Northern Rock suitors surprise City with bids approaching £6bn

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Higher than expected bids trickled in for beleaguered Northern Rock this weekend, some significantly above the "aggressively low" amounts predicted.

The informal deadline for the auction of the Newcastle-based bank, which became a casualty of the sub-prime crisis, was Friday night, but some suitors used this weekend to put the finishing touches to their proposals.

The bank has borrowed as much as £22bn in emergency funding from the Bank of England at a crippling interest rate, thought to be 7 per cent, and sources say offers have come in at more than 25 per cent of the £22bn figure, around the £5bn to £6bn mark.

The advisory arm of Blackstone, the private equity group, is running the auction. Suitors are not expected to commit firm offers until the Government clarifies whether it will seek repayment of the £2bn in interest.

On Friday, Sir Richard Branson's Virgin Group made its formal proposal to recapitalise and refinance the bank, spearheaded by City grandees Sir Brian Pitman as chairman and Sir George Mathewson as senior adviser. They would subsume the Rock into the Virgin Money business and pledged that a significant proportion of the Bank of England borrowings would be repaid immediately with a clear timeline for full repayment.

A second proposal came from Olivant, a team headed by former Abbey chief executive Luqman Arnold. It also planned to repay the Bank of England loan swiftly in exchange for taking a minority stake. A further six bids are expected, including offers from Cerberus and JC Flowers, the US private equity firms.

The proposals come as Adam Applegarth, the chief executive in charge during the bank's crisis, finally bowed to pressure to stand down. However, despite announcing his intention to resign he will not leave until the end of January. He has been chief executive since 2001 and was behind the risky strategy to shift the business into aggressive lending in the housing market and to rely on the wholesale markets for funding rather than drive a strong consumer deposit business. Fellow directors David Baker, Keith Currie and Andy Kuipers stood down immediately, along with four non-executive directors, including Sir Derek Wanless.

Northern Rock is being advised by Merrill Lynch, Citigroup and Blackstone.