Lifeline is offered to Rock by US bank
Oct 8 2007 by Graeme King, The Journal
THE campaign to save Northern Rock from a cut price takeover has been strengthened by reports that the troubled bank has been offered a financial lifeline worth up to £10bn.
US banking giant Citi is believed to be prepared to lend the bank between £5bn and £10bn to help ease its funding crisis.
And there is talk that chief executive Adam Applegarth could yet remain in place with his senior team, according to several sources yesterday, though Northern Rock refused to comment.
The exact terms of any deal with Citi are said to be still the subject of negotiation, but the funding would enable Northern Rock to stop borrowing at the Bank of England’s emergency rate, which is thought to be around 7%.
It would also put the UK’s fifth biggest mortgage lender on a more stable footing, and enable it to continue as an independent group, thwarting the bidders currently circling it.
It is also hoped it would avoid the need for mass job losses from the 5,700 strong Northern Rock workforce, as has been feared.
However any deal which keeps the existing management in charge would be bound to cause controversy with those who have criticised the aggressive growth strategy pursued by Mr Applegarth.
Despite previous attempts to stabilise the bank, it is understood that up until now no commercial lenders have been prepared to deal with it.
Citigroup was originally called in to work alongside Merrill Lynch advising Northern Rock on a sale.
The prospect of Northern Rock remaining independent, with Citigroup’s help, will of course appeal to employees, but potentially also to the Government to avoid the embarrassment of private equity taking control for a token amount and significant job losses.
Last week it emerged that New York-based private equity firm JC Flowers had raised £15bn to make a bid and the fund’s head Chris Flowers is said to have gained funding commitments from JP Morgan, Credit Suisse and Wachovia.
The private equity chief, who specialises in takeovers of distressed financial firms, is said to be keen to keep the Newcastle-based lender intact, unlike Cerberus, the rival private equity firm that is also rumoured to be interested in parts of the business.
US private equity firm Blackstone and its UK rival Apax are also rumoured to be looking at the bank.
Northern Rock’s stock market value has tumbled to £700m since it was forced to seek emergency funding from the Bank of England.
Its shares have fallen from around £12.48 in February to 158.5p at close on Friday amid reports that a potential suitor would only be prepared to pay 190p per share.
This would value the group at around £800m, compared with a value of nearly £5bn in February this year.
Northern Rock suffered the first run on a UK bank in 150 years last month, as the company struggled with soaring borrowing costs in the money markets where the firm raises most of its cash for mortgage lending.
The bank has never disclosed how much it has borrowed from the Bank of England but analysts speculate it could be as much as £10.9bn.
Northern Rock spokesman Brian Giles said: “Northern Rock has previously confirmed that it was considering a number of potential transactions, but I have no comment to make on any of those particular approaches.”
