City fears state takeover of Northern Rock

Analysts say protracted bid process could lead to nationalisation, despite the billions pumped into the market
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The Independent Online

Last week's liquidity push by five of the world's leading central banks is likely to stem Northern Rock's borrowing from the Bank of England, which has spiralled to more than 25bn. But a deal to sell the Newcastle bank won't be completed until mid to late January, increasing the chances of nationalisation, analysts have warned

The central banks' promise to inject billions of dollars into the creaking lending markets is likely to see "previously closed lines opened to Northern Rock", said Oriel Securities analyst Mike Trippett.

But the bidding process is likely to meander on for another six weeks as the two remaining protagonists face off against each other.

"I've looked into ceasing my coverage of Northern Rock. It is almost impossible to make any informed judgements on this bid process," said Mr Trippett.

On Friday Olivant, the vehicle led by former Abbey chief executive Luqman Arnold was finally granted equal status with Sir Richard Branson's Virgin Money consortium after he threatened to walk away.

Mr Arnold and his team are thought to be in negotiations with a host of banks to arrange funding, including Deutsche, Citigroup and Royal Bank of Scotland.

The trio has already had lengthy discussions with the Virgin team but City sources suggest Square Mile bankers are getting increasingly jittery about funding any Rock offer at all.

Mark Durling, analyst at Brewin Dolphin Securities, said: "The bidders may be sanguine but I think banks are getting increasingly spooked. We've seen some pretty dire forecasts for the property market so you can understand any reticence on the part of the banks to finance a deal for a bank with Northern Rock's exposure."

Mr Durling added that talk of a 5.8m rights offer at RBS next month to shore up its deteriorating capital position, mooted by a leading Cazenove analyst last week, threw doubt on its participation in any deal.