Northern Rock to caution on slow pace of bidding process

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Northern Rock is set to issue a statement today cautioning that the bidding process is likely to go in to next year, after Luqman Arnold's Olivant investment group submitted its detailed proposal on Friday.

Earlier in the process, there were hopes that a bid could be recommended before the end of the year. But Northern Rock is aiming to recommend an exclusive bidder to the tripartite authorities towards the end of next month. The ailing mortgage lender now believes it has two serious offers on the table from Mr Arnold and Sir Richard Branson's Virgin Money, which won preferred bidder status two weeks ago.

Both bidders still have to produce detailed business plans that will persuade Citigroup, Royal Bank of Scotland and Deutsche Bank to lend them up to 15bn to repay the Bank of England some of its 25bn in loans. Northern Rock is concerned that Olivant's proposal for injecting up to 800m of equity into Northern Rock could be insufficient and believes even Virgin's planned 1.3bn injection might be on the light side.

Virgin is said to be two or three weeks ahead of Olivant and remains the front-runner, but Mr Arnold is now being treated seriously after a shaky start. The longer timetable could frustrate Mr Arnold, the former chief executive of Abbey National, who has offered to take over as executive chairman immediately.

Nationalisation and a wind-down of the business are said to be available as options if the sale process does not produce an acceptable way for the Government to get its money back.

JC Flowers and Cerberus, the US private equity groups, still have proposals on the table but neither offers much to shareholders. Northern Rock's statement, which could be delayed until tomorrow, will not include its trading update, which is scheduled for later this month.

Tomorrow will see the heads of the Financial Services Authority back in front of the House of Commons Treasury Select Committee for a gruelling round of questioning on the Northern Rock crisis and the credit crunch.

Sir Callum McCarthy, the FSA's chairman, and Hector Sants, the watchdog's chief executive, received a mauling from the committee in October. Some members of the committee believe the FSA was the chief culprit in the regulatory confusion leading up to Northern Rock's emergency support from the Bank of England and the resulting run on retail deposits.

The committee is carrying out a wide-ranging review of financial stability that will go into next year.