bn, less than a tenth of the deposits held by Northern Rock and a fraction of its £100bn-plus loan book. Such is the disparity between the size of the two companies, Virgin’s bid for Northern Rock surprised the City.

Neither JC Flowers nor Cerberus are expected to offer cash to shareholders.

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Sir Mike argues for nationalisation

ONE of the North-East’s most respected businessmen has called for the Government to nationalise Northern Rock to end the crisis currently threatening the bank’s future.

Sir Mike Darrington, group managing director of Greggs bakers, says such a move would be “an honourable, effective and expedient solution” to the issue – particularly given the
Government’s role in the escalation of Northern Rock’s problems. As one of the best known names in the North-East business world, Sir Mike says he understands the significance of Northern Rock to the region, and so wants to play a role in keeping the business
afloat.

In a letter to The Journal he criticises the handling of the crisis by the Government, the Bank of England and the FSA (Financial Services Authority).

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Going in to bat for a good friend

A TEAM of cricketing students has thanked Northern Rock for taking the region to the top of the league.

The Northern Universities Cricketers Club, which began its winter training programme on Saturday, has been sponsored by the bank for the two years in which it has been running.

Members of the squad – which comprises cricketing students from Durham, Newcastle, Northumbria, Sunderland, Teesside and Open universities – wore “Rock Steady” T-shirts to demonstrate their support for Northern Rock.

Director of Cricket John Holland said: “Northern Rock has helped us grow from just a concept in 2005 to a championship winning side 16 months later.

“In the process we have raised thousands of pounds for charity along the way.

“Northern Rock has been generous not only in financial support but also in their time and effort to help the club reach its objectives.

“Meeting for the first winter training programme at Chester-le-Street Riverside Ground was our first opportunity as a club to show our complete support for the company and to encourage them to stay Northern.”

Mr Holland said the club had encouraged its squad of more than 40 to open accounts with the bank if they had not already done so.

Since the Northern Universities Cricket Club was established it has launched a thriving youth section.

Players interested in joining should contact the club on nusc-ccelite@o2.co.uk.

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