The Government is facing a situation that days ago it would have regarded as a nightmare.
Most believe it has a stark choice between selling Northern Rock to Sir Richard Branson's Virgin group or nationalising the bank, raising the possibility of a fire sale on assets or years of running the lender in public hands.Should Virgin fail to get its bid away, a massive public backlash is almost inevitable against the Chancellor Alistair Darling, and Northern Rock's board for not pressing ahead with a sale sooner.The development is a blow for the Government which, despite agreeing to a plan hatched by Northern Rock to name Virgin as the preferred bidder, had wanted to keep other bidders engaged.
Ex-Abbey boss Luqman Arnold still plans to submit an offer today, having held extensive meetings with Northern Rock and a consortium of banks over the past few days, but observers do not believe his offer is very realistic.
Banking sources said he would have to increase the amount of money he intended to inject into Northern Rock if he wants to be taken seriously.
Mr Arnold's initial proposal included injecting £600m, financed mainly by a rights issue. In comparison Virgin is proposing putting in £1.3bn of cash, plus its Virgin Money brand.The size of the injection is being considered carefully by a consortium of banks led by Deutsche, Citigroup and Royal Bank of Scotland in their decision about which - if any - bid to back.....The final - major - hurdle is Northern Rock's shareholders, who would be heavily diluted under Virgin's plan. They will only vote the deal through if they believe Virgin can turn it around. If not, a private solution could be in tatters and Mr Darling may find himself as the UK's most famous bank manager.
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