Are you the Rock’s angel, Sir Richard?

Nov 26 2007 By Sam Marsden, The Journal

A CONSORTIUM led by Sir Richard Branson’s Virgin Group is today set to be named as the preferred buyer for Northern Rock.

It is understood the crisis-hit bank will announce that it favours the Virgin bid.

And there were reports last night that the Govenment will endorse the deal.

But this will not resolve all the questions about Northern Rock’s future as investors – large and small – may still try to block the deal.

The Treasury is said to be growing impatient with the sales process and wants the issue resolved before Christmas.

It could yet decide to step in and nationalise the bank if the buyers do not agree to repay the Gosforth-based group’s debt burdens.

But reports last night said the deal on the table would see £11bn of the bank’s £23bn debts paid back immediately.

The remainder would be repaid over an agreed timescale.

Sir Richard’s bid, which would see Northern Rock rebranded as Virgin Money, is understood to depend on continued support from the taxpayer for two to three years.

Major shareholders are likely to be all but wiped out after the company said last week that the proposals received were "materially below" Northern Rock’s market value.

But the bank and the Government are likely to make it clear that the alternative to Virgin’s bid would be for the bank to go into administration under insolvency procedures, which could leave investors with nothing, according to reports.

About 100,000 of Northern Rock’s small shareholders wrote to the bank’s chairman, Bryan Sanderson, yesterday to express concerns that directors were planning a "fire sale" of assets.

In a letter signed by Lord Stevens of Kirkwhelpington, honorary president of the Northern Rock Small Shareholders Association, they called for an extraordinary general meeting.

The investors wrote: "We have made it clear in the past that our preferred outcome is an independent, publicly- quoted, Northern Rock based in the North-East, which supports good quality jobs and the continuation of the Northern Rock Foundation.

"The options which we would oppose would be a sale of the company as a whole or piecemeal, or any move such as administration or nationalisation, which would expropriate the shareholders’ stake or so dilute it as to be the equivalent.

"We very much deprecate the driving down of the share price to meet expectations about future price, which seems to favour the interests of some potential bidders above existing shareholders.

"We would therefore support moves to call an extraordinary general meeting to ensure that directors do not undertake a ‘fire sale’ of assets or major restructuring for which shareholder approval has not been secured."

Meanwhile the biggest declared shareholder, hedge fund RAB Capital, threatened this weekend to block any deal to restore stability to the troubled bank that would not deliver value for money for shareholders.

Chief executive Philip Richards said: "It would be totally inexcusable for this Government to deliberately force this bank into administration."

Investors favour plans from former Abbey chief Luqman Arnold’s Olivant group, which plans to buy a minority shareholding and turn the business around with a heavyweight management team.

The Government’s continued support for Northern Rock drew fresh criticism from acting Liberal Democrat leader Vince Cable yesterday. He wrote to Bank of England Governor Mervyn King to ask for assurances about the security attached to taxpayers’ money loaned to Northern Rock and the interest rates being charged.

Northern Rock’s woes began in the summer’s financial turmoil, which froze up the money markets where the bank borrows most of its cash for mortgage lending.

Banks fearful of exposure to losses on investments based on high-risk US mortgage debt became much more cautious about lending to each other.

The lender was worth more than £5.2bn in February this year but the bank is now valued at just £360m.