Northern Rock investors welcome Arnold rescue plan

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The Independent Online

A new rescue plan for Northern Rock has been welcomed by investors, despite meeting with immediate scepticism among banking analysts. Shares in Northern Rock rose almost 6.5 per cent to 154.4p last night after Olivant, the independent investment group led by the former Abbey chief executive Luqman Arnold, confirmed it planned to submit proposals for a restructuring of the company.

Unlike other potential Northern Rock suitors, which include the private equity groups JC Flowers and Cerberus, as well as Virgin Money, Olivant would take a minority stake in the business, rather than seeking to buy it outright. Mr Arnold's plans also differ from those of other bidders in that he would maintain the Northern Rock brand.

Mr Arnold has already held preliminary discussions with City regulators and Northern Rock, which said yesterday that "all participants are invited and encouraged to make their bids".

His proposals to keep Northern Rock running as a going concern, rather than breaking it up, are likely to be popular with some shareholders, particularly in the mortgage bank's north-eastern heartlands. Even so, analysts said Olivant was an outsider.

Saurabh Mukherjea, of Clear Capital, said: "[Mr Arnold's] investment and retail banking experience stands him in good stead and gives him a chance in the contest, but previous execution experience will count and the Flowers team has the edge there."

Donald Tosh, of the stockbrokers Speir & Jeffrey, said the fact Lloyds TSB had backed away from a deal under which it too would have run Northern Rock as a going concern did not augur well for Olivant. "That raises questions about Olivant's proposals," he warned.

One problem for Olivant to overcome would be the issue of how Northern Rock's funding could be stabilised sufficiently to allow the bank to begin repaying the funds it has borrowed from the Bank of England.

Ian Poulter, an analyst at Landsbanki, said: "We would expect to see any proposals based on this plan to include detailed explanations of how funding and lending will rebalance to create a viable business that is focused more on returns than growth."