Thrifty Loans

The Northern Rock crisis rumbles on, but it is thought that a decision might be made about its future as early as this weekend (16 February).

There is growing pressure from the European Commission, and a desire to appease MPs as they return to Parliament next week, and these could lead to a decision being made by Chancellor Alistair Darling and an announcement early next week.

Sir Richard Branson’s Virgin Group consortium has been in the game since the off, and still looks the most likely as decision-makers from the Treasury, the Bank of England and the Financial Services Authority have been meeting to decide the ailing bank’s fate.

Some Treasury officials have indicated that Virgin is the preferred bidder, but they would like a little extra cash on the table.

Darling is being pressed to finalise a deal by MPs from both the Conservatives and the Liberal Democrats, who are accusing him of dithering – just like they claim he did to bring Northern Rock to this state in the first place last September.

Darling will certainly want to get this decision out of the way before his Budget statement, due on 12 March. In addition, the European Commission has still to rule whether the Government’s backing of at least £26bn of Northern Rock debt breaches European Union subsidy laws.

Virgin’s bid success is not yet cut and dried, and the Treasury is still prepared to nationalise the bank, even though that would be a severe blow to the Government’s credibility. A Treasury source said: “It is possible that Virgin will make its best offer but that may not be good enough and then nationalisation will be the only option.”

Two vocal shareholders still believe that Northern Rock management should win the day. Jon Wood, who runs the activist hedge fund SRM from Monaco, now has an 11% stake in the bank. He wants a deal that, unlike Virgin’s plans, will not wipe out existing shareholders. Philip Richards, chief executive of RAB Capital, hedge fund and Northern Rock’s second-largest shareholder, accused the Treasury of favouritism toward Branson