The crisis in British banking continues with investors and the authorities braced for another turbulent week in financial markets.
Today Luqman Arnold, the former chief executive of Abbey National, will announce to the Stock Exchange his rescue plan for Northern Rock. Mr Arnold has had talks with the Rock's chairman, Bryan Sanderson, and is in a position to make a formal move to run the business as a going concern and retain the Northern Rock name. The Arnold consortium are thought to believe that there is still value in the brand. The Bank of England, Treasury and Financial Services Authority have been canvassed by Mr Arnold.
Mr Arnold's scheme will seek to salvage the distressed mortgage bank, rather than, as proposed in some mooted strategies, break up its remaining assets. A stake would be taken in Northern Rock (10 per cent perhaps) and the financial return would emerge from the restoration of the Rock share price.
The bid is being funded by Mr Arnold's Olivant vehicle, in turn funded by blue-chip investment houses and private family trusts.
At Abbey National, Mr Arnold oversaw the aftermath of a disastrous diversification into commercial lending and the sale of the British mortgage bank, more or less intact, to the Spanish group Santander in 2004.
Northern Rock's advisers have set a deadline of this Friday for bids for the business, although the Bank of England and the Treasury, involved in supporting Northern Rock have given the bank until February to seek a buyer.
Mr Arnold is said to be ready to take over operationally next week. He would become interim chief executive, replacing Adam Applegarth.
The other publicly declared bidders for the Rock are Sir Richard Branson's Virgin Money group and JC Flowers and Cerberus, two private equity partnerships.
All three bidders may seek further assurances from the Bank of England on continuing help with funding the Northern Rock business (as did Lloyds TSB in its earlier abortive bid). The Bank has lent Northern Rock £23bn so far to replace funding that disappeared after the credit squeeze and the run on the bank by savers. Some believe that the collateral for the Bank's credit – Northern Rock's remaining quality loan book – has all but run out, and that the Bank's future lending will effectively be unsecured. The Bank has been unreceptive to calls for assistance to individual institutions beyond its statutory duties as a lender of last resort.
There may be some brinkmanship as the February deadline looms about how adamant the public authorities will remain in refusing to extend funding to the mortgage bank, if the alternative is a messy end to Northern Rock's existence.
Meanwhile, Barclays is said to be preparing a more detailed trading statement than usual for release on 27 November. It will provide details of how Barclays Capital, the investment banking arm, has been trading in October as well as September. Rumours that BarCap would be responsible for a £10bn write-down at the group had to be denied on Friday.
A rights issue at Royal Bank of Scotland is another rumour doing the rounds, while HSBC declined to comment on reports that its US arm will state a further $1bn exposure to sub-prime.
The Financial Services Authority has said thatit has "stepped up ourreview of the banks' internal models".Reuse content